Ur-Energy
Inc.
(a
Development Stage Company)
Management’s
Discussion and Analysis
September
30, 2008
(expressed
in Canadian dollars)
UR-ENERGY
INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
For
the Three and Nine Month Periods Ended September 30, 2008
(Information as at November 6,
2008 unless otherwise noted)
Introduction
The
following provides management’s discussion and analysis of results of operations
and financial condition for the three and nine month periods ended September 30,
2008 and 2007. Management’s Discussion and Analysis was prepared by Company
management and approved by the Board of Directors on November 6,
2008. This discussion and analysis should be read in conjunction with
the Company’s audited annual consolidated financial statements for the years
ended December 31, 2007 and 2006.
The
Company was incorporated on March 22, 2004 and completed its first year-end on
December 31, 2004. All figures are presented in Canadian dollars,
unless otherwise noted, and are in accordance with Canadian generally accepted
accounting principles. The consolidated financial statements include
all of the assets, liabilities and expenses of the Company and its wholly-owned
subsidiaries Ur-Energy USA Inc.; NFU Wyoming, LLC; Lost Creek ISR, LLC; The
Bootheel Project, LLC; NFUR Bootheel, LLC; Hauber Project LLC; NFUR Hauber, LLC;
ISL Resources Corporation; ISL Wyoming, Inc.; and CBM-Energy Inc. All
inter-company balances and transactions have been eliminated upon consolidation.
Ur-Energy Inc. and its wholly-owned subsidiaries are collectively referred to
herein as the “Company”.
Forward-Looking
Statements
This
Management Discussion and Analysis may contain or refer to certain
forward-looking statements relating to expectations, intentions, plans and
beliefs. Forward-looking information can often be identified by forward-looking
words such as “anticipate”, “believe”, “expect”, “goal”, “plan”, “intend”,
“estimate”, “may” and “will” or similar words suggesting future outcomes, or
other expectations, beliefs, plans, objectives, assumptions, intentions or
statements about future events or performance. These statements reflect
management’s current beliefs and are based on information currently available to
management. Forward-looking information may include reserve and resource
estimates, estimates of future production, unit costs, costs of capital projects
and timing of commencement of operations, and is based on current expectations
that involve a number of business risks and uncertainties. Factors that could
cause actual results to differ materially from any forward-looking statement
include, but are not limited to, those listed in the “Risk Factors” section of
the Company’s Annual Information Form dated March 26, 2008 which is filed on
SEDAR, failure to establish estimated resources and reserves, the grade and
recovery of ore which is mined varying from estimates, capital and operating
costs varying significantly from estimates, delays in obtaining or failures to
obtain required governmental, environmental or other project approvals,
inflation, changes in exchange rates, fluctuations in commodity prices, delays
in the development of projects, the failure to obtain sufficient funding for
operating, capital and exploration or development requirements and other
factors. Forward-looking statements are subject to risks, uncertainties and
other factors that could cause actual results to differ materially from expected
results. Potential shareholders and prospective investors should be aware that
these statements are subject to known and unknown risks, uncertainties and other
factors that could cause actual results to differ materially from those
suggested by the forward-looking statements. Potential shareholders and
prospective investors are also cautioned not to place undue reliance on
forward-looking information. By its nature, forward-looking information involves
numerous assumptions, inherent risks and uncertainties,
both
general and specific, that contribute to the possibility that the predictions,
forecasts, projections and various future events will not occur. The Company
undertakes no obligation to update publicly or otherwise revise any
forward-looking information whether as a result of new information, future
events or other such factors which affect this information, except as required
by law.
Nature
of Operations and Description of Business
The
Company is a development stage junior mining company engaged in the
identification, acquisition, evaluation, exploration and development of uranium
mineral properties in Canada and the United States. The Company has not yet
determined whether its properties contain mineral reserves that are economically
recoverable. The recoverability of amounts recorded for mineral exploration
properties and deferred exploration expenditures is dependent upon the discovery
of economically recoverable resources, the ability of the Company to obtain the
necessary financing to complete the development of these properties and upon
attaining future profitable production from the properties or sufficient
proceeds from disposition of the properties.
The
Company is focused on uranium exploration in the following areas: (i) Wyoming,
USA where the Company has fourteen properties. Of those fourteen
properties, ten are in the Great Divide Basin, two of which (Lost Creek and Lost
Soldier) contain defined resources that the Company expects to advance to
production. The Company’s other Wyoming projects include two
properties in the Shirley Basin, one property in the Greater Black Hills, and
one property in the Powder River Basin; (ii) Arizona, USA where the Company has
acquired a property in Yuma County; (iii) the Thelon Basin, Northwest
Territories in northern Canada where it has three properties; and (iv) Baker
Lake Basin, Nunavut, Canada, where it has one property.
Selected Interim
Information
The
following table contains selected interim financial information as at September
30, 2008 (unaudited) and December 31, 2007.
|
|
|
As
at
September
30,
2008
$
(unaudited)
|
|
|
As
at
December
31,
2007
$
|
|
|
Total
assets
|
|
|
137,271,649 |
|
|
|
137,350,775 |
|
|
Asset retirement
obligation
|
|
|
280,522 |
|
|
|
181,672 |
|
|
Long-term
future income tax liability
|
|
|
438,965 |
|
|
|
1,167,000 |
|
The
following table contains selected unaudited interim financial information for
the three and nine month periods ended September 30, 2008 and 2007 and
cumulative information from inception of the Company on March 22, 2004 to
September 30, 2008.
|
|
|
Three
Month
Period
Ended
September
30,
2008
$
(unaudited)
|
|
|
Three
Month
Period
Ended
September
30,
2007
$
(unaudited)
|
|
|
Nine
Month
Period
Ended
September
30,
2008
$
(unaudited)
|
|
|
Nine
Month
Period
Ended
September
30,
2007
$
(unaudited)
|
|
|
Cumulative
from
March
22,
2004 to
September
30,
2008
$
(unaudited)
|
|
|
Revenue
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Total expenses(1)
|
|
|
(3,770,708 |
) |
|
|
(2,448,489 |
) |
|
|
(9,365,424 |
) |
|
|
(6,939,987 |
) |
|
|
(29,368,488 |
) |
|
Interest
income
|
|
|
573,608 |
|
|
|
948,494 |
|
|
|
1,963,297 |
|
|
|
1,936,988 |
|
|
|
5,547,291 |
|
|
Foreign
exchange gain (loss)
|
|
|
(425,796 |
) |
|
|
(1,417,542 |
) |
|
|
70,349 |
|
|
|
(559,354 |
) |
|
|
(17,731 |
) |
|
Other
income (loss)
|
|
|
(18,203 |
) |
|
|
(10,000 |
) |
|
|
(26,888 |
) |
|
|
(10,000 |
) |
|
|
(26,888 |
) |
|
Loss
before income taxes
|
|
|
(3,641,099 |
) |
|
|
(2,927,537 |
) |
|
|
(7,358,666 |
) |
|
|
(5,572,353 |
) |
|
|
(23,865,816 |
) |
|
Recovery
of future income taxes
|
|
|
384,741 |
|
|
|
- |
|
|
|
384,741 |
|
|
|
- |
|
|
|
3,811,741 |
|
|
Net
loss for the period
|
|
|
(3,256,358 |
) |
|
|
(2,927,537 |
) |
|
|
(6,973,925 |
) |
|
|
(5,572,353 |
) |
|
|
(20,054,075 |
) |
|
(1)
Stock based compensation included in total expenses
|
|
|
(1,540,181 |
) |
|
|
(1,042,069 |
) |
|
|
(3,589,067 |
) |
|
|
(2,743,316 |
) |
|
|
(10,354,618 |
) |
|
Loss
per common share:
Basic
and diluted
|
|
|
(0.03 |
) |
|
|
(0.03 |
) |
|
|
(0.08 |
) |
|
|
(0.07 |
) |
|
|
Cash
dividends per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company has not generated any revenue from its operating activities from
inception to date. The Company’s expenses include costs for general
and administrative costs, general exploration expense, and write-off of mineral
property and deferred exploration expenditures. The Company has
recorded significant stock based compensation costs which were included in total
expenses or were capitalized as a component of deferred exploration and
development expenditures. Costs directly related to exploration projects are
initially capitalized as either mineral exploration property costs or deferred
exploration and development expenditures.
No cash
dividends have been paid by the Company. The Company has no present
intention of paying cash dividends on its common shares as it anticipates that
all presently available funds will be invested to finance new and existing
exploration and development activities.
Overall
Performance and Results of Operations
The
Company has advanced its plans from incorporation on March 22, 2004 to
date. From inception to September 30, 2008, the Company has raised
total net cash proceeds from the issuance of common shares and warrants and from
the exercise of warrants, compensation options and stock options of
$141.2 million. As at September 30, 2008, the Company held cash
and cash equivalents and short-term investments of $66.0 million. The
Company's cash resources are invested with major banks in bankers' acceptances,
guaranteed investment certificates, certificates of deposit, or money market
accounts. The Company has made significant investments in mineral exploration
properties and exploration expenditures.
Mineral
Exploration Properties and Deferred Exploration Expenditures
During
the three and nine month periods ended September 30, 2008, the Company expended
cash of $569,906 and $822,519 (2007 – $585,873 and $1,041,474), respectively, on
mineral exploration property costs. The most significant component of
these costs is staking and claim costs. During the three and nine
month periods ended September 30, 2008, the Company incurred deferred
exploration and development expenditures totaling $5,496,273 and $7,782,500
(2007 – $2,442,219 and $5,839,491), respectively. The most
significant component of spending was on permitting and development of the Lost
Creek and Lost Soldier projects.
Wyoming
Properties
Lost Creek
Project
The Lost
Creek uranium deposit is located in the Great Divide Basin, Wyoming. The deposit
is approximately three miles (4.8 kilometers) long and the mineralization occurs
in four main sandstone horizons between 315 feet (96 meters) and 700 feet (213
meters) in depth.
As
identified in the June 2006 Technical Report on Lost Creek, National Instrument
43-101 (“NI 43-101”) compliant resources are 9.8 million pounds of U3O8 at
0.058 percent as an indicated resource and an additional 1.1 million pounds
of U3O8 at
0.076 percent as an inferred resource. During 2006, 17 cased
monitoring and pump test wells were completed on the property, and the initial
testing was completed successfully.
In 2007,
significant drilling was conducted to allow for completion of the following work
on the project:
|
|
·
|
Installation
of pump test and monitor wells for baseline and engineering
data;
|
|
|
·
|
Orebody
delineation drill holes to better define the orebody for well field
planning;
|
|
|
·
|
Condemnation
drill holes to assure that the plant site will not be built over any part
of the orebody; and
|
|
|
·
|
Water
wells for water for the drilling
operation.
|
Completion
of the 2007 drilling program resulted in 58 additional monitor and pump test
wells, two water wells and a total of 195 delineation drill holes. This
enabled the Company to obtain additional baseline and hydrogeologic data within
the first mine unit area for engineering
assessments;
for the State of Wyoming Department of Environmental Quality ("WDEQ") Permit to
Mine application; for the US Nuclear Regulatory Commission ("NRC") Source
Material License application; and, for the WDEQ Mine Unit #1 Permit application.
In addition, six condemnation holes were drilled to make certain the potential
target plant location was not over any part of the ore body. The 2007
drilling program was concluded in early December 2007 and the Company incurred
total drilling costs of approximately $2.6 million.
In 2007,
the Company submitted its Application to the NRC for a Source Material License
for the Lost Creek project. This license is the first stage of obtaining all
necessary licenses and permits to enable the Company to recover uranium via in
situ recovery method at the Lost Creek project. The collection and compilation
of the extensive environmental background data for the application have taken
more than two years. The NRC has indicated that the application review process
can take up to 18 months to complete. In February 2008, the Company
requested that the NRC application for its Lost Creek project be withdrawn to
enable the Company to include upgrades to its application with respect to the
project's operational plan and other advances in the health physics information
and analyses. In March 2008, the Company re-submitted the Source
Material License application to the NRC. In June, the NRC notified
the Company it deemed the
Lost Creek application complete and acceptable. The NRC thereafter commenced its detailed technical and environmental
review of the Company’s
application.
In 2007,
the Company also submitted the Lost Creek Mine Permit Application to the WDEQ.
Beginning in 2008, individual mine unit applications for each well field will be
submitted to cover each mine unit or well field that will be produced on the
Lost Creek project. In May, the Company received notice from the
WDEQ that the agency found the application to be complete, and authorized the Company to proceed with formal Public Notice of
the application, which was
subsequently completed by the Company.
In
February 2008, an in-house economic analysis on the Lost Creek project was
completed by the Company’s engineering team. An independent technical report
under NI 43-101 was subsequently prepared by Lyntek Inc. The purpose
of the report was to provide an independent analysis and preliminary assessment
of the potential economic viability of the mineral resource of the Lost Creek
project. The resulting base case in the preliminary assessment
prepared by Lyntek returned a pre-tax internal rate of return of 43.6% at a
price of US$80 per pound U3O8, and
demonstrated that the project would be economic at prices above US$40 per pound
U3O8.
In
September 2008 the Company announced an update to the Lost Creek permitting
and production timeline based on further licensing guidance from the
NRC. Based upon an NRC release of updated guidance on its expected
publication of a final Generic Environmental Impact Statement for In-Situ Leach
Uranium Milling Facilities ("GEIS") in a July 28, 2008 Federal Register notice
(Vol.73, No. 145), the NRC revised its expected publication date from January
2009 to June 2009.
Therefore, the Company conducted
meetings with senior officials of the NRC in early September to confirm how the
revised GEIS completion date would affect the timing of the issuance of licenses
to presently pending applicants, including Lost Creek. As a result of
the meetings, Ur-Energy revised its expectation for the issuance of the Lost
Creek's NRC license from second quarter 2009 to fourth quarter 2009. First
production from the Lost Creek project is now anticipated to occur in
the second half of 2010.
In
October 2008, the exploration and development program for 2008 at Lost Creek was
essentially complete and included the following activities.
| |
·
|
The
program was designed to further delineate known resources, explore the
permit area for additional resources outside of the known areas, and to
install the monitoring wells required for the first mine
unit. |
|
|
·
|
Drilling
approximately 460 drill holes as
follows:
|
|
|
o
|
300
delineation holes within the proposed mine unit area to provide detailed
definition of the extent of minable uranium
resources.
|
|
|
o
|
99
exploration holes were drilled to test for potential extensions of mineral
trends. Drill hole depths ranged from 600 to 1,000 feet (183 to
305 meters).
|
|
|
o
|
48
cased monitor and pump test wells within and surrounding the first
proposed mine unit were installed. These wells will eventually
be utilized for production
monitoring.
|
|
|
o
|
Ten
regional baseline wells were also installed at the request of the
WDEQ. The average well depth is approximately 450 feet (137
meters).
|
|
|
o
|
Two
water supply wells were drilled, cased and
completed.
|
|
|
·
|
Field
activities were conducted by Ur-Energy staff geologists and field
personnel.
|
|
|
·
|
The
program employed seven contract drill rigs throughout the six month
drilling program. Two geophysical logging units were also
contracted to provide measurements of down-hole equivalent uranium
mineralization. These were complemented by Ur-Energy’s PFN
logging truck, capable of providing down-hole chemical uranium
measurements.
|
|
|
·
|
Core
samples from several holes were obtained. Chemical uranium
analyses of the core samples will be used as referee and quality control
measurements to be compared to the down-hole logging measurements of
mineralization. Leach testing will also be conducted on
selected core samples.
|
|
|
·
|
All
wells were cased in accordance with WDEQ guidelines and regulations; the
process of plugging and permanently abandoning all exploration and
delineation boreholes is nearing
completion.
|
|
|
·
|
The
Company purchased and mobilized operational equipment,
including: backhoes, a water truck, a forklift, light and heavy
trucks, trailers, offices, a hose reel, generators and
cementers.
|
|
|
·
|
Surveys
of soils and geotechnical borings were conducted to assist in the
evaluation of plant and road facilities
design.
|
Following
the completion of the 2008 drilling program, Ur-Energy personnel will oversee
the completion of a deep exploratory well at the site. The well,
planned to a depth of 10,000 feet (3,050 meters), will be utilized to test the
stratigraphy and groundwater quality related to a proposed disposal
well. The Company will also initiate the hydrology testing of the
monitor wells associated with the first mine unit.
A royalty
on future production of 1.67% is in place with respect to 20 claims comprising a
small portion of the Lost Creek project.
Lost Soldier
Project
The Lost
Soldier project is located approximately 14 miles (22.5 kilometers) to the
northeast of the Lost Creek project. The property has over 3,700 historical
drill holes defining 14 mineralized sandstone units. As identified in the July
2006 Technical Report on Lost Soldier, NI 43-101 compliant resources are 5.0
million pounds of U3O8 at 0.064%
as a measured resource, 7.2 million pounds of U3O8 at 0.065%
as an indicated resource and 1.8 million pounds of U3O8 at 0.055
percent
as an
inferred resource. A royalty on future production of 1%, which arises
from a data purchase, is in place with respect to certain claims within the
project.
All
environmental baseline studies were completed in 2007 and in January 2008, the
Lost Soldier deposit was turned over to the Company’s engineering staff for
detailed engineering evaluation and study. In March 2008, the Company
requested a separate docket number and technical assignment control number for
the Lost Soldier project from the NRC, in preparation for a separate license
application for the Lost Soldier project.
Other U.S.
Properties
In 2008,
exploration drilling of 11,370 feet (3,468 meters) was completed at the EN
project. In addition, over 746 miles (1,200 kilometers) of airborne
geophysical surveys were completed in Wyoming. For its other US properties,
including the LC North and North Hadsell projects, the Company has put these
drilling projects on hold in order to advance the development of the Lost Creek
project. Exploration lands in South Dakota containing over 72,000 acres were
dropped with the Company maintaining approximately 66,000 acres of exploration
mineral lands in Wyoming. Also during 2008, an in-house team of
geologists continues to evaluate the extensive well log and exploration database
owned by the Company for generating new exploration targets for the
future.
In 2007,
the Company entered into an agreement with Target Exploration & Mining Corp.
and its subsidiary ("Target"). Under the terms of the agreement, the Company,
through its wholly-owned subsidiary, NFUR Bootheel, LLC, contributed its
Bootheel and Buck Point properties to The Bootheel Project, LLC (the “Bootheel
Project”). The properties cover an area of known uranium occurrences
within the Shirley Basin in Albany County, Wyoming. Target is earning into an
interest in the Bootheel Project by spending US$3.0 million in exploration
costs, and issuing 125,000 shares of its common stock to the Company, all over a
four year period. With the completion earlier in 2008 of
agreements for additional rights and leased lands, the total project covers a
defined area of approximately 10,500 acres. There are various royalties on
future production within the project area.
Target
timely issued its second installment of stock (25,000 shares) and confirmed its
completion of the first year’s required exploration expenditures. In
2008, Target also completed a 50,000 foot (15,250 meter) drilling program on the
properties of the Bootheel Project. The purpose of the program was to bring the
historic resources in National Instrument 43-101 compliance.
In 2007,
the Company entered into agreements with Trigon Uranium Corporation and its
subsidiary ("Trigon"). Under the terms of the agreements, the Company, through
its wholly-owned subsidiary, NFUR Hauber, LLC, contributed its Hauber property
to Hauber Project LLC (the “Hauber Project”). The Hauber Project is
located in Crook County, Wyoming and consists of 205 unpatented lode mining
claims and one state uranium lease totaling approximately 5,160
acres. Effective August 1, 2008, Trigon tendered its resignation as a
Member and the Manager of the Hauber Project. Transition of
management of the Hauber Project back to the Company is
ongoing. Before Trigon's decision not to proceed it had contracted,
as Manager of the Project, for several outside geologic and hydrologic
analytical projects, which were completed and submitted during the first half of
2008. The consultants employed abundant historic data to define the
geologic setting and assess the potential of the Hauber Project properties for
the recovery of uranium through ISR mining methods. Further in house
analysis of these reports is underway by the Company.
Data Package
Acquisition
In 2007,
the Company completed the acquisition of a data package from Power Resources
Inc. ("PRI") pertinent to exploration and development in the Shirley Basin,
Wyoming for a total purchase price of US$180,000, which was paid in two equal
installments in 2006 and 2007. The data includes drill hole logs for more than
1,000 drill holes, historical resource reports, maps, drill summaries,
individual drill hole summaries, handwritten notes, and digital printouts from
such previous operators as Cherokee, Kerr McGee, URADCO (PP&L), and Mobil as
well as historical feasibility reports from Dames & Moore and Nuclear
Assurance.
The
Company has made data covering its Bootheel and Buck Point properties, and
certain other data, available to the venture it has with Target. The data
purchase agreement includes a 1% royalty interest payable to PRI on uranium and
associated minerals and materials produced from the Bootheel and Buck Point
properties which include 269 lode mining claims and two state uranium
leases.
Canadian
Properties
Bugs Property, Baker Lake
Basin
In
September 2006, the Company entered into an option agreement with John D.
Charlton to acquire the Bugs property in Nunavut, Canada. The Company
has earned a 100% interest in the property by issuing a total of 85,000 common
shares to the vendor. The vendor retains a 2% net smelter royalty, of
which 1% is subject to a buyout for $1.0 million. The Bugs property initially
consisted of 11 contiguous mineral claims in the Kivalliq region of the Baker
Lake Basin, Nunavut. In 2008 the Company staked an additional eight
mineral claims, which together total approximately 45,000 acres.
In 2006,
a fixed wing aeromagnetic and radiometric survey was conducted on the entire
property. The data from this survey resulted in the selection of seven targets
based upon structural offset and dilation features in combination with magnetite
depletion. In 2007, one of the seven targets was examined; the remaining targets
were examined and prioritized during the 2008 summer program by radon sampling
techniques, prospecting and rock sampling. This work, completed in early August
led to interpreted areas of hydrothermal alteration, elevated radioactivity and
high radon flux.
From late
August to mid September a total of 2,905 feet (886 meters) of exploration
drilling consisting of six drill holes was completed. The
program was terminated early due to problems with drilling
equipment. Results of the program are being evaluated by the
Company’s consultants. Assays of drill core are pending.
Screech Lake Property,
Thelon Basin
In 2006,
an environmental screening study was completed on the Screech Lake project and
an application for a land use permit to conduct drill testing of the Screech
Lake anomalies was referred to the Mackenzie Valley Environmental Impact Review
Board (“Review Board”) for environmental assessment. In 2007, the environmental
assessment was completed and a report and recommendation from the Review Board
was issued. The Review Board recommended to the Minister of Indian and Northern
Affairs Canada (the “Minister”) that the Company’s application to conduct an
exploratory drilling program at the Screech Lake property be rejected due to
local native community concerns.
In
October 2007, the Company received notification that the Minister had adopted
the recommendation of the Review Board. As part of the decision, the Minister
did confirm that the decision does not affect the legal standing of the
Company’s Screech Lake mineral claims. Discussions with the Minister and other
interested parties led the Company to conclude that the rejection was
influenced, in part, by land claims issues between First Nations groups and the
Federal
government,
and to a lesser extent, environmental concerns related to caribou migration
routes and timing of a drill program. In the Company’s application
for a land use permit, extensive mitigation measures were proposed to ensure
that the drilling program would have minimal short-term environmental impact and
no long-term effect.
In 2008
the Company has continued ongoing discussions with First Nations groups and
Aboriginal owned business corporations to secure an Exploration Agreement which
would allow the Company to proceed with re-filing of a drilling
proposal.
Hornby Bay
Properties
In 2006,
the Company completed a definitive agreement with Triex Minerals Corporation
(“Triex”) with respect to its Mountain Lake and Dismal Lake West properties
(together, comprising 58 claims). Pursuant to the option agreement,
Triex obtained a 100% interest in the properties in September
2007. The Company retains a 5% net smelter return royalty interest in
the properties with Triex having the right to purchase one-half of the royalty
for $5,000,000. In August 2008, Triex announced that it had completed
its 2008 exploration program at its Hornby Bay properties.
Expenses
Total
expenses for the three and nine month periods ended September 30, 2008 were $3.7
million and $9.4 million, respectively, as compared to $2.4 million and $6.9
million during the respective periods in 2007. The increase in total
expenses from the previous year was primarily due to higher general and
administrative expenses, including stock based compensation
expense. Additionally, the Company wrote off two small exploratory
projects during the quarter.
General
and administrative expense was $3.3 million and $8.7 million for the three and
nine month periods ended September 30, 2008 as compared to $2.1 million and $6.0
million for the same period in 2007. The increase in general and
administrative expense relates primarily to the continued expansion of the
Denver, Colorado and Casper, Wyoming offices and increased stock based
compensation expense.
During
2007, the Company strengthened key staffing areas adding five geologists, two
land men, a Vice President of Mining & Engineering, three mining engineers,
a Chief Financial Officer and other key management, legal and finance
positions. In 2008, the Company has added an additional eight
positions primarily aimed at enhancing operating expertise at the Casper Wyoming
office. Accordingly, the Denver and Casper offices have been expanded
to accommodate and support the staffing additions. As a result,
higher labor, recruiting and relocation costs together with increased office
expenses and depreciation costs accounted for the majority of the increase in
general and administrative expense.
In
September 2008, the Company gave the holders of options with an exercise price
of C$4.75 or higher the opportunity to voluntarily return all or a portion of
these options to the Company by September 30, 2008 without any promise or
guarantee that the option holders will receive any further
options. Options for 2,490,000 shares with a weighted exercise price
of $4.82 were returned to the Company. Previously unrecognized stock
based compensation cost of $2.2 million was recognized at the cancellation
date. As a result, the increased stock based compensation cost
contributed to the increase in general and administrative
expense.
During
the three months ended September 30, 2008, the Company relinquished leases
associated with the Harding and Fall River projects in South Dakota and
wrote-off the costs related to projects, which totaled $0.4
million.
Other
income and expenses
The
Company's cash resources are invested with major banks in bankers' acceptances,
guaranteed investment certificates, certificates of deposit, and money market
accounts. During the three and nine month periods ended September 30,
2008, the Company earned interest income on these investments of
$0.6 million and $2.0 million, respectively, as compared to $0.9 million
and $1.9 million for the respective periods in 2007. After the
May 2007 bought deal financing and the March 2008 private placement, the
Company’s average cash resources increased significantly. However,
the Company does not generate any revenue from operating activities and its
average cash resources, and the resulting interest income, have declined since
the two financings were completed.
During
the nine months ended September 30, 2008, the Company recorded a net foreign
exchange gain of $0.1 million as compared to a $0.6 million loss during the same
period in 2007. This 2008 net foreign exchange gain arose primarily
due to cash balances held in U.S. currency as the U.S. dollar strengthened
relative to the Canadian dollar during the period, while in 2007 the U.S.
declined in value relative to the Canadian dollar.
Loss
Per Common Share
Both
basic and diluted loss per common share for the three and nine month periods
ended September 30, 2008 were $0.03 and $0.08 (2007 – $0.03 and $0.07),
respectively.
Liquidity
and Capital Resources
As at
September 30, 2008, the Company had cash and cash equivalents, and short-term
investments of $66.0 million, a decrease of $10.3 million from the December 31,
2007 balance of $76.3 million. The Company's cash resources are
invested with major banks in bankers' acceptances, guaranteed investment
certificates, certificates of deposit, and money market
accounts. During the nine months ended September 30, 2008, the
Company used $2.6 million to fund operating activities, spent $10.5 million
on investing activities before movements in short-term investments, and
generated $2.7 million from financing activities.
During
the nine months ended September 30, 2008, the Company invested cash of $9.2
million in mineral exploration property costs, deferred exploration expenditures
and related bonding deposits. The majority of these expenditures went
towards the Lost Creek project where project evaluation and development
activities continue and to the Bugs property as discussed above. The
Company also invested $1.3 million for the purchase of capital
assets. The majority of these expenditures were for field vehicles
and field equipment purchased to facilitate the exploration and development work
programs in Wyoming.
On March
25, 2008, the Company completed a non-brokered private placement of
1,000,000 flow-through commons shares at $2.75 per share raising gross
proceeds of $2,750,000. Total direct share issue costs were
$115,314. During the nine months ended September 30, 2008, the
Company realized cash proceeds from the exercise of previously issued stock
options totaling $90,000. In September 2008, the Company gave the
holders of options with an exercise price of C$4.75 or higher the opportunity to
voluntarily return all or a portion of these options to the Company by September
30,
2008
without any promise or guarantee that the option holders will receive any
further options. Options for 2,490,000 shares with a weighted exercise
price of $4.82 were returned to the Company. Therefore, as at September 30,
2008, the Company had outstanding a total of 6,252,500 stock options with
exercise prices ranging from $1.25 to $4.75.
The
Company has financed its operations from its inception primarily through the
issuance of equity securities and has no sources of cash flow from
operations. The Company will not generate any cash flow from
operations until it is successful in commencing production from its
properties.
The
Company has established a corporate credit card facility with a US bank. This
facility has an aggregate borrowing limit of U.S. $250,000 and is used for
corporate travel and incidental expenses. The Company has provided a
letter of credit and a guaranteed investment certificate in the amount of
$287,500 as collateral for this facility.
Financing
Transactions
The
Company completed a non-brokered private placement of 1,000,000 flow-through
commons shares at $2.75 per share on March 25, 2008 and raised gross proceeds of
$2,750,000. Total direct share issue costs were
$115,314.
Outstanding
Share Data
Information
with respect to outstanding common shares, warrants, compensation options and
stock options as at September 30, 2008 and December 31, 2007 is as
follows:
|
|
September
30,
2008
|
December
31,
2007
|
|
Common
shares
|
93,243,607
|
92,171,607
|
|
Warrants
|
-
|
-
|
|
Compensation
options
|
-
|
-
|
|
Stock
options
|
6,252,500
|
8,010,700
|
|
Fully
diluted shares outstanding
|
99,496,107
|
100,182,307
|
Off-Balance
Sheet Arrangements
The
Company has not entered into any material off-balance sheet arrangements such as
guarantee contracts, contingent interests in assets transferred to
unconsolidated entities, derivative instrument obligations, or with respect to
any obligations under a variable interest entity arrangement.
Financial
Instruments and Other Instruments
The
Company’s financial instruments consist of cash and cash equivalents, short-term
investments, amounts receivable, bonding and other deposits and accounts
payable. The Company is exposed to risks related to changes in
foreign currency exchange rates, interest rates and management of cash and cash
equivalents and short term investments.
Classification
of financial instruments
The
Company has made the following classifications for its financial
instruments:
|
|
·
|
Cash
and cash equivalents are classified as “held for
trading”
|
|
|
·
|
Short
tem investments are classified as “held-to-maturity” and carried at cost
plus accrued interest with interest income and exchange gains and
losses included
in operations;
|
|
|
·
|
Amounts
receivable, bonding and other deposits are classified as “Loans and
receivables” and are recorded at
cost.
|
|
|
·
|
Accounts
payable and accrued liabilities are classified as “Other financial
liabilities” and are measured at
cost
|
Credit
risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist of cash and cash equivalents, short term investments and bonding
deposits. The Company’s cash equivalents and short-term investments
consist of Canadian dollar and US dollar denominated guaranteed investment
certificates, certificates of deposits. They bear interest at annual
rates ranging from 2.4% to 3.2% and mature at various dates up to June 26,
2009. These instruments are maintained at high credit financial
institutions in Canada and the United States. Of the amount held on
deposit, approximately $0.4 million is covered by either the Canada Deposit
Insurance Corporation or the Federal Deposit Insurance Corporation, leaving
approximately $65.6 million at risk should the financial institutions with which
these amounts are invested cease trading. The Company considers the
likelihood of this happening to be remote. As at September 30, 2008,
the Company does not consider any of its financial assets to be
impaired.
Market
risk
Market
risk is the risk to the Company of adverse financial impact due to changes in
the fair value or future cash flows of financial instruments as a result of
fluctuations in interest rates and foreign currency exchange
rates. Market risk arises as a result of the Company incurring a
significant portion of its expenditures in United States dollars, holding cash
and cash equivalents and short term investments which earn
interest.
Interest
rate risk
Financial
instruments that expose the Company to interest rate risk are its cash and cash
equivalents and short term investments. The Company’s objectives of managing its
cash and cash equivalents are to ensure sufficient funds are maintained on hand
at all times to meet day to day requirements and to place any amounts which are
considered in excess of day to day requirements on short-term deposit with the
Company's banks so that they earn interest. When placing amounts of cash and
cash equivalents on short-term deposit, the Company only uses high quality
commercial banks and ensures that access to the amounts placed can generally be
obtained on short-notice.
Currency
risk
The
Company incurs expenses and expenditures in Canada and the United States and is
exposed to risk from changes in foreign currency rates. In addition, the Company
holds financial assets and liabilities in US dollars. The Company does not
utilize any financial instruments or cash management policies to mitigate the
risks arising from changes in foreign currency rates.
At
September 30, 2008 the Company had cash and cash equivalents, short term
investments and bonding
deposits of approximately $32.7 million ($18.3 million as at December 31, 2007)
and accounts payable of $1.1 million ($1.2 million as at December 31, 2007)
which were denominated in US dollars.
Sensitivity
analysis
The
Company has completed a sensitivity analysis to estimate the impact on net loss
for the period which a change in foreign exchange rates during the period ended
September 30, 2008 would have had. This sensitivity analysis assumes that
changes in market interest rates do not cause a change in foreign exchange
rates This sensitivity analysis shows that a change of +/- 10% in US$
foreign exchange rate would have a +/- $3.2 million impact on net loss for the
nine-month period ended September 30, 2008. This impact is primarily
as a result of the Company having US$ denominated trade accounts payable
balances and cash and investment balances denominated in US
dollars. The financial position of the Company may vary at the time
that a change in exchange rates occurs causing the impact on the Company’s
results to differ from that shown above.
Transactions
with Related Parties
During
the nine months ended September 30, 2008, the Company did not participate in any
material transactions with any related parties.
Proposed
Transactions and Listing Application Approval
As is
typical of the mineral exploration and development industry, the Company is
continually reviewing potential merger, acquisition, investment and joint
venture transactions and opportunities that could enhance shareholder
value. Timely disclosure of such transactions is made as soon as
reportable events arise.
In
January 2008, the Company filed documentation with the United States Securities
and Exchange Commission on Form 40-F to register the common shares of the
Company and filed an application to list the common shares with the American
Stock Exchange, LLC (“AMEX”). The application was subject to review
by the AMEX, and on July 18, 2008, the AMEX approved for listing the common
shares of the Company. Trading of the common shares of the Company on
the AMEX commenced on July 24, 2008 under the symbol “URG”.
Critical
Accounting Policies and Estimates
Acquisition
costs of mineral exploration properties together with direct exploration and
development expenditures are capitalized. When production is
attained, these costs will be amortized. If properties are abandoned
they are written off at that time. If properties are considered to be
impaired in value, the costs of the properties and related deferred expenditures
will be written down to their estimated fair value at that
time. Management uses its best estimates for determining the fair
value of mineral properties based on expenditures incurred, the results of any
exploration conducted, prevailing market conditions and future plans for the
projects.
The
Company is required to record all equity instruments including warrants,
compensation options and stock options at fair value in the financial
statements. Management utilizes the Black-Scholes model to calculate the fair
value of these equity instruments at the time they are issued. Use of
the Black-Scholes model requires management to estimate the expected volatility
of the Company’s stock
over the
future life of the equity instrument and to estimate the expected life of the
equity instrument. Determination of these estimates requires significant
judgment and requires management to formulate estimates of future events based
on a limited history of actual results and by comparison to other companies in
the uranium exploration and development segment.
Changes
in Accounting Policies Including Initial Adoption
On
January 1, 2008, the Company adopted the following Canadian Institute of
Chartered Accountants (“CICA”) Handbook Sections:
|
|
·
|
Section
3862, Financial Instruments – Disclosures, and Section 3863, Financial
Instruments – Presentation. These new disclosure standards
increase the Company’s disclosure regarding the nature and risk associated
with financial instruments and how those risks are managed. The
new presentation standard carries forward the former presentation
requirements.
|
|
|
·
|
Section
1535, Capital Disclosures. This new standard requires the
Company to disclose its objectives, policies and processes for managing
its capital structure.
|
|
|
·
|
Section
1400, General Standards on Financial Statement
Presentation. This standard requires management to assess at
each balance sheet date and, if necessary, disclose any uncertainty
surrounding the ability of the Company to continue as a going
concern. The adoption of this standard had no impact on the
Company’s disclosures in these interim financial
statements.
|
Disclosure
Controls and Procedures
The Chief
Executive Officer and Chief Financial Officer of the Company evaluated the
effectiveness of the Company’s disclosure controls and procedures (as defined in
the rules of the Canadian Securities Administrators) and concluded that the
Company’s disclosure controls and procedures were effective as of September 30,
2008.
Internal
Controls
No
changes have occurred in the Company’s internal control over financial reporting
during the most recent interim period that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Risks
and Uncertainties
The
Company is subject to a number of risks and uncertainties due to the nature of
its business and the present stage of development of its
business. Investment in the natural resource industry in general, and
the exploration and development sector in particular, involves a great deal of
risk and uncertainty. Current and potential investors should give
special consideration to the risk factors involved. These factors are
discussed more fully in our Annual Information Form dated March 26, 2008 which
is filed on SEDAR.
Other
Information
Other
information relating to the Company may be found on the SEDAR website at www.SEDAR.com
or on the U.S. Securities and Exchange Commission’s website at www.sec.gov
..
Directors
and Officers
Jeffrey
T. Klenda, B.A. – Executive Chairman
W.
William Boberg, M. Sc., P. Geo. – President, Chief Executive Officer and
Director
Harold
Backer, B. Sc. – Executive Vice President
Wayne
Heili, B. Sc. – Vice President, Mining and Engineering
Paul W.
Pitman, B. Sc. Hon. Geo., P. Geo. – Vice President, Canadian
Exploration
James M.
Franklin, PhD, FRSC, P. Geo. – Chief Scientist, Director and Technical Committee
Chair
Paul
Macdonell, Diploma Public Admin. – Director and Compensation Committee
Chair
Robert
Boaz, M. Econ., Hons. BA – Director and Corporate Governance and Nominating
Committee Chair
Thomas
Parker, B. Sc., M. Eng. – Director and Audit Committee Chair
Roger
Smith, CPA, MBA – Chief Financial Officer and Vice President Finance, IT
& Administration
Paul G.
Goss, J.D., MBA – Corporate Counsel and Corporate Secretary
Corporate
Offices
|
United
States Headquarters:
10758
West Centennial Road, Suite 200
Littleton
(Denver), Colorado 80127
Phone:
(720) 981-4588
|
Canadian
Exploration Office:
341
Main Street North, Suite 206
Brampton,
Ontario L6X 3C7
Phone:
(905) 456-5436
|
|
Wyoming
Operations Office:
5880
Enterprise Drive, Suite 200
Casper,
Wyoming 82609
Phone:
(307) 265-2373
|
Registered
Canadian Office:
McCarthy
Tétrault
The
Chambers, Suite 1400
40
Elgin St
Ottawa,
ON K1P 5K6
Phone:
(613) 238-2000
|
Web
Site
www.ur-energy.com
Trading
Symbol
TSX:
URE
AMEX:
URG
Independent
Auditor
PricewaterhouseCoopers
LLP, Vancouver
Corporate
Legal Counsel
McCarthy
Tétrault LLP, Ottawa
Corporate
Banker
Royal
Bank of Canada, Ottawa
Transfer
Agent
Equity
Transfer & Trust Company, Toronto
Registrar
and Transfer Company (Co-Transfer Agent and Co-Registrar) New
York