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URZ > SEC Filings for URZ > Form 10-Q on 8-Nov-2012All Recent SEC Filings

Show all filings for URANERZ ENERGY CORP.

Form 10-Q for URANERZ ENERGY CORP.


8-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This quarterly report contains "forward-looking-statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements concern our anticipated results and developments in our operations in future periods, planned exploration and, if warranted, development of our properties, plans related to our business and other matters that may occur in the future. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.

Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as "expects" or "does not expect", "is expected", "anticipates" or "does not anticipate", "plans", "estimates" or "intends", or stating that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved) are not statements of historical fact and may be forward-looking statements. Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors which could cause actual events or results to differ from those expressed or implied by the forward-looking statements, including, without limitation:

risks related to our limited operating history;
risks related to the probability that our properties contain reserves;
risks related to our past losses and expected losses in the near future;
risks related to our need for qualified personnel for exploring for, starting and operating a mine;
risks related to our lack of known reserves;
risks related to the fluctuation of uranium prices;
risks related to demand for uranium;
risks related to environmental laws and regulations and environmental risks;
risks related to using our in-situ recovery mining process;
risks related to exploration and, if warranted, development of our properties;
risks related to our ability to acquire necessary mining licenses or permits;
risks related to our ability to make property payment obligations;
risks related to the competitive nature of the mining industry;
risks related to our dependence on key personnel;
risks related to requirements for new personnel;
risks related to securities regulations;
risks related to stock price and volume volatility;
risks related to dilution;
risks related to our lack of dividends;
risks related to our ability to access capital markets;
risks related to security of our cash and investments;
risks related to our issuance of additional shares of common stock;
risks related to acquisition and integration issues; and
risks related to defects in title to our mineral properties.

This list is not exhaustive of the factors that may affect our forward-looking statements. Some of the important risks and uncertainties that could affect forward-looking statements are described further under the section titled "Risk Factors" contained in our annual report on Form 10-K for the year ended December 31, 2011 and filed with the Securities and Exchange Commission on March 14, 2012. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, except as required by law.


General

We are a U.S.-based uranium company focused on achieving near-term commercial in-situ recovery ("ISR") uranium production. ISR is a mining process that uses a "leaching solution" to dissolve uranium from sandstone uranium deposits; it is the generally accepted extraction technology used in the Powder River Basin area of Wyoming. We control a large strategic land position in the central Powder River Basin. Our management team has specialized expertise in the ISR uranium mining method, and a record of licensing, constructing, and operating ISR uranium projects.

Our Powder River Basin properties include:

our 100% owned properties that totaled 20,121 acres as of September 30, 2012; and
our 81% interest in Arkose Mining Venture properties that totaled 59,510 acres as of September 30, 2012.

Our 100% owned properties are comprised of unpatented mineral lode claims, state leases and fee (private) mineral leases, summarized as follows:

                                                         Number of Claims/
             Property Composition Ownership Interest (1)      Leases       Acreage
Unpatented Lode Mining Claims              100%                 826        16,520
State Leases                               100%                  3          1,360
Fee (private) Mineral Leases               100%                 41          2,241
Total                                                                      20,121

(1) Subject to various royalties.

Our 100% owned properties in the Powder River Basin include the following property units:

Property            No. Claims     Acreage

Jane Dough                  22         440
Collins Draw                32         640
North Rolling Pin           54       1,080
Hank                        66       1,320
Nichols Ranch               36         720
Willow Creek                11         220
West North-Butte           125       2,500
East Nichols                44         880
North Nichols              107       2,140
Reno Creek                   3          60
TOTAL                      500      10,000


The Arkose Mining Venture properties are comprised of unpatented lode mining claims, state leases and fee (private) mineral leases, summarized as follows:

                                                         Number of Claims/
Property Composition          Ownership Interest (1)          Leases           Acreage
Unpatented Lode Mining                 81%                     2,641            43,207
Claims
State Leases                           81%                       3              2,080
Fee (private) Mineral                  81%                      65              14,223
Leases

Total                                                                           59,510

(1) Subject to various royalties.

Through a combination of claim staking, purchasing and leasing, we have also acquired interests in projects that lie within the Powder River Basin but outside of the project areas discussed above. These additional properties include the Verna Ann, Niles Ranch and Arvina projects. However, due to our focus on other projects, we have not yet made any decisions on these projects.

Information regarding the location of and access to our Wyoming properties, together with the history of operations, present condition and geology of each of our properties, is presented in Item 2 of our Annual Report on Form 10-K for the year ended December 31, 2011 under the heading "Description of Properties", previously filed with the Securities and Exchange Commission on March 14, 2012.

We control a large strategic land position in the Pumpkin Buttes Uranium Mining District of the central Powder River Basin of Wyoming, U.S.A. and continually investigate other uranium opportunities as they arise. We are principally focused on the development of our properties in the Powder River Basin area into commercial ISR uranium mines. In anticipation of receiving all the approvals necessary to begin production, we commenced a marketing program for conditional sales of uranium from our Nichols Ranch ISR Uranium Project ("Nichols Ranch Mine"). In July of 2009 we announced that we entered into a sales agreement with Exelon Generation Company, LLC for the sale of uranium over a five year period at defined pricing. In August of 2009 we announced our second contract for the sale of uranium to a U.S. utility also over five years, with a pricing structure that contains references to both spot and fixed prices and includes floor and ceiling prices. These long-term contracts for the sale of uranium are with two of the largest nuclear utilities in the U.S. These two agreements do not individually represent a substantial portion of our targeted uranium production and our business is not substantially dependent on these agreements.

In March 2010, we commenced preparation of the environmental permit and license applications for the Jane Dough unit, which is adjacent to the area currently being developed at the Nichols Ranch unit and will share its infrastructure. This will provide us with the option to revise our plan of operations to bring our Jane Dough unit into production before the Hank unit of our Nichols Ranch Mine; Jane Dough fluids can be delivered to our Nichols Ranch Mine processing facility by pipeline, thus eliminating the need to build a satellite processing facility. Jane Dough includes the Doughstick, South Doughstick and North Jane properties. Additional units may be added as we assess our geological data. Other strategies are also being considered for Hank, possibly in concert with other properties. We continue the exploration, development and strategic planning of our other Wyoming Powder River Basin properties.

In December 2010 we received a Permit to Mine from the Wyoming Department of Environmental Quality - Land Quality Division ("WDEQ-WQD"). In July 2011 we received our Source Material License from the U.S. Nuclear Regulatory Commission and immediately began construction of Nichols Ranch Mine with a target completion date of late 2012. CPP construction will be substantially complete as planned but production, however, will not commence until mid-2013 because of delays in receiving our deep disposal wells permit. The mine plan currently includes a central processing plant ("CPP") at our Nichols Ranch unit and a second ion exchange uranium concentrating facility at Hank. The Jane Dough option will be pursued while mining the Nichols Ranch unit. In November 2011 we signed a processing agreement with Cameco Resources ("Cameco"), a wholly-owned Wyoming subsidiary of Cameco Corporation, the world's largest publicly-traded uranium company. Under the agreement we will deliver uranium-loaded resin produced from the Company's Nichols Ranch Mine to Cameco's Smith Ranch Highland uranium mine for final processing into dried uranium concentrate packaged for shipping to a converter. Cameco's Smith Ranch Highland mine is located in the Powder River Basin approximately 25 air miles south of our Nichols Ranch Mine. Mining the Jane Dough unit is compatible with this plan.


During the last half of 2011 and the first nine months of 2012 we continued construction of the CPP and Production Area #1 on the Nichols Ranch property.

During the third quarter of 2012 we continued construction of the Nichols Ranch Mine:

completed construction of buildings;
continued installation of equipment and electrical components in the CPP;
installed additional production wells in Nichols Ranch Production Area #1;
erected a third header house and commenced installation of the main trunkline;
commenced flow line trenching;
commenced installation of electrical and mechanical equipment;
continued preparation of permit applications for Jane Dough unit; and
received advice that our Deep Disposal Well application approval is imminent.

We discontinued a modest exploration program to concentrate resources on the Nichols Ranch Mine.

Our focus is on construction of a processing facility and installation of the environmental monitor and production wells for the first wellfield of the Nichols Ranch ISR Uranium Project. Three drilling rigs were engaged in the quarter for installing monitor and production wells. Regulatory milestones are being pursued in order to meet startup requirements following completion of CPP and wellfield construction activities, and installation of requisite deep disposal wells.

Subsequent Events

a) On October 3, 2012, we modified the expiry date of 767,000 options held by a former officer to March 15, 2014. The options had original expiry dates ranging from January 26, 2017 to December 11, 2021 and exercise prices ranging from $1.33 to $3.97.

b) On October 22, 2012 we received a deep disposal well permit, the final permit required to bring our Nichols Ranch ISR Uranium Project into production.

Financial Position

The Company's overall financial position is disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission on March 14, 2012 and the unaudited consolidated Financial Statements at September 30, 2012 as provided herein under the section heading "Financial Statements" above.

Liquidity and Capital Resources

We are carrying out an exploration, environmental and mine development program with a budget of approximately $26,000,000 in 2012 as reported in Item 2 of our Annual Report on Form 10-K for the year ended December 31, 2011 under the heading "Description of Properties", previously filed with the Securities and Exchange Commission. This plan anticipated completion of our Nichols Ranch ISR Uranium Project in late 2012, with production commencing shortly thereafter. Startup has been extended to mid-2013 to accommodate the installation of two deep disposal wells, whose permit was delayed well beyond expectations. Mineral property acquisitions, dependent upon opportunities that may arise, will be additional expenditures. During the three and nine months ended September 30, 2012 operational expenditures incurred were $1,806,465 and $5,300,460 respectively and, for the nine months ended September 30, 2012, approximately $17,000,000 was incurred for the Nichols Ranch Mine capital assets.


At September 30, 2012 we had cash of $11,784,479 and working capital of $11,569,072, as compared to cash of $34,644,745 and working capital of $32,759,869 as at December 31, 2011. Our cash is invested in bank guaranteed savings accounts which are available on demand.

Net cash used in operating activities was $6,008,211 for the nine months ended September 30, 2012, compared to $6,772,101 for the corresponding period in 2011, reduced somewhat as resources were redirected to capital activities. Net cash used in investing activities was $17,329,054 for the nine months ended September 30, 2012, compared to $3,401,863 used in the corresponding period in 2011. Asset acquisitions for the Nichols Ranch Mine accounted for most of the 2012 investment in property and equipment.

Net cash provided by financing activities amounted to $476,999 for the nine months ended September 30, 2012, from contributions from non-controlling interest in our Arkose Mining Venture and proceeds of issuance of common stock on the exercise of options, compared to $14,767,575 provided in the corresponding period in 2011. The decrease is attributable to the issuance of common stock in 2011.

During the twelve-month period following the date of this quarterly report, we anticipate that we begin to generate a modest amount of revenue. The Nichols Ranch ISR Uranium Project is expected to incur additional expenditures of approximately $16 million before it is ready for production by mid-2013, depending on the timing and cost of installing two deep water disposal wells. Our exploration plans will be continually evaluated and modified as exploration and environmental results become available. General and administrative expenses, planning and environmental expenses are incurred throughout the year; most of our exploration expenditures are incurred during the drilling period of March through November. Modifications to our plans will be based on many factors including results of exploration, assessment of data, weather conditions, exploration costs, the price of uranium and available capital. Further, the extent of exploration programs that we undertake will be dependent upon the amount of financing available to us.

To date, our primary source of funds has been equity investments, and this trend is expected to continue together with production related financing as we approach production. In order to ensure sufficient funds to complete the construction of the Nichols Ranch Mine, continue our exploration and planning and to meet on-going operating expenses for the next twelve months we have obtained approval in principle for a State of Wyoming Industrial Development Bond in the amount of $20 million. We anticipate that any additional funding may be in the form of equity financing from the sale of our common stock and the exercise of share purchase options or subordinated debt, depending on capital markets. Accordingly, in 2011, we filed a Form S 3 "shelf registration statement", for equity or debt, in the amount of $100 million.

Our cash is primarily held in low risk bearer deposit notes issued and guaranteed by Canadian Chartered Banks. Rates of return, however, are at historic lows. Management and the board of directors periodically meet to review the status of our cash and determine investment strategies, taking into account current market conditions and the short and long term capital needs of the Company.

Results of Operations

Three-month period ended September 30, 2012 compared to three-month period ended September 30, 2011

Revenue and Operating Expenses

We have not earned any revenues to date and we anticipate that we will generate modest revenues during the twelvemonth period following the date of this quarterly report.


We incurred total operating expenses of approximately $1,806,465 for the three-month period ended September 30, 2012, as compared to $2,344,739 for the corresponding period in 2011. The decrease of operating expenses in the amount of $538,274 was primarily attributable to a decrease in mineral property expenses of $457,426.

We had no significant financing expense for the three-month periods ended September 30, 2012 and 2011. Our interest income of $10,474 for the three-month period ended September 30, 2012 was down from $18,938 in 2011 when investments were higher. This income resulted from interest on cash balances.

Net loss for the three-month period ended September 30, 2012 was approximately $1,795,991, as compared to approximately $2,325,801 for the corresponding period in 2011. The decrease in net loss was primarily attributable to the decrease in operating expenses attributable to a decrease in mineral property expenses.

Nine-month period ended September 30, 2012 compared to nine-month period ended September 30, 2011

We incurred total operating expenses of approximately $5,300,460 for the nine-month period ended September 30, 2012, as compared to $12,059,113 for the corresponding period in 2011. The decrease of operating expenses in the amount of $6,758,653 was primarily attributable to a $4,813,067 decrease in stock-based compensation included in general and administrative expenses, a $1,198,882 decrease in other general and administrative expenses as resources were shifted to capital activities and by a $767,382 decrease in mineral property expenses.

We had no significant financing expense for the nine-month periods ended September 30, 2012 and 2011. We earned $39,170 of interest income for the nine month period ended September 30, 2012 as compared to $60,025 for the corresponding period in 2010. This decrease resulted from reduced short term investments.

Net loss for the nine-month period ended September 30, 2012 was approximately $5,261,290, as compared to approximately $11,999,088 for the corresponding period in 2011, a decrease of $6,737,798. The net loss was affected by the variation of operating expenses described above.

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders except as disclosed in the unaudited Financial Statements at September 30, 2012. The Company has had no material changes to its off-balance sheet arrangements as disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission on March 14, 2012 and the unaudited Financial Statements at September 30, 2012 as provided herein under the section heading "Financial Statements" above.

Critical Accounting Policies

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses in the reporting period. We regularly evaluate our estimates and assumptions related to the useful life and recoverability of long-lived assets, stock-based compensation and deferred income tax asset valuation allowances. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected.


We believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our consolidated financial statements.

Mineral Property Costs

The Company is primarily engaged in the acquisition, exploration and development of mineral properties with the objective of extracting minerals from these properties.

Mineral property exploration costs are expensed as incurred. Costs for acquired mineral property databases are similarly capitalized and then impaired if the criteria for capitalization are not met. Capitalization of mine development costs that meet the definition of an asset commence once all operating mineralization is classified as proven and probable reserves, and a bankable feasibility study has been completed or the Company determines that a mine will be developed.

Mineral property acquisition costs are capitalized and then impaired if the criteria for capitalization are not met and unless the Company determines a property can be economically developed as a result of establishing proven and probable reserves, a bankable feasibility study and reasonably securing all operating permits. In the event that a mineral property is acquired through the issuance of the Company's shares, the mineral property is recorded at the fair value of the respective property or the fair value of common shares and other instruments issued, whichever is more readily determinable.

When mineral properties are acquired under option agreements with future acquisition payments to be made at the sole discretion of the Company, those future payments, whether in cash, shares, or other instruments are recorded only when the Company has made or is obliged to make the payment or issue the shares or instruments.

As of September 30, 2012, the Company has capitalized mineral property construction in progress expenditures of $26,640,070 (December 31, 2011 - $9,754,067). During the nine months ended September 30, 2012, mineral property expenditures totaling $1,231,333 (2011 - $1,998,715) were expensed.

Restoration and Reclamation Costs (Asset Retirement Obligations)

United States regulatory authorities require the Company to restore and reclaim its mine area after mining is completed. Pursuant to ASC 410, Asset Retirement and Environmental Obligations, the fair value of asset retirement obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. Upon initial recognition of a liability, the fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. Future reclamation and remediation costs are accrued based on management's best estimate at the end of each period of the costs expected to be incurred at each project.

Estimations and assumptions involved in using the expected present value technique to determine fair values are reviewed periodically.

Contractual Obligations

The Company has had no material changes to its contractual obligations as disclosed in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2012 and the unaudited Financial Statements at September 30, 2012 as provided herein under the section heading "Financial Statements" above.

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