ENERGY FUELS INC - Quarter Report: 2016 March (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                    

Commission file number: 001-36204

Energy Fuels Inc.
(Exact Name of Registrant as Specified in its Charter)

(303) 389-4130
(Registrant’s Telephone Number, including Area Code)

Indicate by checkmark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]     No [   ]

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [   ]     No [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “Accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes [   ]     No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date:
51,890,415 common shares, without par value, outstanding as of May 5, 2016.

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Cautionary Statement Regarding Forward-Looking Information

This Quarterly Report and the exhibits attached hereto (the “Quarterly Report”) contain “forward-looking statements” within the meaning of applicable US and Canadian securities laws. Such forward-looking statements concern Energy Fuels Inc.’s (the “Company’s” or “Energy Fuels’”) anticipated results and progress of the Company’s operations in future periods, planned exploration, and, if warranted, development of its properties, plans related to its business, and other matters that may occur in the future. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.

Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, schedules, assumptions, future events, or performance (often, but not always, using words or phrases such as “expects” or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “estimates” or “intends”, or stating that certain actions, events or results “may”, “could”, “would”, “might” or “will” be “taken, occur or be achieved”) are not statements of historical fact and may be forward-looking statements.

Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Energy Fuels believes that the expectations reflected in this forward-looking information are reasonable, but no assurance can be given that these expectations will prove to be correct, and such forward-looking information included in, or incorporated by reference into, this Quarterly Report should not be unduly relied upon. This information speaks only as of the date of this Quarterly Report.

Readers are cautioned that it would be unreasonable to rely on any such forward-looking statements and information as creating any legal rights, and that the statements and information are not guarantees and may involve known and unknown risks and uncertainties, and that actual results are likely to differ (and may differ materially) and objectives and strategies may differ or change from those expressed or implied in the forward-looking statements or information as a result of various factors. Such risks and uncertainties include risks generally encountered in the exploration, development, operation, and closure of mineral properties and processing facilities. Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors which could cause actual events or results to differ from those expressed or implied by the forward-looking statements, including, without limitation:

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Although we have attempted to identify important factors that could cause actual results to differ materially from those described in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated, or expected. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Except as required by law, we disclaim any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Statements relating to “Mineral Reserves” or “Mineral Resources” are deemed to be forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions, that the Mineral Reserves and Mineral Resources described may be profitably extracted in the future.

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We qualify all the forward-looking statements contained in this Quarterly Report by the foregoing cautionary statements.

Cautionary Note to United States Investors Concerning Disclosure of Mineral Resources

This Quarterly Report contains certain disclosure that has been prepared in accordance with the requirements of Canadian securities laws, which differ from the requirements of United States’ securities laws. Unless otherwise indicated, all reserve and resource estimates included in this Quarterly Report, and in the documents incorporated by reference herein, have been prepared in accordance with Canadian National Instrument 43-101 - Standards of Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) classification system. NI 43-101 is a rule developed by the Canadian Securities Administrators (the “CSA”) which establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects. As a company incorporated in Canada, we estimate and report our resources and our current reserves according to the definitions set forth in NI 43-101.

Canadian standards, including NI 43-101, differ significantly from the requirements of the United States Securities and Exchange Commission (the “SEC”), and reserve and resource information contained herein, or incorporated by reference in this Quarterly Report, and in the documents incorporated by reference herein, may not be comparable to similar information disclosed by companies reporting under only United States standards. In particular, and without limiting the generality of the foregoing, the term “resource” does not equate to the term “reserve” under SEC Industry Guide 7. Under United States standards, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. Under SEC Industry Guide 7 standards, a “final” or “bankable” feasibility study is required to report reserves; the three-year historical average price, to the extent possible, is used in any reserve or cash flow analysis to designate reserves; and the primary environmental analysis or report must be filed with the appropriate governmental authority.

The SEC’s disclosure standards under Industry Guide 7 normally do not permit the inclusion of information concerning “measured mineral resources”, “indicated mineral resources” or “inferred mineral resources” or other descriptions of the amount of mineralization in mineral deposits that do not constitute “reserves” by United States standards in documents filed with the SEC. United States investors should also understand that “inferred mineral resources” have a great amount of uncertainty as to their existence and as to their economic and legal feasibility. It cannot be assumed that all or any part of an “inferred mineral resource” will ever be upgraded to a higher category. Under Canadian rules, estimated “inferred mineral resources” may not form the basis of feasibility or prefeasibility studies. United States investors are cautioned not to assume that all or any part of measured or indicated mineral resources will ever be converted into mineral reserves. Investors are cautioned not to assume that all or any part of an “inferred mineral resource” exists or is economically or legally mineable.

Disclosure of “contained pounds” or “contained ounces” in a resource estimate is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC standards as in-place tonnage and grade without reference to unit measures. The requirements of NI 43-101 for identification of “reserves” are also not the same as those of the SEC, and reserves reported by the Company in compliance with NI 43-101 may not qualify as “reserves” under SEC Industry Guide 7 standards. Accordingly, information concerning mineral deposits set forth herein may not be comparable to information made public by companies that report in accordance with United States standards.

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PART I

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

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See accompanying notes to the consolidated financial statements.

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Commitments and contingencies (Note 13)

See accompanying notes to the consolidated financial statements.

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See accompanying notes to the consolidated financial statements

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1. THE COMPANY AND DESCRIPTION OF BUSINESS

Energy Fuels Inc. was incorporated under the laws of the Province of Alberta and was continued under the Business Corporations Act (Ontario).

Energy Fuels Inc. and its subsidiary companies (collectively “the Company” or “EFI”) are engaged in uranium extraction, recovery and sales of uranium from mineral properties and the recycling of uranium bearing materials generated by third parties. As a part of these activities the Company also acquires, explores, evaluates and, if warranted, permits uranium properties. The Company’s final uranium product, uranium oxide concentrates (“U₃O₈” or “uranium concentrates”), is sold to customers for further processing into fuel for nuclear reactors.

The Company is an exploration stage mining company as defined by the United States (“US”) Securities and Exchange Commission (“SEC”) Industry Guide 7 (the “SEC Industry Guide 7”) as it has not established the existence of proven or probable reserves on any of our properties.

2. BASIS OF PRESENTATION

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) and are presented in thousands of US dollars (“USD”) except per share amounts. Certain footnote disclosures have share prices which are presented in Canadian dollars (“Cdn$”).

The interim consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP has been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures included are adequate to make the information presented not misleading.

In management’s opinion, these unaudited interim financial reflect all adjustments, consisting solely of normal recurring items, which are necessary for the fair presentation of the Company’s financial position, results of operations and cash flows on a basis consistent with that of the Company’s prior audited consolidated financial statements. However, the results of operations for the interim periods may not be indicative of results to be expected for the full fiscal year. Therefore these unaudited interim financial statements should be read in conjunction with the audited financial statements and notes thereto and summary of significant accounting policies included in the Company’s annual report on Form 10-K for the year ended December 31, 2015.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated.

Recently Adopted Accounting Pronouncements

Fair value measurement

In May 2015, ASU No. 2015-07 was issued related to investments for which fair value is measured, or are eligible to be measured, using the net asset value per share practical expedient. This update removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendment also removes certain disclosure requirements for these investments. This update will impact the annual disclosure related to pension plan assets measured at fair value. This update is effective in fiscal years, including interim periods, beginning after December 15, 2015. Adoption of this guidance effective January 1, 2016 had no impact on the Consolidated Financial Statements.

Debt issuance costs

In April 2015, ASU No. 2015-03 was issued related to debt issuance costs. This update simplifies the presentation of debt issuance costs by requiring debt issuance costs to be presented as a deduction from the corresponding debt liability. The update is effective in fiscal years, including interim periods, beginning after December 15, 2015. Adoption of this guidance effective January 1, 2016 had no impact on the Consolidated Financial Statements.

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Consolidations

In February 2015, ASU No. 2015-02 was issued related to consolidations. This update makes some targeted changes to current consolidation guidance and impacts both the voting and the variable interest consolidation models. In particular, the update changes how companies determine whether limited partnerships or similar entities are variable interest entities. The update is effective in fiscal years, including interim periods, beginning after December 15, 2015. The adoption of this guidance effective January 1, 2016 had no impact on the Consolidated Financial Statements or disclosures.

Recently Issued Accounting Pronouncements not yet adopted

The FASB issued the following new and revised standards and amendments, which are not yet effective which may have future applicability to the Company:

Inventory

In July 2015, ASU 2015-11 was issued related to inventory simplifying the subsequent measurement of inventories by replacing the lower of cost or market test with a lower of cost and net realizable value test. The update is effective in fiscal years, including interim periods, beginning after December 15, 2016, and early adoption is permitted. The Company is currently evaluating this guidance and the impact it will have on the financial statements.

Investments

In January 2016, ASU No. 2016-01 was issued related to financial instruments. The new guidance requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income. This new guidance also updates certain disclosure requirements for these investments. This update is effective in fiscal years, including interim periods, beginning after December 15, 2017, and early adoption is not permitted. The Company is currently evaluating this guidance and the impact it will have on the financial statements.

Leases

In February 2016, the FASB issued ASU 2016-02 which core principle is that a lessee should recognize the assets and the liabilities that arise from leases, including operating leases. Under the new requirements, a lessee will recognize in the statement of financial position a liability to make lease payments (the lease liability) and the right-of-use asset representing the right to the underlying asset for the lease term. For leases with a term of twelve months or less, the lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from the previous GAAP. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within such fiscal year, with early adoption permitted. The ASU requires a modified retrospective transition method with the option to elect a package of practical expedients. The Company is evaluating the effect of this amendment and the impact it will have on the Company’s financial statements.

Revenue recognition

In May 2014, ASU 2015-14 was issued related to revenue from contracts with customers. The new standard provides a five-step approach to be applied to all contracts with customers and also requires expanded disclosures about revenue recognition. In August 2015, the effective date was deferred to reporting periods, including interim periods, beginning after December 15, 2017, and will be applied retrospectively. Early adoption is not permitted. The Company is currently evaluating this guidance and the impact it will have on the Company’s financial statements.

Deferred Income Taxes

In November 2015, the ASU 2015-17 related to the presentation of deferred income taxes in the statement of financial position by requiring that deferred tax liabilities and assets be classified as noncurrent. The update is effective in fiscal years, including interim periods beginning on or after December 15, 2016. The Company does not expect the updated guidance to have an impact on the Company’s financial statements.

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Going Concern

In August 2014, ASC 205-40 guidance was amended to provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in US auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this update shall be effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016, with early application permitted. The Company is currently evaluating this guidance and the impact on the Company’s financial statements.

Financial instruments

In January 2016, ASU 2016-01 was issued related to financial instruments. The update intends to enhance the reporting model for financial instruments to provide users of financial instruments with more decision-useful information and addresses certain aspects of the recognition, measurement, presentation, and disclosure of financial instruments. The update is effective in fiscal years, including interim periods beginning on or after December 15, 2017. The Company is currently evaluating this guidance and the impact it will have on the financial statements.

3. RECEIVABLES

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4. INVENTORIES

5. INTANGIBLE ASSETS

The following is a summary of changes in intangible assets related to favorable sales contracts acquired in business combinations:

6. PLANT AND EQUIPMENT AND MINERAL PROPERTIES

The following is a summary of plant and equipment:

The net book value for Nichols Ranch includes the value ascribed to the processing plant and equipment. The mineral properties acquired as part of the acquisition of Uranerz Energy Corporation ("Uranerz") in 2015 are recorded as mineral properties, as the Company does not have proven and probable reserves under SEC Industry Guide 7. Accordingly, all subsequent expenditures at the Nichols Ranch plant and equipment, which do not have any alternative use, and expenditures on mineral properties are expensed as incurred.

For the three months ended March 31, 2016, the Company recorded $1.10 million (2015—Nil) of depreciation expense related to Nichols Ranch, which is included in the costs and expenses applicable to revenue in the Statement of the operations and comprehensive income for the three months ended March 31, 2016.

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The following is a summary of mineral properties:

7. ASSET RETIREMENT OBLIGATIONS

The following table summarizes the Company’s asset retirement obligations:

Revision of estimates is as a result of a change in estimates of the amount or timing of cash flows to settle asset retirement obligations. Changes to the asset retirement obligations are recorded in profit and loss.

The asset retirement obligations of the Company are subject to legal and regulatory requirements. Estimates of the costs of reclamation are reviewed periodically by the applicable regulatory authorities. The above provision represents the Company’s best estimate of the present value of future reclamation costs, discounted using credit adjusted risk-free interest rates ranging from 8.5% to 11.5% and an inflation rate of 2.0% (March 31, 2015 – 2.0%). The total undiscounted decommissioning liability as at March 31, 2016 is $32.30 million (March 31, 2015 - $27.40 million). Reclamation costs are expected to be incurred between 2016 and 2038 in the following manner: 2016 – 2020 - $2.83 million, 2021 – 2025 - $2.32 million, 2026 – 2030 - $2.69 million, 2031 – 2035 - $8.78 million, 2036 – 2038 - $15.68 million.

8. LOANS AND BORROWINGS

The contractual terms of the Company’s interest-bearing loans and borrowings, which are measured at amortized cost, and the Company’s convertible debentures which are measured at fair value, are as follows:

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9. CAPITAL STOCK

Authorized capital stock

The Company is authorized to issue an unlimited number of Common Shares without par value, unlimited Preferred Shares issuable in series, and unlimited Series A Preferred Shares. The Series A Preferred shares are non-redeemable, non-callable, non-voting and with no right to dividends. The Preferred Shares issuable in series will have the rights, privileges, restrictions and conditions assigned to the particular series upon the Board of Directors approving their issuance.

Issued capital stock

The significant transactions relating to capital stock issued for the three months ended March 31, 2016:

Share Purchase Warrants

The Company has share purchase warrants denominated in Canadian dollars and US dollars.

The following table summarizes the Company’s share purchase warrants denominated in Cdn$:

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The following table summarizes the Company’s share purchase warrants denominated in USD. These warrants are accounted for as derivative liabilities as the exercise price has a different currency than the Company parent entity.

The US dollar based warrants are classified as Level 2 under the fair value hierarchy (Note 15).

The following weighted average assumptions were used for the Black-Scholes option pricing model to calculate the $2.09 million of fair value for the 2,515,625 warrants issued in connection with the public offering in March 2016.

10. BASIC AND DILUTED LOSS PER COMMON SHARE

Basic and diluted loss per share

The calculation of diluted earnings per share after adjustment for the effects of all potential dilutive common shares, calculated as follows:

For the three months ended March 31, 2016 and 2015, 6,993,805 and 1,691,781 options and warrants, respectively, and the potential conversion of the uranium debentures have been excluded from the calculation as their effect would have been anti-dilutive.

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11. SHARE-BASED PAYMENTS

The Company has stock incentive plans for directors, executives and eligible employees. Stock incentive awards include employee stock options and restricted stock units (“RSUs”). The Company issues new shares of common stock to satisfy exercises and vesting under all of its stock incentive awards. At March 31, 2016, a total of 5,191,134 shares were authorized for stock incentive plan awards.

Employee Stock Options

The Company has established a stock option plan whereby the Board of Directors may grant options to employees, directors and consultants to purchase common shares of the Company. The exercise price of the options is set as the higher of the Company’s closing share price on the day before the grant date or the five-day volume weighted average price. Stock options granted under the Company’s stock incentive plans generally vest over a period of two years or more and are generally exercisable over a period of five years from the grant date not to exceed 10 years. The value of each option award is estimated at the grant date using the Black-Scholes option pricing model. There were 0.42 million options granted in the three month ended March 31, 2016 (2015 – Nil). At March 31, 2016, there were 2.45 million options outstanding with 2.07 million options exercisable, at a weighted average exercise price of $6.54, with a weighted average remaining contractual life of 4.27 years. The aggregate intrinsic value of the fully vested shares was $0.02 million.

The fair value of the options granted under the Plan for the three months ended March 31, 2016 was estimated at the date of grant, using the Black-Scholes Option Valuation Model, with the following weighted-average assumptions:

The summary of the Company’s stock options at March 31, 2016 and December 31, 2015, and the changes for the fiscal periods ending on those dates is presented below:

Restricted Share Units

The Company grants RSUs to executives and eligible employees. Awards are determined as a target percentage of base salary and vest over periods of three years. Prior to vesting, holders of restricted stock units do not have the right to vote the underlying shares. The restricted stock units are subject to forfeiture risk and other restrictions.

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Upon vesting, the employee is entitled to receive one share of the Company’s common stock for each restricted stock unit. During the three months ended March 31, 2016, the Company’s Board of Directors approved the issuance of 948,047 RSUs under the Company’s 2015 Omnibus Equity Incentive Compensation Plan (the “Compensation Plan”) (2015 – 153,850).

A summary of the status and activity of non-vested stock options and RSUs at March 31, 2016 is as follows:

The total intrinsic value and fair value of RSUs that vested and were settled for equity in the three months ended March 31, 2016 was $0.30 million (2015 – Nil).

At March 31, 2016, there was $0.23 million and $1.88 million of unrecognized compensation costs related to the unvested stock options and RSU awards, respectively. This cost is expected to be recognized over a period of approximately two years.

In the three months ended March 31, 2016 the Company issued 1,200 shares upon exercise of stock options at an average exercise price of $2.12 for proceeds of less than $0.01 million. These options had an intrinsic value of less than $0.01 million.

The share-based compensation recorded during the three months ended March 31, 2016 and 2015 is as follows:

12. SUPPLEMENTAL FINANCIAL INFORMATION

The components of revenues are as follows:

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The components of other income (expense) are as follows:

13. COMMITMENTS AND CONTINGENCIES

General legal matters

White Mesa Mill

In November, 2012, the Company was served with a Plaintiff’s Original Petition and Jury Demand in the District Court of Harris County, Texas, claiming unspecified damages from the disease and injuries resulting from mesothelioma from exposure to asbestos, which the Plaintiff claims was contributed by being exposed to asbestos products and dust while working at the White Mesa Mill. The Company does not consider this claim to have any merit, and therefore does not believe it will materially affect its financial position, results of operations or cash flows. In January, 2013, the Company filed a Special Appearance challenging jurisdiction and certain other procedural matters relating to this claim. No other activity involving the Company on this matter has occurred since that date.

In January, 2013, the Ute Mountain Ute tribe filed a Petition to Intervene and Request for Agency Action challenging the Corrective Action Plan approved by the State of Utah Department of Environmental Quality (“UDEQ”) relating to nitrate contamination in the shallow aquifer at the White Mesa Mill site. This challenge is currently being evaluated, and may involve the appointment of an administrative law judge to hear the matter. The Company does not consider this action to have any merit. If the petition is successful, the likely outcome would be a requirement to modify or replace the existing Corrective Action Plan. At this time, the Company does not believe any such modification or replacement would materially affect our financial position, results of operations or cash flows. However, the scope and costs of remediation under a revised or replacement Corrective Action Plan have not yet been determined and could be significant.

In April 2014, the Grand Canyon Trust filed a citizen suit in federal district court for alleged violations of the Clean Air Act at the White Mesa Mill. In October 2014, the plaintiffs were granted leave by the court to add further purported violations to their April 2014 suit. The Complaint, as amended, alleges that radon from one of the Mill’s tailings impoundments exceeded the standard; that the mill is in violation of a requirement that only two tailings impoundments may be in operation at any one time; and that certain other violations related to the manner of measuring and reporting radon results from one of the tailings impoundments occurred in 2013. The Complaint asks the court to impose injunctive relief, civil penalties of up to $37,500 per day per violation, costs of litigation including attorneys’ fees, and other relief. The Company believes the issues raised in the Complaint are being addressed through the proper regulatory channels and is currently in compliance with all applicable regulatory requirements relating to those matters. The Company intends to defend against all issues raised in the Complaint.

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Canyon Project

In March, 2013, the Center for Biological Diversity, the Grand Canyon Trust, the Sierra Club and the Havasupai Tribe (the “Canyon Plaintiffs”) filed a complaint in the U.S. District Court for the District of Arizona (the “District Court”) against the Forest Supervisor for the Kaibab National Forest and the United States Forest Service (“USFS”) seeking an order (a) declaring that the USFS failed to comply with environmental, mining, public land, and historic preservation laws in relation to our Canyon Project, (b) setting aside any approvals regarding exploration and mining operations at the Canyon Project, and (c) directing operations to cease at the Project and enjoining the USFS from allowing any further exploration or mining-related activities at the Canyon Project until the USFS fully complies with all applicable laws. In April 2013, the Plaintiffs filed a Motion for Preliminary Injunction, which was denied by the District Court in September, 2013. On April 7, 2015, the District Court issued its final ruling on the merits in favor of the Defendants and the Company and against the Canyon Plaintiffs on all counts. The Canyon Plaintiffs appealed the District Court’s ruling on the merits to the Ninth Circuit Court of Appeals, and filed motions for an injunction pending appeal with the District Court. Those motions for an injunction pending appeal were denied by the District Court on May 26, 2015. Thereafter, Plaintiffs filed urgent motions for an injunction pending appeal with the Ninth Circuit Court of Appeals, which were denied on June 30, 2015. Briefing on the appeal on the merits is now complete, and the parties are waiting for a hearing to be scheduled. If the Canyon Plaintiffs are successful on their appeal on the merits, the Company may be required to maintain the Canyon Project on standby pending resolution of the matter. Such a required prolonged stoppage of shaft sinking and mining activities could have a significant impact on our future operations.

Surety bonds

The Company has indemnified third-party companies to provide surety bonds as collateral for the Company’s ARO. The Company is obligated to replace this collateral in the event of a default, and is obligated to repay any reclamation or closure costs due. The Company currently has $12.98 million posted against an undiscounted ARO of $32.30 million (2015 - $16.15 million posted against undiscounted asset retirement obligation of $27.40 million).

14. SEGMENT INFORMATION

The Company is engaged in uranium extraction, recovery and sales of uranium from mineral properties and the recycling of uranium bearing materials generated by third parties. As a part of these activities the Company also acquires, explores, evaluates and, if warranted, permits uranium properties. The Company’s primary mining activities are in the United States.

The reportable segments are those operations whose operating results are reviewed by the Chief Executive Officer to make decisions about resources to be allocated to the segment and assess its performance provided those operations pass certain quantitative thresholds. Operations whose revenues, earnings or losses or assets exceed 10% of the total consolidated revenue, earnings or losses or assets are reportable segments. Information about assets and liabilities of the segment has not been provided because the information is not used to assess performance.

In order to determine reportable operating segments, management reviewed various factors, including geographical location and managerial structure. It was determined by management that a reportable operating segment generally consists of an individual property managed by a single general manager and management team. Finance income (expense), other income (expenses) are managed on a consolidated basis and are not allocated to operating segments.

Non-mining activities and other operations are reported in Corporate and other.

The Company has two operating segments, the conventional uranium recovery segment (the “Conventional Uranium Segment”) and the in-situ uranium recovery segment (“ISR Uranium Segment”).

The Conventional Uranium Segment

The Conventional Uranium Segment consists of a standalone conventional uranium recovery facility (the “White Mesa Mill”), conventional mining projects in the vicinity of the White Mesa Mill located in the Colorado Plateau, Henry Mountains, Arizona Strip, and the Roca Honda joint venture (“Roca Honda”) in New Mexico, and the Sheep Mountain Project in Wyoming. At March 31, 2016 the conventional mining projects in the vicinity of the White Mesa Mill are on standby, being evaluated for continued mining activities and/or in process of being permitted. The White Mesa Mill also processes third party uranium bearing mineralized materials from mining and recycling activities.

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The ISR Uranium Segment

The ISR Uranium Segment consists of a uranium recovery facility to recover from operating wellfields of the Nichols Ranch Project located in Wyoming. The Nichols Ranch Project also includes the Jane Dough property and the Hank Project. Additionally, the segment includes other mineral properties in the vicinity on the Nichols Ranch Project. These assets were acquired as part of the Company’s 2015 acquisition of Uranerz.

The following tables set forth operating results by reportable segment for the three months ended March 31, 2016: Note the ISR Segment was acquired on June 18, 2015. Prior to the acquisition the Company’s reportable segment was its conventional uranium segment.

15. FAIR VALUE ACCOUNTING

Assets and liabilities measured at fair value on a recurring basis

The following tables set forth the fair value of the Company's assets and liabilities measured at fair value on a recurring basis (at least annually) by level within the fair value hierarchy as at March 31, 2016. As required by accounting guidance, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

As at March 31, 2016, the fair values of cash and cash equivalents, restricted cash, short-term deposits, receivables, accounts payable and accrued liabilities approximate their carrying values because of the short-term nature of these instruments.

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The Company's investments are marketable equity securities which are exchange traded are valued using quoted market prices in active markets and as such are classified within Level 1 of the fair value hierarchy. The fair value of the investments is calculated as the quoted market price of the marketable equity security multiplied by the quantity of shares held by the Company.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements for the three months ended March 31, 2016, and the related notes thereto, which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). Additionally, the following discussion and analysis should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements included in Part II of our Annual Report on Form 10-K for the year ended December 31, 2015 filed on March 15, 2016. This discussion and analysis contains forward-looking statements and forward-looking information that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements and information as a result of many factors. See section “Note Regarding Forward-Looking Statements” below.

All dollar amounts stated herein are in U.S. dollars, except per share amounts and currency exchange rates unless specified otherwise. References to Cdn$ refer to Canadian currency, and $ to United States currency.

Overview

Prior to June 2012, Energy Fuels was primarily a uranium and vanadium exploration, permitting, and evaluation company with no revenue or operating properties. In June 2012, Energy Fuels acquired the US Mining Division of Denison Mines Corp. and began revenue producing activities from these properties. The activities of Energy Fuels, including support staff and expenditures, increased dramatically upon completion of the acquisition. All activities of the Company prior to the June 18, 2015 acquisition of Uranerz Energy Corporation (“Uranerz”) concerned the Conventional Uranium Segment.

On June 18, 2015, Energy Fuels acquired all of the outstanding shares of Uranerz which had, among other properties, an active in situ (“ISR”) uranium extraction and recovery facility. These operations acquired from Uranerz are included in the consolidated financial statements as of June 18, 2015 and represent the Company’s ISR Uranium Segment.

While the Company has uranium extraction and recovery activities and generates revenue, it is considered to be in the Exploration Stage (as defined by SEC Industry Guide 7) as it has no Proven or Probable Reserves within the meaning of SEC Industry Guide 7. Under US GAAP, for a property that has no Proven or Probable Reserves, the Company capitalizes the cost of acquiring the property (including mineral properties and rights) and expenses all costs related to the property incurred subsequent to the acquisition of such property. Acquisition costs of a property are depreciated over its estimated useful life for a revenue generating property or expensed if the property is sold or abandoned. Acquisition costs are subject to impairment if so indicated.

Outlook

Uranium Market Update

According to price data from TradeTech LLC (“TradeTech”), uranium spot prices are down from $34.20 per pound on December 31, 2015 to $27.50 per pound on April 30, 2016, or 20% for the year-to-date. Weekly spot prices reported by TradeTech reached a low of $25.50 per pound on April 15, 2016, which was the lowest value observed by TradeTech since April 22, 2005. TradeTech price data also indicate that long-term U₃O₈ prices, which began 2016 at $44.00 per pound, dropped to $42.00 per pound by April 30, 2016.

The drop in uranium prices is believed to be caused by weaker than expected demand by utilities and persistent oversupply. Most transactions on the spot market in 2016 have involved traders and intermediaries as utilities appear to be well supplied in the short term. The Company continues to believe the weak uranium markets are the result of excess uranium supplies caused by large quantities of secondary uranium extraction, excess inventories and insufficient production cut-backs. The oversupply situation is further exacerbated by reduced demand due to the continued delays in the restart of Japanese reactors, premature reactor closures, and general weakness in the global economy and energy sector. However, since the beginning of the year, certain announcements have been made which may lessen some of the oversupply now burdening the market, including Cameco Corporation’s April 21, 2016 announcement that it is reducing production by approximately 4 million pounds per year in 2016, with further production cuts going forward.

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As a result of the expected growth of nuclear energy, the Company continues to believe the long-term fundamentals of the uranium industry are positive. The Company believes prices must rise to higher levels to support new primary production that will be required to meet the increasing demand we expect to see as more nuclear units are constructed around the world. According to TradeTech, world uranium requirements continue to exceed primary mine production, with the gap being bridged by secondary supplies and excess uranium inventories in various forms that have already been mined. As excess inventories are drawn down and as production from existing mines declines, the Company believes primary mine production will be required to meet demand over the long-term.

Despite current market uncertainty and recently falling prices, the Company continues to believe it has begun to see certain early signs of a market recovery, as previously described in the Company’s Form 10-K for the fiscal year ended December 31, 2015. Of note, China recently finalized its 13^th Five-Year Plan, including a commitment to install 58 GW of nuclear capacity by 2020 (versus today’s 27 GW in installed capacity). In addition, China connected eight reactors to the grid in 2015 (World Nuclear News, January 4, 2016). Japanese utilities are also making slow progress in restarting their nuclear fleet. Two reactors have restarted (Sendai 1 and 2), two more units are approved to restart pending resolution of an injunction (Takahama 3 and 4), and one more reactor has completed the final regulatory step needed prior to approval for restart (Ikata 3). It is worth noting that 42 reactors in Japan are operable according to the World Nuclear Association, and, in addition to the five mentioned above, 19 have applied for approvals to restart. Finally, as mentioned above Cameco recently announced that it is reducing uranium production by approximately 4 million pounds for 2016, and in addition, Rio Tinto and BHP have reported decreased uranium production in Q1-2016 versus Q4-2015.

Operations and Sales Outlook

With the June 2015 acquisition of Uranerz, which includes the Nichols Ranch ISR Project, Energy Fuels has increased its flexibility to adjust its uranium production levels to respond to market conditions and to meet the requirements of its sales contracts. This allows the Company to efficiently fulfill its existing commitments and commit to new spot and term sales that will be sourced from uranium recovered from the Company’s facilities. The Company plans to extract and/or recover uranium from the following sources in 2016 (each of which is more fully described below):

In response to continued uranium price weakness and market uncertainty, the Company expects to continue cash conservation efforts until such time that sustained improvement in uranium market conditions is observed. In addition, the Company is continuing to manage its activities and assets conservatively, maintaining its substantial uranium resource base and its ISR and conventional uranium extraction and recovery capabilities, and only scheduling recovery at the White Mesa Mill and the Nichols Ranch Project as market conditions, availability of mill feed, cash needs, and/or contract delivery requirements may warrant.

Definitive agreement to acquire Mesteña

On March 4, 2016, the Company entered into a definitive agreement (the “Mesteña Purchase Agreement”) between the Company and Mesteña Uranium, LLC, Leoncito Plant, LLC, Leoncito Project, LLC (collectively, the “Subject Companies”) and Mesteña, Inc., Jones Ranch Minerals Unproven, Ltd. and Mesteña Unproven, Ltd. (collectively with the Subject Companies, the “Selling Parties”) to acquire all of the membership interests of the Subject Companies. Mesteña is a uranium recovery company that owns the Alta Mesa ISR uranium recovery project (the “Alta Mesa Project”), located in Texas. The Alta Mesa Project has a fully-licensed and constructed ISR uranium recovery plant, with a design capacity of 1.5 million pounds of uranium concentrate per year. The recovery plant is currently being maintained on standby. Under the Mesteña Purchase Agreement, the Company has agreed to issue 4,551,284 common shares to the Selling Parties at the closing of the transaction, subject to receipt of all applicable regulatory and stock exchange approvals and the satisfaction of certain other conditions to closing. The properties will be subject to a royalty equal (in total) to 3.125% of the value of the recovered U₃O₈ from the Properties sold at a uranium price of $65.00 or less per pound U₃O₈, 6.25% of the value of the recovered U₃O₈ from the Properties sold at a uranium price greater than $65.00 and up to and including $95.00 per pound U₃O₈, and 7.5% of the value of therecovered U₃O₈  from the Properties sold at a uranium price greater than $95.00 per pound U₃O₈. The Company expects to complete the acquisition of Mesteña in the second quarter of 2016 as previously announced.

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The Company will continue to evaluate additional acquisition opportunities that may arise.

Extraction and Recovery Activities – Overview

The Company expects to recover approximately 950,000 pounds of U₃O₈ for the year ending December 31, 2016, as further described below.

The Company currently has finished goods inventory and uranium extraction and recovery capabilities that exceed the commitments contained in its existing sales contracts. As a result, both ISR and conventional uranium extraction and/or recovery have been, and are expected to continue to be, maintained at conservative levels until such time as market conditions improve sufficiently and/or the Company requires cash to meet its business needs.

Extraction and Recovery – ISR Uranium Segment

In response to market conditions, the Company expects to delay the planned construction of one of its wellfields to 2017. We currently plan to extract and recover approximately 300,000 pounds of U₃O₈ for the year ending December 31, 2016, compared with our previous estimate of 350,000 pounds for 2016, as a result of this planned delay.

At March 31, 2016, the Nichols Ranch wellfields had seven header houses extracting uranium. The Company plans to complete an eighth header house by the end of 2016. A ninth header house was originally planned for completion in 2016 but has been delayed due to market conditions. The Company has completed all monitor wells in Production Area #2.

In February 2016, the Company completed construction of the elution circuit and began the elution process at the Nichols Ranch Plant. Yellowcake slurry from this circuit is being shipped to our White Mesa Mill for final yellowcake drying, packaging, and shipment to a conversion facility.

Permitting of the adjacent Jane Dough Property is continuing and is expected to be completed in advance of our need to begin wellfield construction. Also, the Hank Project is fully permitted to be constructed as a satellite facility to the Nichols Ranch Plant.

Extraction and Recovery – Conventional Uranium Segment

The Company expects the White Mesa Mill to recover approximately 650,000 pounds of U₃O₈ for the year ending December 31, 2016.

The Company is planning to recover approximately 425,000 pounds of U₃O₈ extracted from its Pinenut Project. This is an increase of 50,000 pounds over what was previously announced, due to updated weights and assays upon receipt of material at the Mill. Shipment of this material to the Mill was completed in March 2016. The Pinenut Project is now fully depleted, and the Company has commenced reclamation activities.

During 2016, the Company also expects to recover approximately 225,000 pounds of U₃O₈ from alternate feed materials.

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The White Mesa Mill has historically operated on a campaign basis, whereby uranium recovery is scheduled as mill feed, cash needs, contract requirements, and/or market conditions may warrant. Once the processing for 2016 concludes (expected to be in late 2016), the Company expects to place uranium recovery activities at the Mill on standby until additional mill feed becomes available. The Mill will dry and package material from the Nichols Ranch Plant and continue to receive and stockpile alternate feed materials for future milling campaigns. Each future milling campaign will be subject to receipt of sufficient mill feed that would allow the Company to operate the Mill on a profitable basis and/or recover a portion of its standby costs.

The Company is continuing shaft sinking activities at the Canyon Project and has completed the installation of new equipment and infrastructure to optimize shaft sinking rates and realize construction cost savings. Once the shaft depth approaches the mineralized zone, we plan to complete additional exploration drilling to further evaluate the deposit. The timing of our plans to extract and process mineralized materials from this project will be based on the results of this additional evaluation work, along with market conditions, available financing, and sales requirements.

The Company expects to continue to pursue permitting activities at certain of its conventional projects, including the Roca Honda Project and the Sheep Mountain Project. The Company will also continue to evaluate the Bullfrog Property at its Henry Mountains Project. Expenditures for certain of these projects have been adjusted to coincide with expected dates of price recoveries based on our forecasts.

Finally, the Company plans to continue to maintain, and update as necessary, all permits on its standby properties. These properties will remain on standby until market conditions improve such that the material can be sold at prices that support extraction. The Company also plans to continue to evaluate its non-core properties for sale or abandonment in order to reduce costs and/or receive value for these properties. The Company is continuing to monitor corporate and field overhead to reflect the lower levels of activity.

Sales

For 2016, the Company forecasts sales under its existing long-term contracts to total approximately 550,000 pounds of U₃O₈. Of this total, 300,000 pounds were delivered in the first quarter of the year with the remaining amount in the second and third quarters of the year. The prices for material sold under the existing long-term contracts are either fixed or at floors. The average sales price under the Company’s long-term contracts is expected to be higher in 2016 than 2015 levels. The Company expects to complete these sales from U₃O₈ already in inventory or expected to be recovered from its planned activities discussed above.

The Company also sold 50,000 pounds of U₃O₈ to a utility based on spot prices at the time of the contract. The Company is currently monitoring market conditions for additional sales opportunities. Selective spot sales are expected to be made as necessary to generate cash for operations and development activities.

In 2017, the Company expects to have existing inventory or expected production to meet all of its commitments to sell 620,000 pounds of uranium under its existing long-term contracts at average sales prices higher than 2015 levels.

The Company also continues to pursue new sources of revenue, including expansion of its alternate feed business.

Results of Operations

The following table summarizes the results of operations for the three months ended March 31, 2016 and 2015 (in thousands of dollars):

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For the three months ended March 31, 2016 the Company recorded a net loss of $8.87 million or $0.19 per share compared with a loss of $1.20 million or $0.06 per share for the three months ended March 31, 2015.

Revenues

The Company’s revenues from uranium are largely based on delivery schedules under long-term contracts, which can vary from quarter to quarter.

Revenues for the three months ended March 31, 2016 totaled $18.00 million compared with $7.60 million in the three months ended March 31, 2015.

Revenues for the three months ended March 31, 2016 totaled $18.00 million, of which $17.98 million were sales of 350,000 pounds of U₃O₈, which included the sale of 300,000 pounds of U₃O₈ pursuant to term contracts at an average price of $54.19 per pound and the sale of 50,000 pounds of U₃O₈ on the spot market at a price of $34.40 per pound. All of the sales for the three months ended March 31, 2016 were related to the Conventional Uranium Segment.

There were no sales related to the ISR Uranium Segment for the three months ended March 31, 2016.

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Revenues for the three months ended March 31, 2015 totaled $7.60 million, of which $6.99 million were sales of 116,667 pounds of uranium concentrates, all of which were pursuant to long term contracts at an average price of $59.95 per pound and related to the Conventional Uranium Segment and $0.60 million related to revenue received under a processing agreement.

Operating Expenses

Uranium recovered and costs and expenses applicable to revenue

In the three months ended March 31, 2016, the Company recovered 85,000 pounds of U₃O₈ from its ISR Uranium Segment. As the Company operates its Conventional Uranium Segment on a campaign basis no uranium concentrates were recovered. In the three months ended March 31, 2015, the Company recovered 200,000 pounds of U₃O₈ (all from the Conventional Uranium Segment) of which 58,000 pounds of U₃O₈ were for the account of a third party under a processing agreement. Uranium recovered for its own account included 142,000 pounds from alternate feed sources.

Costs and expenses applicable to revenue for the three months ended March 31, 2016 totaled $12.14 million, compared with $3.84 million for the three months ended March 31, 2015. The increase in the cost of sales was primarily attributable to the increase in the quantity of U₃O₈ sold year over year as discussed above. Costs of goods sold averaged $34.69 per pound and $32.95 per pound for the three months ended March 31, 2016 and 2015, respectively.

Other operating costs and expenses

Development, permitting and land holding

For the three months ended March 31, 2016, the Company spent $7.44 million for development, permitting, and land holding primarily related to wellfield construction and partial construction of the elution circuit at the Nichols Ranch Project and for the replacement of five leach tanks at the White Mesa Mill in preparation for the upcoming campaign. While we expect the amounts expensed will add value to the Company, we expense these amounts as we do not have proven or probable reserves at the Nichols Ranch Project or the White Mesa asset group under SEC Industry Guide 7. For the three months ended March 31, 2015, we spent $0.20 million primarily on permitting and land holding for our conventional assets.

Standby expense

The Company’s La Sal and Daneros Projects were placed on standby in the last quarter of calendar year 2012, as a result of market conditions. In February 2014, the Company placed its Arizona 1 Project on standby. In 2015, the White Mesa Mill was operated at lower levels of uranium recovery, including prolonged periods of standby. Costs related to the care and maintenance of the standby mines, along with standby costs incurred while the White Mesa Mill was operating at low levels of uranium recovery or on standby, are expensed.

For the three months ended March 31, 2016, standby costs totaled $2.17 million compared with $1.54 million in 2015. The increase is primarily related to increased standby costs at the White Mesa Mill, due to lower uranium recovery levels resulting from an increased amount of time the Mill was on standby. In the three months ended March 31, 2016 the Mill was on standby.

Accretion

Accretion related to the asset retirement obligation for the Company’s properties increased for the three months ended March 31, 2016 ($0.18 million) compared with the 2015 ($0.10 million) primarily due to the increase in the amount of the asset retirement obligation added in connection with the Uranerz acquisition.

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General, and Administrative

General, and administrative expense includes costs associated with marketing uranium, corporate general and administrative costs. General and administrative expenses consist primarily of payroll and related expenses for personnel, contract and professional services, stock-based compensation expense and other overhead expenditures. General and administrative expenses totaled $3.83 million for the three months ended March 31, 2016 compared to $2.71 million for the three months ended March 31, 2015. This increase is due to additional general and administration expenses of $0.35 million related to the acquired ISR uranium segment which was completed in June 2015, and increase in stock-based compensation of $0.54 million and one time payments totaling $0.20 million.

Intangible asset amortization

Intangible asset amortization are non-cash costs of amortization of above-market sales contract value associated with the acquisition of Denison’s US Mining Division in June 2012 and the Uranerz acquisition in June 2015. During the three months ended March 31, 2016 intangible asset amortization totaled $0.22 million compared with $0.55 million for the three months ended March 31, 2015. As the ISR Uranium Segment had no sales in the quarter no amortization was recorded.

Interest Expense and Other Income and Expenses

Interest Expense

Interest expense for the three months ended March 31, 2016 was $0.58 million compared with $0.38 million in the prior year. The increase is primarily due to interest on the $18.81 million in debt assumed from the June 2015 Uranerz acquisition.

Other income and expense

For the three months ended March 31, 2016, other income and expense totaled $0.08 million of income. These amounts consist of a gain on warrant liabilities of $0.25 million and gains in other miscellaneous items of $0.39 million, partially offset by a loss on the change in the mark-to-market values of the Company's Debentures of $0.56 million.

Other income and expense for the three months ended March 31, 2015 totaled $1.05 million of income and mainly consisted of a change in the mark-to-market values of the Company’s Debentures totaling $0.71 million along with other miscellaneous items.

Liquidity and Capital Resources

Funding of major business and property acquisitions

Over the past four years the Company has funded major business and property acquisitions with capital provided by issuance of its common shares. In 2012 Titan Uranium Inc. and the US Mining Division of Denison were acquired, in 2013 Strathmore Minerals Corp. was acquired and in 2015 Uranerz was acquired, each in exchange for newly issued shares. The Company intends to continue to acquire assets utilizing common shares when it can be done under attractive terms.

The Company also intends to complete the acquisition of Mesteña in 2016 through the issuance of 4.55 million shares and pay advisor fees with shares. Additionally, the Company expects to complete the purchase of the 40% interest in Roca Honda from Sumitomo through a combination of cash and common shares.

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Cash issued for shares and warrants

In the first quarter of 2016 0.20 million shares were sold for net proceeds of $0.52 million under the Company’s ATM Offering. Additionally, on March 14, 2016 an equity offering of 5,031,250 units (each unit consisting of one share and one half warrant) was closed for net proceeds of $10.98 million after commissions and estimated expenses of the offering.

Working capital at March 31, 2016

At March 31 2016, the Company had working capital of $37.47 million, including $16.50 million in cash, an account receivable of $8.34 million which was collected in April 2016 and 225,000 pounds of finished goods inventory. The Company believes it has sufficient cash and resources to carry out its business plan beyond Q1 2017.

The Company manages liquidity risk through the management of its capital structure.

Debenture Maturity

The Company currently has 22,000 debentures (each debenture equals Cdn$1,000) that mature on June 30, 2017. At maturity, the Company can repay the indebtedness represented by the Debentures by paying to the debenture trustee in Canadian dollars an amount equal to the aggregate Cdn$22.0 million (US$16.96 million) principal amount of the outstanding Debentures together with accrued and unpaid interest thereon.

Subject to any required regulatory approval and provided no event of default has occurred and is continuing, the Company has the option to satisfy its obligation to repay the Debentures, in whole or in part, at maturity, upon at least 40 days and not more than 60 days prior notice, by delivering that number of common shares obtained by dividing the principal amount of the Debentures maturing by 95% of the volume-weighted average trading price of the common shares on the TSX during the 20 consecutive trading days ending five trading days preceding the maturity date.

The Company intends to keep each of these two options open as it continues to evaluate the best option for the Company based on capital availability and cost of such capital between now and the maturity date of the debentures.

Cash and cash flow

Three months ended March 31, 2016

Cash and cash equivalents were $16.50 million at March 31, 2016, compared to $12.97 million at December 31, 2015. The increase of $3.53 million was due primarily to cash provided by financing activities of $10.70 million, cash provided by investing activities of $0.75 million partially offset by cash used in operations of $8.70 million and gain on foreign exchange on cash held in foreign currencies of $0.79 million.

Net cash provided by financing activities totaled $10.70 million consisting primarily of $11.50 million proceeds from the issuance of stock in the March 2016 public offering and the ATM Offering partially offset by $0.81 million to repay loans and borrowings.

Net cash provided by investing activities was $0.75 million, which was primarily related to cash received from the sale of mineral properties held for sale of $0.85 million partially offset by expenditures for mineral properties and property, plant and equipment of $0.09 million.

Net cash used in operating activities of $8.70 million is comprised of the net loss of $8.87 million for the period adjusted for non-cash items and for changes in working capital items.

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Three months ended March 31, 2015

Cash and cash equivalents were $6.44 million at March 31, 2015, compared to $10.41 million at December 31, 2014. The decrease of $3.97 million was due primarily to cash used by operating activities of $3.03 million, cash used by investing activities of $0.72 million, cash used in financing activities of $0.02 million and loss on foreign exchange on cash held of $0.10 million.

Net cash used by financing activities totaled $0.02 million for repayment of loans and borrowings.

Net cash used by investing activities was $0.72 million for expenditures for property, plant and equipment and mineral properties.

Net cash used in operating activities of $3.03 million is comprised of the net loss of $1.20 million for the period adjusted for non-cash items and for changes in working capital items.

Critical accounting estimates and judgments

The preparation of these consolidated financial statements in accordance with US GAAP requires the use of certain critical accounting estimates and judgments that affect the amounts reported. It also requires management to exercise judgment in applying the Company’s accounting policies. These judgments and estimates are based on management’s best knowledge of the relevant facts and circumstances taking into account previous experience. Although the Company regularly reviews the estimates and judgments made that affect these financial statements, actual results may be materially different.

Significant estimates made by management include:

SEC Industry Guide 7 defines a reserve as “that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination”. The classification of a reserve must be evidenced by a bankable feasibility study using the latest three-year price average. While the Company has established the existence of mineral resources and has successfully extracted and recovered saleable uranium from certain of these resources, the Company has not established proven or probable reserves, as defined under SEC Industry Guide 7, for these operations or any of its uranium projects. As a result, the Company is in the Exploration Stage as defined under Industry Guide 7. Furthermore, the Company has no plans to establish proven or probable reserves for any of its uranium projects.

While in the Exploration Stage, among other things, the Company must expense all amounts that would normally be capitalized and subsequently depreciated or depleted over the life of the mining operation on properties that have proven or probable reserves. Items such as the construction of wellfields and related header houses, additions to our recovery facilities and advancement of properties will all be expensed in the period incurred. As a result, the Company’s consolidated financial statements may not be directly comparable to the financial statements of mining companies in the development or production stages.

The Company utilizes estimates of its mineral resources based on information compiled by appropriately qualified persons. The information relating to the geological data on the size, depth and shape of the ore body requires complex geological judgments to interpret the data. The estimation of future cash flows related to resources is based upon factors such as estimates of future uranium prices, future construction and operating costs along with geological assumptions and judgments made in estimating the size and grade of the resource. Changes in the mineral resource estimates may impact the carrying value of mining and recovery assets, goodwill, reclamation and remediation obligations and depreciation and impairment.

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We value assets in a business combination based on our estimates of the fair value of the mining and recovery assets acquired.

For mining and recovery assets actively extracting and recovering uranium as well as those assets that we expect to extract uranium from, we value the assets based on the income approach. As we have not acquired proven or probable reserves in our business combinations the value ascribed to these assets is based on our estimates of value beyond proven and probable reserves. The value is calculated based, in part, on technical reports prepared under NI 43-101. Our estimates of extraction and recovery activities and related timing of extraction and recovery as well as the costs involved are demonstrated by at least a preliminary economic assessment. We then adjust the results of the technical reports to include the effects of anticipated fluctuations in the future market price of uranium consistent with what we believe to be the expectations of other market participants as well as any expected operational or cost changes that we expect in the future operations of these mining assets. These cash flow estimates include the estimated cash outflows to develop, extract and recover the estimated saleable U₃O₈ from these operations.

For mining assets that will be held for further evaluation or for sale, we use the market approach utilizing implied transaction multiples from historical uranium transactions.

The costs of mining assets that are acquired in an asset purchase transaction are recorded as mineral interests on the date of purchase based on the consideration given up for the assets. If multiple assets are involved in a transaction, the consideration is allocated based on the relative values of the properties acquired.

For mining and recovery assets actively extracting and recovering uranium we depreciate the acquisition costs of the mining and recovery assets on a straight line basis over our estimated lives of the mining and recovery assets. The process of estimating the useful life of the mining and recovery assets requires significant judgment in evaluating and assessing available geological, geophysical, engineering and economic data, projected rates of extraction and recovery, estimated commodity price forecasts and the timing of future expenditures, all of which are, by their very nature, subject to interpretation and uncertainty.

Changes in these estimates may materially impact the carrying value of the Company’s mining and recovery assets and the recorded amount of depreciation.

Management uses judgment in applying the acquisition method of accounting for business combinations and in determining fair values of the identifiable assets and liabilities acquired. The value placed on the acquired assets and liabilities, including identifiable intangible assets, will have an effect on the amount of goodwill or bargain purchase gain that the Company may record on an acquisition. Changes in economic conditions, commodity prices and other factors between the date that an acquisition is announced and when it finally is consummated can have a material difference on the allocation used to record a preliminary purchase price allocation versus the final purchase price allocation which can take up to one year after acquisition to complete. See b. above for information related to the valuation of mining and recovery assets in this process.

The Company undertakes a review of the carrying values of its mining and recovery assets whenever events or changes in circumstances indicate that their carrying values may exceed their estimated net recoverable amounts determined by reference to estimated future operating results and net cash flows. An impairment loss is recognized when the carrying value of a mining or recovery asset is not recoverable based on this analysis. In undertaking this review, the management of the Company is required to make significant estimates of, among other things, future production and sale volumes, forecast commodity prices, future operating and capital costs and reclamation costs to the end of the mining asset’s life. These estimates are subject to various risks and uncertainties, which may ultimately have an effect on the expected recoverability of the carrying values of mining and recovery assets.

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Asset retirement obligations are recorded as a liability when an asset that will require reclamation and remediation is initially acquired. For disturbances created on a property owned that will require future reclamation and remediation the Company records asset retirement obligations for such disturbance when occurred. The Company has accrued its best estimate of its share of the cost to decommission its mining and milling properties in accordance with existing laws, contracts and other policies. The estimate of future costs involves a number of estimates relating to timing, type of costs, mine closure plans, and review of potential methods and technical advancements. Furthermore, due to uncertainties concerning environmental remediation, the ultimate cost of the Company’s decommissioning liability could differ from amounts provided. The estimate of the Company’s obligation is subject to change due to amendments to applicable laws and regulations and as new information concerning the Company’s operations becomes available. The Company is not able to determine the impact on its financial position, if any, of environmental laws and regulations that may be enacted in the future. Additionally, the expected cash flows in the future are discounted at the Company’s estimated cost of capital based on the periods the Company expects to complete the reclamation and remediation activities. Differences in the expected periods of reclamation or in the discount rates used could have a material difference in the actual settlement of the obligations compared with the amounts provided.

Management determines whether an acquisition represent a business combination or asset purchase by considering the stage of exploration and development of an acquired operation. Consideration is given to whether the acquired properties include mineral reserves or mineral resources, in addition to the permitting required and results of economic assessments.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company is exposed to risks associated with commodity prices, interest rates, foreign currency exchange rates and credit. Commodity price risk is defined as the potential loss that we may incur as a result of changes in the market value of uranium. Interest rate risk results from our debt and equity instruments that we issue to provide financing and liquidity for our business. The foreign currency exchange risk relates to the risk that the value of financial commitments, recognized assets or liabilities will fluctuate due to changes in foreign currency rates. Credit risk arises from the extension of credit throughout all aspects of our business. Industry-wide risks can also affect our general ability to finance exploration, and development of exploitable resources; such effects are not predictable or quantifiable. Market risk is the risk to the Company of adverse financial impact due to change in the fair value or future cash flows of financial instruments as a result of fluctuations in interest rates and foreign currency exchange rates.

Commodity Price Risk

The Company is subject to market risk related to the market price of U₃O₈. Our four supply contracts contain favorable pricing above current spot prices; however, these long term prices cover only a portion of our planned uranium recovery. Revenue beyond our current contracts will be affected by both spot and long-term U₃O₈ price fluctuations which are affected by factors beyond our control, including: the demand for nuclear power; political and economic conditions; governmental legislation in uranium producing and consuming countries; and production levels and costs of production of other producing companies. The Company continuously monitors the market to determine its level of extraction and recovery of uranium in the future.

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Interest Rate Risk

The Company is exposed to interest rate risk on its cash equivalents, deposits, restricted cash, and debt. Our interest earned is not material; thus not subject to significant risk. Our Wyoming Industrial Development Revenue Bond has a fixed interest rate over its remaining five-year life, removing variability. The Company is exposed to an interest rate risk associated with its convertible debentures (the “Debentures”), which is based on the spot market price of U₃O₈. These Debentures mature in June 2017. The Company does not expect the spot market price of U₃O₈ to exceed $54.99 prior to the Debentures’ maturity and, accordingly, does not believe there is any significant interest rate risk related to these Debentures. The Company does not use derivatives to manage interest rate risk. The following chart displays the interest rate applicable to our Debentures at various U₃O₈ price levels.

Currency Risk

The foreign exchange risk relates to the risk that the value of financial commitments, recognized assets or liabilities will fluctuate due to changes in foreign currency rates. The Company does not use any derivative instruments to reduce its exposure to fluctuations in foreign currency exchange rates. As the US Dollar is the functional currency of our U.S. operations, the currency risk has been reduced. We maintain a nominal balance in foreign currency, resulting in a low currency risk relative to our cash balances. Our Debentures are denominated in Canadian Dollars and, accordingly, are exposed to currency risk.

The following table summarizes, in United States dollar equivalents, the Company’s major foreign currency (Cdn$) exposures as of March 31, 2016 ($000):

The table below summarizes a sensitivity analysis for significant unsettled currency risk exposure with respect to our financial instruments as at March 31, 2016 with all other variables held constant. It shows how net income would have been affected by changes in the relevant risk variables that were reasonably possible at that date.

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Credit Risk

Credit risk relates to cash and cash equivalents, trade, and other receivables that arise from the possibility that any counterparty to an instrument fails to perform. The Company only transacts with highly-rated counterparties and a limit on contingent exposure has been established for any counterparty based on that counterparty’s credit rating. The Company’s sales are attributable mainly to multinational utilities. As at March 31, 2016, the Company’s maximum exposure to credit risk was the carrying value of cash and cash equivalents, trade receivables and taxes recoverable.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures.

At the end of the period covered by this quarterly report on Form 10-Q for the three months ended March 31, 2016, an evaluation was carried out under the supervision of and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operations of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act). Based on that evaluation, the CEO and the CFO have concluded that as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were effective in ensuring that: (i) information required to be disclosed by us in reports that we file or submit to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and (ii) material information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow for accurate and timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

The Company as reported in the annual report on Form 10-K was in process of integrating Uranerz (which was acquired on June 18, 2015) into its controls and procedures and therefore did not include an evaluation of their internal controls. As of March 31, 2016 the Company has completed this integration. There has been no change in our internal control over financial reporting during the quarter ended March 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS.

We are not aware of any material pending or threatened litigation or of any proceedings known to be contemplated by governmental authorities that are, or would be, likely to have a material adverse effect upon us or our operations, taken as a whole that was not disclosed in the Company Form 10-K for the year ended December 31, 2015, as filed with the SEC on March 15, 2016.

ITEM 1A. RISK FACTORS.

There have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2015 as filed with the SEC on March 15, 2016.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Use of Proceeds from At-the-Market Offering

On September 29, 2015, the Company filed a prospectus supplement (“Supplement”) in both Canada and the United States to its Canadian base shelf prospectus (the “Canadian Base Prospectus”) and its U.S. registration statement on Form F-10 (the “Registration Statement”), both of which were filed on April 9, 2014. Concurrent with the filing of the Supplement, the Company entered into a Controlled Equity Offering^SM Sales Agreement with Cantor Fitzgerald & Co. (“Cantor”), pursuant to which the Company could, at its discretion from time to time, sell, through Cantor as agent, up to US$15.64 million worth of common shares by way of an “at-the-market” offering (the “ATM”).

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The ATM commenced on September 29, 2015 and closed on March 15, 2016 upon the expiration of the Registration Statement by the Company’s filing of Form 10-K. The aggregate amount sold under the Supplement was $3.48 million. In connection with the ATM, the Company paid $0.33 million in share issuance costs.

As of March 31, 2016 all of the $3.15 million in net proceeds received from the offering have been used as follows:

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURE.

The mine safety disclosures required by section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K are included in Exhibit 95.1 of this Quarterly Report.

ITEM 5. OTHER INFORMATION.

None.

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ITEM 6. EXHIBITS.

Exhibits

The following exhibits are filed as part of this report:

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___________________________
* To be filed by amendment.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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