My previous article on Ur-Energy (URG) certainly generated a lot of comments, most of them critical. Apparently Wayne Heili was none too thrilled with the piece, either. I spoke to him on the phone on Thursday (Oct. 3) and he made it clear that he thought my article was too negative and had caused the stock to drop about 20%. Flattered as I was to think that my writing could have such an effect, that certainly wasn't the purpose of the work. I wrote the piece because I felt there was an ugly cash crunch coming up that might spell the demise of the company.
Today, things look better. Not for uranium, unfortunately, still at $35/lb for the spot price. But, for URG, there's more cash in the bank. RMB has granted a second loan for $15 mil. This, along with the $20 mil secured in June, means the company has a reasonable chance of becoming a profitable producer. Its liquidity picture looks a lot stronger:
Cash on June 30, was $12.4 mil plus the latest loan of approximately $14 mil (net). A total of $26.4 mil less cash outlays from July to today.
Payments on the two loan facilities and the Pathfinder deal look like this:
- Interest on Loan No.1 of $388k/quarter starting Sept 2013 through Dec 2015. Total= $3.88 mil.
- Principal payments for Loan No. 1 of $2.5 mil/quarter starting Mar 2014 through Dec 2015. Total= $20 mil
- Interest on Loan No. 2 of $291k/quarter starting (perhaps) Dec 2013 through Mar 2017. Total= $2.91 mil
- Principal on Loan No. 2 Mar 2014-Dec 2015 $750k/quarter. Total= $6 mil
- Principal on Loan No. 2 Mar 2016-Mar 2017 $1.8 mil/quarter. Total= $9 mil
- Pathfinder $11.925 mil
Assuming it closes the Pathfinder deal in the next year, the firm will require about $24 mil through Sept 2014 to service the loans and buy Pathfinder. Funds will also be needed to fund the operation of the mine. Production has started with estimated annual output of 800,000 lbs. We don't know what the revenue stream will look like:
- How much of the coming year's production has already been paid for?
- What is the mix of spot and contract?
- When will the full output capacity be achieved?
A conservative estimate of the production through Sept 2014 would be 600,000 lbs. Using the company's operating cost estimate of around $16/lb and an average blended (spot + contract) selling price of $50/lb yields gross profit of $20 mil. Even a low projection of 400,000 lbs and a selling price of $45/lb translates into $11.6 mil gross profit. That should be enough to keep the operation alive, assuming the operating cost figure and selling price estimate are in the ballpark.
Financial statements are due out around the end of this month. We'll get a clearer picture of URG's liquidity and, perhaps, some indication of future cash flow from the mine. Now that it has secured the amount from RMB that it is expecting from the Wyoming Industrial Development Bond program, the cash concerns are alleviated for the moment. This lifeline of cash will allow the firm to demonstrate that it has a viable operation. The financials for the October to December quarter will make interesting reading after a full three months of production.
That's a Wrap
URG has some positives going for it:
- The second chunk of financing from RMB
- Court decision upholding the Record of Decision allowing the mine to commence production
- Expectation that the $34 mil loan from the Wyoming Bond fund will be granted
- An insider buy from Jeffrey Klenda, chairman, on Aug 16 of 17,500 shares, although he sold 10,000 shares on Oct 4.
- Start-up of production for a U.S.-based miner
But it's not clear skies yet:
- Will the mine generate enough revenue to pay off the two loans from RMB and produce a profit if the Wyoming Bond application fails?
- Has uranium found a bottom? An uptick in the spot price will surely boost the stock, if not the fortunes, of URG and others.
Ur-Energy has found its financial footing. Although the terms of the two loans are Visa-like (+18% effective rate), these funds have bought time for the miner to prove its mettle (a bad pun that I think I stole from someone else). Approval of the Wyoming Bond would make its financial foundation much stronger. Mr. Heili said that, although this approval is not life or death for the firm, he still expects it to come about. For all the employees of URG and investors in the company let's hope the state bond comes through and that uranium starts to climb. These two events could make URG an interesting place to be over the next couple of years.
As usual, don't turn your interest into an obsession. This stock, like all junior miners, is high-risk speculation. Mining is littered with bodies. Don't make yours one of them.