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UEC > SEC Filings for UEC > Form 10-Q on 9-Jun-2016All Recent SEC Filings

Show all filings for URANIUM ENERGY CORP

Form 10-Q for URANIUM ENERGY CORP


9-Jun-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 nine months ended April 30, 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 April 30, 2016 and our results of operations for the three and nine months ended April 30, 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 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 April 30, 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 U3O8 annually 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 nine months ended April 30, 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 nine months ended April 30, 2016, the Company

· entered into the Second Amended and Restated Agreement with its lenders and extended the $20,000,000 senior secured credit facility by deferring required principal payments to February 1, 2019 and by extending the maturity date to January 1, 2020;

· completed a registered offering of 12,364,704 units at a price of $0.85 per unit for gross proceeds of $10,510,000;

· completed an asset acquisition through issuance of 1,333,560 restricted common shares and payment of $50,000 in cash;

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

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

· continued permitting work at the Anderson Project;

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

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

Mineral Rights and Properties

The following is a summary of significant activities by project for the nine months ended April 30, 2016:

Texas: Palangana Mine

During the nine months ended April 30, 2016, we continued with our strategic plan for reduced operations implemented in Fiscal 2014 and continued 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 April 30, 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 nine months ended April 30, 2016, 49 exploration holes totaling 25,020 feet were drilled at the Burke Hollow Project to depths ranging from 420 feet to 640 feet, with an average depth of 511 feet. At April 30, 2016, a total of 575 exploration holes, including 30 regional baseline monitor wells, totaling 271,520 feet have been drilled to depths ranging from160 feet to 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 nine months ended April 30, 2016, the Company completed work on the Bureau of Land Management ("BLM") Notice of Intent permit, which was submitted for review in December 2015, and approved by the BLM in March 2016.

Asset Acquisition

On March 4, 2016, the Company entered into a share purchase and option agreement (the "SPOA") with CIC Resources Inc. (the "Vendor") pursuant to which the Company acquired (the "Acquisition") all of the issued and outstanding shares of JDL Resources Inc. ("JDL"), a wholly-owned subsidiary of the Vendor, and was granted an option to acquire all of the issued and outstanding shares of CIC Resources (Paraguay) Inc. ("CIC"; the "Option"), another wholly-owned subsidiary of the Vendor. JDL's principal assets include a piece of land located in the department of Alto Parana in the Republic of Paraguay. CIC is the beneficial owner of Paraguay Resources Inc. which is the 100% owner of certain mineral property concessions (the "Property"), which are located in the departments of Alto Parana and Canindeyś in the Republic of Paraguay.

Pursuant to the SPOA, the Company issued 1,333,560 restricted common shares in the capital of the Company and paid $50,000 in cash to complete the Acquisition. If the Company has paid or caused to have paid on the Vendor's behalf certain maintenance payments and assessment work required to keep the Property in good standing as directed by the Vendor, during the one-year period following completion of the Acquisition (the "Option Period"), the Company may elect in its discretion to exercise the Option at any time, or if, in accordance with the SPOA, the Vendor satisfied certain conditions precedent to exercise, the Company will be deemed to have exercised the Option. Upon exercise of the Option the Company is required to pay, subject to certain adjustments, $250,000 in cash to the Vendor and to grant to the Vendor a 1.5% net smelter returns royalty (the "Royalty") on the Property as contemplated by a proposed net smelter returns royalty agreement (the "Royalty Agreement") to be executed by the parties upon exercise of the Option. Pursuant to the proposed Royalty Agreement, the Company has the right, exercisable at any time for a period of six years following exercise of the Option, to acquire one-half percent (0.5%) of the Royalty at a purchase price of $500,000.

Refer to Note 6: Other Long-Term Asset and Liability of the Notes to the Consolidated Financial Statements for the three and nine months ended April 30, 2016.

Results of Operations

For the three and nine months ended April 30, 2016, we recorded net losses of $3,679,055 ($0.03 per share) and $13,552,594 ($0.13 per share), respectively. Costs and expenses during the three and nine months ended April 30, 2016 were $2,936,921 and $11,262,590, respectively.

For the three and nine months ended April 30, 2015, we recorded a net loss of $5,347,729 ($0.06 per share) and $17,949,496 ($0.20 per share), respectively. Costs and expenses during the three and nine months ended April 30, 2015 were $4,587,820 and $15,712,982, respectively.

Uranium Extraction Activities

During the three and nine months ended April 30, 2016, we continued with our strategic plan for reduced operations implemented in Fiscal 2014 and continued reduced operations at the Palangana Mine to capture residual pounds of U3O8 only. As a result, no U3O8 extraction or processing costs were capitalized to inventories during the three and nine months ended April 30, 2016.

During the three and nine months ended April 30, 2015, the Palangana Mine extracted 2,000 and 13,000 pounds of U3O8, respectively, while the Hobson Processing Facility processed 3,000 and 14,000 pounds of U3O8, respectively.

At April 30, 2016, the total value of inventories was $251,999, which remained unchanged from July 31, 2015.

Costs and Expenses

For the three and nine months ended April 30, 2016, costs and expenses totaled $2,936,921 and $11,262,590, comprised of mineral property expenditures of $725,968 and $3,408,813, general and administrative expenditures of $2,005,465 and $7,086,669, depreciation, amortization and accretion of $205,488 and $680,573, and impairment loss on mineral properties of $Nil and $86,535, respectively. During the three and nine months ended April 30, 2016, no sales of U3O8 were generated, therefore no corresponding cost of sales were recorded.

For the three and nine months ended April 30, 2015, costs and expenses totaled $4,587,820 and $15,712,982, comprised of mineral property expenditures of $1,045,842 and $4,560,241, general and administrative of $3,167,896 and $9,711,933 and depreciation, amortization and accretion of $374,082 and $1,440,808, respectively. No impairment loss on mineral property was recorded. During the three and nine months ended April 30, 2015, no sales of U3O8 were generated, therefore no corresponding cost of sales were recorded.

Mineral Property Expenditures

During the three and nine months ended April 30, 2016, mineral property expenditures totaled $725,968 and $3,408,813, 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 nine months ended April 30, 2016, a credit amount due to re-valuation of ARO totaling $184,381 was recognized as a result of a descending ARO adjustment to fully depleted underlying mineral rights and properties, which was recorded against the mineral property expenditures.

During the three and nine months ended April 30, 2016, mineral property expenditures included expenditures directly related to maintaining operational readiness and permitting compliance of $349,367 and $1,270,165, respectively, for the Palangana Mine and Hobson Processing Facility.

During the three and nine months ended April 30, 2015, mineral property expenditures totaled $1,045,842 and $4,560,241 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 $497,846 and $1,456,206, 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 April 30,           Nine Months Ended April 30,
                                                 2016                   2015                2016             2015
Mineral Property Expenditures
Palangana Mine                          $     280,345       $        500,535     $     1,031,625      $ 1,621,391
Goliad Project                                 26,848                 25,631              71,679           79,924
Burke Hollow Project                           48,409                 94,702             974,661        1,235,250
Longhorn Project                                  247                 22,276               4,620           52,999
Salvo Project                                   4,622                 16,751              21,697           39,590
Anderson Project                                3,564                 50,142             170,780          173,564
Workman Creek Project                             418                      -              32,109           31,300
Slick Rock Project                                  -                  2,924              53,861           52,708
Yuty Project                                   89,246                 41,274             291,788          301,035
Coronel Oviedo Project                        136,031                132,315             422,763          428,077
Other Mineral Property Expenditures           136,238                159,292             517,611          544,403
Re-valuation of Asset Retirement
Obligations                                         -                      -            (184,381 )              -
                                        $     725,968       $      1,045,842     $     3,408,813      $ 4,560,241

General and Administrative

During the three and nine months ended April 30, 2016, general and administrative expenses totaled $2,005,465 and $7,086,669 (three and nine months ended April 30, 2015: $3,167,896 and $9,711,933), 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 nine months ended April 30, 2016, salaries, management and consulting fees totaled $422,951 and $1,724,341, respectively, which decreased by $250,719 and $299,608, respectively, compared with $673,670 and $1,953,949 for the three and nine months ended April 30, 2015. This decrease was the result of pay reductions and other strategies implemented by the Company during the three months ended April, 2016;

· for the three and nine months ended April 30, 2016, office, investor relations, communications and travel expenses totaled $614,401 and $1,915,412, respectively, which decreased by $185,981 and $307,520, respectively, compared with $800,382 and $2,222,932 for the three and nine months ended April 30, 2015. This decrease reflects our continuing efforts to monitor and control these costs and reduce expenses wherever possible;

· for the three months ended April 30, 2016, professional fees totaled $169,253, which decreased by $206,712 compare with $375,965 for the three months ended April 30, 2015. For the nine months ended April 30, 2016, professional fees totaled $959,265, which have remained consistent compared with $906,508 for the nine months ended April 30, 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 nine months ended April 30, 2016, stock-based compensation totaled $798,860 and $2,487,651, respectively, which decreased by $519,019 and $2,140,893, respectively, compared with $1,317,879 and $4,628,544 for the three and nine months ended April 30, 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 and employees. During the three and nine months ended April 30, 2016 and 2015, we continued to utilize equity-based payments for certain consulting services as part of our continuing efforts to reduce cash outlays. In September 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 nine months ended April 30, 2016, depreciation, amortization and accretion totaled $205,488 and $680,573, respectively, which decreased by $168,594 and $760,235, respectively, compared with $374,082 and $1,440,808 for the three and nine months ended April 30, 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 nine months ended April 30, 2016, interest and finance costs totaled $710,767 and $2,278,230, respectively, which have remained consistent compared to $764,761 and $2,270,104 for the three and nine months ended April 30, 2015.

For the three and nine months ended April 30, 2016, interest and finance costs were primarily comprised of, amortization of debt discount of $277,417 and $960,807, interest paid on long-term debt of $400,000 and $1,217,778 and amortization of annual surety bond premium of $28,687 and $85,447, respectively.

For the three and nine months ended April 30, 2015, interest and finance costs were primarily comprised of: amortization of debt discount of $336,262 and $994,669, interest paid on long-term debt of $395,555 and $1,213,333 and amortization of annual surety bond premium of $28,304 and $47,084, respectively.

Summary of Quarterly Results



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

Sales                                   $              -     $                -     $                -     $     3,080,000
Net loss                                      (3,679,055 )           (4,801,505 )           (5,072,034 )        (5,412,432 )
Total comprehensive loss                      (3,678,919 )           (4,801,724 )           (5,072,233 )        (5,412,059 )
Basic and diluted loss per share                   (0.03 )                (0.05 )                (0.05 )             (0.06 )
Total assets                                  59,558,492             49,982,462             53,130,380          57,900,257




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

Sales                                   $              -     $                -     $                -     $             -
Net loss                                      (5,347,729 )           (5,875,540 )           (6,726,227 )        (6,219,172 )
Total comprehensive loss                      (5,347,522 )           (5,876,988 )           (6,726,451 )        (6,219,156 )
Basic and diluted loss per share                   (0.06 )                (0.06 )                (0.07 )             (0.07 )
Total assets                                  52,171,028             55,315,547             59,608,374          64,655,888

Liquidity and Capital Resources



                              April 30, 2016       July 31, 2015
Cash and cash equivalents   $     10,086,805     $    10,092,408
Current assets                    11,115,132          10,807,618
Current liabilities                2,113,915           4,560,698
Working capital                    9,001,217           6,246,920

At April 30, 2016, we had a working capital of $9,001,217, an increase of $2,754,297 from our working capital of $6,246,920 at July 31, 2015. Current assets include $10,086,805 in cash and cash equivalents, the largest component of current assets. As a result, our working capital balance will fluctuate significantly as we utilize our cash and cash equivalents to fund our operations including exploration and pre-extraction activities.

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 nine months ended April 30, 2016.

During the three and nine months ended April 30, 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 nine months ended April 30, 2016, no revenue from U3O8 sales was realized and our net loss totaled $13,552,594, resulting in an accumulated deficit balance of $205,576,668 at April 30, 2016. During the nine months ended April 30, 2016 and 2015, net cash flows decreased by $5,603 and $7,416,445, 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;

. . .

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