Uranium Energy is pleased to report financial and production results for the fourth quarter and fiscal year ended July 31, 2011. Major fourth quarter highlights include the following:
- Production increased and costs remain low: During the fourth quarter, only the second full quarter of Palangana Mine production, the Company produced 83,000 pounds of U3O8 in inventory, including work-in-progress, as compared with 49,000 pounds in the previous quarter. Since commencement of production in November 2010 through to July 31, 2011, the Company has produced a total of 153,000 pounds of U3O8 at a cash operating expense of approximately $13 per pound;
- The Company signed its first multi-year sales contract;
- Both Palangana and Salvo projects received substantial ongoing exploration and development;
- The Company acquired the historically significant Anderson Mine project in Arizona: In May 2011, terms were finalized to merge with Concentric Energy Corp. to acquire the Anderson Mine uranium project, a 7,581-acre mineral claim block located in Yavapai County, Arizona, a former open-pit producer which has received 1,400 development drill holes. This transaction completed after the close of the fourth quarter;
- The Company acquired the Coronel Oviedo Uranium Project in Paraguay: This 247,000-acre (100,000-hectare) project area holds similar geology, and similar geological potential, as the South Texas uranium belt; and
- The balance sheet remains strong: As of July 31, 2011, the Company remains debt-free with $30.7 million of cash in the treasury and 153,000 lbs. of U3O8 in inventory.
Amir Adnani, President and Chief Executive Officer, stated, “During our fiscal fourth quarter, we continued to make significant progress with operations, delivering production growth at competitive margins, validating our regional Texas ‘hub-and-spoke’ strategy. With an eye to the next up-cycle, we have been acquiring projects with significant historical work at an attractive discount and with minimal dilution to the Company. Concurrently, we see a groundswell of positive indicators emerging for the nuclear industry, and are optimistic about the prospects for major growth in the industry.”
Palangana Mine – Production Update
Since production began in November 2010 through to the July 31, 2011 fiscal year-end, the Company has produced a total of 153,000 pounds of U3O8 in inventory, including work-in-progress, at a cash operating expense of approximately $13 per pound. Well-pattern performance continued to improve with production of 83,000 pounds of U3O8 during the fourth quarter of Fiscal 2011, which represents only the second full quarter of Palangana Mine production. The Company is stockpiling this uranium inventory for future sales in the firming spot market, and anticipates generating its first uranium sales this calendar year.
The three-phase startup of Production Area-1 at the Palangana Mine is continuing with the average depth of the wells at approximately 450 feet. Production initially commenced at the Phase I wellfield (18 production and 27 injection wells) in November 2010, followed by the Phase II wellfield (32 production and 22 injection wells) in April 2011, with the final Phase III wellfield (21 production and 18 injection wells) having commenced production in early October.
Subsequent to the July 31, 2011 year-end, field crews are addressing performance variations in certain wells. As a result, indications for fiscal first quarter 2012 production range between 60,000 to 70,000 pounds U3O8. A number of injection and production wells in the Phase 1 wellfield, the smallest of the three fields, which has already produced 27% of the indicated NI 43-101 resource of approximately 300,000 pounds, are being recompleted, and new wells are being drilled to determine if plugging has occurred. Phase II wells are also being evaluated and production is reduced there at least temporarily. As noted above, the Phase III wellfield commenced operations in early October.
Palangana – Ongoing Exploration and Development
During the fourth quarter, the Company’s exploration group continued to direct and investigate resource expansion efforts at Palangana. The Company’s development team continues to bring Production Area-2 closer to initial production with production drilling anticipated to start this calendar year. Production Area-3 is progressing, with the application for Production Area Authorization anticipated to be submitted by December 2011.
Goliad Development Update
Subsequent to the close of the fourth quarter, the Texas Commission on Environmental Quality (TCEQ) has continued to make progress with the one remaining license needed to initiate construction at the Goliad project, the Radioactive Materials License (RML), which was received in draft form on August 29, 2011. The final RML is anticipated this calendar year. Before the Company initiates in-situ recovery of uranium at Goliad’s Production Area One, the regional Environmental Protection Agency must complete its review of and concur with the Aquifer Exemption which has already been granted to the Company by TCEQ.
Salvo Exploration
Phase II drilling of 47 holes in prospective new zones concluded during the summer of 2011 to further expand the current Inferred Resource Estimate of approximately 2.8 million pounds. Metallurgical and other tests are also being performed to reaffirm ISR amenability at Salvo. The project area was expanded during the fourth quarter to include additional prospective zones.
Paraguay Update
The Company has acquired a 247,000-acre uranium property located in the area of Coronel Oviedo, Paraguay. Share dilution to acquire the project was well below 1%. The Coronel Oviedo Project is geologically very similar to the Company’s projects in the South Texas uranium belt and is anticipated to be ISR-amenable as initially indicated through pump-test studies. This project is an excellent fit for our technical team which has a distinctive track record of discovering and advancing sandstone-hosted uranium deposits. The Company plans to complete a 10,000-meter drill program early in Fiscal 2012.
Financial Review
The following is a financial review of the Company for the three months and twelve months ended July 31, 2011, and should be read in conjunction with the consolidated financial statements and management’s discussion and analysis as contained in the Company’s Form 10-K filing available at the Company’s website at www.uraniumenergy.com or on EDGAR at www.sec.gov.
Results of Operations
For the three months ended July 31, 2011, the Company recorded a net loss of $5.6 million or $0.08 per share (2010 Q4: $7.2 million or $0.13 per share). For Fiscal 2011, the Company recorded a net loss of $27.4 million or $0.40 per share (Fiscal 2010: $14.5 million or $0.25 per share, which includes a gain on sale of Cibola Resources, LLC of $8.5 million or $0.14 per share). Expenses for Fiscal 2011 totaled $27.9 million (Fiscal 2010: $22.4 million) and include $11.4 million (Fiscal 2010: $6.4 million) for mineral property expenditures, $8.8 million (Fiscal 2010: $7.6 million) for general and administrative, $6.3 million (Fiscal 2010: $7.0 million) for stock-based compensation and $1.1 million (Fiscal 2010: $0.8 million) for depreciation, depletion and accretion.
The Company has grown substantially, particularly over the last two years since the acquisition of the South Texas Mining Venture, L.L.P. in December 2009. This resulted in the acquisition of the Corpus Christi office and existing infrastructure, and focused the Company towards the commencement of production at the Palangana Mine in November 2010, including preparation of the Hobson Processing Facility, for most of Fiscal 2010 and the first half of Fiscal 2011. At July 31, 2011, we held uranium concentrates in inventory but did not generate revenue from sales during Fiscal 2011.
The Company announced its first multi-year uranium sales contract on June 16, 2011. The sales contract provides for the delivery of 300,000 pounds of U3O8 over a period of three years starting in August 2011, with the price to be based on published market price indicators at the time of delivery.
Liquidity
Net cash used in operating activities for the fiscal year ended July 31, 2011 was $23.7 million compared to $5.0 million last year. Net cash provided from financing activities for the twelve months ended July 31, 2011 was $36.8 million compared to $1.2 million last year. Net cash used in investing activities for the twelve months ended July 31, 2011 was $3.5 million compared to net cash provided of $9.2 million last year. As of July 31, 2011, the Company had cash and cash equivalents of $30.7 million.
Acquisitions Update
The downturn in the uranium market has provided the Company with an excellent opportunity to make strategic acquisitions at attractive discounts to historical valuations. The Company closed two transactions subsequent to the fourth quarter.
Anderson Project in Arizona
The Company and Concentric Energy Corp. (“Concentric”) announced the completion of the stock-for-stock merger (the “Merger”) effected under the laws of Nevada on September 9, 2011. Under the Merger, which was previously announced on May 6, 2011, UEC has issued 1,253,440 common shares of the Company to the former Concentric stockholders to acquire Concentric. The sole purpose of the Merger was to acquire Concentric’s undivided 100% interest in the Anderson Property, a 7,581-acre mineral claim block located in Yavapai County, Arizona, with a previous history of small-scale, open-pit uranium production.
With the acquisition of the Anderson Mine project, UEC is now the leading uranium player in Arizona, as well as in South Texas. Arizona is both a business and energy-friendly state. Three of the largest nuclear power plants in the U.S. are in Arizona, and all three plants have recently received their 20-year license extensions.
South Texas Uranium Exploration Data
Additionally, the Company completed the acquisition of a South Texas uranium exploration data package (the “Database”) from Uranium One. Refer to the Company’s news release dated August 31, 2011 which provides specific details on the acquired data, as well as the history of the Database. This strategic database is anticipated to significantly advance the Company’s ongoing exploration efforts in South Texas.
Uranium Market Update
During the Company’s fourth quarter ending July 31, 2011, the spot price of uranium decreased from $55.50/lb. to $51.50/lb. according to the Ux Consulting Company. Since the earthquake and tsunami in Japan occurred during March 2011, and as news of reactor damage at the Fukushima nuclear power plant began emerging, the spot uranium price declined very rapidly from $68.00/lb. to $50.00/lb. and has since stayed in a narrow range. The primary sellers appeared to be financial institutions and traders and the primary buyers were utilities and producers during this very tumultuous time. Since then, the spot price seems to be finding strong support in the low $50’s, and the longer term contract uranium price has declined from $73.00/lb. to $64.00/lb., post-Fukushima, according to the Ux Consulting Company.
Looking forward, despite concerns generated by the Japanese developments, the underlying uranium market fundamentals still point in favor of insufficient supply relative to current and growing demand on a longer-term basis. The worldwide nuclear build-out continues and the number of reactors currently under construction totals 62 in 15 different countries. The largest percentage of nuclear expansion is planned in China where 27 new-generation reactors are currently under construction. China, India, Russia and South Korea continue to lead the global nuclear build-out and these governments have reaffirmed their commitment to nuclear energy post-Fukushima.
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