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UEC > SEC Filings for UEC > Form 10-Q on 11-Mar-2016All Recent SEC Filings

Show all filings for URANIUM ENERGY CORP

Form 10-Q for URANIUM ENERGY CORP


11-Mar-2016

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 ("MD&A") 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 Quarterly Report for the three and six months ended January 31, 2016 and our Form 10-K Annual Report for the fiscal year ended July 31, 2015 including the consolidated financial statements and related notes contained therein. These factors, or any one of them, may cause our actual results or actions in the future to differ materially from any forward-looking statement made in this document. Refer to "Cautionary Note Regarding Forward-Looking Statements" as disclosed in our Form 10-K Annual Report for the fiscal year ended July 31, 2015 and Item 1A. Risk Factors under Part II - Other Information of this Quarterly Report.

Introduction

This MD&A is focused on material changes in our financial condition from July 31, 2015, our most recently completed year-end, to January 31, 2016 and our results of operations for the three and six months ended January 31, 2016 and 2015, and should be read in conjunction with Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations as contained in our Form 10-K Annual Report for the fiscal year ended July 31, 2015.

Business

We operate in a single reportable segment and since 2004, as more fully described in our Form 10-K Annual Report for the fiscal year ended July 31, 2015, we have been engaged in uranium mining and related activities, including exploration, pre-extraction, extraction and processing on uranium projects located in the United States and Paraguay.

We utilize in-situ recovery ("ISR") mining where possible which we believe, when compared to conventional open pit or underground mining, requires lower capital and operating expenditures with a shorter lead time to extraction and a reduced impact on the environment. We have one uranium mine located in the State of Texas, the Palangana Mine, which utilizes ISR mining and commenced extraction of uranium concentrates ("U3O8"), or yellowcake, in November 2010. We have one uranium processing facility or mill located in the State of Texas, the Hobson Processing Facility, which processes material from the Palangana Mine into drums of U3O8, our only sales product and source of revenue, for shipping to a third-party storage and sales facility. At January 31, 2016, we had no uranium supply or "off-take" agreements in place.

Our fully-licensed and 100%-owned Hobson Processing Facility forms the basis for our regional operating strategy in the State of Texas, specifically the South Texas Uranium Belt where we utilize ISR mining. We utilize a "hub-and-spoke" strategy whereby the Hobson Processing Facility acts as the central processing site (the "hub") for our Palangana Mine and future satellite uranium mining activities, such as our Burke Hollow and Goliad Projects, located within the South Texas Uranium Belt (the "spokes"). The Hobson Processing Facility has a physical capacity to process uranium-loaded resins up to a total of two million pounds of U3O8annually and is licensed to process up to one million pounds of U3O8 annually.

We also hold certain mineral rights in various stages in the States of Arizona, Colorado, New Mexico, Texas and Wyoming and in the Republic of Paraguay, many of which are located in historically successful mining areas and have been the subject of past exploration and pre-extraction activities by other mining companies. We do not expect, however, to utilize ISR mining for all of our mineral rights in which case we would expect to rely on conventional open pit and/or underground mining techniques.

Our operating and strategic framework is based on expanding our uranium extraction activities, which includes advancing certain uranium projects with established mineralized materials towards uranium extraction and establishing additional mineralized materials on our existing uranium projects or through the acquisition of additional uranium projects.

During the three and six months ended January 31, 2016, uranium extraction at PAA-1, 2 and 3 of the Palangana Mine continued to operate at a reduced pace since implementing our strategic plan in September 2013, to align our operations to a weak uranium market in a challenging post-Fukushima environment. This strategy has included the deferral of major pre-extraction expenditures and remaining in a state of operational readiness in anticipation of a recovery in uranium prices.

During the six months ended January 31, 2016:

development of Production Area Authorization ("PAA") 4 of the Palangana Mine continued to advance;

exploration and permitting activities continued to advance at the Burke Hollow Project;

permitting work continued on the Anderson Project;

Former United States Energy Secretary Spencer Abraham was appointed as Executive Chairman of the Company's Board of Directors; and

Pat Obara was appointed as the Company's Chief Financial Officer.

Mineral Rights and Properties

The following is a summary of significant activities by project for the six months ended January 31, 2016:

Texas: Palangana Mine

During the six months ended January 31, 2016, we continued with our strategic plan for reduced operations implemented in Fiscal 2014 and further reduced operations at the Palangana Mine to capture residual pounds of U3O8 only.

Wellfield design for the first module at PAA-4, which is fully-permitted for uranium extraction, continued to advance. At January 31, 2016, a total of 214 drill holes have been completed relating to PAA-4 for mineral trend exploration, delineation and monitor wells.

Texas: Burke Hollow Project

During the six months ended January 31, 2016, 49 exploration holes totaling 25,020 feet were drilled at the Burke Hollow Project to depths ranging from a minimum 420 feet to a maximum 640 feet, with an average depth of 511 feet. At January 31, 2016, a total of 575 exploration holes, including 30 regional baseline monitor wells, totaling 271,520 feet have been drilled to depths ranging from a minimum 160 feet to a maximum 1,100 feet, with an average depth of 472 feet.

With the recent issuance of two Class I disposal well permits, permitting activities continued on the Mine Area, Aquifer Exemption and Radioactive Material License applications, which remain under technical review. An ecological assessment for the eastern trend extension was scheduled for the spring of 2016 anticipating wellfield expansion of the eastern trend.

Arizona: Anderson Project

During the three months ended January 31, 2016, the Company completed work on the Bureau of Land Management ("BLM") Notice of Intent permit, which was submitted for review in December 2015.

Results of Operations

For the three and six months ended January 31, 2016, we recorded net losses of $4,801,505 ($0.05 per share) and $9,873,539 ($0.10 per share), respectively. Costs and expenses during the three and six months ended January 31, 2016 were $4,018,357 and $8,325,669, respectively.

For the three and six months ended January 31, 2015, we recorded a net loss of $5,875,540 ($0.06 per share) and $12,601,767 ($0.14 per share), respectively. Costs and expenses during the three and six months ended January 31, 2015 were $5,110,201 and $11,125,162, respectively.

Uranium Extraction Activities

During the three and six months ended January 31, 2016, we continued with our strategic plan for reduced operations implemented in Fiscal 2014 and further reduced operations at the Palangana Mine to capture residual pounds of U3O8 only. As a result, no U3O8extraction or processing costs were capitalized to inventories during the three and six months ended January 31, 2016.

During the three and six months ended January 31, 2015 , the Palangana Mine extracted 4,000 and 11,000 pounds of U3O8, respectively, while the Hobson Processing Facility processed 3,000 and 11,000 pounds of U3O8, respectively.

At January 31, 2016, the total value of inventories was $251,999, which remained unchanged from July 31, 2015, of which $200,043 (79%) represented the value of finished goods of U3O8, $35,398 (14%) represented the value of work-in-progress and $16,558 (7%) represented the value of supplies. The cash component of the total value of inventories was $210,717 and the non-cash component of the total value of inventories was $41,282. For the three and six months ended January 31, 2016 and 2015, no inventory write-down to net realizable value was recorded.

Cash and non-cash components of the total value of inventories represent non-GAAP financial measures which we believe are important in evaluating our operating results not only for management but for our investors. We use these measures to compare our performance with other mining companies and rely upon them as part of management's decision-making process.

Costs and Expenses

For the three and six months ended January 31, 2016, costs and expenses totaled $4,018,357 and $8,325,669, comprised of mineral property expenditures of $893,825 and $2,682,845, general and administrative expenditures of $2,805,811 and $5,081,204, depreciation, amortization and accretion of $232,186 and $475,085, and impairment loss on mineral properties of $86,535 and $86,535, respectively. During the three and six months ended January 31, 2016, no sales of U3O8 were generated, therefore no corresponding cost of sales were recorded.

For the three and six months ended January 31, 2015, costs and expenses totaled $5,110,201 and $11,125,162, comprised of mineral property expenditures of $1,254,268 and $3,514,399, general and administrative of $3,366,449 and $6,544,037 and depreciation, amortization and accretion of $489,484 and $1,066,726, respectively. No impairment loss on mineral property was recorded. During the three and six months ended January 31, 2015, no sales of U3O8 were generated, therefore no corresponding cost of sales were recorded.

Mineral Property Expenditures

During the three and six months ended January 31, 2016, mineral property expenditures totaled $893,825 and $2,682,845, respectively, comprised of expenditures relating to permitting, property maintenance, exploration and pre-extraction activities and all other non-extraction related activities on our uranium projects. During the three and six months ended January 31, 2016, a credit amount due to re-valuation of ARO totaling $184,381 was recognized as a result of a downward ARO adjustment to fully depleted underlying mineral rights and properties, which was recorded against the mineral property expenditures.

During the three and six months ended January 31, 2016, mineral property expenditures included expenditures directly related to maintaining operational readiness and permitting compliance of $462,165 and $920,798, respectively, for the Palangana Mine and Hobson Processing Facility.

During the three and six months ended January 31, 2015, mineral property expenditures totaled $1,254,268 and $3,514,399, respectively, comprised of expenditures relating to permitting, property maintenance, exploration, pre-extraction and all other non-extraction related activities on our uranium projects. Additionally, these amounts include uranium extraction expenditures directly related to maintaining operational readiness and permitting compliance of $466,336 and $958,360, respectively, for the Palangana Mine and Hobson Processing Facility.

The following table provides mineral property expenditures on our projects for the periods indicated:

                                            Three Months Ended January 31,           Six Months Ended January 31,
                                             2016                   2015                2016                2015
Mineral Property Expenditures
Palangana Mine                          $       366,131       $        688,196     $       751,280       $ 1,120,856
Goliad Project                                   24,022                 20,036              44,831            54,293
Burke Hollow Project                            204,708                159,981             926,252         1,140,548
Longhorn Project                                    781                 19,477               4,373            30,723
Salvo Project                                     2,912                  2,039              17,075            22,839
Anderson Project                                 55,083                 29,250             167,216           123,422
Workman Creek Project                             1,001                      -              31,691            31,300
Slick Rock Project                                5,036                      -              53,861            49,784
Yuty Project                                     91,526                 40,872             202,543           259,761
Coronel Oviedo Project                          153,833                151,178             286,732           295,762
Other Mineral Property Expenditures             173,173                143,239             381,372           385,111
Re-valuation of Asset Retirement
Obligations                                    (184,381 )                    -            (184,381 )               -
                                        $       893,825       $      1,254,268     $     2,682,845       $ 3,514,399

General and Administrative

During the three and six months ended January 31, 2016, general and administrative expenses totaled $2,805,811 and $5,081,204 (three and six months ended January 31, 2015: $3,366,449 and $6,544,037), respectively.

The following summary provides a discussion of the major expense categories, including analyses of the factors that caused significant variances compared to the same period last year:

For the three and six months ended January 31, 2016, salaries, management and consulting fees totaled $645,374 and $1,301,389, respectively, which have remained consistent compared with $623,136 and $1,280,279 for the three and six months ended January 31, 2015;

For the three and six months ended January 31, 2016, office, investor relations, communications and travel expenses totaled $647,455 and $1,301,011, respectively, which decreased by $37,312 and $121,539, respectively, compared with $684,767 and $1,422,550 for the three and six months ended January 31, 2015. This decrease reflects our continuing efforts to monitor and control these costs and reduce expenses wherever possible;

For the three and six months ended January 31, 2016, professional fees totaled $450,634 and $790,013, respectively, which increased by $248,457 and $259,471, respectively, compared with $202,177 and $530,542 for the three and six months ended January 31, 2015. Professional fees are comprised primarily of legal services related to regulatory compliance and ongoing legal claims, in addition to audit and taxation services; and

For the three and six months ended January 31, 2016, stock-based compensation totaled $1,062,348 and $1,688,791, which decreased by $794,021 and $1,621,875, respectively, compared with $1,856,369 and $3,310,666, for the three and six months ended January 31, 2015. Stock-based compensation includes the fair value of stock options granted to optionees and the fair value of shares of the Company's common stock issued to consultants. During the three and six months ended January 31, 2016 and 2015, we continued to utilize equity-based payments for certain consulting services as part of our continuing efforts to reduce cash outlays. During the three months ended October 31, 2014, stock options to purchase 7,540,000 shares of the Company's common stock were granted to certain directors, officers, employees and consultants of the Company. The fair value of these stock options has been amortized on an accelerated basis over the vesting period of the options, resulting in a higher stock-based compensation expense being recognized at the beginning of the vesting periods than at the end of the vesting periods.

Depreciation, Amortization and Accretion

During the three and six months ended January 31, 2016, depreciation, amortization and accretion totaled $232,186 and $475,085, respectively, which decreased by $257,298 and $591,641, respectively, compared to $489,484 and $1,066,726 for the three and six months ended January 31, 2015. This decrease was primarily the result of the discontinuation of depletion and/or depreciation of the Palangana Mine and Hobson Processing Facility due to further reduced operations, combined with the effects of certain property and equipment reaching full depletion and/or depreciation. 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.

Other Income and Expenses

Interest and Finance Costs

During the three and six months ended January 31, 2016, interest and finance costs totaled $789,770 and $1,567,463, respectively, which have remained consistent compared to $767,854 and $1,505,343 for the three and six months ended January 31, 2015.

For the three and six months ended January 31, 2016, interest and finance costs were primarily comprised of, amortization of debt discount of $347,723 and $683,390, interest paid on long-term debt of $408,889 and $817,778 and amortization of annual surety bond premium of $28,391 and $56,760, respectively.

For the three and six months ended January 31, 2015, interest and finance costs were primarily comprised of: amortization of debt discount of $334,997 and $658,404, interest paid on long-term debt of $408,889 and $817,778 and amortization of annual surety bond premium of $18,780 and $18,780, respectively.

Summary of Quarterly Results



                                                                         For the Quarters Ended
                                            January 31, 2016       October 31, 2015       July 31, 2015       April 30, 2015

Sales                                      $                -     $                -     $     3,080,000     $              -
Net loss                                           (4,801,505 )           (5,072,034 )        (5,412,432 )         (5,347,729 )
Total comprehensive loss                           (4,801,724 )           (5,072,233 )        (5,412,059 )         (5,347,522 )
Basic and diluted loss per share                        (0.05 )                (0.05 )             (0.06 )              (0.06 )
Total assets                                       49,982,462             53,130,380          57,900,257           52,171,028




                                                                         For the Quarters Ended
                                            January 31, 2015       October 31, 2014       July 31, 2014       April 30, 2014

Sales                                      $                -     $                -     $             -     $              -
Net loss                                           (5,875,540 )           (6,726,227 )        (6,219,172 )         (6,697,107 )
Total comprehensive loss                           (5,876,988 )           (6,726,451 )        (6,219,156 )         (6,704,335 )
Basic and diluted loss per share                        (0.06 )                (0.07 )             (0.07 )              (0.07 )
Total assets                                       55,315,547             59,608,374          64,655,888           70,496,960

Liquidity and Capital Resources



                                                January 31, 2016       July 31, 2015
Cash and cash equivalents                      $        2,406,123     $    10,092,408
Current assets                                          3,289,970          10,807,618
Current liabilities                                    13,631,613           4,560,698
Current portion of long-term debt                      11,666,667           1,666,667
Working capital (Working capital deficiency)          (10,341,643 )         6,246,920

At January 31, 2016, we had a working capital deficiency of $10,341,643, a decrease of $16,588,563 from our working capital of $6,246,920 at July 31, 2015. Current assets include $2,406,123 in cash and cash equivalents, the largest component of current assets. Current liabilities include $11,666,667, the current portion of long-term debt which is the largest component of current liabilities and represents the principal amounts due over the next twelve months.

Subsequent to January 31, 2016, the Company and its Lenders agreed to extend the $20,000,000 Second Amended Credit Facility by deferring required principal payments to February 1, 2019 and by extending the maturity date of the Second Amended Credit Facility to January 1, 2020. This will result in the deferral of the recognition of any current portion of long-term debt until February 1, 2018. Refer to Note 7: Long-Term Debt to the consolidated financial statements for the three and six months ended January 31, 2016.

Subsequent to January 31, 2016, on March 10, 2016, the Company completed a registered offering of 12,364,704 units at a price of $0.85 per unit for gross proceeds of $10,510,000 under its 2014 Shelf. Refer to Note 9: Capital Stock to the consolidated financial statements for the three months and six months ended January 31, 2016.

As the Company does not expect to achieve and maintain profitability in the near term, the continuation of the Company as a going concern is dependent upon our ability to obtain adequate additional financing which we have successfully secured since inception, including those from asset divestitures. However, there is no assurance that we will be successful in securing any form of additional financing in the future when required and on terms favorable to the Company, therefore substantial doubt exists as to whether our cash resources and/or working capital will be sufficient to enable the Company to continue its operations for the next twelve months. 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. Refer to Note 1: Nature of Operations and Going Concern of the Notes to the Consolidated Financial Statements for the three and six months ended January 31, 2016.

During the three and six months ended January 31, 2016, uranium extraction at PAA-1, 2 and 3 of the Palangana Mine continued to operate at a reduced pace since implementing our strategic plan in September 2013 to align our operations to a weak uranium market in a challenging post-Fukushima environment. This strategy has included the deferral of major pre-extraction expenditures and remaining in a state of operational readiness in anticipation of a recovery in uranium prices.

Although our planned principal operations commenced in Fiscal 2012 from which significant revenues from U3O8 sales have been realized historically, our revenues generated from U3O8 sales have been inconsistent and we have yet to achieve profitability. We have a history of operating losses resulting in an accumulated deficit balance since inception. During the six months ended January 31, 2016, no revenue from U3O8 sales was realized and our net loss totaled $9,873,539, resulting in an accumulated deficit balance of $201,897,613 at January 31, 2016. During the six months ended January 31, 2016 and 2015, net cash flows decreased by $7,686,285 and $4,477,348, respectively. Furthermore, we do not expect to achieve and maintain profitability or develop positive cash flow from our operations in the near term.

Historically, we have been reliant primarily on equity financings from the sale of our common stock and, during Fiscal 2014 and 2013, on debt financing in order to fund our operations. We have also relied to a limited extent, on cash flows generated from our mining activities during Fiscal 2015, 2013 and 2012, however, we have yet to achieve profitability or develop positive cash flow from operations, and we do not expect to achieve profitability or develop positive cash flow from operations in the near term. Our reliance on equity and debt financings is expected to continue for the foreseeable future, and their availability whenever such additional financing is required will be dependent on many factors beyond our control including, but not limited to, the market price of uranium, the continuing public support of nuclear power as a viable source of electrical generation, the volatility in the global financial markets affecting our stock price and the status of the worldwide economy, any one of which may cause significant challenges in our ability to access additional financing, including access to the equity and credit markets. We may also be required to seek other forms of financing, such as asset divestitures or joint venture arrangements to continue advancing our uranium 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. However, there is no assurance that we will be successful in securing any form of additional financing when required and on terms favorable to us.

Our operations are capital intensive and future capital expenditures are expected to be substantial. We will require significant additional financing to fund our operations, including continuing with our exploration and pre-extraction activities and acquiring additional uranium projects. In the absence of such additional financing, we would not be able to fund our operations, including continuing with our exploration and pre-extraction activities, which may result in delays, curtailment or abandonment of any one or all of our uranium projects.

Our anticipated operations including exploration and pre-extraction activities, will be dependent on and may change as a result of our financial position, the market price of uranium and other considerations, and such change may include accelerating the pace or broadening the scope of reducing our operations as originally announced on September 5, 2013. Our ability to secure adequate funding for these activities will be impacted by our operating performance, other uses of cash, the market price of uranium, the market price of our common stock and other factors which may be beyond our control. Specific examples of such factors include, but are not limited to:

if the weakness in the market price of uranium experienced in Fiscal 2015 continues or weakens further during Fiscal 2016;

if the weakness in the market price of our common stock experienced in Fiscal 2015 continues or weakens further during Fiscal 2016;

if we default on making scheduled payments of fees and complying with the restrictive covenants as required under the Second Amended Credit Facility during Fiscal 2016, and it results in accelerated repayment of our indebtedness and/or enforcement by the Lenders against our key assets securing our indebtedness; and

if another nuclear incident, such as the events that occurred at Fukushima in March 2011, were to occur during Fiscal 2016, continuing public support of nuclear power as a viable source of electrical generation may be adversely affected, which may result in significant and adverse effects on both the nuclear and uranium industries.

Our long-term success, including the recoverability of the carrying values of our assets and our ability to acquire additional uranium projects and to continue with exploration and pre-extraction activities and mining activities on our existing uranium projects, will depend ultimately on our ability to achieve and maintain profitability and positive cash flow from our operations by establishing ore bodies that contain commercially recoverable uranium and to develop these into profitable mining activities. The economic viability of our . . .

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