Ur-Energy
Inc.
(a
Development Stage Company)
Management’s
Discussion and Analysis
March 31,
2009
(expressed
in Canadian dollars)
UR-ENERGY
INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
For
the Three Months Ended March 31, 2009
(Information as at April 28,
2009 unless otherwise noted)
Introduction
The
following provides management’s discussion and analysis of results of operations
and financial condition for the three months ended March 31,
2009. Management’s Discussion and Analysis was prepared by Company
management and approved by the Board of Directors on April 28,
2009. This discussion and analysis should be read in conjunction with
the Company’s audited consolidated financial statements for the years ended
December 31, 2008, 2007 and 2006. All figures are presented in
Canadian dollars, unless otherwise noted, and are in accordance with Canadian
generally accepted accounting principles.
In
December 2008, the Company changed its policy for accounting for exploration and
development expenditures. In prior years, the Company capitalized all
direct exploration and development expenditures. Under its new
policy, exploration, evaluation and development expenditures, including annual
exploration license and maintenance fees, are charged to earnings as incurred
until the mineral property becomes commercially mineable. Management considers
that a mineral property will become commercially mineable when it can be legally
mined, as indicated by the receipt of key permits. This change has
been applied retroactively and all comparative amounts in this Management’s
Discussion and Analysis (“MD&A”) have been restated to give effect to this
change. These changes are discussed more fully under the heading
“Changes in Accounting Policies Including Initial Adoption”.
The
Company was incorporated on March 22, 2004 and completed its first year-end on
December 31, 2004. 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
Information
This
Management’s Discussion and Analysis contains "forward-looking statements"
within the meaning of applicable United States and Canadian securities laws.
Shareholders can identify these forward-looking statements by the use of words
such as "expect", "anticipate", "estimate", "believe", "may", "potential",
"intends", "plans" and other similar expressions or statements that an action,
event or result "may", "could" or "should" be taken, occur or be achieved, or
the negative thereof or other similar statements. These statements are only
predictions and involve known and unknown risks, uncertainties and other factors
which may cause the Company’s actual results, performance or achievements, or
industry results, to be materially different from any future results,
performance, or achievements expressed or implied by these forward-looking
statements. Such statements include, but are not limited to: (i) the Company’s
belief that it will have sufficient cash to fund its capital requirements;
(ii) receipt of
(and related timing of) a U.S. Nuclear Regulatory Commission (“NRC”) Source
Material License, Wyoming Department of Environmental Quality (“WDEQ”) Permit
and License to Mine and other necessary permits related to Lost Creek; (iii)
Lost Creek and Lost Soldier will advance to production and the production
timeline at Lost Creek scheduled for late 2010; (iv)
production
rates, timetables and methods at Lost Creek and Lost Soldier; (v) the Company’s
procurement plans and construction plans at Lost Creek; (vi) the licensing
process at Lost Soldier which efforts are expected to be streamlined; (vii) the
timing, the mine design planning and the preliminary assessment at Lost Soldier;
(viii) the completion and timing of various exploration programs and (ix) the
regulatory issues at the Screech Lake project and related
exploration. These other factors include, among others, the
following: future estimates for production, production start-up and operations
(including any difficulties with startup), capital expenditures,
operating costs, mineral resources, recovery rates, grades and prices; business
strategies and measures to implement such strategies; competitive strengths;
estimated goals; expansion and growth of the business and operations; plans and
references to the Company’s future successes; the Company’s history of operating
losses and uncertainty of future profitability; the Company’s status as an
exploration and development stage company; the Company’s lack of mineral
reserves; the hazards associated with mining construction and production;
compliance with environmental laws and regulations; risks associated with
obtaining permits in Canada and the United States; risks associated with current
variable economic conditions; the possible impact of future financings;
uncertainty regarding the pricing and collection of accounts; risks associated
with dependence on sales in foreign countries; the possibility for adverse
results in potential litigation; fluctuations in foreign exchange rates;
uncertainties associated with changes in government policy and regulation;
uncertainties associated with the Canadian Revenue Agency’s audit of any of the
Company’s cross border transactions; adverse changes in general business
conditions in any of the countries in which the Company does business; changes
in the Company’s size and structure; the effectiveness of the Company’s
management and its strategic relationships; risks associated with the Company’s
ability to attract and retain key personnel; uncertainties regarding the
Company’s need for additional capital; uncertainty regarding the fluctuations of
the Company’s quarterly results; uncertainties relating to the Company’s status
as a non-U.S. corporation; uncertainties related to the volatility of the
Company’s shares price and trading volumes; foreign currency exchange risks;
ability to enforce civil liabilities under U.S. securities laws outside the
United States; ability to maintain the Company’s listing on the NYSE Amex (the
“NYSE Amex”) and Toronto Stock Exchange (the “TSX”); risks associated with the
Company’s possible status as a "passive foreign investment company" or a
"controlled foreign corporation" under the applicable provisions of the U.S.
Internal Revenue Code of 1986, as amended; risks associated with the Company’s
investments and other risks and uncertainties described under the heading “Risk
Factors” of the Company’s Annual Report on Form 20-F (Annual Information Form)
dated March 18, 2009 which is filed on SEDAR at www.sedar.com and with the U.S.
Securities and Exchange Commission at www.sec.gov.
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. The recoverability
of amounts recorded for mineral properties 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 currently
in the process of permitting its Lost Creek property.
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, Canada, where it has two
properties; and (iv) Baker Lake Basin, Nunavut, Canada, where it has one
property.
Selected
Information
The
following table contains selected financial information as at March 31, 2009 and
December 31, 2008.
|
|
|
As
at
March
31,
2009
$
(Unaudited)
|
As
at
December
31,
2008
$
|
|
Total
assets
|
|
97,405,218
|
101,533,965
|
|
Liabilities
|
|
2,432,826
|
3,256,634
|
|
Net
assets
|
|
94,972,392
|
98,277,331
|
|
Capital
stock and contributed surplus
|
|
157,808,008
|
157,118,019
|
|
Deficit
|
|
(62,835,616)
|
(58,840,688)
|
|
Shareholders’
equity
|
|
94,972,392
|
98,277,331
|
The
following table contains selected financial information for the three months
ended March 31, 2009 and 2008 and cumulative information from inception of the
Company on March 22, 2004 to March 31, 2009.
|
|
Three
Months
Ended
March
31, 2009
$
(Unaudited)
|
Three
Months
Ended
March
31, 2008
$
(As
restated)
(Unaudited)
|
Cumulative
from
March
22, 2004 to
March
31, 2009
$
(Unaudited)
|
|
Revenue
|
Nil
|
Nil
|
Nil
|
|
Total
expenses(1)
|
(5,036,502)
|
(3,331,215)
|
(75,916,285)
|
|
Interest
income
|
400,743
|
789,280
|
6,479,182
|
|
Foreign
exchange gain
|
634,331
|
652,446
|
6,202,570
|
|
Other
income (loss)
|
6,500
|
(11,685)
|
(30,138)
|
|
Loss
before income taxes
|
(3,994,928)
|
(1,901,174)
|
(63,264,671)
|
|
Recovery
of future income taxes
|
-
|
-
|
429,055
|
|
Net
loss for the period
|
(3,994,928)
|
(1,901,174)
|
(62,835,616)
|
|
(1)
Stock based compensation included in total expenses
|
(280,489)
|
(853,144)
|
(15,042,686)
|
|
Loss
per common share:
Basic
and diluted
|
(0.04)
|
(0.02)
|
|
|
Cash
dividends per common share
|
Nil
|
Nil
|
|
The
Company has not generated any revenue from its operating activities from
inception to date. The Company’s expenses include general and
administrative expense, exploration and evaluation expense, development expense
and write-off of mineral property costs. The Company recorded
significant stock-based compensation costs which are included in total expenses.
Acquisition costs of mineral properties are capitalized. Exploration,
evaluation and development expenditures, including annual maintenance and lease
fees, are charged to earnings as incurred until the mineral property becomes
commercially mineable.
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.
Summary of Quarterly
Financial Information
The
following table contains summary quarterly financial information for each of the
eight most recently completed quarters.
|
|
Mar.
31
2009
$
(Unaudited)
|
Dec.
31
2008
$
(Unaudited)
|
Sep.
30
2008
$
(Unaudited)
|
Jun.
30
2008
$
(Unaudited)
|
Mar.
31
2008
$
(Unaudited)
|
Dec.
31
2007
$
(Unaudited)
|
Sep.
30
2007
$
(Unaudited)
|
Jun.
30
2007
$
(Unaudited)
|
|
Revenue
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|
Total
expenses
|
(5,036,502)
|
(8,602,294)
|
(8,531,899)
|
(5,502,303)
|
(3,331,215)
|
(6,406,006)
|
(7,157,802)
|
(5,840,335)
|
|
Interest
income
|
400,743
|
531,148
|
573,608
|
600,409
|
789,280
|
879,410
|
948,494
|
699,684
|
|
Foreign
exchange gain (loss)
|
634,331
|
5,585,970
|
(425,800)
|
(156,297)
|
652,446
|
(247,066)
|
(1,417,542)
|
719,046
|
|
Other
income (loss)
|
6,500
|
(9,750)
|
(18,203)
|
3,000
|
(11,685)
|
10,000
|
(10,000)
|
-
|
|
Loss
before income taxes
|
(3,994,928)
|
(2,494,926)
|
(8,402,294)
|
(5,055,191)
|
(1,901,174)
|
(5,763,662)
|
(7,636,850)
|
(4,421,605)
|
|
Recovery
of future income taxes
|
-
|
-
|
-
|
-
|
-
|
429,055
|
-
|
-
|
|
Net
loss for the period
|
(3,994,928)
|
(2,494,926)
|
(8,402,294)
|
(5,055,191)
|
(1,901,174)
|
(5,334,607)
|
(7,636,850)
|
(4,421,605)
|
|
Loss
per share – basic and diluted
|
(0.04)
|
(0.03)
|
(0.09)
|
(0.05)
|
(0.02)
|
(0.06)
|
(0.08)
|
(0.05)
|
Overall Performance and
Results of Operations
From
inception to March 31, 2009, the Company has raised net cash proceeds from the
issuance of common shares and warrants and from the exercise of warrants,
compensation options and stock options of $138.7 million. As at March
31, 2009, the Company held cash and cash equivalents, and short-term investments
of $59.1 million. The Company's cash resources are invested with
major banks in deposit accounts, guaranteed investment certificates,
certificates of deposit, and money
market
accounts. The Company has made significant investments in mineral properties and
exploration, evaluation and development expenditures.
Mineral
Properties
The
Company’s mineral properties are located in Wyoming, USA, Arizona, USA,
Northwest Territories, Canada, and Nunavut, Canada.
Wyoming, USA
Properties
Lost
Creek Project
The
Company acquired certain of its Wyoming properties when Ur-Energy USA entered
into the Membership Interest Purchase Agreement (“MIPA”) with New Frontiers
Uranium, LLC on June 30, 2005. Under the terms of the MIPA, the Company
purchased all of the issued and outstanding membership interests (the
“Membership Interests”) in NFU Wyoming, LLC. Assets acquired in this
transaction include the extensively explored and drilled Lost Creek and Lost
Soldier projects, and a development database including more than 10,000 electric
well logs, over 100 geologic reports and over 1,000 geologic and uranium maps
covering large areas of Wyoming, Montana and South Dakota. The 100%
interest in NFU Wyoming was purchased for an aggregate consideration of
$24,515,832 (US$20,000,000). 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 claims.
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.
The Company continues to
advance matters to obtain an NRC Source Material License for the Lost Creek
project. In October 2007, the Company submitted its Application
to the NRC. In June 2008, the NRC notified the Company that the
acceptance review had been completed and the Application was found
sufficient for technical review. In November 2008, the NRC provided
the Company with a Request for Additional Information (“RAI”) letter for the
Technical Report portion of the Application. The Company submitted
responses to all of the Technical RAIs during this fiscal quarter. In
March 2009, the NRC provided the Company with a RAI for the Environmental Report
portion of the Application. The Company anticipates submitting a
complete response in the second quarter of 2009. Ur-Energy anticipates the
issuance of Lost Creek's NRC license in the fourth quarter 2009.
The
Company continues to advance matters to obtain a WDEQ Permit to Mine for the
Lost Creek project. In December 2007, the Company submitted the Lost
Creek Permit to Mine Application to the WDEQ. The WDEQ Application
was deemed complete in May 2008. On January 30, 2009 the WDEQ
provided the Company a set of Technical Review comments. The Company
is currently in the process of preparing responses for the WDEQ Technical
Review. The Company anticipates
submitting a complete set of responses in the second quarter of
2009. Ur-Energy anticipates the issuance of Lost Creek's WDEQ
Permit in the fourth quarter 2009.
The
Company has taken positive steps to advance the preparation of a Permit
Application for future waste water disposal wells to be located within the Lost
Creek Permit Area. The Company acquired detailed data including
formation stratigraphy, reservoir extent and properties, water quality and
assessment of well injection rates from a deep test well drilled in late
2008. The data set will be utilized to beneficially support a
second-quarter 2009 permit submittal.
The
Company has established a framework to demonstrate the economic viability of the
Lost Creek project. In April 2008, the Company released an
independent technical report under NI 43-101 prepared by Lyntek Inc.
(“Lyntek”) The purpose of the report was to provide an analysis and
preliminary assessment of the potential economic viability of the mineral
resource of the Lost Creek project. The base case in the preliminary
assessment 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. Lyntek
also concluded that the uranium is leachable with a reasonable solution of
bicarbonate and peroxide (and by extension, oxygen) and that an overall recovery
of uranium in the range of 85% appears reasonable. The Preliminary
Assessment report is available for review on SEDAR.
The
Company continued the development program at the Lost Creek project site during
the first quarter, 2009. The first quarter program
included:
|
|
·
|
Drilling
and installation of 16 monitoring wells (11,770 ft.) to obtain and monitor
water quality for the purpose of permitting a mineralized horizon
underlying the horizon presently being permitted for
mining
|
|
|
·
|
Completion
for sampling and groundwater sampling of a ~10,000 foot deep test well at
Lost Creek
|
|
|
·
|
Mechanical
integrity testing of the network of installed baseline and monitoring
wells and the installation of submersible pump equipment to facilitate
ongoing water sampling requirements
|
In the
first quarter of 2009, the Company’s engineering staff, assisted by TREC
Engineering, completed the detailed designs and specifications for all
components of the Lost Creek ISR Plant. Requests for quotations for
all major process equipment were prepared and solicited from vendors and
contractors. Bids are currently being evaluated and procurement will
be ongoing throughout 2009. Construction at the Lost Creek site will
begin upon receipt of the necessary permits.
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%
as an inferred resource. The Company maintains 143 lode mining claims
at Lost Soldier, totaling approximately 2,710 mineral acres. Of these
143 mining claims at Lost Soldier, 60 new claims were staked in 2008 for mine
engineering design purposes. A royalty on future production of 1%,
which arises from a data purchase, is in place with respect to certain claims
within the project.
Members
of the Company’s Geology Staff have continued to progress with in-depth studies
which focus on detailed mapping of the roll-front geology. These
studies will be followed by detailed mine design planning, and a preliminary
assessment, all of which are expected in 2009.
The
Company has determined it will submit the applications to the NRC and WDEQ as
amendments to the Lost Creek licenses, after they are issued by those
agencies. It is anticipated that the Lost Soldier licensing effort
will be streamlined and more efficient as a satellite facility to the Lost Creek
project.
Other
Wyoming Properties
In 2008,
exploration drilling of 11,370 feet (3,468 meters) was completed at the EN
project. In January 2009, the Company completed an agreement reducing an
existing royalty on claims and an area of interest arising from transactions
dating back to 2006. With regard to the EN project, and three other areas,
the Company was able to eliminate the area of interest and to reduce the royalty
from two percent (2%) to one percent (1%) on certain specified mining
claims. In a related transaction, the Company purchased 66 new claims
which became a part of the EN project, bringing that project to a total of 533
mining claims, together with one state mining lease.
Also in
2008, additional exploration data was obtained by completing over 746 miles
(1,200 kilometers) of airborne geophysical surveys in
Wyoming. The Company put other drilling programs, including the LC
North and North Hadsell projects, on hold in order to advance the development of
the Lost Creek project. Also as a result of budgetary controls, the Company
dropped exploration lands in South Dakota containing over 72,000 acres prior to
additional costs of retention being incurred. The Company maintains
approximately 65,000 mineral acres in Wyoming. During 2008 and into
2009, an in-house team of geologists has continued to evaluate the extensive
well log and exploration database owned by the Company for generating new
exploration targets.
In 2007,
the Company completed the acquisition of a data package from Power Resources
Inc. ("PRI") pertinent to exploration and development on its Bootheel and Buck
Point properties, 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 logs for more than 1,000 drill holes, historical resource reports,
maps, drill summaries, individual drill hole summaries, handwritten notes, and
digital printouts from previous operators.
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
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. Target is earning into a 75%
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 within
a four-year earn-in period. With the completion in 2008
of agreements for additional rights and leased lands, the project covers defined
areas of approximately 8,524 gross, and 7,895 net, mineral acres. (The statement
of net mineral acres with regard to the Bootheel property arises as a part of
the 2008 agreements to which the lessor has a 75% mineral
interest.)
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
Bootheel property of the Project. In January 2009, Target announced that it had
completed the acquisition of the final historic data package in behalf of the
Bootheel Project. The data package, purchased from Cameco Resources,
comprises geophysical and geological data from approximately 290,000 feet of
drilling carried out by Cameco, Kerr McGee and Uradco.
The
Company has made the data it acquired earlier from PRI covering the Bootheel and
Buck Point properties (see discussion above), and certain other data, available
to the Bootheel Project. PRI retained a royalty of 1% on future
production of uranium and associated minerals from certain lands in the Bootheel
Project.
An
additional royalty of ½ of 1% is in place with respect to 28 claims acquired in
2006.
In
February 2009, Target issued 50,000 additional shares of its stock to the
Company to complete the stock-based earn-in obligations (third and fourth
installments) of the operating agreement of the Bootheel Project.
In 2007,
the Company entered into agreements with Trigon Uranium Corporation and its
subsidiary ("Trigon"). Under the terms of the agreements, the Company
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 4,570 mineral 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 has been completed.
Canadian Properties and
Interests
Screech
Lake Property, Thelon Basin
In 2006,
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.
The
Company is continuing its 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 and
application for land use permit.
Bugs
Property, Baker Lake Basin
In
September 2006, the Company entered into an option agreement 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. Currently, the Bugs property consists of
19 mineral claims, which total approximately 45,000 acres (approximately 18,000
hectares).
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.
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
led to interpreted areas of hydrothermal alteration, elevated radioactivity and
high radon flux.
Six drill
holes were completed in 2008, for a total of 2,905 feet (885
meters). The program was terminated early due to problems
with drilling equipment.
Three
Months Ended March 31, 2009 Compared to Three Months Ended March 31,
2008
Expenses
Total
expenses for the three months ended March 31, 2009 increased $1.7 million from
$3.3 million in 2008 to $5.0 million in 2009. Total expenses
include general and administrative expense, exploration and evaluation expense,
development expense and write-off of mineral property costs.
General
and administrative (“G&A”) expense relates to the Company’s administration,
finance, investor relations, land and legal functions. G&A
expense decreased $0.4 million from $1.8 million in 2008 to $1.4 million in
2009. The primary reason for the decrease was lower stock
compensation expense, which decreased $0.5 million during the
period. Excluding stock compensation expense, G&A expense
increased $0.1 million. The small increase was driven by higher
labor costs reflecting the Company’s expansion of the Littleton, Colorado
office.
Exploration
and evaluation expenses decreased $0.3 million from $1.5 million in 2008 to
$1.2 million in 2009. The primary reason for the decrease was
the transition of the Company’s Lost Creek property from the evaluation stage to
the development state. As a result, direct project evaluation
expenditures decreased $0.4 million during the period. Labor costs
during the period increased $0.1 million reflecting the Company’s expansion
of the Casper, Wyoming office.
Development
expense relates entirely to the Company’s Lost Creek property, which entered the
development stage in the second quarter of 2008. As a result there
are no comparative figures for the first quarter of 2008. For the
three months ended March 31, 2009, the Company spent $2.4 million on Lost Creek
development activities. The primary development cost areas were
permitting ($0.5 million), drilling ($1.4 million), labor ($0.3 million)
and supply and service costs associated with drilling ($0.2
million).
During
the first quarter of 2009, the Company wrote off $64,000 in mineral property
costs associated with the Eyeberry property in Canada. There were no
similar write offs in the comparative period for 2008.
Other income and
expenses
The
Company's cash resources are invested with major banks in deposit accounts,
guaranteed investment certificates, certificates of deposit, and money market
accounts. During the three months ended March 31, 2009, the Company
earned interest income on these investments of $0.4 million, as compared to
$0.8 million in 2008. The decrease was driven by lower average cash
resources and lower average interest rates in 2009 as compared to those in
2008.
During
the three months ended March 31, 2009, the Company recorded a net foreign
exchange gain of $0.6 million as compared to a $0.7 million gain during the
same period in 2008. The net foreign exchange gains arose primarily
due to cash resources held in U.S. dollar accounts as the U.S. dollar
strengthened relative to the Canadian dollar during the
periods.
Income
Taxes
In 2009
and 2008, the Company recorded operating losses in both Canada and the United
States. Management has concluded that it is not yet more likely than
not that these losses and any prior years’ loss carry forwards and other tax
assets will be realized, and therefore the Company has recorded a full valuation
allowance against these amounts.
Loss per Common
Share
Both
basic and diluted loss per common share for the three months ended March 31,
2009 were $0.04 (2008 – $0.02). The diluted loss per common share is
equal to the basic loss per common share due to the anti-dilutive effect of all
convertible securities outstanding given that net losses were
experienced.
Liquidity
and Capital Resources
As at
March 31, 2009, the Company had cash resources, consisting of cash and cash
equivalents and short-term investments, of $59.1 million, a decrease of $5.9
million from the December 31, 2008 balance of $65.0 million. The
Company's cash resources are invested with major banks in Canada and the United
States in deposit accounts, guaranteed investment certificates, certificates of
deposit, and money market accounts. During the three months ended
March 31, 2009, the Company used $4.3 million to fund operating activities
and used $1.6 million on investing activities.
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 resources from
operations until it is successful in commencing production from its
properties. As a result, operating activities used $4.3 million of
cash resources during the three months ended March 31, 2009 as compared to $1.1
million in 2008. The primary reason for the increase was the addition
of development expenditures associated with the Company’s Lost Creek property in
Wyoming. There were no development expenditures during the same
period in 2008. In addition, the company received less interest
income in 2009 as compared to 2008 due to lower average cash balances and lower
interest rates.
During
the three months ended March 31, 2009, the Company invested cash resources of
$1.6 million in mineral properties, bonding deposits, capital assets and
plant design work on the Lost Creek property. The majority of these
expenditures went towards increased bonding deposits
($1.3 million).
Financing
Transactions
On
November 7, 2008 the Company’s board of directors approved the adoption of a
shareholder rights plan (the “Rights Plan”) designed to encourage the fair and
equal treatment of shareholders in connection with any take-over bid for the
Company's outstanding securities. The Rights Plan is intended to
provide the Company’s board of directors with adequate time to assess a
take-over bid, to consider alternatives to a take-over bid as a means of
maximizing shareholder value, to allow competing bids to emerge, and to provide
the Company’s shareholders with adequate time to properly assess a take-over bid
without undue pressure.
Although
the Rights Plan took effect immediately, in accordance with the TSX
requirements, the Company sought approval and ratification by its
shareholders. At the annual and special meeting of
shareholders
held on April 28, 2009, the shareholders of the Company approved and ratified
the Rights Plan.
The
Company has established a corporate credit card facility with a U.S. bank. This
facility has an aggregate borrowing limit of US$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.
Outstanding
Share Data
Information
with respect to outstanding common shares, warrants, compensation options and
stock options as at March 31, 2009 and December 31, 2008 is as
follows:
|
|
March
31,
2009
(Unaudited)
|
December
31,
2008
|
|
Common
shares
|
93,893,607
|
93,243,607
|
|
Warrants
|
-
|
-
|
|
Compensation
options
|
-
|
-
|
|
Stock
options
|
7,289,573
|
6,228,700
|
|
Fully
diluted shares outstanding
|
101,183,180
|
99,472,307
|
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 cash and cash equivalents are comprised of:
|
|
March
31,
2009
(Unaudited)
|
December
31,
2008
|
|
|
$
|
$
|
|
Cash
on deposit at banks
|
306,653
|
392,170
|
|
Guaranteed
investment certificates
|
8,037,500
|
9,087,500
|
|
Money
market
|
7,383,350
|
1,031,882
|
|
Certificates
of deposit
|
6,251,252
|
15,288,183
|
|
|
|
|
|
|
21,978,755
|
25,799,735
|
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, money market funds and certificates of deposits. They
bear
interest
at annual rates ranging from 0.30% to 3.25% and mature at various dates up to
May 5, 2009. These instruments are maintained at financial
institutions in Canada and the United States. Of these amounts,
approximately $0.4 million is covered by either the Canada Deposit Insurance
Corporation or the Federal Deposit Insurance Corporation, leaving approximately
$58.7 million at risk should the financial institutions with which these
amounts are invested cease trading. As at March 31, 2009, the Company
does not consider any of its financial assets to be impaired.
Liquidity
risk
Liquidity
risk is the risk that the Company will not be able to meet its financial
obligations as they fall due. The Company manages liquidity risk
through regular cash flow forecasting of cash requirements to fund exploration
and development projects and operating costs.
As at
March 31, 2009 the Company’s liabilities consisted of trade accounts payable of
$1,352,519, all of which are due within normal trade terms of generally 30 to 60
days.
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 and a significant portion of its cash
equivalents and short-term investments in United States dollars, and holding
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
equivalents and short term investments. The Company’s objectives for 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 Canadian and 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
December 31, 2008 the Company had cash and cash equivalents, short term
investments and bonding deposits of approximately US$22.5 million (US$26.5
million as at December 31, 2008) and had accounts payable of US$1.0 million
(US$1.7 million as at December 31, 2008) which were denominated in US
dollars.
Sensitivity
analysis
The
Company has completed a sensitivity analysis to estimate the impact that a
change in foreign exchange rates would have on the net loss of the Company,
based on the Company’s net US$ denominated assets and liabilities at year end.
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 +/- $2.7 million impact on net loss for the three months ended
March 31, 2009. This impact is primarily as a result of the Company
having yearend cash and investment balances denominated in US dollars and US
dollar denominated trade accounts payables. 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.
The
Company has also completed a sensitivity analysis to estimate the impact that a
change in interest rates would have on the net loss of the Company. This
sensitivity analysis assumes that changes in market foreign exchange rates do
not cause a change in interest rates. This sensitivity analysis shows
that a change of +/- 100 basis points in interest rate would have a +/- $0.2
million impact on net loss for the three months ended March 31,
2009. This impact is primarily as a result of the Company having
cash, short-term investments and bonding deposits invested in interest bearing
accounts. The financial position of the Company may vary at the time
that a change in interest rates occurs causing the impact on the Company’s
results to differ from that shown above.
Transactions
with Related Parties
During
the three months ended March 31, 2009 and 2008, the Company did not participate
in any material transactions with any related parties.
Proposed
Transactions
As is
typical of the mineral exploration and development industry, the Company is
continually reviewing potential merger, acquisition, investment and venture
transactions and opportunities that could enhance shareholder
value. Timely disclosure of such transactions is made as soon as
reportable events arise.
Critical
Accounting Policies and Estimates
Mineral
Properties
Acquisition
costs of mineral properties are capitalized. When production is attained, these
costs will be amortized on the unit-of-production method based upon the
estimated recoverable resource of the mineral property.
The
Company assesses the possibility of impairment in the net carrying value of its
mineral properties when events or circumstances indicate that the carrying
amounts of the asset or asset group may not be
recoverable. Given the current disruption and uncertainty in
the global economy, and the decrease in the Company’s share price over the last
year, management reviewed all of its significant mineral properties for
potential impairment and concluded that the fair value of these properties
exceeded the carrying amount and no impairment charges were
recorded.
Stock Based
Compensation
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 make estimates regarding the
expected volatility of the Company’s stock over the future life of the equity
instrument, the estimate of the expected life of the
equity
instrument, the expected volatility of the Company’s common shares, and the
number of options that are expected to be forfeited. 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
Exploration and Development
Expenditures
In
December 2008, the Company changed its policy for accounting for exploration and
development expenditures. In prior years, the Company capitalized all
direct exploration and development expenditures. Under its new policy,
exploration, evaluation and development expenditures, including annual
exploration license and maintenance fees, are charged to earnings as incurred
until the mineral property becomes commercially mineable.
Management
considers that a mineral property will become commercially mineable when it can
be legally mined, as indicated by the receipt of key
permits. Development expenditures incurred subsequent to the receipt
of key permits will be capitalized and amortized on the unit-of-production
method based upon the estimated recoverable resource of the mineral
property. Management believes that this treatment provides a more
relevant and reliable depiction of the Company’s asset base and more
appropriately aligns the Company’s policies with those of comparable companies
in the mining industry at a similar stage.
The
Company has accounted for this change in accounting policy on a retroactive
basis. The comparative operating results for the three months ended
March 31, 2008 were restated as follows: expenses increased by
$0.7 million, net loss increased by $0.7 million, and loss per common
share increased by $0.01.
The
Company will continue to capitalize the acquisition costs of mineral properties
and capital assets.
New Accounting
Standards
Effective
January 1, 2009 the Company adopted new CICA Handbook Section 3064, “Goodwill
and Intangible Assets”, which will replaces Section 3062, “Goodwill and
Intangible Assets”. The new standard establishes revised standards for the
recognition, measurement, presentation and disclosure of goodwill and intangible
assets. The new standard also provides guidance for the treatment of
preproduction and start-up costs and requires that these costs be expensed as
incurred. The adoption of this standard did not have a material
impact on these consolidated financial statements.
International
Financial Reporting Standards
In
February 2008, the Canadian Accounting Standards Board ("AcSB") announced that
the requirement for publicly-accountable companies to adopt International
Financial Reporting Standards (“IFRS”) will be effective for interim and annual
financial statements relating to fiscal years beginning on or after January 1,
2011. The transition date of January 1, 2011 will require the restatement
for comparative purposes of amounts reported by the Company for the year ended
December 31, 2010.
The
Company plans to conduct an IFRS diagnostic study in 2009 to assess the impact
of the transition to IRFS on the Company’s accounting policies and to establish
a project plan to implement IFRS.
Following
this initial diagnostic step the Company will proceed to make a determination of
the impact of transition to IFRS on its financial statements and systems, if
any.
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 Report on Form 20-F (Annual Information Form)
dated March 18, 2009 which is filed on SEDAR at www.sedar.com or on the U.S.
Securities and Exchange Commission’s website at www.sec.gov.
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. –Chairman and Executive Director
W.
William Boberg, M. Sc., P. Geo. – President, Chief Executive Officer and
Director
|
|
James
M. Franklin, PhD, FRSC, P. Geo. –Director and Technical Committee
Chair
|
Paul
Macdonell, Diploma Public Admin. – Director and Compensation Committee
Chair
|
|
Robert
Boaz, M. Econ., Hon. B.A. – Director and Corporate Governance and
Nominating Committee Chair
|
Thomas
Parker, M. Sc., P.E. – Director and Audit Committee Chair
Harold A.
Backer, B. Sc. – Executive Vice President Geology and Exploration
Wayne W.
Heili, B. Sc. – Vice President, Mining and Engineering
Paul W.
Pitman, B. Sc. Hon. Geo., P. Geo. – Vice President, Canadian
Exploration
|
|
Roger
L. Smith, CPA, MBA – Chief Financial Officer and Vice President Finance,
IT
& Administration
|
Paul G.
Goss, J.D., MBA – General 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,
Ontario K1P 5K6
Phone:
(613) 238-2000
|
Web Site
www.ur-energy.com
Trading
Symbol
TSX:
URE
NYSE
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