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UEC > SEC Filings for UEC > Form 10-Q on 12-Dec-2016All Recent SEC Filings

Show all filings for URANIUM ENERGY CORP

Form 10-Q for URANIUM ENERGY CORP


12-Dec-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 months ended October 31, 2016 and our Form 10-K Annual Report for the fiscal year ended July 31, 2016 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, 2016 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, 2016, our most recently completed yearend, to October 31, 2016 and our results of operations for the three months ended October 31, 2016, 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 Fiscal 2016.

Business

We operate in a single reportable segment and since 2004, as more fully described in our Form 10-K Annual Report for Fiscal 2016, 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 October 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 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 and Texas 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 months ended October 31, 2016, we continued our strategic plan for reduced operations implemented in September 2013 to align our operations to a weak uranium market in a challenging post-Fukushima environment. As part of this strategy, we operated our Palangana Mine at a reduced pace to capture residual uranium only, while maintaining Palangana Mine and the Hobson Facility in a state of operational readiness. This strategy also included the deferral of major exploration and pre-extraction expenditures and maintaining the core exploration projects in good standing in anticipation of a recovery in uranium prices.

Mineral Rights and Properties

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

Burke Hollow Project

During the three months ended October 31, 2016, the Company continued to advance the applications of its Mine Area, Aquifer Exemption and Radioactive Material License at its Burke Hollow Project after receipt of two Class I disposal well permits. The draft Mine Area permit and Aquifer Exemption have been issued and the comment period for both has ended. The Radioactive Material License application remains under technical review by TCEQ. The spring ecological assessment for the eastern trend extension has been completed, and the fall ecological assessment was completed in October 2016 anticipating wellfield expansion of the eastern trend.

Yuty Project

During the three months ended October 31, 2016, the Company initiated work on a Preliminary Economic Assessment in accordance with the provisions of CSA National Instrument 43-101 for our Yuty Project. Split core samples from eight mineralized drill holes from the Yuty Project were selected and shipped to a United States laboratory where the core samples will undergo individual leach tests for ultimate extraction, bottle roll leach tests and static leach tests in order to further corroborate ISR amenability at the Yuty Project. The results of these testing are anticipated in early 2017.

Results of Operations

For the three months ended October 31, 2016 and 2015, we recorded net losses of $4,252,694 ($0.04 per share) and $5,072,034 ($0.05 per share), respectively.

During the three months ended October 31, 2016 and 2015, we continued with our strategic plan for reduced operations implemented in September 2013 and continued reduced operations at our Palangana Mine to capture residual pounds of U3O8 only. As a result, no U3O8extraction or processing costs were capitalized to inventories during the three months ended October 31, 2016 and 2015.

For the three months ended October 31, 2016, the Company recorded an inventory write-down of $60,694 to adjust the U3O8 inventory balance in finished goods and work-in-progress to net realizable value to reflect the market price of U3O8 of $18.81 per pound at October 31, 2016, less estimated royalties. No inventory write-down was recorded for the three months ended October 31, 2015.

At October 31, 2016, the total value of inventories was $211,662 (July 31, 2016:
$275,316).

Costs and Expenses

For the three months ended October 31, 2016 and 2015, costs and expenses totaled $3,527,570 and $4,307,312, comprised of an inventory write-down of $60,694 and $Nil, mineral property expenditures of $890,118 and $1,789,020, general and administrative expenditures of $2,282,238 and $2,275,393, depreciation, amortization and accretion of $151,352 and $242,899, and impairment loss on mineral properties of $143,168 and $Nil, respectively.

Mineral Property Expenditures

During the three months ended October 31, 2016 and 2015, mineral property expenditures totaled $890,118 and $1,789,020, 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 months ended October 31, 2016, and 2015, mineral property expenditures included expenditures directly related to maintaining operational readiness and permitting compliance of $345,388 and $458,633, respectively, for our Palangana Mine and Hobson Processing Facility.

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

                                          Three Months Ended October 31,
                                           2016                  2015
Mineral Property Expenditures
Palangana Mine                        $      201,372       $         385,149
Goliad Project                                30,030                  20,809
Burke Hollow Project                          39,641                 721,544
Longhorn Project                                 147                   3,592
Salvo Project                                  8,166                  14,163
Anderson Project                              15,234                 112,133
Workman Creek Project                          8,248                  30,690
Slick Rock Project                            12,346                  48,825
Yuty Project                                  89,675                 111,016
Oviedo Project                               146,668                 132,899
Other Mineral Property Expenditures          338,591                 208,200
                                      $      890,118       $       1,789,020

General and Administrative

During the three months ended October 31, 2016 and 2015, general and administrative expenses totaled $2,282,238 and $2,275,393, 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 months ended October 31, 2016, salaries, management and consulting fees totaled $425,900, a decrease of $237,006 compared to $662,906 for the three months ended October 31, 2015. The decrease was a result of salary reductions and compensating directors, officers and employees with shares of the Company in lieu of cash, which was implemented during Fiscal 2016;

for the three months ended October 31, 2016, office, filing and listing fees, insurance, investor relations and travel expenses totaled $674,443, which were consistent compared to $646,666 for the three months ended October 31, 2015. During the three months ended October 31, 2016, we continued our efforts to monitor and control these costs and reduce expenses wherever possible;

for the three months ended October 31, 2016, professional fees totaled $196,634, a decrease of $142,745 compare with $339,379 for the three months ended October 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 months ended October 31, 2016, stock-based compensation totaled $985,261 which increased $358,819 compared to $626,442 for the three months ended October 31, 2015. Stock-based compensation includes the fair value of stock options granted and the fair value of shares of the Company issued to directors, officers, employees and consultants. During the three months ended October 31, 2016 and 2015, we continued to utilize equity-based payments to compensate directors, officers and employees and for certain consulting services as part of our continuing efforts to reduce cash outlays. In July and August 2016, the Company granted approximately two million stock options to certain directors, officers, employees and consultants. 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 months ended October 31, 2016, depreciation, amortization and accretion totaled $151,352, a decrease of $91,547 compared with $242,899 for the three months ended October 31, 2015. This decrease was primarily the result of certain property and equipment having reached full depreciation or amortization and less accretion expenses on the reduced asset retirement obligations associated with our Palangana Mine as a result of downward revisions during Fiscal 2016. 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.

Impairment Loss on Mineral Properties

During the three months ended October 31, 2016, the Company abandoned certain mineral interests at projects located in Arizona, Colorado and New Mexico with a combined acquisition cost of $143,168. As a result, an impairment loss on mineral properties of $143,168 was reported on our consolidated statement of operations for the three months ended October 31, 2016. No impairment of mineral properties was reported on our consolidated financial statements for the three months ended October 31, 2015.

Other Income and Expenses

Interest and Finance Costs

During the three months ended October 31, 2016, interest and finance costs totaled $738,103, which have remained consistent compared to $777,693 for the three months ended October 31, 2015.

For the three months ended October 31, 2016, interest and finance costs were primarily comprised of, amortization of debt discount of $295,329, interest paid on long-term debt of $408,889 and amortization of annual surety bond premium of $29,118.

For the three months ended October 31, 2015, interest and finance costs were primarily comprised of: amortization of debt discount of $335,668, interest paid on long-term debt of $408,889 and amortization of annual surety bond premium of $28,369.

Summary of Quarterly Results



                                                                  For the Quarters Ended
                                     October 31, 2016       July 31, 2016       April 30, 2016       January 31, 2016
Sales                               $                -     $             -     $              -     $                -
Net loss                                    (4,252,694 )        (3,777,278 )         (3,679,055 )           (4,801,505 )
Total comprehensive loss                    (4,752,734 )        (3,777,095 )         (3,678,919 )           (4,801,724 )
Basic and diluted loss per share                 (0.04 )             (0.03 )              (0.03 )                (0.05 )
Total assets                                53,562,227          56,176,311           59,558,492             49,982,462




                                                                  For the Quarters Ended
                                     October 31, 2015       July 31, 2015       April 30, 2015       January 31, 2015
Sales                               $                -     $     3,080,000     $              -     $                -
Net loss                                    (5,072,034 )        (5,412,432 )         (5,347,729 )           (5,875,540 )
Total comprehensive loss                    (5,072,233 )        (5,412,059 )         (5,347,522 )           (5,876,988 )
Basic and diluted loss per share                 (0.05 )             (0.06 )              (0.06 )                (0.06 )
Total assets                                53,130,380          57,900,257           52,171,028             55,315,547

Liquidity and Capital Resources



                             October 31, 2016       July 31, 2016
Cash and cash equivalents   $        4,327,801     $     7,142,571
Current assets                       5,576,188           8,000,641
Current liabilities                  1,956,945           1,822,447
Working capital                      3,619,243           6,178,194

At October 31, 2016, we had working capital of $3,619,243, a decrease of $2,558,951 from our working capital of $6,178,194 at July 31, 2016. Current assets include $4,327,801 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 our Consolidated Financial Statements for the three months ended October 31, 2016.

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 three months ended October 31, 2016, no revenue from U3O8 sales was realized and our net loss totaled $4,252,694, resulting in an accumulated deficit balance since inception of $213,606,640 at October 31, 2016. During the three months ended October 31, 2016 and 2015, net cash flows decreased by $2,814,770 and $4,739,320, 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 Fiscal 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, Fiscal 2013 and Fiscal 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 in September 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 2016 continues or weakens further during Fiscal 2017;

if the weakness in the market price of our common stock experienced in Fiscal 2016 continues or weakens further during Fiscal 2017;

if we default on making scheduled payments of fees and complying with the restrictive covenants as required under our Credit Facility, 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 2017, 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 mining activities, including the expected duration and profitability of our Palangana Mine and of any future satellite ISR mines, such as our Burke Hollow and Goliad Projects, located within the South Texas Uranium Belt, has many risks and uncertainties. These include, but are not limited to: (i) a significant, prolonged decrease in the market price of uranium; (ii) difficulty in marketing and/or selling uranium concentrates; (iii) significantly higher than expected capital costs to construct the mine and/or processing plant; (iv) significantly higher than expected extraction costs; (v) significantly lower than expected uranium extraction; (vi) significant delays, reductions or stoppages of uranium extraction activities; and (vii) the introduction of significantly more stringent regulatory laws and regulations. Our mining activities may change as a result of any one or more of these risks and uncertainties and there is no assurance that any ore body that we extract mineralized materials from will result in profitable mining activities.

Equity Financings

We filed the 2014 Shelf registration statement, which was declared effective on January 10, 2014 providing for the public offer and sale of certain securities of the Company from time to time, at our discretion, up to an aggregate offering of $100 million.

At October 31, 2016, a total of $35.1 million of the 2014 Shelf was utilized through the following registered offerings and sales of units, with a remaining available balance of $64.9 million under the 2014 Shelf:

on June 25, 2015: $10.0 million in gross proceeds through an offering of units consisting of the Company's shares and share purchase warrants and $6.7 million representing the aggregate exercise price of those share purchase warrants and agents' share purchase warrants should they be exercised in full; and

on March 10, 2016: $10.5 million in gross proceeds through an offering of units consisting of the Company's shares and share purchase warrants and $7.9 million representing the aggregate exercise price of those share purchase warrants and agents' share purchase warrants should they be exercised in full.

Debt Financing

On February 9, 2016, the Company entered into the Second Amended and Restated Credit Agreement with its lenders, Sprott Resource Lending Partnership, CEF (Capital Markets) Limited and Resource Income Partners Limited Partnership (collectively, the "Lenders"), whereby the Company and the Lenders agreed to certain further amendments to our $20,000,000 senior secured credit facility (the "Credit Facility"), under which:

initial funding of $10,000,000 was received by the Company upon closing of the Credit Facility on July 30, 2013; and

additional funding of $10,000,000 was received by the Company upon closing of the amended Credit Facility on March 13, 2014.

The Credit Facility is non-revolving with an amended term of 6.5 years maturing on January 1, 2020, subject to an interest rate of 8% per annum, compounded and payable on a monthly basis. Monthly principal repayments equal to one-twelfth of the principal balance then outstanding are required to commence on February 1, 2019.

We are required to use the proceeds of the Credit Facility for the development, operation and maintenance of our Hobson Processing Facility, our Goliad Project and our Palangana Mine and for working capital purposes.

The Second Amended and Restated Credit Agreement supersedes, in their entirety, the Amended and Restated Credit Agreement dated March 13, 2014 and the Credit Agreement dated July 30, 2013 with the Lenders.

Refer to Note 7: Long-Term Debt of the Notes to our Condensed Consolidated Financial Statements for the three months ended October 31, 2016, and Note 8:
Long-Term Debt of the Notes to the Consolidated Financial Statements for Fiscal 2016.

Operating Activities

Net cash used in operating activities during the three months ended October 31, 2016 was $2,850,770 (three months ended October 31, 2015: $4,713,974). Significant operating expenditures included mineral property expenditures, general and administrative expenses and interest payments.

Financing Activities

Net cash provided by financing activities during the three months ended October 31, 2016 was $36,000 resulting from the exercise of stock options. Net cash used in financing activities during the three months ended October 31, 2015 was $9,622 resulting from a decrease in amounts due to a related party.

Investing Activities

Net cash used in investing activities during the three months ended October 31, 2016 was $Nil. Net cash used in investing activities during the three months ended October 31, 2015 was $15,723, resulting primarily from the purchase of property, plant and equipment.

Stock Options and Warrants

At October 31, 2016, the Company had stock options outstanding representing 12,287,634 common shares at a weighted-average exercise price of $1.34 per share and share purchase warrants outstanding representing 12,094,348 common shares at a weighted-average exercise price of $1.51 per share. At October 31, 2016, outstanding stock options and warrants represented a total 24,381,982 shares issuable for gross proceeds of approximately $34,742,000 should these stock options and warrants be exercised in full. At October 31, 2016, outstanding in-the-money stock options and warrants represented a total 1,039,634 common . . .

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