Energy Fuels(UUUU) - 2019 Q4 - Annual Report

Part I Item 1. Description of Business Energy Fuels Inc. is a leading U.S. uranium and vanadium producer, operating key mills and ISR facilities, poised for market recovery * Energy Fuels is a leading U.S. integrated uranium producer, engaged in conventional and in-situ recovery (ISR) of uranium, and also produces vanadium. Key operational assets include the White Mesa Mill (conventional), the Nichols Ranch Project (ISR), and the Alta Mesa Project (ISR, on standby)[55] 2019 Production Summary | Facility / Source | Product | Pounds Recovered (lbs) | | :--- | :--- | :--- | | Nichols Ranch Project | U3O8 | 69,626 | | White Mesa Mill (Pond Solutions) | V2O5 | 1,807,732 | * The company's strategy focuses on maintaining production scalability to respond to improved market conditions, potentially driven by U.S. government initiatives like the President's Budget proposal for a Uranium Reserve. It also pursues revenue from alternate feed processing and potential rare earth recovery[82][83] * The uranium market in 2019 remained weak, with spot prices declining 8% to $24.85 per pound. The company holds its produced uranium in inventory, anticipating future price increases, and has no sales commitments for 2020[86][96] * Vanadium (V2O5) prices fell sharply in 2019 from $15.50 to $5.33 per pound. The company produced ~1.8 million lbs and sold ~202,000 lbs, holding the remaining ~1.6 million lbs in inventory for potential future sales into stronger markets[106][108] Item 1A. Risk Factors The company faces significant risks from volatile commodity prices, environmental regulations, litigation, and financial uncertainties, including internal control weaknesses * The company's profitability is highly sensitive to the cyclical and volatile market prices of uranium and vanadium. Many of the company's properties are not economically viable at current prices[135][140] * The company's properties do not contain any mineral reserves under SEC Industry Guide 7, classifying it as an "Exploration Stage" company[140] * Operations are subject to extensive and stringent federal, state, and local environmental laws and regulations, which can increase costs, cause delays, and lead to significant liabilities[147][175] * The outcome of the President's Budget proposal for a U.S. Uranium Reserve is uncertain and subject to Congressional appropriation. Failure to implement this support could negatively impact the company[156] * The company has Cdn$20.87 million in convertible debentures maturing on December 31, 2020, which may be retired with cash or through the issuance of common shares, potentially causing dilution[160] * Material weaknesses in internal controls over financial reporting have been identified, which could affect the accuracy of financial reports and investor confidence[208][209] Item 2. Description of Properties This section details Energy Fuels' U.S. uranium and vanadium properties, including ISR and conventional operations, with resource estimates primarily under NI 43-101 standards Overview This overview details Energy Fuels' conventional and ISR uranium extraction in the U.S., highlighting key assets and historical production figures Uranium and Vanadium Recovery History (2015-2019) | Year | Total U3O8 Recovered (000 lbs) | Total V2O5 Recovered (000 lbs) | | :--- | :--- | :--- | | 2019 | 70 | 1,807 | | 2018 | 917 | --- | | 2017 | 1,571 | --- | | 2016 | 1,015 | --- | | 2015 | 569 | --- | * In 2019, all 70,000 lbs of U3O8 recovered came from the Nichols Ranch ISR project. All 1,807,000 lbs of V2O5 recovered came from tailings solution recycling at the White Mesa Mill[238] Summary of Mineral Reserves and Resources This section details the company's mineral asset portfolio as of December 31, 2019, under NI 43-101 standards, noting only Sheep Mountain holds 'Mineral Reserves' under these guidelines NI 43-101 Mineral Reserves & Resources Summary (as of Dec 31, 2019) | Category | Commodity | Contained Pounds (000) | | :--- | :--- | :--- | | Probable Mineral Reserves | Uranium (eU3O8) | 18,365 (at Sheep Mountain) | | Measured & Indicated Resources | Uranium (eU3O8) | 77,277 | | Inferred Resources | Uranium (eU3O8) | 48,996 | | Measured & Indicated Resources | Vanadium (V2O5) | 31,673 | | Inferred Resources | Vanadium (V2O5) | 8,562 | | Measured & Indicated Resources | Copper (Cu) | 11,939 | | Inferred Resources | Copper (Cu) | 570 | * The company explicitly states it does not have any mineral 'reserves' within the meaning of SEC Industry Guide 7[29] The Nichols Ranch Project The Nichols Ranch Project is an operating ISR uranium facility in Wyoming, which recovered 70,000 lbs of U3O8 in 2019, with future production contingent on market improvements * Recovered approximately 70,000 lbs of U3O8 in 2019[281] * Production from existing wellfields is winding down and expected to be depleted by the end of Q1 2020. Future production requires capital expenditure to develop new wellfields[329][334] Nichols Ranch Remaining Mineral Resources (Energy Fuels' Share) | Classification | Pounds eU3O8 (000) | | :--- | :--- | | Measured & Indicated | 6,291 | | Inferred | 1,112 | The Alta Mesa Project The Alta Mesa Project is a fully-licensed ISR uranium facility in South Texas, currently on standby, with a 1.5 million lbs/year capacity, ready to resume production within twelve months * A fully licensed, constructed ISR facility with a 1.5 million lbs/year capacity, currently on standby[341][368] * The project previously produced approximately 4.6 million pounds of U3O8 between 2005 and 2013[371][381] Alta Mesa Mineral Resources | Classification | Pounds eU3O8 (000) | | :--- | :--- | | Measured & Indicated | 3,617 | | Inferred | 16,793 | The White Mesa Mill The White Mesa Mill in Utah is the only operational conventional U.S. uranium mill, licensed for 2,000 tons/day, focusing on vanadium in 2019, and facing ongoing legal challenges * The only fully operational and licensed conventional uranium mill in the U.S., with a licensed capacity of over 8.0 million pounds of U3O8 per year[395][396] * In 2019, the Mill recovered approximately 1,807,000 pounds of V2O5 from pond solutions and no U3O8[431] * The Mill is licensed to process 'alternate feed materials', which provides a key revenue stream, sometimes with generators paying a recycling fee[402] * The Mill is subject to legal challenges from environmental groups and the Ute Mountain Ute tribe regarding its license renewals and a Corrective Action Plan for groundwater contamination[1109][1112] The Canyon Project The Canyon Project is a high-grade, partially developed underground uranium project in Arizona, currently on standby, with significant copper co-product potential, facing ongoing legal challenges * A fully constructed and partially developed underground project with a completed shaft of approximately 1,470 feet[441][494] Canyon Project Mineral Resources (M&I + Inferred) | Commodity | Pounds (000) | | :--- | :--- | | Uranium (U3O8) | 2,568 | | Copper (Cu) | 12,509 | * The project is subject to ongoing litigation from environmental groups and the Havasupai Tribe, challenging its 'valid existing rights' under the 2012 mineral withdrawal[812][1114] The Roca Honda Project The Roca Honda Project is a large, high-grade, advanced-stage underground uranium project in New Mexico, with permitting underway and a Final EIS/RoD anticipated in 2021 * An advanced-stage underground uranium project with permitting underway; a Final EIS and Record of Decision are expected in 2021[519][521] Roca Honda Mineral Resources | Classification | Tons (000) | Grade % eU3O8 | Pounds eU3O8 (000) | | :--- | :--- | :--- | :--- | | Measured & Indicated | 1,511 | 0.482% | 14,564 | | Inferred | 1,198 | 0.468% | 11,206 | * The project includes an existing 1,478-foot deep shaft sunk by a previous owner, Kerr-McGee[508] The Sheep Mountain Project The Sheep Mountain Project in Wyoming is a permitted conventional uranium project, the company's only property with NI 43-101 compliant Mineral Reserves totaling 18.4 million pounds of U3O8, currently on standby Sheep Mountain NI 43-101 Mineral Reserves & Resources | Category | Tons (000) | Grade % eU3O8 | Pounds eU3O8 (000) | | :--- | :--- | :--- | :--- | | Probable Mineral Reserves | 7,453 | 0.123% | 18,365 | | Indicated Mineral Resources | 11,663 | 0.120% | 27,935 | * The project is fully permitted for mining operations (open pit and underground) via a Record of Decision from the BLM issued in January 2017[575] * An on-site processing (heap leach) facility is not yet licensed. The project is on standby pending a decision on processing options and improved market conditions[577][615] The Henry Mountains Complex The Henry Mountains Complex in Utah is an underground uranium project, including the Tony M mine with existing infrastructure, currently on standby, holding significant uranium and some vanadium resources * The Tony M mine was operated from 2007-2008 and is currently on care and maintenance[638][654] Henry Mountains Complex Mineral Resources | Classification | Tons (000) | Grade % eU3O8 | Pounds eU3O8 (000) | | :--- | :--- | :--- | :--- | | Indicated | 2,410 | 0.27% | 12,800 | | Inferred | 1,610 | 0.25% | 8,080 | * The project is currently on standby, with no work planned for 2020 beyond care and maintenance, pending improved market conditions[657] The La Sal Project The La Sal Project is a complex of four underground uranium-vanadium mines in Utah, on standby, which underwent a test-mining program in 2018-2019 and holds significant resources * In 2018-2019, the company conducted a test-mining program, extracting ~12,000 tons of ore and rehabilitating portions of the La Sal and Pandora mines. The project was placed back on standby in January 2020[688][705][710] La Sal Project Mineral Resources (Measured & Indicated) | Commodity | Pounds (000) | | :--- | :--- | | Uranium (U3O8) | 4,100 | | Vanadium (V2O5) | 21,525 | * The project has a high vanadium-to-uranium ratio, estimated at 5.25:1 based on historical milling[697] The Daneros Project The Daneros Project is a permitted underground uranium mine in Utah, on standby since 2012, with a permit modification for expansion currently under appeal at the IBLA * The project has been on standby since October 2012 after producing 629,000 pounds of uranium between 2009 and 2013[716][753] * A permit modification to expand the mine is under appeal at the IBLA following its approval by the BLM[733][815] Daneros Mineral Resources | Classification | Pounds eU3O8 (000) | | :--- | :--- | | Indicated | 142 | | Inferred | 52 | Non-Material Mineral Properties This section details the company's non-material ISR and conventional properties, including the Arkose Joint Venture and other holdings with additional uranium, vanadium, and copper resources * The company holds an 81% interest in the Arkose Joint Venture in Wyoming, which has 3.3 million pounds of inferred U3O8 resources (company's share)[778][787] * Other wholly-owned ISR properties in the Powder River Basin contain 3.5 million pounds of M&I and 2.7 million pounds of inferred U3O8 resources[775] * Non-material conventional properties in the Arizona Strip and Colorado Plateau add further uranium and vanadium resources to the company's portfolio[792][802] Item 3. Legal Proceedings Energy Fuels is involved in several material legal proceedings concerning its key properties, including challenges to the White Mesa Mill, Canyon Project, and Daneros Mine permits * White Mesa Mill: The mill's renewed license and groundwater permit are being challenged by the Grand Canyon Trust, Ute Mountain Ute Tribe, and Uranium Watch. Discussions to settle are ongoing[810][1112] * Canyon Project: A lawsuit filed by the Havasupai Tribe and environmental groups is ongoing. The Ninth Circuit Court of Appeals remanded one claim regarding the project's 'valid existing rights' back to the District Court, where it is currently awaiting a decision[811][812] * Daneros Mine: The BLM's 2018 approval of the mine's plan of operations modification is under appeal at the Interior Board of Land Appeals (IBLA) by the Southern Utah Wilderness Alliance and Grand Canyon Trust[815][1116] Item 4. Mine Safety Disclosure Mine safety disclosures required by the Dodd-Frank Act and Regulation S-K are provided in Exhibit 95.1 of the Annual Report * Mine safety disclosures are included in Exhibit 95.1 of this Annual Report[817] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities This section details the market for Energy Fuels' common shares on NYSE American and TSX, dividend policy, equity compensation plan, and stock performance * The company's common shares are listed on the NYSE American (UUUU) and the Toronto Stock Exchange (EFR)[821] * The company has never declared cash dividends and does not expect to in the foreseeable future[822] Equity Compensation Plan Information (as of Dec 31, 2019) | Plan Category | Shares to be Issued Upon Exercise | Weighted-Average Exercise Price (USD) | Shares Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Total | 4,968,478 | $5.74 | 5,567,674 | Item 6. Selected Financial Data This section presents a five-year summary of key financial data, showing a significant decline in 2019 revenue to $5.87 million and an increased net loss of $38.09 million Selected Financial Data (in $000s, except per share data) | | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total revenues | $5,865 | $31,721 | $31,046 | $54,552 | $61,351 | | Net loss | $(38,094) | $(25,362) | $(27,990) | $(39,864) | $(82,357) | | Basic and diluted net loss per share | $(0.40) | $(0.30) | $(0.39) | $(0.70) | $(2.46) | | Total assets (at Dec 31) | $175,720 | $196,766 | $185,338 | $196,457 | $192,280 | | Total long-term obligations (at Dec 31) | $22,475 | $43,059 | $48,175 | $46,487 | $38,937 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In 2019, revenue decreased to $5.9 million due to contract completion, resulting in a $38.1 million net loss, including a $14.4 million inventory impairment, while the company evaluates a production ramp-up and maintains liquidity Results of Operations Comparison (in $ millions) | | 2019 | 2018 | 2017 | | :--- | :--- | :--- | | Total revenues | $5.9 | $31.7 | $31.0 | | Gross profit (loss) | $(12.4) | $12.4 | $8.3 | | Total operating loss | $(40.6) | $(21.3) | $(28.5) | | Net loss | $(38.1) | $(25.4) | $(28.0) | | Basic and diluted net loss per share | $(0.40) | $(0.30) | $(0.39) | * The significant decrease in 2019 revenue was due to the completion of all long-term uranium sales contracts in 2018. 2019 revenue was primarily from vanadium sales and alternate feed processing fees[886][887][888] * The company recorded a $14.35 million impairment of inventories in 2019 due to lower uranium and vanadium prices compared to production costs[900] * The company is evaluating an increase in uranium production in response to the President's Budget proposal to create a $1.5 billion U.S. Uranium Reserve over 10 years[855][876] * As of December 31, 2019, the company had working capital of $20.53 million. In early 2020, it raised an additional $15.07 million from a bought deal financing and $3.96 million from its ATM program[926][875][1146] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to market risks from commodity prices, interest rates, and currency fluctuations, with all future uranium sales at spot prices and convertible debenture interest tied to uranium prices and Canadian dollar exchange rates * Commodity Price Risk: The company is fully exposed to spot market prices for uranium, as all long-term contracts expired in 2018[950] * Interest Rate Risk: The interest rate on the company's convertible debentures is tied to the UxC U3O8 weekly indicator price, ranging from 8.5% (for prices up to $54.99/lb) to 13.5% (for prices $100/lb and above)[951][954] * Currency Risk: The company's convertible debentures are denominated in Canadian dollars, creating exposure to foreign exchange risk. A 1% change in the U.S. dollar exchange rate would affect net earnings by approximately $211,000[955][957] Item 8. Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements and notes, with KPMG LLP issuing an unqualified opinion on statements but an adverse opinion on internal controls due to material weaknesses Report of Independent Registered Public Accounting Firm KPMG LLP issued an unqualified opinion on the consolidated financial statements but an adverse opinion on the effectiveness of internal control over financial reporting due to material weaknesses * The auditor issued an unqualified opinion on the consolidated financial statements[963] * The auditor issued an adverse opinion on the company's internal control over financial reporting[972] * Material weaknesses were identified related to: the risk assessment process, general information technology controls (GITCs), segregation of duties over general ledger entries, and controls over the accuracy of the statement of cash flows[974][976] Consolidated Financial Statements The consolidated financial statements show 2019 total revenues of $5.87 million, a net loss of $38.09 million, total assets of $175.72 million, and negative cash flow from operations of ($44.38) million Key Financial Statement Figures (Year Ended Dec 31, 2019, in $ thousands) | Statement | Line Item | Amount | | :--- | :--- | :--- | | Operations | Total Revenues | $5,865 | | | Net Loss | $(38,094) | | Balance Sheet | Total Assets | $175,720 | | | Total Liabilities | $45,113 | | | Total Equity | $130,607 | | Cash Flows | Net Cash Used in Operating Activities | $(44,378) | Notes to the Consolidated Financial Statements The notes detail accounting policies, including 'Exploration Stage' status, a $14.35 million inventory impairment, Cdn$16.1 million convertible debentures, asset retirement obligations, and subsequent equity raises * Note 3: The company is an 'Exploration Stage' company under SEC Industry Guide 7 because it has not established proven or probable reserves[992][999] * Note 6: An inventory impairment loss of $14.35 million was recorded for the year ended Dec 31, 2019[1053] * Note 11: Convertible Debentures with a face value of Cdn$16.06 million mature on December 31, 2020. The company has the option to repay in cash or common shares[1065][1066][1070] * Note 18: The company has undiscounted asset retirement obligations of $41.75 million, secured by $20.08 million in surety bonds and collateral[1061][1119] * Note 23: Subsequent to year-end, the company raised $15.07 million through a public offering and $3.96 million through its ATM program[1146][1147] Item 9A. Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of December 31, 2019, due to identified material weaknesses in internal control over financial reporting, for which a remediation plan is underway * The CEO and CFO concluded that disclosure controls and procedures were not effective as of December 31, 2019[1151] * Management's report on internal control over financial reporting concluded that controls were not effective due to material weaknesses[1156] * Identified material weaknesses include deficiencies in: risk assessment, IT general controls (user access, change management), segregation of duties, and controls over the statement of cash flows[1157][1159][1160] * A detailed remediation plan is underway to address the identified material weaknesses[1164] Part III Items 10 through 14, covering governance, compensation, security ownership, and related party transactions, are incorporated by reference from the 2020 Annual Meeting of Shareholders proxy statement Item 10. Directors, Executive Officers and Corporate Governance Information is incorporated by reference from the registrant's definitive proxy statement for the 2020 Annual Meeting of Shareholders * Information required for this item is incorporated by reference to the registrant's definitive proxy statement for the 2020 Annual Meeting of Shareholders[1169] Item 11. Executive Compensation Information is incorporated by reference from the registrant's definitive proxy statement for the 2020 Annual Meeting of Shareholders * Information required for this item is incorporated by reference to the registrant's definitive proxy statement for the 2020 Annual Meeting of Shareholders[1171] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information is incorporated by reference from the registrant's definitive proxy statement for the 2020 Annual Meeting of Shareholders * Information required for this item is incorporated by reference to the registrant's definitive proxy statement for the 2020 Annual Meeting of Shareholders[1172] Item 13. Certain Relationships and Related Transactions, and Director Independence Information is incorporated by reference from the registrant's definitive proxy statement for the 2020 Annual Meeting of Shareholders * Information required for this item is incorporated by reference to the registrant's definitive proxy statement for the 2020 Annual Meeting of Shareholders[1173] Item 14. Principal Accountant Fees and Services Information is incorporated by reference from the registrant's definitive proxy statement for the 2020 Annual Meeting of Shareholders * Information required for this item is incorporated by reference to the registrant's definitive proxy statement for the 2020 Annual Meeting of Shareholders[1175] Part IV This part lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K, including consolidated financial statements, consents, and certifications Item 15. Exhibits and Financial Statement Schedules This section lists all documents filed as part of the report, including consolidated financial statements, corporate governance documents, material contracts, and certifications * Lists the financial statements, schedules, and exhibits filed with the report[1177] * Exhibits include Articles of Incorporation, bylaws, debt indentures, equity incentive plans, material agreements, consents of experts, and CEO/CFO certifications[1181][1183]