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UEC > SEC Filings for UEC > Form 10-Q on 12-Mar-2013All Recent SEC Filings

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Form 10-Q for URANIUM ENERGY CORP


12-Mar-2013

Quarterly Report


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

The following management's discussion and analysis of the Company's financial condition and results of operations contain forward-looking statements that involve risks, uncertainties and assumptions including, among others, statements regarding our capital needs, business plans and expectations. In evaluating these statements, you should consider various factors including the risks, uncertainties and assumptions set forth in reports and other documents we have filed with or furnished to the SEC, including, without limitation, this Form 10-Q filing for the three and six months ended January 31, 2013 and the Company's Form 10-K filing for the fiscal year ended July 31, 2012 including the consolidated financial statements and related notes contained therein. These factors, or any one of them, may cause our actual results to differ materially from any forward-looking statement made in this document. Refer to "Item 1A. Risk Factors under Part II - Other Information".

MINERAL RIGHTS AND PROPERTIES

The following is a summary of significant activities by project for the six months ended January 31, 2013:

Texas: Palangana Mine

Production at PAA-1 and 2 continued, including recompletion activities on existing production wells to increase production output. Upon completion of wellfield construction and receipt of all permits, production at PAA-3 commenced in December 2012.

At PAA-4, all monitor wells have been sampled for baseline parameters and a pumping test was initiated (completed subsequent to January 31, 2013). The PAA-4 application is being prepared concurrently with a technical report for the pumping test which is expected to be completed and submitted around April 2013.

At PAA-5, environmental and permitting efforts are continuing.

Texas: Goliad Project

The Goliad Project is now fully permitted. In December 2012, the US Environmental Protection Agency concurred with the Texas Commission on Environmental Quality ("TCEQ") issuance of the Aquifer Exemption permit. A three-phase electrical power system for the entire project and a large caliche site pad for the main plant complex and disposal well have been constructed. Processing equipment and supplies for the construction of the satellite facility and wellfield have been tabulated for future procurement.

Texas: Salvo Project

Historic and recent UEC drilling results are being reviewed for future exploration/delineation activities in the Salvo Project in order to fully identify the extent of the mineralized zones.

Texas: Burke Hollow Project

An additional 151 exploration and delineation holes totaling 66,785 feet of drilling were completed at the Burke Hollow Project, concentrating on expanding and further defining the Goliad 180' and 370' trends. In December 2012, two core holes were drilled, with core samples from the 180' and 370' trends analyzed by Energy Labs in Casper, Wyoming. These core holes were cased and completed as baseline monitor wells for the two ore-bearing trends. Core analyses confirmed the results of PFN logging, indicating an overall strong positive disequilibrium factor. At least eighteen additional regional baseline monitor wells are currently planned for installation for the four upper Goliad trends discovered to date.

An NI 43-101 technical report was prepared to detail the extensive geologic mapping and historic and recent drilling results to date, including plans for future exploration of two target areas which remain lightly explored. This report was completed and filed in February 2013.


With respect to permitting, the preoperational sampling program commenced in December 2012 and will carry on throughout the 2013 calendar year. Drilling of regional baseline wells began in February 2013 and is expected to be complete by April 2013. A drainage study of the proposed license boundary was completed in January 2013 and encompasses the first three production areas. The Mine Area and Radioactive Material License applications will be developed throughout the remainder of 2013.

Texas: Channen Project

Forty-three exploration holes averaging 915 feet in depth were drilled at Channen Project, totaling 39,340 feet of drilling. Fourteen widely-spaced exploration holes drilled on a 6,400' grid revealed that at least two lower Goliad sub-rolls lying between 700 feet to 860 feet in depth exist on the property. Closer spaced delineation holes reveal that the overall trend length known to date is over two miles. These drilling results are being reviewed for future exploration/delineation activities in the Channen Project in order to fully identify the extent of the mineralized zones.

Arizona: Anderson Project

Historic and recent drilling results are being reviewed for future exploration/delineation activities in the Anderson Project. Permitting plans are also being developed.

Colorado: Slick Rock Project

An NI 43-101 technical report was prepared to detail the extensive geologic mapping and historic and recent drilling results to date. This report was completed and filed in February 2013.

Paraguay: Yuty and Coronel Oviedo Projects

Historic and recent drilling results are being reviewed for future exploration/delineation drilling at both the Yuty and Coronel Oviedo Projects. A radon extraction survey is being carried out at the Coronel Oviedo Project along the western basin margins, following up on historic airborne radiometric anomalies and outcrop sampling results that indicate a potential for shallow uranium mineralization.

RESULT OF OPERATIONS

General

For the three and six months ended January 31, 2013, the Company recorded a net loss of $5,588,210 ($0.06 per share) and $12,885,833 ($0.15 per share), respectively. For the three and six months ended January 31, 2012, the Company recorded a net loss of $6,547,244 ($0.09 per share) and $12,105,556 ($0.16 per share), respectively.

The Company currently operates in a single reportable segment and is focused on uranium mining and related activities, including exploration, development, extraction and processing of uranium concentrates.

Sales and Cost of Sales

During the six months ended January 2013, the Company completed two sales of uranium concentrates totaling 100,000 pounds and fulfilled the second-year delivery obligations under the terms of an existing offtake agreement.

For the three and six months ended January 31, 2013, sales of uranium concentrates totaled 50,000 and 100,000 pounds, respectively. Over the same periods, total sales revenue was $2,103,750 and $4,257,000 and cost of sales was $2,091,285 and $3,954,394, generating a gross profit of $12,465 and $302,606, respectively.

For the three and six months ended January 31, 2012, sales of uranium concentrates totaled 60,000 and 120,000 pounds, respectively. Over the same periods, total sales revenue was $3,120,000 and $6,240,000, cost of sales was $1,740,768 and $3,160,854, generating a gross profit of $1,379,232 and $3,079,146, respectively.

The decrease in sales revenue for the three and six months ended January 31, 2013 was due to a combination of lower amounts of uranium concentrates sold and lower selling prices realized. The average realized selling price per pound of uranium concentrates sold for the three and six months ended January 31, 2013 was $42.08 and $42.57, respectively, compared to $52.00 for both the three and six months ended January 31, 2012.


Cost of sales for the three and six months ended January 31, 2013 increased significantly, despite the lower amounts of uranium concentrates sold. Cost of sales per pound of uranium concentrates sold for the three and six months ended January 31, 2013 was $41.83 and $39.54, respectively, compared to $29.01 and $26.34, respectively, for the three and six months ended January 31, 2012. This increase is primarily the result of the lower amount of uranium concentrates produced of 77,000 pounds during the six months ended January 31, 2013 compared to 105,000 pounds during the six months ended January 31, 2012. Continued recompletion activities conducted on existing production wells and the increased costs of operating a greater number of production wells in general have also contributed to this increase. Cost of sales for uranium concentrates is determined using the average cost per pound in inventory at the end of the month prior to the month in which the sale occurs, plus royalty obligations and other direct selling costs.

Expenses

For the three and six months ended January 31, 2013, total expenses incurred by the Company were $5,588,164 and $13,186,733 (three and six months ended January 31, 2012: $8,200,155 and $15,121,016), respectively.

Mineral property expenditures during the three and six months ended January 31, 2013 were $1,905,264 and $6,282,549 (three and six months ended January 31, 2012: $4,162,690 and $6,895,291), respectively. These amounts include expenditures relating to property maintenance, exploration and development activities including permitting and all other non-production related activities on the Company's uranium projects. As disclosed under Risk Factors, the Company has not established proven and probable reserves through the completion of feasibility studies for any of its mineral properties in accordance with SEC Industry Guide 7. Accordingly, all expenditures relating to exploration and development activities are expensed as incurred.

The following table is a summary of the mineral property expenditures incurred on the Company's projects during the three and six months ended January 31, 2013 and 2012:

                   Three Months Ended January 31,          Six Months Ended January 31,
                           2013                 2012              2013                2012
Mineral
Property
Expenditures
 Palangana     $      1,144,391    $       2,531,871   $     2,968,254    $      4,367,433
Mine
 Goliad                 119,983              210,040           223,985             306,978
Project
 Burke Hollow           218,900                    -         1,321,833                   -
Project
 Channen                 84,547                    -           775,808                   -
Project
 Salvo Project              165              448,922            18,026             553,499
 Nichols                      -                    -            13,635             150,000
Project
 Anderson                   202               34,435            74,924             153,893
Project
 Workman Creek            1,704                7,389            32,640               7,389
Project
 Slick Rock              31,842                1,147            86,852              13,719
Project
 Yuty Project            16,689                    -           107,960                   -
 Coronel                145,790              642,496           345,592             905,863
Oviedo Project
 Other Mineral          141,051              286,390           313,040             436,517
Property
Expenditures
               $      1,905,264    $       4,162,690   $     6,282,549    $      6,895,291

General and administrative expenses during the three and six months ended January 31, 2013 were $3,307,664 and $6,032,601 (three and six months ended January 31, 2012: $3,715,568 and $7,605,249), respectively.

For the three and six months ended January 31, 2013, general and administrative expenses were comprised, respectively, of salaries, management and consulting fees of $1,581,659 and $2,296,627 (three and six months ended January 31, 2012:
$1,769,198 and $2,482,126); office, investor relations, communications and travel of $1,186,162 and $2,427,626 (three and six months ended January 31, 2012: $1,182,916 and $2,312,264); stock-based compensation of $274,072 and $687,351 (three and six months ended January 31, 2012: $674,992 and $2,181,312); and professional fees of $265,771 and $620,997 (three and six months ended January 31, 2012: $88,462 and $629,547). General and administrative expenses have decreased overall due primarily to a decrease in stock-based compensation as a result of a reduced number of stock options granted.


Depreciation, amortization and accretion during the three and six months ended January 31, 2013 were $375,236 and $871,583 (three and six months ended January 31, 2012: $321,897 and $620,476), respectively. Depreciation, amortization and accretion include depreciation and amortization of long-term assets acquired in the normal course of operations and accretion of asset retirement obligations. The increase was due primarily to an allocation increase of the depreciation and amortization relating to the Palangana Mine and the Hobson Facility as calculated on a normal production capacity basis.

Production and Inventories

During the three and six months ended January 31, 2013, the Palangana Mine produced 48,000 and 77,000 pounds of uranium concentrates while the Hobson Facility processed 52,000 and 83,000 pounds of uranium concentrates. During the three and six months ended January 31, 2012, the Palangana Mine produced 38,000 and 105,000 pounds of uranium concentrates while the Hobson Facility processed 42,000 and 111,000 pounds of uranium concentrates.

At January 31, 2013, the total value of inventories was $1,304,954, of which $1,176,665 (90%) represents the value of finished goods-uranium concentrates, $74,439 (6%) represents the value of work-in-progress and $53,850 (4%) represents the value of supplies. The cash component of the total value of inventories was $1,077,093, and the non-cash component of the total value of inventory was $227,861.

At July 31, 2012, the total value of inventories were $1,876,100, of which $1,592,660 (85%) represents the value of finished goods-uranium concentrates, $250,951 (13%) represents the value of work-in-progress and $32,489 (2%) represents the value of supplies. The cash component of the total value of inventories was $1,557,076, and the non-cash component of the total value of inventory was $319,024.

At January 31, 2013, the Company had available for sale a total of 36,000 pounds of uranium concentrates (July 31, 2012: 53,000 pounds).

SUMMARY OF QUARTERLY RESULTS

                                                   For the Quarters Ended
                                    31-Jan-13      31-Oct-12      31-Jul-12      30-Apr-12

Sales                            $  2,103,750   $  2,153,250   $  7,517,400   $          -
Gross profit                           12,465        290,141      2,566,214              -
Net loss                           (5,588,210 )   (7,297,623 )   (4,753,814 )   (8,224,351 )
Total comprehensive loss           (5,591,888 )   (7,298,104 )   (4,791,400 )   (8,225,333 )
Basic and diluted loss per share        (0.06 )        (0.09 )        (0.06 )        (0.10 )



                                                   For the Quarters Ended
                                   31-Jan-12       31-Oct-11      31-Jul-11      30-Apr-11

Sales                           $  3,120,000   $  3,120,000    $          -   $          -
Gross profit                       1,379,232       1,699,914              -              -
Net loss                          (6,547,244 )    (5,558,311 )   (5,563,510 )   (6,245,967 )
Total comprehensive loss          (6,546,976 )    (5,572,764 )   (5,639,301 )   (6,205,725 )
Basic and diluted loss per             (0.09 )         (0.07 )        (0.06 )        (0.09 )
share

LIQUIDITY AND CAPITAL RESOURCES

                            January 31, 2013     July 31, 2012
Cash and cash equivalents $       12,313,815   $    25,015,284
Working capital                   10,764,380        22,472,302
Total assets                      72,188,198        85,143,395
Total liabilities                  8,386,621         9,222,914
Shareholders' equity              63,801,577        75,920,481


At January 31, 2013, the Company had $12,313,815 in cash and cash equivalents and working capital of $10,764,380. Net cash decreased by $12,701,469 during the six months ended January 31, 2013 compared to $13,871,716 during the six months ended January 31, 2012.

Operating Activities

Net cash used in operating activities during the six months ended January 31, 2013 was $11,821,334 (six months ended January 31, 2012: $10,345,556). Significant operating expenditures include production costs, mineral property expenditures and general and administrative expenses. During the six months ended January 31, 2013, the Company incurred expenditures totaling $83,935 (six months ended January 31, 2012: $458,920) for cash settlement of asset retirement obligations and made a cash payment of $149,194 to settle certain obligations relating to liquidated damages assumed as part of the acquisition of Concentric Energy Corp. (six months ended January 31, 2012: $Nil).

Financing Activities

Net cash used in financing activities during the six months ended January 31, 2013 was $2,795 (six months ended January 31, 2012: $1,360,462) resulting from cash used in payments to related parties of $44,443 (six months ended January 31, 2012: $5,040), offset by cash provided by the issuance of common shares of $41,648 from the exercise of stock options (six months ended January 31, 2012:
$15,064). During the six months ended January 31, 2012, cash paid for settlement of convertible debentures totaled $1,370,486.

Investing Activities

Net cash used in investing activities during the six months ended January 31, 2013 was $877,340 (six months ended January 31, 2012: $2,165,698), resulting primarily from the acquisition of mineral rights and properties of $243,989 (six months ended January 31, 2012: $1,378,507), purchase of property, plant and equipment of $142,462 (six months ended January 31, 2012: $551,996) and an increase in reclamation deposits of $495,889 (six month ended January 31, 2012:
$235,195).

Stock Options and Warrants

At January 31, 2013, the Company had stock options outstanding to purchase 9,052,182 shares and share purchase warrants outstanding to purchase 670,125 shares. The outstanding stock options have a weighted average exercise price of $2.03 per share and the outstanding warrants have a weighted average exercise price of $2.56 per share. At January 31, 2013, outstanding stock options and warrants totaled 9,722,307 shares issuable for gross proceeds of approximately $20,090,000 should these options and warrants be exercised in full. At January 31, 2013, outstanding in-the-money stock options and warrants totaled 3,474,684 shares issuable for gross proceeds of approximately $2,018,000 should these options and warrants be exercised in full. The exercise of these stock options and warrants is at the discretion of the respective holders and there is no assurance that any of these stock options or warrants will be exercised in the future.

TRANSACTIONS WITH OFFICERS AND DIRECTORS

During the three and six months ended January 31, 2013, the Company had transactions with certain officers and directors of the Company as follows:

Incurred $35,481 and $83,914 (three and six months ended January 31, 2012:
$16,167 and $50,860) in general and administrative costs paid to a company controlled by a direct family member of a current officer; and

Incurred $9,000 and $18,000 (three and six months ended January 31, 2012:
$Nil) in consulting fees paid to a company controlled by a current director of the Company.

During the three and six months ended January 31, 2012, the Company incurred $18,347 and $131,176 in consulting fees provided by a company controlled by a former director of the Company.


At January 31, 2013, amounts due from a related party included in accounts and interest receivable totaled $16,159 (July 31, 2012: due to of $11,110). At January 31, 2013, amounts due to other related parties totaled $3,000 (July 31, 2012: $36,333). These amounts are unsecured, non-interest bearing and due on demand.

PLAN OF OPERATIONS

Our primary plan of operations for the next twelve months is to expand production at the Palangana Mine, continue development of the Goliad Project towards production and continue with the exploration of our mineral projects. During the three months ended January 31, 2013, the Company received final authorization for initiating production at the Goliad Project.

At January 31, 2013, the Company had $12.3 million in cash and cash equivalents and working capital of $10.8 million. The Company realized revenue from the sale of uranium concentrates during the six months ended January 31, 2013 and during the fiscal year ended July 31, 2012, however, it has a history of operating losses and significant negative cash flow since inception. Planned principal operations have commenced and existing cash resources along with forecasted sales for the upcoming fiscal year are expected to provide sufficient funds to carry out our plan of operations for the next twelve months. The Company's continuation as a going concern for a period longer than twelve months will be dependent upon the Company's ability to obtain adequate financing, as future capital expenditures of the Company are expected to be substantial. It is anticipated that additional financing will be in the form of equity financing from the sale of the Company's common stock, for example, through the S-3 "Shelf" Registration Statement that became effective on September 2, 2011 or other appropriate methods. We cannot provide any assurance that we will be able to generate sufficient financing from the sale of our common stock to fund our plan of operations and intended growth. In the absence of such financing, we may not be able to continue exploration or development of our mineral rights, possibly leading to their abandonment. Other options would include entering into joint venture arrangements to continue advancing the Company's mineral projects, which would depend entirely on finding a suitable third party willing to enter into such an arrangement, typically involving an assignment of a percentage interest in the mineral project.

The continued operations of the Company, including the recoverability of the carrying values of its assets, are dependent ultimately on the Company's ability to achieve and maintain profitability and positive cash flow from its operations.

MATERIAL COMMITMENTS

Material commitments of the Company since the filing of the Form 10-K for the fiscal year ended July 31, 2012 changed by the following:

Fixed contract commitments for office space have decreased by $30,000 during the six months ended January 31, 2013; and
Commitments for consulting agreements have decreased by $80,000 as a result of terminating, entering into and renewing existing consulting agreements.

OFF-BALANCE SHEET ARRANGEMENTS

The Company does not have any 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 investors.

CRITICAL ACCOUNTING POLICIES

The Company's critical accounting policies are disclosed in Note 2: Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements in our Annual Report filed on Form 10-K for the fiscal year ended July 31, 2012.


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