Uranerz Close To Mine Completion, Cash Flow

Richard (Rick) Mills
Ahead of the Herd

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As a general rule, the most successful man in life is the man who has the best information

 

Ur Energy Inc. has recently announced that they have closed, after a very rigorous State due diligence process, their US$34 million Sweetwater County State of Wyoming Taxable Industrial Revenue Bond. The State Bond Loan calls for payments of interest at a fixed rate of 5.75% per annum on a quarterly basis commencing January 1, 2014. The principal is payable in 28 quarterly installments which do not commence until January 1, 2015. The loan matures in October 2021. The State Bond Loan is secured by the assets of Ur Energy’s Lost Creek Project.

 

Uranerz Energy Corp., TSX and NYSE MKT – URZ (Frankfurt Stock Exchange – U9E) controls a large strategic land position in the Pumpkin Buttes Uranium Mining District of the central Powder River Basin of Wyoming and has almost completed construction of its first in-situ recovery (ISR) uranium mine .

 

 

Ur Energy started their bond application process just a short time – two months – before Uranerz started the ball rolling on their US$20 million bond application. Both applications were very similar and Uranerz’ management is currently working with State administrators to complete the documentation for the closing of their Industrial Development Bond. The loan is expected to carry an annual interest rate of 5.75% and be repayable over seven years. Closing is subject to customary closing conditions and final approval of the State Treasurer and County Commissioners.

 

Treasury

 

Uranerz currently has approximately US$6 million in the treasury, needs $2mm to complete the mine and has a US$6 million note due at the end of 2013.

 

Let’s crunch some numbers; $6mm in the bank minus $2mm to complete the mine and overhead of $1mm equals $3mm. Receiving the US$20mm bond jumps URZ’s treasury to $23mm, after payback of the $6mm note Uranerz has $17mm, more enough to get to the start of cash flow.

 

Cash Flow

 

URZ is approximately one month from mine completion and starting a three month inventory stockpiling program. After shipment of its first inventory it will be 30 days before Uranerz receives payment – let’s call for the cash flow to start early in the second quarter of 2014.

 

The lion’s share of uranium is traded under long-term contracts between uranium producers and utilities companies. Uranerz has signed a Confidentiality Agreement (CA) that says it cannot disclose the buyer, or the negotiated price per pound for its long term uranium sales contract. This might seem a little strange to some but ‘forget about it’, we’ll see the first financials after cash flow starts and at least know the price per pound, which is enough.

 

In the meantime we can do some sleuthing and, I believe, get very close to the actual numbers – time will as always tell.

 

The long term supply contract between URZ and the undisclosed off-take buyer was signed in 2009 at a time when contract’s were running US$60-70lb. I believe this extremely early (considering URZ couldn’t be in production for at least five years), and very long term deal, was negotiated for somewhere in the $50.00lb U308 range and that’s the number I use for my own *guidance.

 

Uranerz will produce 400,000 lbs of U308 to fulfill its contractual obligations to its undisclosed buyer. All-in production costs are figured, by me, to be $35lb for $15lb net minus taxes.

 

400,000lb x $15 = $6,000,000.00 net to Uranerz in 2014 – URZ has considerable tax credits, taxes payable in 2014 will be negligible and taxes in 2015 will be significantly reduced.

 

* I am always overly cautious when it comes to my own internal guidance numbers – I believe US$50.00lb is a reasonable number for me to use considering the prices when URZ signed its long term contract. The last time uranium dropped as low as it is today ISR uranium mines were the only ones that could operate, again $35lb is a reasonable all in cost per pound of production.

 

 

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