Ur-Energy (TSX: URE; NYSE-MKT: URG) produced its first net profit during the quarter ended June 2015 at its Lost Creek in-situ recovery (ISR) uranium facility in Wyoming, after bringing the mine online in August 2013.
“Make no mistake, our two-year period has been filled with plenty of trials and tribulations. The commissioning process is never easy, but I like to think that we have done a good job of navigating it,” Jeffrey Klenda, the company’s executive director and acting CEO, said on a conference call.
Earnings were US$1 million, or US1¢ per share, beating the adjusted nil per share that Raymond James analyst David Sadowski forcasted. He attributes the slight beat to better operating results.
Steven Hatten, Ur-Energy’s vice-president of operations, noted that his team produced, drummed and shipped the millionth uranium oxide (U3O8) lb. from Lost Creek in June, and called this an “amazing feat,” and a “big milestone for any operation.”
The Lost Creek property sits in the northeastern corner of Sweetwater County in south-central Wyoming. The 170 sq. km property comprises six projects, with its core Lost Creek project hosting production at the first mine unit (MU1).
The junior has increased output while lowering its operating costs. During the second quarter, Lost Creek cranked out 207,268 lb. U3O8, marking its fourth straight quarterly increase.
Cash costs came in at US$16.15 per lb. U3O8. “That’s an excellent number for us,” Hatten said, pointing out that cash costs were US$18.86 per lb. in the first quarter, US$20 per lb. in 2014 and US$22 per lb. in 2013.
Lost Creek ranks “amongst the lowest-cost uranium producers anywhere in the world,” Sadowski adds.
Contract and spot sales from Lost Creek came in at 204,000 lb. at an average US$31.21 per lb. (The company sold 70,000 lb. U3O8 on the spot market in June.)
To accelerate a September contractual delivery, Ur-Energy also bought 200,000 lb. U3O8 from a trader at the then-spot price of US$39.39 per lb. It sold these pounds under a US$59.94 per lb. contract price, generating US$4 million in net cash proceeds.
Quarterly sales totalled 404,000 lb. U3O8 at an average US$45.08 per lb., while average cost per lb. sold was US$34.14. This produced a gross profit of US$10.94 per lb.
The company explains that gross profit is lower than in the previous two quarters due to the lower second-quarter average sales prices, noting its first sale on the spot market and one low-priced sales contract contributed to this.
However, quarterly revenue was US$18.2 million, compared to the first quarter’s US$7.4 million, and US$9.2 million during the same period last year. The higher revenue came from improved operations.
Klenda commended Ur-Energy management for keeping the Lost Creek mine running despite a depressed uranium market, and vocal criticism.
Such critics, he said, argued “we were burning up a very valuable and very finite resource, in a very challenging environment … if we were prudent we shouldn’t be producing, instead we should be a pounds-in-the-ground company … waiting for those higher prices.”
Klenda added that detractors never mentioned Ur-Energy realized margins of US$30 per lb. when spot prices hovered around US$35 per lb., or the fact that it is growing its resources.
“We are selling into term contracts at average prices of US$50 per lb. for 2015, while our cash cost per pound, including ad valorem and severance taxes, was below US$20 per lb., and is declining,” Rich Boberg, the company’s senior director of investor and public relations, told The Northern Miner.
On the resource front, Ur-Energy has updated an estimate for MU1, adding 2.3 million lb. to the measured category. But after taking into account the U3O8 generated through March 31, 2015, the actual increase was 1.3 million lb. for a revised total of 3.8 million lb., in a 55% boost over the December 2013 preliminary economic assessment (PEA). It lowered the uranium grade times thickness cut-off from 0.30 to 0.20.
Meanwhile, Ur-Energy says the first part of its 150-hole exploration program — which focused on areas near MU1 — outlined 121,000 lb. U3O8 in measured and indicated, plus 296,000 lb. in inferred. This resource was included in the June 2015 National Instrument 43-101 technical report for the Lost Creek property.
The property hosts 6.2 million equivalent lb. uranium oxide (eU3O8) from 6.3 million measured tons at 0.049% eU3O8 and 3.9 million lb. eU3O8 from 4.1 million indicated tons at 0.047%, plus 5 million lb. eU3O8 at 5.2 million inferred tons at 0.049%.
Ur-Energy intends to update the technical report later this year, after its drill program.
The firm only needs to produce from MU1 to meet its production needs, but Boberg notes development drilling in MU2 is underway, and could start production in 2016.
He adds that the miner will not produce from the five adjacent unpermitted and undeveloped projects on the Lost Creek property any time soon, but will permit the Shirley basin project in the Shirley basin mining district of Wyoming.
A January 2015 PEA examined developing a commercial satellite uranium ISR operation at Shirley, combined with the Lost Creek operations.
The project has 8.8 million lb. U3O8 in measured and indicated grading 0.23% eU3O8. The high grade makes this an “extremely attractive” asset.
The study estimates construction to start in January 2017, with production commencing in October 2017. The project’s initial cost is US$30.6 million, with total uranium production anticipated at 6.3 million lb., and operating costs of US$14.54 per lb. Total cost, including severance taxes and operational and capital spending, should average US$31.26 per lb.
The firm expects to submit its application to convert the project’s licence from a conventional operation to an ISR in the third quarter, and wrap up permitting and licensing in 2016.
During the third quarter, Ur-Energy forecasts producing 210,000 lb. U3O8 and keeping its full-year output guidance at 750,000 to 850,000 lb., along with contracted sales at 630,000 lb.
Ur-Energy has 150,000 lb. left in sale contracts this year, Raymond James’ Sadowski notes. (The average 2015 contract price is US$49.50 per lb.)
Klenda points out that the company has 11 long-term contracts in place that extend to 2021, noting it signed all but one after the 2011 Fukushima nuclear incident in Japan, proving “acceptable pricing and margins” can be “achieved in the post-Fukushima environment.”
Lost Creek is producing 70,000 lb. a month, Boberg notes. Its nameplate capacity is 1 million lb. per year from Lost Creek sources and 2 million lb. per year from all sources, including future deliveries from the fully developed Shirley basin project.
“The company is one of our top uranium picks, with its industry-leading cash costs and high fixed-price contracts, coupled with significant production scalability in an improving uranium macro
environment,” Sadowski says. He has a $1.80 target price.
Cantor Fitzgerald analyst Rob Chang has a $2.60 target, with a “buy” recommendation on Ur-Energy.
The firm had US$3.6 million in cash in July, and last traded at 91¢.
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