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URRE > SEC Filings for URRE > Form 10-Q on 10-Nov-2016All Recent SEC Filings

Show all filings for URANIUM RESOURCES INC /DE/

Form 10-Q for URANIUM RESOURCES INC /DE/


10-Nov-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 consolidated financial results and condition of URI for the three and nine months ended September 30, 2016 has been prepared based on information available to us as of November 10, 2016. This discussion should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto included herewith and the audited Consolidated Financial Statements of URI for the period ended December 31, 2015 and the related notes thereto filed with our Annual Report on Form 10-K, which have been prepared in accordance with U.S. GAAP. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth elsewhere in this report. See "Cautionary Note Regarding Forward-Looking Statements."

Introduction

URI is an exploration, development and production company focused on energy-related metals. We were organized in 1977 to acquire and develop uranium projects in South Texas using the in-situ recovery ("ISR") process. We have historically produced uranium by ISR methods in the state of Texas where we currently have ISR projects and two licensed processing facilities. Following our 2015 acquisition of Anatolia Energy, we are focused on advancing to near-term production the Temrezli ISR project in Central Turkey. URI also controls extensive exploration properties in the region of the Temrezli project, which are held under nine exploration and operating licenses covering approximately 32,000 acres, with numerous exploration targets, including the potential satellite Sefaatli project, which is located approximately 30 miles southwest of the Temrezli project. We also control approximately 190,000 acres of mineral holdings in the prolific Grants Mineral Belt of the State of New Mexico, a portion of which we have entered into a definitive purchase agreement to sell and approximately 12,000 acres in the South Texas uranium province. URI acquired these properties over the past 25 years along with an extensive information database of historic drill-hole logs and analysis. None of URI's properties are currently in production.

Recent Developments

Uranium Market Overview

Persistent oversupply in the uranium markets has resulted in lower market prices. As of September 30, 2016, prices have dropped to $23.75 per pound, and have dropped further to less than $20.00per pound at mid-October 2016. Prices at this low level have not been seen by the industry since 2006. Worldwide nuclear reactor construction and commissioning continues to expand the power plant fleet, and many analysts expect that, over time, the resulting demand for uranium will increase but that at the same time that demand is increasing, supply will attenuate as the current low price environment does little to incentivize new production sources to come online. Thus, many analysts forecast prices for uranium to be much higher in the longer term, but the lower current price presents the Company with challenges in the short term.

Uranium Resources Strategy

The Company holds high quality, low cost uranium projects in New Mexico, Texas, and the Republic of Turkey. Low holding costs allow the Company to hold these projects on a care and maintenance basis for the long-term. Development of the Company's uranium projects remains dependent upon higher uranium prices and project financing.

In the meantime, the Company has embarked on a growth strategy in the lithium industry. Our existing experience and skills base are anticipated to be directly applicable to lithium brine exploration, development and production.
In the application of our existing expertise, we can take advantage of a growing lithium market, adding value to the Company while maintaining optionality to the uranium price.

The lithium market is driven by the growth in lithium ion batteries that power mobile telephone and computing devices, power tools, and most importantly, the transportation sector. The CRU Group estimates that global demand for lithium will grow at a compounded annual growth rate of 6.3% over the period 2015 to 2025 with electric vehicles accounting for an increase in demand of 39% during the same period. On the supply side, while production is expected to increase, the CRU Group estimates that prices will stabilize in the $4,300 to $8,300 per Lithium Carbonate Equivalent ("LCE") ton range by 2025.

To that end, the Company has targeted low cost lithium brine exploration and development projects. These projects tend to have estimated first quartile cash cost performance, or about $2,000 per LCE ton. Combined with our existing expertise, this is a good fit for the company and a natural extension of our business. The Company has been active in acquiring projects of this type since mid-2016.


Acquisition of Lithium Properties

On August 23, 2016, the Company staked approximately 4,600 acres of placer mining claims covering a prospective target for lithium-enriched brines in the Columbus Salt Marsh area of west-central Nevada. The target area, known as the Nina project, is situated within a region of known lithium mineralization and is located approximately 45 miles west of Tonopah, Nevada.

On September 21, 2016, the Company entered into the Mesa SPA with Mesa to acquire certain placer mining claims comprising the Sal Rica project. The Sal Rica project is comprised of approximately 9,800 acres of placer mining claims covering a prospective target for lithium-enriched brines. The target area is situated within a region of known brine-hosted lithium mineralization and is approximately 25 miles north of the town of Wendover, Utah. The closing of the transaction occurred on October 19, 2016.

Under the terms of the Mesa SPA, the Company acquired a 100% interest in the Sal Rica project, subject to a 2% NSR Royalty, for the following consideration: (i) $50,000 cash paid to Mesa on October 19, 2016; (ii) 100,000 unregistered shares of the Company's common stock on October 19, 2016, with a resale registration statement to be filed with the SEC by November 17, 2016; and (iii) 100,000 unregistered shares of the Company's common stock to be issued on October 19, 2017, with a resale registration statement to be filed with the SEC by November 17, 2017.

Reverse Stock Split

On March 7, 2016, following the close of trading, URI effected a one-for-twelve reverse split of its common shares. The consolidated common shares began trading on a split-adjusted basis on March 8, 2016. On February 11, 2016, at a Special Meeting of Stockholders, URI received approval for a charter amendment permitting URI to effect a reverse split. The primary purpose of the reverse split was to bring URI into compliance with the Nasdaq's $1.00 minimum bid price requirement to maintain URI's stock listing on Nasdaq.

The reverse split reduced the number of URI's outstanding common stock from 61,820,734 shares to 5,151,692 shares of common stock. In addition, effective upon the reverse stock split, the number of authorized shares of URI's common stock was reduced from 200 million to 100 million. No fractional shares were issued as a result of the reverse stock split. Any fractional shares that would have resulted were settled in cash.

All share data herein has been retroactively adjusted for the reverse stock split.

Common Stock Purchase Agreement with Aspire Capital

On April 8, 2016, the Company entered into the CSPA with Aspire Capital to place up to $12.0 million in the aggregate of the Company's common stock on an ongoing basis when required by the Company over a term of 30 months. The Company will control the timing and amount of sales to Aspire Capital, and at a price based on the market at that time. As consideration for Aspire Capital entering into the CSPA, the Company issued 240,000 shares of its common stock to Aspire Capital upon the Company's receipt of shareholder approval at its Annual General Meeting of Stockholders which was held on June 7, 2016. These shares had a fair value of $2.18 per share, which has been included as additional paid in capital in the Company's Balance Sheet as of September 30, 2016. Also following receipt of shareholder approval for the issuance of up to 5.0 million shares of common stock under the CSPA and effectiveness of the S-1 registration statement relating to the resale of the shares subject to the CSPA, the Company began selling shares of its common stock to Aspire Capital under the terms of the CSPA. As of September 30, 2016, the Company had sold 3,220,000 shares of common stock for net proceeds of $4.7 million under the CSPA.

Registered Direct Offerings

On April 4, 2016, the Company completed a registered direct offering with Aspire Capital for gross proceeds of $1.25 million. The Company sold 375,000 shares of common stock at a price of $2.17 per share and 200,000 pre-funded warrants at a price of $2.16 per warrant, which was paid at closing. The warrants had an exercise price of $0.01 and a term of three years. On June 3, 2016, Aspire Capital exercised all 200,000 outstanding warrants for shares of the Company's common stock.

On February 3, 2016, the Company completed a registered direct offering with Aspire Capital for gross proceeds of $0.8 million. The Company sold 296,666 shares of common stock at a price of $2.82 per share. Net proceeds to the Company, after deducting offering expenses, were approximately $0.8 million.


Laramide Asset Sale

On April 7, 2016, the Company entered into the Laramide SPA with Laramide Resources for the sale of its wholly-owned subsidiary Hydro Resources, Inc., which holds the Company's Churchrock and Crownpoint projects. Under the terms of the Laramide SPA, the Company is set to transfer ownership of the Churchrock and Crownpoint projects in exchange for the following consideration from Laramide Resources at closing:

$5.25 million in cash; and

$7.25 million promissory note, secured by a deed of trust or mortgage over the projects. The note will have a three-year term and carry an initial interest rate of 5% which then increases to 10% upon Laramide Resources decision regarding commercial production at the Churchrock project. Principal payments of approximately $2.4 million are due and payable on the anniversary of the closing of the transaction in each of 2017, 2018 and 2019. Interest will be payable on a quarterly basis, provided however that no interest will be payable prior to the first principal payment in 2017.

The closing under the Laramide SPA is subject to various conditions, including, without limitation, completion of a financing by Laramide Resources on commercially reasonable terms and in such amount as is necessary to fund the $5.25 million purchase price and certain customary and required consents and releases of and by third parties, including RCF. Either party could originally terminate the Laramide SPA if the closing thereunder had not occurred on or before September 30, 2016. The Company initially expected that the Laramide SPA would close by September 30, 2016, but Laramide Resources has experienced delays in obtaining the necessary funding to close the transaction. As a result, the Company and Laramide Resources agreed to extend the Laramide SPA until November 30, 2016 in exchange for an extension payment of $250,000 which was paid to the Company on October 21, 2016. Based on continuing discussions with Laramide Resources, the Company believes that the funding will be in place to close by the November 30, 2016 extended deadline. The $250,000 received on October 21, 2016 will be treated as a pre-payment of the $12.5 million purchase price once the transaction closes and will not be refunded or credited under any other circumstances. The United States Nuclear Regulatory Commission has approved the transfer of the Company's license to Laramide Resources, effective at closing.


Results of Operations

Summary

Our consolidated net loss for the three months ended September 30, 2016 was $3.7 million or $0.38 per share as compared with a loss of $0.3 million or $0.14 per share for the same period in 2015. Our consolidated net loss for the nine months ended September 30, 2016 was $12.6 million or $1.81 per share as compared with a loss of $8.7 million or $3.61 per share for the same period in 2015. For both the three and nine-month periods ended September 30, 2016, the increase in our consolidated net loss of $3.4 million and $3.9 million from the respective prior periods was mostly the result of a gain of $4.3 million recorded upon the sale of our Roca Honda assets to Energy Fuels in July 2015. Also contributing to the increase in our net loss for the nine-month period ended September 30, 2016 was an impairment charge of $0.5 million which was recorded upon termination of the Sejita Dome project, commitment fees of $0.3 million paid to Aspire Capital in accordance with the terms of the Option Agreement and a $0.1 million loss on the sale of available-for-sale securities. The increases for both the three and nine-month periods ended September 30, 2016 were offset by reductions in expenditures for general and administrative costs of $1.0 million and $1.3 million, respectively.

Mineral Property Expenses

Mineral property expenses for the three and nine months ended September 30, 2016 were $1.0 million and $2.9 million, as compared with $0.9 million and $3.0 million for the 2015 periods.

The following table details our mineral property expenses for the three and nine months ended September 30, 2016 and 2015:

                                      For the Three Months Ended                For the Nine Months Ended  September 30,
                                             September 30,
                                         2016             2015                       2016                           2015
                                                                       (thousands of dollars)
Restoration/Recovery expenses
   Kingsville Dome Project            $          -    $           -    $         -                         $        -
   Rosita Project                               18               14                                   6                        57
   Vasquez Project                               -                -                                   -                         -
     Total restoration/recovery                                                                       6                        57
expenses                                        18               14

Standby care and maintenance
expenses
   Kingsville Dome Project                     166              153                                 467                       433
   Rosita Project                               73              113                                 233                       301
   Vasquez Project                             105              105                                 275                       314
   Temrezli Project                             31                -                                 453                         -
     Total standby care and
maintenance expenses                           375              371                               1,428                     1,048

Exploration and evaluation costs                86              193                                  92                       599

Land maintenance and holding costs             560              342                               1,382                     1,317

Total mineral property expenses $ 1,039 $ 920 $ 2,908 $ 3,021

For the three months ended September 30, 2016, mineral property expenses increased by $0.1 million as compared with the corresponding period in 2015.
This increase is mostly due to an increase in land holding costs of $0.3 million which was offset by a decrease in exploration and evaluation costs of $0.1 million.

For the nine months ended September 30, 2016, mineral property expenses decreased by $0.1 million as compared with the corresponding period in 2015.
This decrease is mostly due to a decrease in exploration and evaluation costs of $0.5 million, which were partially offset by an increase in land maintenance and holdings costs of $0.1 million and costs associated with our Temrezli project of $0.5 million which was acquired in November 2015.


For both the three and nine months ended September 30, 2016, the decreases in exploration and evaluation costs were due to a decrease in exploration programs in 2016. During 2015, the Company undertook an exploration program at the Alta Mesa Este and Butler Ranch projects in South Texas. During 2016, exploration efforts have been focused on the Company's recently acquired lithium properties as discussed above under "-Recent Developments - Acquisition of Lithium Properties." The increases in land holding costs for both the three and nine-month periods ended September 30, 2016 from the respective prior periods were the result of the Company's purchase of the Sal Rica project which was offset by the decision to terminate certain projects in South Texas during 2015.

General and Administrative Expenses


Significant expenditures for general and administrative expenses for the three
and nine months ended September 30, 2016 and 2015 were:


                             For the Three Months Ended       For the Nine Months Ended
                                   September 30,                    September 30,
                                2016           2015          2016                2015
                                                 (thousands of dollars)
Stock compensation expense     $      75     $      168      $    545               $    794
Salaries and payroll burden          846            558         2,144                  1,699
Legal, accounting public
company expenses                     648          1,530         2,266                  3,126
Insurance and bank fees              127            142           405                    436
Consulting and professional
services                              28            241           190                    729
Office expenses                      126            150           392                    425
Other expenses                        33             62            93                    143
Total                         $    1,883     $    2,851     $   6,035               $  7,352

For the three and nine months ended September 30, 2016, general and administrative charges decreased by $1.0 million and $1.3 million, respectively, as compared with the corresponding periods in 2015. For both the three and nine-month periods, these decreases were mostly due to reductions of $1.1 million and $2.1 million, respectively, in expenses related to M&A activity during 2015. During 2015, the Company completed the sale of its Roca Honda project assets to Energy Fuels Inc. and closed the Anatolia Transaction. For both the three and nine-month periods, these decreases were offset by increases in the Company's salaries and payroll burden of $0.3 million and $0.4 million, respectively. These increases were mostly the result of performance-based bonuses recorded during 2016 of $0.3 million.

Other Income and Expenses

Interest Expense

Interest expense of $0.7 million for the three months ended September 30, 2016 consisted of interest of $0.2 million payable to RCF and amortization of the debt discount of $0.5 million.

Interest expense of $0.6 million for the three months ended September 30, 2015 consisted of accrued interest payable to RCF of $0.2 million and amortization of the debt discount of $0.4 million.

Interest expense of $2.2 million for the nine months ended September 30, 2016 consisted of interest of $0.7 million paid to RCF, amortization of the debt discount of $1.4 million and amortization of the establishment fee of $0.1 million.

Interest expense of $2.0 million for the nine months ended September 30, 2015 consisted of interest expense of $0.5 million payable to RCF, amortization of the debt discount of $1.4 million and amortization of the establishment fee of $0.1 million.

Commitment Fees

Commitment fees expense of $0.3 million for the nine months ended September 30, 2016 was the result of the Company's issuance of 75,000 shares of common stock to Aspire Capital on February 4, 2016 as consideration for Aspire Capital entering into the Option Agreement. The shares had a fair value of $4.44 per share.


Loss on Sale of Marketable Securities

On February 22, 2016, the Company received proceeds of $0.2 million from the sale of its 76,455 shares of Energy Fuels Inc. common stock that it had received as partial consideration for the sale of its Roca Honda assets during 2015. The Company recorded a loss of $0.1 million as the difference between the fair value on the date the Company received the shares of $0.3 million and the proceeds received of $0.2 million.

Financial Position

Operating Activities

Net cash used in operating activities was $9.9 million for the nine months ended September 30, 2016, as compared with $8.5 million for the same period in 2015. The increase of $1.4 million in cash used is primarily due to an increase in cash used for accounts payable of $2.7 million, which was offset by an aggregate decrease in cash expenditures related to general and administrative and mineral property expenses of $1.3 million and a decrease in prepaid and other current assets of $0.2 million.

Investing Activities

Net cash provided by investing activities was $0.3 million for the nine months ended September 30, 2016, as compared with cash provided by investing activities of $1.2 million for the same period in 2015. For the 2016 period, the Company received $0.2 million from the sale of short-term investments and $0.1 million from the release of restricted cash accounts in Turkey. For the 2015 period, the Company received $2.5 million from the sale of its Roca Honda assets to Energy Fuels, which was offset by $1.3 million loaned to Anatolia Energy to ensure working capital needs were met prior to the closing of the Anatolia Transaction.

Financing Activities

Net cash provided by financing activities was $12.5 million for the nine months ended September 30, 2016. For the nine months ended September 30, 2016, net cash proceeds of $0.8 million and $1.2 million were received upon the February 4, 2016 and April 4, 2016 registered direct offerings, respectively, $4.7 million in net proceeds were received from the sale of common stock to Aspire Capital under the terms of the CSPA and $5.8 million in net proceeds were received from the sale of common stock sold through the Company's ATM program.

Net cash provided by financing activities was $5.5 million for the nine months ended September 30, 2015. For the nine months ended September 30, 2015 net cash proceeds of $5.4 million were received upon the March 6, 2015 completion of a registered direct offering and $0.2 million in net proceeds were received from the sale of common stock sold through the Company's ATM program. Offsetting these amounts were payments made for income tax withholdings on net share settlements of equity awards of $0.1 million.

Liquidity and Capital Resources

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared on a "going concern" basis, which means that the continuation of the Company is presumed even though events and conditions exist that, when considered in the aggregate, raise substantial doubt about the Company's ability to continue as a going concern because it is possible that the Company will be unable to meet its obligations as they become due within one year after the date that these financial statements were issued.

Since the second half of 2015, the Company has faced liquidity challenges. The Company has encountered difficulties raising sufficient capital as a result of weak capital markets, particularly in the commodities sector. The Company's liquidity was further challenged following the completion of the Anatolia Transaction on November 9, 2015, as the Company incurred higher than expected transaction costs and assumed significant unpaid trade payables from Anatolia Energy. At September 30, 2016 the Company's cash balance was $3.8 million and the Company had a working capital deficit of $6.0 million, which deficit includes $7.5 million related to the RCF Loan which matures on December 31, 2016. The ending cash balance of $3.8 million is expected to provide the Company with sufficient capital to fund its critical operations through December 31, 2016. The Company's ability to avoid default on the RCF Loan will depend upon renegotiation of the loan terms, or raising additional capital from other sources. The Company presently anticipates funding from the following sources:


Laramide Asset Sale

On April 7, 2016, Laramide Resources and the Company entered into the Laramide SPA for the sale of its wholly-owned subsidiary Hydro Resources Inc., which holds the Company's Churchrock and Crownpoint properties in New Mexico for $12.5 million. Under the terms of the Laramide SPA, the Company expects to receive an initial cash payment of $5.25 million upon closing. The closing is subject to certain conditions including completion of a financing by Laramide Resources on commercially reasonable terms and in such amount as is necessary to fund the $5.25 million cash payment. Closing is currently anticipated to occur by November 30, 2016. Either party may terminate the Laramide SPA if the closing has not occurred by November 30, 2016, which was extended under an amendment agreement from September 30, 2016.

Common Stock Purchase Agreement with Aspire Capital

On April 8, 2016, the Company entered into the CSPA with Aspire Capital to place up to $12.0 million in the aggregate of its common stock over a term of 30 months following receipt of shareholder approval. The Company's shareholders approved the issuance of up to 5.0 million shares of common stock under the CSPA at its Annual General Meeting of Stockholders on June 7, 2016. As of November 10, 2016 the Company has approximately $6.3 million of common stock and 744,650 shares available for future sales. The Company would need to seek stockholder approval before issuing shares in excess of such 744,650 shares.

The Company's ability to continue to fund its ongoing operations and continue as a going concern is dependent upon the sources of capital above and the renegotiation or refinancing of the RCF Loan. While the Company initially expected that the Laramide SPA would close by September 30, 2016, Laramide Resources has experienced delays in obtaining the necessary funding to close the transaction and, as a result, the Company and Laramide Resources agreed to extend the closing date to November 30, 2016. Based on continued discussions with Laramide Resources and the payment of the $250,000 extension fee, the Company believes that the funding will be in place to close by November 30, 2016. In addition, factors such as the Company's market capitalization, current share price, volatility of trading volume and potential to fall below the . . .

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