URANIUM ENERGY CORP - Quarter Report: 2022 April (Form 10-Q)

CAUTIONARY NOTE TO U.S. RESIDENTS CONCERNING DISCLOSURE OF MINERAL RESOURCES

The Company is a U.S. Domestic Issuer for United States Securities and Exchange Commission (“SEC”) purposes, most of its shareholders are U.S. residents, the Company is required to report its financial results under U.S. generally accepted accounting principles and its only trading market is the NYSE American. However, because the Company is a reporting issuer in Canada, certain regulatory filings required of the Company in Canada contain or incorporate by reference therein certain disclosure that satisfies the additional requirements of Canadian securities laws, which differ from the requirements of United States’ securities laws. Unless otherwise indicated, all Company resource estimates included in those Canadian filings, and in the documents incorporated by reference therein, 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 classification system. NI 43-101 is a rule developed by the Canadian Securities Administrators which establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects.

Canadian standards, including NI 43-101, differ significantly from the requirements of SEC Industry Guide 7, as defined in the Glossary of Technical Terms (“Industry Guide 7”). Thus, resource information contained, or incorporated by reference, in our Canadian filings, and in the documents incorporated by reference therein, may not be comparable to similar information disclosed by companies reporting “reserve” and resource information under SEC Industry Guide 7. 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 SEC Industry Guide 7 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.

SEC Industry Guide 7 disclosure standards historically have not permitted 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 SEC Industry Guide 7 standards. 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 pre-feasibility 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” as defined by SEC Industry Guide 7. Investors are cautioned not to assume that all or any part of an “Inferred Mineral Resource” exists or is economically or legally mineable. The Company does not have any mineral “reserves” within the meaning of SEC Industry Guide 7.

Disclosure of “contained pounds” or “contained ounces” in a resource estimate is permitted and typical disclosure under Canadian regulations; however, SEC Industry Guide 7 historically only permitted 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 SEC Industry Guide 7, 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 may not be comparable to information made public by companies that report in accordance with SEC Industry Guide 7 standards.

On October 31, 2018, the SEC adopted the Modernization of Property Disclosures for Mining Registrants (the “New Rule”), introducing significant changes to the existing mining disclosure framework to better align it with international industry and regulatory practice, including NI 43-101. The New Rule became effective as of February 25, 2019, and issuers are required to comply with the New Rule as of the annual report for their first fiscal year beginning on or after January 1, 2021, and earlier in certain circumstances. The Company does not anticipate needing to comply with the New Rule until the filing of our annual report for the fiscal year ending July 31, 2022 and, at this time, the Company does not know the full effect of the New Rule on its mineral resources and, therefore, the disclosure related to the Company’s mineral resources may be significantly different when computed using the requirements set forth in the New Rule.

PART I – FINANCIAL INFORMATION

Item 1.         Financial Statements

URANIUM ENERGY CORP.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED APRIL 30, 2022

(Unaudited – Expressed in U.S. Dollars)

URANIUM ENERGY CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited – Expressed in U.S. Dollars)

The accompanying notes are an integral part of these condensed consolidated financial statements.

URANIUM ENERGY CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited – Expressed in U.S. Dollars)

The accompanying notes are an integral part of these condensed consolidated financial statements.

URANIUM ENERGY CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited – Expressed in U.S. Dollars)

The accompanying notes are an integral part of these condensed consolidated financial statements.

URANIUM ENERGY CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited – Expressed in U.S. Dollars)

The accompanying notes are an integral part of these condensed consolidated financial statements.

URANIUM ENERGY CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited – Expressed in U.S. Dollars)

The accompanying notes are an integral part of these condensed consolidated financial statements.

NOTE 1:            NATURE OF OPERATIONS

Uranium Energy Corp. was incorporated in the State of Nevada on May 16, 2003. Uranium Energy Corp. and its subsidiary companies and a controlled partnership (collectively, the “Company” or “we” or “UEC”) are engaged in uranium and titanium mining and related activities, including exploration, pre-extraction, extraction and processing of uranium concentrates and titanium minerals, on projects located in the United States, Canada and the Republic of Paraguay.

As at April 30, 2022, we had working capital of $88.2 million including cash and cash equivalents of $23.8 million and uranium inventory holdings of $57.0 million.  Subsequent to April 30, 2022, we received further cash proceeds of $7.3 million from our at-the-market offerings (refer to Note 13: Capital Stock) and $9.2 million from the settlement of Anfield indebtedness (refer to Note 3: Acquisition of Uranium One Americas, Inc.). We believe our existing cash resources and, if necessary, cash generated from the sale of the Company’s uranium inventories, will provide sufficient funds to carry out our planned operations for 12 months from the date that our condensed consolidated financial statements are issued.  Our continuation as a going concern for a period beyond those 12 months will be dependent upon our ability to obtain adequate additional financing, as our operations are capital intensive and future capital expenditures are expected to be substantial.

Historically, we have been reliant primarily on equity financings from the sale of our common stock and on debt financing in order to fund our operations, and this reliance is expected to continue for the foreseeable future. Our continued operations, including the recoverability of the carrying values of our assets, are dependent ultimately on our ability to achieve and maintain profitability and positive cash flow from our operations.

NOTE 2:            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”) for interim financial information and are presented in U.S. dollars. Accordingly, they do not include all of the information and footnotes required under U.S. GAAP for complete financial statements. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended July 31, 2021 (“Fiscal 2021”). In the opinion of management, all adjustments of a normal recurring nature and considered necessary for a fair presentation have been made. Operating results for the nine months ended April 30, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2022 (“Fiscal 2022”).

Certain comparative figures have been reclassified to conform to the current year’s presentation.

Exploration Stage

We have established the existence of mineralized materials for certain uranium projects, including our Palangana and recently acquired Christensen Ranch Mines (collectively, the “ISR Mines”). We have not established proven or probable reserves, as defined by the SEC, through the completion of a final or bankable feasibility study for any of our uranium projects. Furthermore, we have no plans to establish proven or probable reserves for any of our uranium projects for which we plan on utilizing in-situ recovery (“ISR”) mining. As a result, we remain in the Exploration Stage, as defined by the SEC, and will continue to remain in the Exploration Stage until such time that proven or probable reserves have been established.

Since we commenced the extraction of mineralized materials at our ISR Mines without having established proven or probable reserves, any mineralized materials established or extracted from the ISR Mines should not in any way be associated with having established or produced from proven or probable reserves.

In accordance with U.S. GAAP, expenditures relating to the acquisition of mineral rights are initially capitalized as incurred, while exploration and pre-extraction expenditures are expensed as incurred until such time we exit the Exploration Stage by establishing proven or probable reserves.  Expenditures relating to exploration activities such as drilling programs to establish mineralized materials are expensed as incurred. Expenditures relating to pre-extraction activities, such as the construction of mine wellfields, ion exchange facilities and disposal wells are expensed as incurred until such time proven or probable reserves are established for that project, after which expenditures relating to mine development activities for that particular project are capitalized as incurred.

Companies in the Production Stage, as defined by the SEC, having established proven and probable reserves and exited the Exploration Stage, typically capitalize expenditures relating to ongoing development activities, with corresponding depletion calculated over proven and probable reserves using the units-of-production method and allocated to inventory and, as that inventory is sold, to cost of goods sold. We are in the Exploration Stage which has resulted in us reporting larger losses than if we had been in the Production Stage due to the expensing, rather than capitalizing, of expenditures relating to ongoing mine development activities. Additionally, there would be no corresponding amortization allocated to future reporting periods of our Company since those costs would have been expensed previously, resulting in both lower produced inventory costs and cost of goods sold and results of operations with higher gross profits and lower losses than if we had been in the Production Stage. Any capitalized costs, such as expenditures relating to the acquisition of mineral rights, are depleted over the estimated extraction life using the straight-line method. As a result, our consolidated financial statements may not be directly comparable to the financial statements of companies in the Production Stage.

Business Combination

We recognize and measure the assets acquired and liabilities assumed in a business combination based on their estimated fair values at the acquisition date, while transaction costs related to business combinations are expensed as incurred. An income, market or cost valuation method may be utilized to estimate the fair value of the assets acquired, liabilities assumed, if any, in a business combination. The income valuation method represents the present value of future cash flows over the life of the asset using: (i) discrete financial forecasts, which rely on management’s estimates of resource quantities and exploration potential, costs to produce and develop resources, revenues and operating expenses; (ii) appropriate discount rates; and (iii) expected future capital requirements (the “income valuation method”). The market valuation method uses prices paid for a similar asset by other purchasers in the market, normalized for any differences between the assets (the “market valuation method”). The cost valuation method is based on the replacement cost of a comparable asset at the time of the acquisition adjusted for depreciation and economic and functional obsolescence of the asset (the “cost valuation method”). If the initial accounting for the business combination is incomplete by the end of the reporting period in which the acquisition occurs, an estimate will be recorded. Subsequent to the acquisition date, and not later than one year from the acquisition date, we will record any material adjustments to the initial estimate based on new information obtained that would have existed as of the date of the acquisition. Any adjustment that arises from information obtained that did not exist as of the date of the acquisition will be recorded in the period the adjustments arises.

NOTE 3:            ACQUISITION OF URANIUM ONE AMERICAS, INC.

On December 17, 2021, we completed the acquisition of all the issued and outstanding shares of Uranium One Americas, Inc. (“U1A”), a Nevada corporation, from Uranium One Investments Inc., a subsidiary of Uranium One Inc., for total cash consideration of $128,494,545 (the “U1A Acquisition”). Subsequent to the completion of the U1A Acquisition, we changed the name of U1A to UEC Wyoming Corp. (“UEC Wyoming”) and, in conjunction therewith, we also changed the name of U1A’s wholly-owned subsidiary, Uranium One USA Inc., a Delaware corporation, to UEC Uranium Corp.

The UEC Wyoming’s portfolio of projects (the “UEC Wyoming Portfolio”) primarily consists of 12 projects located in Wyoming, six of which are located in the Powder River Basin with four fully permitted, and six of which are located in the Great Divide Basin. The U1A Acquisition creates a Wyoming hub-and-spoke operation for UEC, which is anchored by UEC Wyoming’s Irigaray processing facility.

The U1A Acquisition was accounted for as a business combination with UEC identified as the acquirer. The Company’s assumption that the U1A Acquisition is a business combination is based on the Company’s assessment that substantially all the fair value of the assets are not concentrated in a single asset or group of similar assets. In accordance with the acquisition method of accounting, the purchase price has been allocated to the assets acquired and liabilities assumed, based on their estimated fair values at the acquisition date. In connection with the U1A Acquisition, we incurred acquisition-related costs of $622,297 and $3,267,277, respectively, which were expensed in the three and nine months ended April 30, 2022.

As of April 30, 2022, we had not yet completed the analysis to assign fair values to all assets acquired and liabilities assumed and, therefore the purchase price allocation for the U1A Acquisition is preliminary. The preliminary purchase price allocation may be subject to further refinement and adjustments which may result in material changes to the estimated fair value of assets acquired and liabilities assumed. The purchase price allocation adjustments can be made throughout the end of UEC’s measurement period, which is not to exceed one year from the acquisition date.

The table below sets forth the consideration paid and the preliminary purchase price allocation to the fair value of the assets acquired and liabilities assumed for the U1A Acquisition as at April 30, 2022:

Notes:

Since it has been consolidated from December 17, 2021, UEC Wyoming’s losses totaling $1,622,982 and $2,542,599, respectively, were included in UEC’s condensed consolidated statements of operations and comprehensive loss for the three and nine months ended April 30, 2022.

The following unaudited proforma financial information presents consolidated results assuming the U1A Acquisition occurred on August 1, 2020.

As part of the U1A Acquisition, we acquired certain indebtedness totaling $18,342,066 due from Anfield Energy Inc. (“Anfield”), which was owed to U1A prior to the closing of the U1A Acquisition (the “Anfield Indebtedness”).

We assigned a value of $Nil to the Anfield Indebtedness net of the expected credit loss on the preliminary purchase price allocation given that the probability of the Anfield Indebtedness being collectable was remote at December 17, 2021.  Changes in the probability of collectability may result in significant gains or losses.

On April 19, 2022, we entered into each of a debt settlement agreement (the “Settlement Agreement”) and a property swap agreement (the “Swap Agreement” and together with the Settlement Agreement, the “Anfield Agreements”) with Anfield to settle Anfield Indebtedness. Pursuant to the Anfield Agreements, the Anfield Indebtedness was settled by the payment by Anfield to UEC of $9,171,033 in cash and the issuance by Anfield to UEC of $9,171,033 in units of Anfield (each, an “Anfield Unit”), with each such Anfield Unit being comprised of one common share in the capital of Anfield (each, an “Anfield Common Share”) and one Anfield Common Share purchase warrant (each whole such warrant being an “Anfield Warrant”). Each Anfield Warrant entitles UEC to acquire one Anfield Common Share at a price of CA$0.18 until May 12, 2027 (collectively, the “Anfield Debt Settlement”). Completion of the Anfield Agreements was contingent on Anfield raising additional financing.

The Anfield Agreements, together with recent developments of uranium and vanadium markets, increased the probability of the Anfield Indebtedness collectability.  As a result, we reversed a portion of the expected credit loss on the debt receivable and recognized a recovery on debt receivable of $9,171,033 on our condensed consolidated statements of operations and comprehensive income for the three and nine months ended April 30, 2022. 

Subsequent to April 30, 2022, on June 7, 2022, we closed the Anfield Debt Settlement whereby we received $9,171,033 in cash and Anfield Units being comprised of 96,272,918 Anfield Common Shares and Anfield Warrants.  As a result, UEC now owns approximately 16% of Anfield’s outstanding shares.  Additionally, we completed the Swap Agreement whereby we will receive from Anfield 25 ISR uranium projects located in Wyoming in exchange for UEC’s Slick Rock and Long Park projects located in Colorado. 

NOTE 4:            INVENTORIES

During the nine months ended April 30, 2022, we received 1,100,000 pounds and sold 500,000 pounds of uranium concentrate inventories. As at April 30, 2022, costs of inventories consisted of the following:

During the nine months ended April 30, 2022, we entered into agreements to purchase additional 1,800,000 pounds of uranium concentrate inventories under our physical uranium program (the “Physical Uranium Program”).

As of April 30, 2022, our uranium inventory purchase commitments for the next five fiscal years are as the follows:

Subsequent to April 30, 2022, we received 200,000 pounds of uranium inventories for a total purchase price of $9,080,000.

NOTE 5:            MINERAL RIGHTS AND PROPERTIES

Mineral Rights

As at April 30, 2022, we had mineral rights in the States of Arizona, Colorado, New Mexico, Wyoming and Texas, in Canada and in the Republic of Paraguay. These mineral rights were acquired through staking, purchase or lease agreements and are subject to varying royalty interests, some of which are indexed to the sale price of uranium and titanium. As of April 30, 2022, annual maintenance payments of approximately $4.3 million will be required to maintain these mineral rights.

As at April 30, 2022, the carrying value of our mineral rights and properties, including the recently acquired UEC Wyoming Portfolio, were as follows:

We have not established proven or probable reserves, as defined by the SEC, for any of our mineral projects. We have established the existence of mineralized materials for certain mineral projects. Since we commenced uranium extraction at our ISR Mines without having established proven or probable reserves, there may be greater inherent uncertainty as to whether or not any mineralized material can be economically extracted as originally planned and anticipated.

During the nine months ended April 30, 2022, we entered into property purchase agreements, whereby we acquired 10 mineral claims as additions to our existing Diabase Project (the “Diabase Additions”) located on the southern rim of the Athabasca Basin uranium district in Saskatchewan, Canada. In connection with the Diabase Additions, we paid total consideration of $435,420, which consisted of 111,864 shares with a fair value of $425,519 and transaction costs of $9,901. As a result of these claims being added to our existing Diabase Project, the carrying value of our Diabase Project increased to $982,358 ( July 31, 2021: $546,938).

During the three months ended April 30, 2022, the Company exercised its option to acquire one-half percent (0.5%) of the net smelter returns royalty payable on its Alto Parana Project for total consideration of $500,000 pursuant to the terms of a Net Smelter Returns Royalty Agreement under a Share Purchase and Option Agreement as entered between UEC and CIC Resources Inc. in March 2016. The consideration of $500,000 paid for this option exercise was capitalized to mineral right and properties and added to the carrying value of the Alto Parana Project.

During the three and nine months ended April 30, 2022 and 2021, we continued with reduced operations at our ISR Mines to capture residual uranium only. As a result, no depletion for the ISR Mines was recorded on our condensed consolidated financial statements for the three and nine months ended April 30, 2022 and 2021.

During the three and nine months ended April 30, 2022, we incurred mineral property expenditures of $895,797 and $1,334,580, respectively, for the UEC Wyoming Portfolio since the closing date of the U1A Acquisition.

Mineral property expenditures for the three and nine months ended April 30, 2022 are as follows:

NOTE 6:            PROPERTY, PLANT AND EQUIPMENT

During the nine months ended April 30, 2022, in connection with the U1A Acquisition, we acquired a satellite plant located at the Christensen Ranch Mine, a central processing plant (the “Irigaray Processing Facility”), and various equipment with a total fair value of $13,159,570. Refer to Note 3: Acquisition of Uranium One Americas, Inc. The recently acquired plants, facility and equipment have an estimated useful life of three to 21 years and will be depreciated using the straight-line method over their respective useful lives.

As at April 30, 2022, property, plant and equipment consist of the following:

NOTE 7:            RESTRICTED CASH

Restricted cash includes cash and cash equivalents and money market funds pledged as collateral for various bonds posted in favor of applicable state regulatory agencies in Arizona, Texas and Wyoming, and for estimated reclamation costs associated with our plants, processing facilities and various projects. Restricted cash will be released upon the completion of reclamation of a plant or a mineral property or the restructuring of a surety and collateral arrangement.

As at April 30, 2022, restricted cash consisted of the following:

During the three months ended April 30, 2022, we received $1,754,507 as a result of the partial release of surety bond collateral related to the Christensen Ranch Mine and Irigaray Processing Facility.

Cash, cash equivalents and restricted cash are included in the following accounts as at April 30, 2022 and 2021: