SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
FORM S-1
REGISTRATION STATEMENT UNDER SECURITIES ACT OF 1933
U.S. ENERGY CORP.
(Exact Name of registrant as specified in its charter)
Wyoming
(State or other jurisdiction of incorporation)
1090
(Primary Standard Industrial Classification Code Number)
83-0205516
(I.R.S. Employer Identification No.)
877 North 8th West, Riverton, Wyoming
Tel. 307/856-9271
(Address and telephone of registrant's principal executive offices)
Daniel P. Svilar
(Name, address and telephone of agent for service of process)
Approximate date of commencement of proposed sale to public: As
soon as practicable after this registration statement is declared
effective.
2
Pursuant to Rule 415(1)(ix), the offering of the securities
registered hereby will be commenced quickly, will be made on a
continuous basis, and may continue for a period in excess of 30
days from the date of initial effectiveness.
Calculation of Registration Fee
Title of each Proposed Proposed
class of maximum maximum Amount
securities Amount offering aggregate of
to be to be price offering regis.
registered registered per share price fee
Common, 150,000(1) $4.40 $660,000(2) $228.00
$.01 par shares
Totals 150,000 $660,000 $228.00
shares
_____________________
(1) Shares registered are held by The Brunton Company, a wholly-
owned subsidiary of the registrant.
<PAGE>
U.S. ENERGY CORP.
150,000 COMMON SHARES
__________________________________________
The Common Shares are offered for sale by The Brunton Company, a
Wyoming corporation ("Brunton"), a wholly-owned subsidiary of U.S.
Energy Corp. ("USE"), so that in effect this is an offering of
securities by USE. Common Shares of USE are traded on the
NASDAQ/NMS quotation system. At June 30, 1995, the closing bid
price was $4.75 per share. See "Market for USE Common shares and
Related Stockholder Matters."
2
The Common Shares are offered at $4.40 each, for estimated net
proceeds of $640,000 after deduction of approximately $20,000.
This Prospectus may be amended for a higher or lower price,
depending on market conditions in the course of the offering. See
"Plan of Distribution."
__________________________________________
These are Speculative Securities. Such Securities Involve a High
Degree of Risk. See "Risk Factors."
__________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, OR ANY
STATE SECURITIES COMMISSION, PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
_____________________________________________
The date of this Prospectus is July , 1995
No one is authorized to give any information, or make any
representation on behalf of USE if not contained in this
Prospectus. This Prospectus does not constitute an offer to sell,
or a solicitation of an offer to purchase, the securities offered
hereby, by any person in any jurisdiction in which such an offer or
solicitation is not authorized or in which the person making such
offer or solicitation is not qualified to do so, or to any person
to whom it is unlawful to make such an offer, or solicitation of an
offer.
4
Neither delivery of this Prospectus nor any sale of the securities
being offered hereby, shall create an implication that there has
been no change in the information set forth herein since date of
this Prospectus. This Propsectus will be supplemented as necessary
to reflect any material or fundamental changes in USE or its
business, during the course of this offering.
___________________________________________
<PAGE>
AVAILABLE INFORMATION
USE is subject to the information requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other statements and
information with the Commission. The reports and other documents
so filed can be inspected and copied at the Commission's public
reference room located at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the Commission's public reference
facilities at Commission regional offices located at: 7 World Trade
Center, 13th Floor, New York, New York 10048; and Suite 1400,
Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such documents can be obtained at
prescribed rates by writing to the Securities and Exchange
Commission, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
5
6
This Prospectus does not contain all of the information set forth
in the Registration Statement and the exhibits thereto, covering
the USE Shares offered hereby, certain portions of which have been
omitted pursuant to Commission rules and regulations. Each
statement made in this Prospectus concerning a document filed as an
exhibit to the Registration Statement, is qualified in its entirety
by reference to such exhibit for a complete statement of its
provisions. Any interested party may inspect the Registration
Statement (and any and all amendments thereto) and its exhibits,
without charge, at the public reference facilities of the
Commission at its offices as stated above.
SUMMARY OF THE OFFERING
The following summary is not intended to be complete and is
qualified in all respects by the more detailed information included
in this Prospectus.
THE COMPANY
USE is in the general minerals business of acquiring, developing,
exploiting and/or selling mineral properties. USE is now engaged
in two principal mineral sectors: uranium and gold. Interests are
held in other mineral properties (principally molybdenum), but are
either nonoperating interests or undeveloped claims. Other USE
business segments are commercial operations (professional and
recreational products manufacture and sales, real estate, and
general aviation), and construction operations.
9
Most USE operations are conducted through a joint venture with
Crested Corp. ("Crested", a majority-owned subsidiary), and various
joint subsidiaries of USE and Crested. USE and Crested originally
were independent companies, with two common affiliates (John L.
Larsen and Max T. Evans). In 1980, USE and Crested formed a joint
venture to do business together (unless one or the other elected
not to pursue an individual project). As a result of USE funding
certain of Crested's obligations from time to time (due to
Crested's lack of cash on hand), and later payment of the debts by
Crested issuing common stock to USE, Crested became a subsidiary of
USE (majority owned in fiscal 1993). See "Security Ownership of
Certain Beneficial Owners and Management" and "Directors and
Executive Officers."
7
Except for 1,400 ounces of gold recovered in fiscal 1992 in a bulk
sampling program at the California gold property, USE has not
received revenues from the mining of either uranium or gold.
Mineral revenues have been received from sales of mineral
properties, and from sales of uranium under certain of the utility
supply contracts held by Sheep Mountain Partners ("SMP", a
partnership), by USE and Crested delivering their one-half share of
uranium and receiving sales proceeds therefrom. In the future,
uranium contract revenues will be affected by the outcome of the
SMP litigation (see "USE Legal Proceedings"); gross revenues from
future performance of all the SMP contracts will flow to the
prevailing parties (USE and Crested, or CRIC and Nukem). However,
regardless of the outcome of such proceedings, commencement of
uranium mining at Green Mountain, Wyoming and/or Ticaboo, Utah may
result in utility supply contracts for Green Mountain Mining
Venture (of which USE and Crested are joint venture partners with
Kennecott Uranium Company), and/or Plateau Resources Limited (a
subsidiary of USE). There is no assurance such mining operations
will commence, or that new utility supply contracts will result.
See "Business-Minerals-Uranium."
8
For the nine months ended February 28, 1995, USE commercial and
construction operations provided a majority of net revenues to USE.
For a discussion of why revenues from mineral sales decreased in
this period, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Results of Operations for Nine
Months Ended February 28, 1995 Compared to Nine Months Ended
February 28, 1994."
USE was incorporated in Wyoming in 1966. All operations are in the
United States. Principal executive offices are located at 877
North 8th Street West, Riverton, Wyoming 82501, telephone (307)
856-9271.
RISK FACTORS
10
An investment in the Common Shares of USE involves substantial
risks, including the risks of failure to obtain necessary capital
to put principal properties into production, continued low uranium
prices, and competition. See "Risk Factors."
<PAGE>
THE OFFERING
Securities Offered (1). . . . . . . . . . . .150,000 Common Shares.
See "Description of
Securities."
Common Shares Outstanding
Before and After Offering . . . . . . . . .5,580,493 Shares
NASDAQ/NMS Symbol "USEG"
________________
(1) All Common Shares offered are owned by and are being sold for
the account of Brunton, a wholly-owned USE subsidiary, so that in
effect this is an offering by USE of its securities.
SELLING SECURITY HOLDER
This Prospectus relates to the registration by USE of 150,000
common shares owned by The Brunton Company, for sale by Brunton
into the public market from time to time. Brunton has had several
material transactions with USE within the last three fiscal years
(see "Certain Relationships and Related Transactions"), including
the loan by Brunton of $300,000 to USE in August, 1993,
subsequently converted by terms of the loan (in October, 1993) to
restricted USE common shares (such converted shares are included in
the shares offered by this Prospectus).
11
Brunton presently owns 211,205 USE common shares (4,538 shares
acquired prior to fiscal 1992, 50,000 shares purchased in fiscal
1993, 100,000 shares acquired by loan conversion in fiscal 1994,
and 56,667 shares purchased in the private placement which
commenced in December, 1994 and was completed at March 31, 1995--
see the discussion of liquidity and capital resources for the nine
months ended February 28, 1995 under "Management's Discussion and
Analysis of Financial Condition and Results of Operations." If all
150,000 shares offered hereby are sold, Brunton will own 61,205 USE
common shares (1.2 percent of the total outstanding shares), not
including an additional 150,000 shares underlying options
exercisable through April 30, 1998 (none exercised to Prospectus
date). See "Certain Relationships and Related Transactions."
12
Brunton anticipates using proceeds from sale of the USE common
shares offered by this Prospectus for general working capital
requirements, however, a portion of the proceeds may be loaned to
USE. Net proceeds are estimated at $660,000 if all shares are
sold, after deducting an estimated $20,000 in legal and printing
expense of this offering.
<PAGE>
PLAN OF DISTRIBUTION
3
The Common Shares will be offered from time to time, at the $4.00
offering price, by certain of those officers and directors of USE
who did not participate in the private offering of 400,000
restricted common shares in fiscal 1995. The individuals who
participate in this offering on behalf of USE will not be
compensated therefor.
<TABLE>
USE
SELECTED FINANCIAL DATA
<CAPTION>
May 31,
1994 1993 1992
1991 1990
<S> <C> <C> <C> <C> <C>
Current assets $ 3,866,600 $ 1,650,300 $ 3,260,500 $7,302,300 $ 5,481,000
Current liabilities 1,291,700 1,592,100 681,900 816,000 634,400
Working capital 2,574,900 58,200 2,578,600 6,486,300 4,846,600
Total assets 33,090,300 24,037,200 24,583,000 20,500,100 13,151,200
Long-term
obligations(1) 16,612,500 2,900,00 4,540,400 3,244,100 4,036,100
Shareholders' equity 12,559,100 15,063,200 14,982,900 15,045,500 8,087,800
________
<FN>
(1)Includes $3,951,800, $1,695,600, $1,695,600, $725,900 and
$725,900 of accrued reclamation costs on uranium property at May
31, 1994, 1993, 1992, 1991 and 1990, respectively. See Note K of
Notes to the audited Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
February 28,
(unaudited)
__________________________
1995 1994
___________ ___________
<S> <C> <C>
Current assets $ 3,496,200 $ 3,866,600
Current liabilities 3,092,900 1,291,700
Working capital 404,000 2,574,900
Total assets 33,379,000 34,496,800
Long-term
obligations (2) 15,946,200 16,612,000
Shareholders' equity 12,071,400 12,599,100
<FN>
(2) See Notes 5 and 6 to the unaudited Consoliated Financial
Statements.
</TABLE>
<TABLE>
<CAPTION>
May 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Revenues $ 8,776,300 $9,045,500 $6,353,600 $9,569,100 $6,552,300
Income (loss) before
equity in income
(loss) of affiliates,
provision for
income taxes and
extraordinary item (3,587,900) (103,100) 819,200 6,082,900 4,601,600
Equity in income
(loss) of
affiliates (390,700) (444,700) (324,900) (96,100) (417,800)
Net income (loss) (3,370,800) (221,900) 613,200 6,164,900 3,743,200
Income per share before
extraordinary item $ (.70) $ (.05) $ .09 $ .93 $ .80
Extraordinary item -- -- .06 .62 .21
Income (loss) before
cumulative effect of
accounting change (.70) (.05) .15 1.55 1.01
Cumulative effect at
June 1, 1993 of income
tax accounting change (.06) -- -- -- --
Net income (loss)
per share(1) $ (.76) $ (.05) $ .15 $ 1.55 $ 1.01
Cash dividends per share -0- -0- -0- -0- -0-
_________
<FN>
(1)Per share amounts for years prior to fiscal 1991 have been
retroactively adjusted to reflect the 10% stock dividend declared
and paid to record shareholders as of November 1, 1990.
</TABLE>
<TABLE>
<CAPTION>
For Nine Months Ended February 28,
(unaudited)
__________________________
1995 1994
___________ ___________
<S> <C> <C>
Revenues $ 6,394,300 $ 6,587,200
Loss before
equity in
loss of affiliates,
provision for
income taxes and
extraordinary item (1,429,300) (2,058,500)
Equity in income
(loss) of
affiliates (304,900) (266,700)
Net income (loss) (1,315,800) (2,019,300)
Income (loss) per
share before
cumulative effect $ (.27) $ (.40)
Cumulative effect -- (.06)
Net loss
per share $ (.27) $ (.46)
Cash dividends per share -0- -0-
</TABLE>
13
RISK FACTORS
Prospective investors should note that the business of USE is
subject to certain risks, including the following:
15 AND 16
LITIGATION-SHEEP MOUNTAIN PARTNERS. Because of USE and Crested
litigation against their partner in the Sheep Mountain Partners
partnership ("SMP"), USE and Crested have been required to fund
$4,298,187 in standby mine maintenance and related costs of the SMP
mines from June 1991 through April 1995. Additionally, Use and
Crested have not been reimbursed $136,500 for purchase of uranium
delivered under SMP utility supply contracts. USE and Crested are
seeking to recover these amounts from Nukem and Cycle Resource
Investment Corporation, along with accrued interest of $993,073
through April 30, 1995, for a total of $5,427,759.
17
Recovery by USE and Crested of their funds advanced to the SMP
partnership will depend on the outcome of the litigation. See
"Business-Uranium", "Legal Proceedings", and the audited USE
Consolidated Financial Statements. An unfavorable outcome to the
litigation will result in loss of the funds advanced for standby
maintenance at the SMP mines and loss of the utility supply
contracts held by SMP.
19 AND 2O
SUTTER GOLD VENTURE INVESTMENT-NO CURRENT MINING OPERATIONS OR
PRODUCTION OF GOLD. As of February 28, 1995, USE and Crested have
invested more than $12,100,000 to acquire, permit and develop a
gold property in California, held through subsidiary Sutter Gold
Company. The amount of this investment represents a significant
portion of USE's consolidated assets. However, there is no
assurance current efforts will be successful in financing the mill
construction and mine development costs (up to $17,974,000) needed
to put the property into full production. There presently are no
agreements to obtain such financing. See "Information About USE-
Gold-Lincoln Mine."
ADDITIONAL SHARES TO MARKET. Through June 30, 1995 USE has sold
732,500 restricted common shares in private placements. USE will
register all such shares (and up to another 1,417,500 shares if
sold in the current private placement) for resale by the investors
by early 1996. Public sale of such shares by the investors may
depress market prices.
21
Mineral Industry Risks. Generally, the business of USE is subject
to the risks of the minerals industry, including unanticipated
delay and expense in putting properties into production, commodity
price fluctuations, and variable environmental compliance costs.
In addition, recent legislation has increased unpatented federal
mining claim holding costs. Other legislation may be proposed
which, if enacted, would impose percentage royalties on production
from such lands. Any increase in federal land property costs would
adversely affect operations on federal lands, however, the extent
of such impact cannot be presently assessed. See "Business-Certain
Permits, Costs." Operations on patented lands would not be
affected (the Lincoln Mine in Amador County, California, for
example). Mining hazards may cause losses not covered by, or in
excess of coverage provided by insurance policies. USE maintains
policies deemed adequate for hazard losses, but there is no
assurance coverage would be adequate in the event of mine collapse,
environmental damage, or other factors related to mining
activities.
22
UNPATENTED MINING CLAIMS-RISKS OF TITLE. Nearly all the uranium
properties held by GMMV, SMP, and Plateau Resources Limited are
unpatented claims, title to which requires payment of fees to the
Bureau of Land Management and compliance with technical
requirements. Although USE believes it has good title to all its
unpatented claims, there are always possible inherent uncertainties
in this type of property ownership. See "Business-Mining Claim
Holdings."
23
RECLAMATION AND ENVIRONMENTAL COSTS. USE is a joint venturer in
GMMV and a partner of SMP, which two entities are responsible for
mine reclamation, environmental restoration and decommissioning
associated with mineral properties and the Sweetwater Mill on Green
Mountain, in south central Wyoming. Future costs to comply with
these obligations are now estimated at approximately $25,000,000.
If actual costs are higher, USE could be adversely impacted. There
is no assurance the properties will generate sufficient revenues to
fund reclamation, restoration and decommissioning costs in excess
of current estimates. See Note K to the audited USE Consolidated
Financial Statements, and the notes to the unaudited USE
Consolidated Financial Statements, for further information.
Current bonds and funds in escrow are deemed adequate for
reclamation and decommissioning liabilities associated with the
Shootaring Mill in Utah.
24
The GMMV and Sweetwater Mill reclamation liabilities (now
approximately $25,000,000 total) are self bonded by Kennecott, and
accordingly are not booked into the USE or Crested financial
statements. Sheep Mountain and Plateau Resources reclamation
liabilities are booked at $1,451,842 and $2,500,000 respectively
(total $3,951,842). A cash bond of approximately $40,000 is posted
for miscellaneous reclamation costs at the Sutter gold property
(carried under "Other Assets-Deposits and Other" on the USE
financial statements). Reclamation and environmental obligations
for the oil and gas properties held by USE are deemed insignificant
and manageable in the ordinary course of business.
SEASONALITY. The mining and petroleum exploration and development
businesses may be considered seasonal to the extent properties are
located in areas where climate prevents access or reduces
activities during certain times of the year. Exploration of mining
claims located in the Colorado Mineral Belt, and in certain areas
of Wyoming and Montana, is generally limited to the summer months
by rugged terrain and snowpack. USE and affiliates have generally
had year-round access to the Ft. Peck, Montana oil wells. The gold
properties near Sutter Creek, California are accessible year round,
as are the Plateau operations in Utah and the GMMV properties and
Sweetwater Mill in Wyoming. Portions of USE commercial operations
are also seasonally affected, with aviation fuel sales at the fixed
base operation higher in summer months.
25
POSSIBLE LOSSES ON URANIUM CONTRACTS. USE is not in arrears with
respect to uranium delivery obligations. As of February 28, 1995,
SMP had firm orders for an estimated $29,573,000 of future uranium
deliveries; USE and subsidiaries have no other firm orders for
future deliveries. USE estimates one percent of the SMP
obligations will have been filled during the last quarter of fiscal
1995. The foregoing estimate of firm orders was prepared assuming
the $10.40 per pound price of U3O8 at February 28, 1995 would
remain in effect for the duration of market-price related supply
contracts. Approximate floor price in effect at that date was used
to estimate future delivery obligations under base-price escalated
contracts. However, prices and quantities of U3O8 required by
utilities may vary substantially, as may the cost to USE and
subsidiaries to obtain inventory to supply the contracts. Profits
on such future deliveries cannot be predicted.
27
Increases in the spot market would increase USE' cost of delivering
on certain of the SMP contracts, thus reducing profits, while spot
market decreases would increase profits on such contracts. USE
recorded a loss of $162,900 in fiscal 1994 on deliveries of its
portion of certain of the SMP contracts, as the cost of uranium
exceeded the contracted price. Due to the SMP dispute, earlier
arrangements between the partners to deliver their shares of the
SMP contracts in spite of the dispute were abandoned, and USE made
no deliveries (and therefore recorded no revenues or loss) on any
SMP contracts during fiscal 1995.
26
All uranium supply contracts presently are held by SMP. USE could
lose the contracts if the arbitration proceedings involving SMP are
decided against USE and Crested.
28
See "Business-Uranium-Marketing."
COMPETITION. USE's business is highly competitive in the
exploration for and production of minerals and oil and gas, as well
as in its commercial and construction operations. USE's
competitors include major mining and oil and gas companies, many of
which are larger than USE in all respects. Competitive conditions
vary depending upon the mineral. The location and composition of
mineral ore bodies are of great importance to the competitive
position of a mining company, as are the milling methods that must
be used to extract mineral from the ore. Producers of high-grade
ore bearing readily extractable minerals are in advantageous
position. Producers of one mineral may be able to efficiently
recover other minerals as by-products, with significant competitive
impact on primary producers. Substantial capital costs for
equipment and mine-works are often needed. Competitors that have
developed a property generally have incurred substantial fixed
costs which must precede mining undeveloped properties. As a
result, owners of producing (or previously producing) properties
generally enjoy substantial competitive advantages over
organizations that propose to develop non-producing properties.
In its other business segments, USE affiliate FNG encounters strong
competition with a number of larger civil engineering construction
firms in the western United States, and Brunton competes with
domestic and foreign sporting and professional equipment
manufacturers.
URANIUM PRICES AND COMPETITION. Uranium market prices in the
United States have declined from as high as $17.00 per pound in
1988 to less than $8.00 per pound in 1992, and recovered somewhat
to about $11.00 per pound in March 1995. Further sustained price
increases in the spot market (to $14.00 per pound) are believed to
be required to create the need for United States utilities to seek
long term price stabilizing uranium supply contracts, however,
upward price movement cannot be assured. USE would be adversely
affected if the United States nuclear utilities do not seek long
term uranium supply contracts in the 1990s. See "Business-Certain
Market Information." Although the extent of such adverse impact
cannot be predicted, if uranium prices remained so depressed
through the 1990s that USE's properties and facilities were not put
into operation, the book value of such assets might decrease.
USE believes that if and when market prices improve, it will be
able to compete with other uranium producers, primarily because it
holds significant uranium resource in place, along with the
facilities necessary to mine and mill the ore into uranium oxide,
which assets were acquired for much less than prior owners
reportedly had spent. Applications have been submitted to upgrade
the mill facilities' licenses to operating levels, however, delays
in final permitting may be encountered, as the uranium refining
industry is tightly regulated by the NRC.
Nonetheless, USE expects strong competition from low cost producers
in Canada, Australia and Africa (where uranium is a byproduct of
other mineral recovery processes), and from imports to the United
States of highly enriched uranium from the Commonwealth of
Independent States (formerly the Soviet Union). See "Business-
Certain Market Information."
29 AND 30
VARIABLE REVENUES, RECENT LOSSES, AND DECLINING WORKING CAPITAL.
Due to the nature of USE business, there are from time to time
major increases in gross revenues from sale of mineral properties.
During fiscal 1991, $7,193,600 was recognized from sale of a
partial interest in a uranium property to Kennecott Uranium Company
(a GMMV partner). No such revenues were recognized in fiscal 1992,
1993 or 1994. Further, USE realized a net gain in fiscal 1992 of
$613,000 and net losses of $221,900 and $3,370,800 in fiscal 1993
and 1994, respectively, and net losses of $2,019,300 and $1,315,800
for the nine months ended February 28, 1994 and 1995, respectively.
To a significant extent, these results reflect the variability of
income from mineral sales, however, USE is not totally dependent on
mineral sale revenues from year to year. In 1995, a majority of
net revenue has been provided by commercial and construction
operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," for discussion of such items
for the last three fiscal years.
31
WORKING CAPITAL REQUIREMENTS. Cash requirements of USE for fiscal
1996 are the funding of on-going general and administrative
expenses, including legalcosts incurred as a result of the SMP
proceedings; mine development and holding costs of the Sutter gold
property; Plateau Resources mill holding (standby) costs;
development of the Energy gas properties; SMP mines standby costs;
and costs to acquire uranium oxide which USE maybe obligated to
deliver under the SMP contracts (depending on the outcome of the
proceedings).
If additional amounts of working capital are not received, USE and
Crested will need to either sell equity or liquidate interests in
various mining as well as other assets to raise the necessary funds
to sustain operations. Monthly operating expense to hold
properties and fund general and administrative expense is estimated
at $300,000 to $350,000 for fiscal 1996, of which approximately
$200,00 to $250,000 is expected to be provided from current
commercial and construction operations. These estimates reflect
elimination of most legal expenses associated with the SMP
proceedings (evidentiary hearings concluded in June, 1995).
Conventional lending sources and possible equity sales are expected
to be sufficient to cover the operating deficits (estimated at
$1,200,000 for property holding and general and administrative
expense). However, significant funding in excess of such sources
will be required to put the principal mineral properties into
production (Plateau Resources and the Sutter gold property).
Through June 30, 1995 USE received an additional $1,104,900 from a
private placement of equity (332,500 common shares), which will
renew an existing $1,000,000 bank credit line.
Continued operating losses without offsetting replacements of
working capital will adversely affect USE. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" for information on future working capital requirements
and capital resources.
POTENTIAL ISSUANCE OF PREFERRED STOCK. Under the USE Articles of
Incorporation and as permitted by the Wyoming Business Corporation
Act ("WBCA"), the USE board of directors has authority to create
series of preferred stock and to issue shares thereof, without the
approval of any USE shareholders. The creation and issue of USE
preferred stock with dividend rights senior to the USE common
shares could adversely affect common stockholder participation in
future earnings through dividends that otherwise would be available
for distribution to common stockholders.
Such preferred stock also could inhibit a takeover of USE. Under
the WBCA, separate voting approval by classes of stock is required
for certain substantive corporate transactions. If the interests
of preferred stockholders is perceived to be different from those
of the common stockholders, the preferred stockholders could
withhold approval of the transactions needed to effect the
takeover. See "Description of Securities."
POTENTIAL ANTI-TAKEOVER EFFECTS OF STAGGERED BOARD. The USE board
of directors is presently divided into three classes of two
directors each. Pursuant to the USE Articles of Incorporation and
as permitted by the WBCA, the directors in each class serve a three
year term, and only those directors in one class are reelected each
year. This board classification could stall a takeover of USE,
even if a majority of the common stock were to be held by persons
desiring a change in control of the board. See "Description of
Securities."
BUSINESS
USE is principally engaged in the general minerals business. This
segment involves the acquisition, exploration, sale and/or
development of mining properties, with primary interests in
uranium, gold and molybdenum properties in the western United
States. USE also holds oil and gas interests in Montana and
Wyoming.
The other two business segments of USE are commercial operations
and construction operations. See Footnote I to the audited
Consolidated Financial Statements.
A substantial portion of USE business, particularly property
acquisition and exploration, is conducted with its majority-owned
subsidiary, Crested Corp. ("Crested"), through a joint venture
("USECC") owned equally by USE and Crested, and through various
joint subsidiaries.
MINERALS
URANIUM
USE has acquired interests in several uranium properties in Wyoming
and Utah, including uranium processing mills in Sweetwater County,
Wyoming ("Sweetwater Mill") and southeastern Utah ("Shootaring
Mill"), in anticipation of renewed demand for long term uranium
concentrate supply contracts by public utilities in the United
States which operate nuclear powered electrical generation
facilities.
All the uranium properties are located in areas which have produced
significant amounts of uranium in the 1970s and 1980s.
The properties are:
32
Unpatented lode mining claims on Green Mountain (Fremont County,
Wyoming) on which the (Round Park uranium deposit) is located, and
the Sweetwater Mill, (23 miles south of Green Mountain). These
assets are held by the joint venture Green Mountain Mining Venture
("GMMV"), owned 50 percent by USE and USECC, and 50 percent by
Kennecott Uranium Company ("Kennecott"), a subsidiary of Kennecott
Corporation. See "Green Mountain-Concerning Kennecott", below.
All claims are accessible by county and United States Bureau of
Land Management ("BLM") access roads. The proposed Jackpot Mine
into the Round Park deposit has had no previous operators, and
would be a new mine when opened. The Big Eagle Mine and related
claim groups (which are part of the claims held by GMMV), are
accessible by county and private roads; the Big Eagle Mine was
first operated by Pathfinder Mines starting in the late 1970s.
Exploration and delineation of the principal uranium resources on
the Jackpot Mine area has been completed. Mine development by the
GMMV (funded by Kennecott) is expected to begin in 1996.
The Tony M and Frank M Mines (unpatented lode mining claims) in San
Juan County, Utah, accessible by county roads. The mines
(originally developed by Plateau Resources Limited when owned by
Consumers Power Company, a Michigan public utility which also built
the nearby Shootaring Canyon Mill to process uranium ore out of
these mines), the Shootaring Canyon Mill, uranium mineralized
material stockpiled at the mill, and related mill support
facilities, are held by Plateau Resources Limited, a wholly-owned
USE subsidiary. Significant areas of uranium resources underground
have been accessed and delineated by the prior owner's underground
workings. Subject to funding (which may be provided by USE private
equity sales in the summer of 1995), production may resume in late
1995.
Unpatented lode mining claims, underground and open pit uranium
mines and mining equipment in the Crooks Gap area located on Sheep
Mountain, Fremont County, Wyoming (these claims are adjacent to and
west of the Big Eagle mining claims held by GMMV). These assets
are held by the Sheep Mountain Partners partnership ("SMP"), the
partners of which are USE and Crested, doing business as the USECC
Joint Venture, and Nukem, Inc. ("NUKEM") through its wholly-owned
subsidiary Cycle Resource Investment Corporation ("CRIC"). The
Sheep Mountain Mines 1 and 2, accessible by county and private
roads, were first operated by Western Nuclear, Inc. in the late
1970s.
The above properties contain uranium mineralization in sandstones
of Tertiary age, as is typical of most Wyoming uranium deposits.
Electric power to all the above Wyoming properties is furnished by
either Pacific Power & Light or Hot Springs Rural Electric
Association.
There is no assurance of renewed market demand by the domestic
nuclear utilities for uranium concentrates, which would result in
price increases for concentrates, sufficient to warrant
commencement of mining and milling operations.
GREEN MOUNTAIN
GMMV. In fiscal 1990, USE and Crested sold 50 percent of their
interests in unpatented lode mining claims on Green Mountain
(hereafter, "Green Mountain Claims), and certain other rights, to
Kennecott for $15,000,000 cash (USE's share was $12,600,000, and
the balance was Crested's). In fiscal 1991, USE and USECC ("USE
Parties") and Kennecott formed the Green Mountain Mining Venture
("GMMV") to develop, mine and mill uranium ore from the Green
Mountain Claims, and market uranium oxide concentrates to nuclear
powered utilities.
Kennecott agreed to fund the first $50,000,000 of GMMV
expenditures, pursuant to Management Committee budgets.
Thereafter, GMMV expenses will be shared by the parties generally
in accordance with their participating interests (50 percent
Kennecott, 50 percent USE Parties). However, in addition to the
initial $50,000,000 of expenditures, Kennecott will pay a
disproportionate share (up to an additional $45,000,000) of GMMV
operating expenses, but only out of cash operating margins from
sales of processed uranium at more than $24.00/lb (for $30,000,000
of such operating expenses), and from sales of processed uranium at
more than $27.00/lb (for $15,000,000 of such operating expenses).
Pursuant to the joint venture agreement, each party's participation
interest in the GMMV is subject to reduction for voluntary or
involuntary failure to pay its share of expenses as required in
approved budgets, so that in effect the interest held by each party
collateralizes its performance. These provisions apply equally to
Kennecott's commitment to fund the initial $50,000,000 of GMMV
expenditures, so that if and to the extent Kennecott did not fund
Management Committee approved budgets, its interest in the venture
would be reduced proportionately. However, a defaulting party
would remain liable for third party liabilities incurred during
GMMV operations, proportionate to its interest before reduction.
GMMV cash flows will be shared between Kennecott and the USE
Parties, according to their participation interests. However, 105
of the Green Mountain Claims cover the Round Park uranium deposit,
currently believed to be the most significant mineralized resource
on Green Mountain; these 105 claims had been formerly owned solely
by USE. Pursuant to agreement between USE and Crested, cash flow
from production out these 105 Green Mountain Claims will be
distributed only to USE and Kennecott, and GMMV expenditures from
such properties will be shared 50 percent by USE and 50 percent by
Kennecott.
The USE Parties' share of GMMV cash flow resulting from the balance
of the properties (outside the 105 claims) previously owned by USE
and Crested together, will be shared equally by USE and Crested;
GMMV expenditures from such properties will be shared 25 percent
each by USE and Crested, and 50 percent by Kennecott. Such latter
properties are expected to be developed after the Round Park
deposit is developed and placed into production.
The GMMV Management Committee has three Kennecott representatives
and two USECC representatives, acts by majority vote, and appoints
and supervises the project manager. The USE Parties acted as
project manager during fiscal 1991 and 1992; in fiscal 1993,
Kennecott succeeded as project manager, by consent.
While acting as project manager, the USE Parties received fees in
fiscal 1991, 1992 and part of 1993 for overhead costs and general
and administrative fees, based on a percentage of expenditures on
the project. Since mid-fiscal 1993, USECC has continued work on a
contract basis at Kennecott's request.
Pre-development activities on the GMMV properties have included
environmental and mining equipment studies, mine permitting and
planning work, property maintenance, setting up a uranium marketing
program, and acquisition and monitoring of the Sweetwater Mill.
For fiscal 1996, GMMV plans to build a sediment dam, sediment
basin, drainage diversion ditch, fuel storage facility and other
support facilities and improvements to existing facilities.
PROPERTIES AND MINE PLAN. GMMV owns 443 Green Mountain Claims,
including the 105 claims on which the Round Park uranium deposit is
located. Surface rights are owned by the United States Government
under management by the BLM. In addition, other uranium
mineralization has been delineated in the Phase 2 and Whiskey Peak
deposits on these properties, which formerly belonged to USE and
Crested. These deposits are undeveloped.
Drilling and exploration work has been conducted on the Round Park
deposit, and USECC has constructed two portals for the Jackpot Mine
declines (see below). Roads and utilities have been put in place,
which are satisfactory to support future mine development.
GMMV also owns the Big Eagle Properties on Green Mountain, which
contain substantial uranium mineralization, and are adjacent to the
other GMMV mining claims. The Big Eagle Properties contain one
underground and two open-pit mines, as well as related roads,
utilities, buildings, structures, equipment and a stockpile of ore.
The assets include 38,000 and 8,000 square foot buildings formerly
used by Pathfinder Mines Corporation ("PMC") in mining operations.
Also included are three ore-hauling vehicles, each having a 100-ton
capacity. Permits transferred to GMMV for the properties include:
a permit to mine, an air quality permit, and water discharge and
water quality permits. GMMV owns the surface rights and the
mineral rights to the underlying unpatented lode mining claims.
The Round Park mining claims contain a deposit of uranium which has
been estimated by USECC personnel to contain 52 million pounds of
U3O8 averaging .23% uranium oxide using a grade-thickness cut-off
of .6 (i.e., deposit areas were excluded unless deposit bed
thickness at intercept, times intercept grade of uranium
mineralization, exceeded .6). GMMV plans to produce this deposit
from the Jackpot Mine, which will be driven underground from the
south side of Green Mountain when the market for uranium oxide
concentrates improves. The first of several mineralization
horizons is about 2,300 feet down from the top of Green Mountain.
The mine plan provides for two declines to be driven from the side
of Green Mountain, extending about 10,400 feet into the deposit;
one decline will be used for ventilation and transportation of
personnel, and the other will convey ore, rock and waste out of the
mine.
USE anticipates mine development costs will not exceed $25,000,000
to begin production from the Round Park deposit. However, cost
estimates may change as exploration and initial development
progress. Kennecott has agreed to fund the initial $50,000,000 in
development costs including reclamation costs. Additional costs
would be funded by operations and/or by cash assessments on the
venturers.
SWEETWATER MILL. On June 23, 1992, GMMV acquired the Sweetwater
uranium processing mill and associated properties located in
Sweetwater County, Wyoming, 23 miles south of the proposed Jackpot
Mine, from Union Oil Company of California ("UNOCAL"), primarily in
consideration of Kennecott and GMMV assuming environmental
liabilities, and decommissioning and reclamation obligations.
Kennecott is manager of the Sweetwater Mill, and as such will be
compensated by GMMV out of production. Payments for pre-operating
management will be based on a sliding scale percentage of Mill cash
operating costs prior to Mill operation, and payments for operating
management will be based on 13 percent of mill cash operating costs
when processing ore. Cash operating costs are defined as all costs
for labor (supervisory, operating, maintenance and laboratory),
reagents, utilities, materials and supplies (fuels, grinding balls
and other mill equipment, etc.), road and access maintenance,
environmental and regulatory costs (including permitting and
remediation costs), concentrate shipping costs, vehicle and
equipment operating costs, insurance, and employee health and
benefit costs.
Kennecott, as mill operator, has initiated discussions and
appropriate filings with the Nuclear Regulatory Commission ("NRC")
regarding amendments to the Source Material License to resume ore
processing at the Sweetwater Mill. Separately, Kennecott has
applied to the NRC for permission to use a mill tailings cell to
hold low level tailings waste from an ion exchange plant owned by
USE and Crested in the Crooks Gap area.
The Sweetwater Mill includes buildings, milling and related
equipment, real estate improvements, mining and mill site claims
and other real property interests, personal property and intangible
property (including government permits relating to operation of
those properties). The major assets are the mill buildings and
equipment located on approximately 92 acres.
The mill was designed as a 3,000 ton per day ("tpd") facility.
UNOCAL's subsidiary Minerals Exploration Company reportedly at
times processed in excess of 4,200 tpd. USE believes the mill
adequate for processing projected rates of ore production out of
the Green Mountain Claims. The mill is one of the newest uranium
milling facilities in the United States, and has been maintained in
good condition. UNOCAL has reported that the mill buildings and
equipment have historical costs of $10,500,000 and $26,900,000,
respectively.
As consideration for the Sweetwater Mill, GMMV agreed to indemnify
UNOCAL against certain reclamation and environmental liabilities,
which indemnification obligations are guaranteed by Kennecott
Corporation (parent of Kennecott Uranium Company). GMMV has agreed
to be responsible for compliance with mill decommissioning and land
reclamation laws, for which the environmental and reclamation
bonding requirements are approximately $23,600,000.
None of the GMMV future reclamation and closure costs are reflected
in the USE Consolidated Financial Statements (see Note K to USE
Consolidated Financial Statements). UNOCAL has also agreed that if
GMMV incurs expenditures for environmental liabilities prior to the
earlier of commercial production by GMMV or February 1, 2001,
(which liabilities are not due solely to the operations of GMMV),
then UNOCAL will reimburse GMMV the first $8,000,000 of such
expenditures. Any such reimbursement may be recovered by UNOCAL
from 20% of future cash flows from sale of uranium concentrates
processed through the mill. In any event, until such time as
environmental and reclamation undertakings are liquidated against
the bonds, such costs are not deemed expenditures under Kennecott's
$50,000,000 development commitment (but bond costs may be charged
against such commitment).
The reclamation and environmental liabilities assumed by GMMV
concern two categories: (1) cleanup of the inactive open pit mine
site near the mill (the source of ore feedstock for the mill when
operating under UNOCAL), including water (heavy metals and other
contaminants) and tailings (heavy metals dust and other
contaminants requiring abatement and erosion control) associated
with the pit; and (2) decontamination and cleanup and disposal of
the mill building, equipment and tailings cells after mill
decommissioning. Current liabilities for such efforts have been
established at approximately $17,028,000 by the Wyoming Department
of Environmental Quality ("WDEQ") for mine pit site matters
(exercising EPA-delegated jurisdiction to administer the Clean
Water Act and the Clean Air Act, and directly administering Wyoming
statutes on mined land reclamation), and by the NRC for tailings
cells and mill decontamination and cleanup. The EPA has continuing
jurisdiction under the Resource Conservation and Recovery Act,
pertaining to any hazardous materials which may be on site when
cleanup work is started.
Although USE and the other GMMV parties are liable for all
reclamation and environmental compliance costs associated with mill
and site maintenance, as well as mill decontamination and cleanup
and site reclamation and cleanup after the mill is decommissioned,
USE believes it is unlikely USE would have to pay for such costs
directly. First, based on current estimates of cleanup and
reclamation costs (reviewed annually by the oversight agencies),
such costs may be within the $50,000,000 development commitment of
Kennecott Uranium Company for GMMV. These costs are not expected
to increase materially, if the mill is not put into full operation.
Second, to the extent GMMV is required to spend money on
reclamation and environmental liabilities related to mill and site
operations during ownership by Minerals Exploration Company, UNOCAL
has agreed to fund up to $8,000,000 of such costs (provided such
costs are incurred before February 1, 2001 and before mill
production resumes), which would be recoverable only out of future
mill production (see above). Third, payment of reclamation and
environmental liabilities related to the mll is guaranteed by
Kennecott Corporation, parent of Kennecott Uranium Company. See
"Concerning Kennecott", below. Last, the GMMV will set aside a
portion of operating revenues to fund reclamation and environmental
liabilities when mining and milling operations are shut down.
Kennecott Corporation will be entitled to contribution from the USE
parties in proportion to their participation interests in GMMV, if
Kennecott Corporation is required to pay mill cleanup costs
directly pursuant to its guarantee. Such payments by Kennecott
Corporation only would be required if the liabilities cannot be
satisfied within the initial $50,000,000 development commitment,
and then only to the extent there are insufficient funds from the
accummulated reclamation reserve. In addition, if and to the
extent such liabilities resulted from UNOCAL's mill operations, and
payment of the liabilities was required before February 1, 2001 and
before mill production resumes, then up to $8,000,000 of that
amount would be paid by UNOCAL, before Kennecott Corporation would
be required to pay on its guarantee. However, notwithstanding the
preceding, the extent of any ultimate USE liability for
contribution to mill cleanup costs cannot be predicted.
GMMV believes Minerals Exploration Company operated the mill in a
responsible manner, and that reclamation and environmental
liabilities for the mill and site as acquired from Minerals
Exploration Company are within the normal range of such costs for
similar operations in the western United States.
GMMV reimbursed UNOCAL one-half of UNOCAL's mill maintenance costs
for the period January 1, 1991 to June 23, 1992. Ongoing mill
maintenance expense is funded by Kennecott as part of its
development commitment.
CONCERNING KENNECOTT. Kennecott Corporation is a wholly-owned
United States corporation subsidiary of The RTZ Corporation PLC
("RTZ"), a United Kingdom public company. RTZ is one of the
world's leading international natural resource companies and one of
the largest companies in the United Kingdom with a market
capitalization exceeding $9 billion. Kennecott Corporation owns
and operates several mines through wholly-owned subsidiaries,
including the Bingham Canyon, Utah open pit copper mine which was
started in 1906.
Kennecott Uranium Company is a wholly-owned United States
corporation subsidiary of Kennecott Corporation. Based upon the
financial resources and results of operations of RTZ, upon
Kennecott Corporation's reported contributions to RTZ net earnings,
upon Kennecott Corporation's acceptance by the NRC as a financially
sound self-bonding entity for reclamation purposes (see Note K to
the USE Consolidated Financial Statements), and upon Kennecott
Uranium Company's $27,133,728 financial performance through May 31,
1994 in the Green Mountain project ($15,000,000 in 1990 to purchase
a one-half interest in the Green Mountain uranium properties from
USE and Crested, and $12,133,728 in GMMV expenditures from 1991
through May 31, 1994), USE believes Kennecott Uranium Corporation
will continue to have the ability to satisfy its obligations under
the GMMV joint venture agreement. In the event such obligations
are not met, Kennecott Uranium Company's participation interest in
the GMMV would be reduced, and the USE parties' interest would be
increased. See "Uranium-Green Mountain," above.
USE has no knowledge of any guarantee by Kennecott Corporation or
RTZ of the performance by Kennecott Uranium Company of Kennecott
Uranium Company's development commitment under the GMMV joint
venture agreement. Further, USE has no knowledge whether earnings
of Kennecott Uranium Company are retained by it, or remitted to its
shareholder Kennecott Corporation. Accordingly, performance by
Kennecott Uranium Company of its development commitment under the
GMMV joint venture agreement is not assured.
PERMITS. In March 1993, GMMV applied to the WDEQ for a Permit to
Mine the Round Park deposit through the Jackpot Mine, for up to 22
years; this document presently is under review. Until this Permit
is granted, no further construction of mine facilities is allowed,
no further underground mine development can occur, and the Round
Park Deposit cannot be mined.
A renewal application for a License to Explore, obtained from the
Wyoming Department of Environmental Quality, was submitted to the
WDEQ, and was approved on August 23, 1994. This is an annual
renewal, which keeps prior exploration work in current status to
abate any site reclamation which otherwise would be required, until
after completion of all actual exploration activities. Failure to
renew would activate the reclamation obligations, which is less
than $150,000. Planned improvements to the GMMV properties in
fiscal 1995 will be made under the License to Explore.
Initial environmental studies have been submitted to appropriate
governmental regulators, and are being reviewed. Applications to
appropriate water have been made, and an NPDES permit has been
obtained (expiring December 31, 1997). Additional surface water,
weather and wetland studies have also been initiated.
In 1993, an application was submitted to the BLM for upgrading
roads to the Sweetwater Mill.
The WDEQ is the lead agency for review of environmental issues
associated with mining in Wyoming, and as such has authority to
examine landowners' and lessees' proposed uses of public lands for
compliance with the United States environmental statutes (the Clean
Water Act, the Clean Air Act, and others), as well as Wyoming laws.
This authority is exercised, in part, by WDEQ requiring proposed
mining plans to undergo environmental review prior to issuance of
a Permit to Mine, which may contain express conditions to mitigate
possible environmental impacts from operations.
In 1993, the BLM, as manager of Federal Lands, determined that the
potential effects of the Jackpot Mine (and associated work areas
and roads) on surface and ground waters, air quality, animal
habitat and local fauna at Green Mountain should be presented and
analyzed by an environmental impact statement ("EIS"). The EIS is
being prepared by the BLM (funded by the GMMV) and will be
submitted to the WDEQ. Accordingly, the environmental assessment
application previously submitted by the BLM has been withdrawn.
The EIS is nearly complete and, after public comment, will be
submitted to the WDEQ in the near future. Following the WDEQ
technical review of the Jackpot Mine plan, the Permit Application
will be presented for public comment. After the EIS has been
reviewed by the WDEQ, the Permit to Mine would be issued (with any
amendments to conditions required after public hearings and final
WDEQ review).
Uranium was mined on Green Mountain in the 1970s and 1980s. USE
and Crested do not anticipate any adverse environmental impacts
from the Jackpot Mine which cannot be mitigated to acceptable
levels. Accordingly, the Permit to Mine the Round Park deposit
through the Jackpot Mine portal is expected to be issued by the
WDEQ in due course, subject to delays from appeals of WDEQ
decisions by project opponents.
The Environmental Protection Agency has promulgated final rules for
radon emissions. These regulations affect the mining and milling
of uranium and may require substantial expenditures for compliance.
GMMV (and SMP, for its properties, see below) may need to install
venting at mine sites, and must monitor radon emissions at the
mines, as well as wind speed, direction and other conditions. USE
believes all its uranium operations are in compliance with these
rules.
SHOOTARING CANYON MILL
ACQUISITION OF PLATEAU RESOURCES. On August 11, 1993, USE closed
the Stock Purchase Agreement ("Agreement") with Consumers Power
Company ("CPC"), by which USE purchased from CPC all outstanding
stock of Plateau Resources Limited ("Plateau"). Plateau, a Utah
corporation, owns the Shootaring Canyon uranium processing mill and
support facilities in southeastern Utah ("Shootaring Mill"). The
Shootaring Mill holds a source materials license from the NRC. CPC
is a utility company with offices in Jackson, Michigan.
USE paid nominal cash consideration for the Plateau stock, but as
additional consideration, USE has agreed:
(a) to perform or cause the performance by Plateau of all studies,
remedial or other response actions or other activities necessary
from time to time for Plateau to comply with environmental
monitoring and other provisions of (i) federal and state
environmental laws relating to hazardous or toxic substances, and
(ii) the Uranium Mill Tailings Radiation Control Act, the Atomic
Energy Act of 1954, and administrative orders and licenses relating
to nuclear or radioactive substances or materials on the property
of or produced or released by Plateau; and
(b) to indemnify CPC from all liabilities and costs related to the
presence of hazardous substances or radioactive materials on
Plateau property, and to any future violation of laws and
administrative orders and licenses relating to the environment or
to nuclear or radioactive substances.
Prior to Agreement closing, CPC and affiliates paid Plateau
approximately $11,700,000 against prior outstanding loans to and
accounts receivable from CPC and its affiliates. At closing,
Plateau transferred an additional $2,500,000 cash to fund the "NRC
Surety Trust Agreement" with a commercial bank as trustee. The
trustee is to pay future costs of Shootaring Mill decommissioning,
site reclamation, and long term site surveillance, as directed by
the NRC. The amount transferred to the trust is the minimum amount
now required by the NRC as financial assurance for clean up after
permanent shut down of the Shootaring Mill.
Also at closing, Plateau transferred $4,800,000 cash out of the
$11,700,000 to fund the "Agency Agreement" with a commercial bank.
These funds will be available to indemnify CPC against possible
claims related to environmental or nuclear matters, as disclosed
above, and against third-party claims related to a tax benefit
transfer agreement between Plateau and the third-party, in the
event of a "disqualification event" as provided in such agreement.
See Note K to the USE audited Consolidated Financial Statements.
There are no present claims against funds held under either the
Trust Agreement or Agency Agreement. Funds (including accrued
interest) not disbursed under the Trust and Agency Agreements will
be paid over to Plateau upon termination of such Agreements with
NRC concurrence.
Prior to closing of the Stock Purchase Agreement, there was no
affiliation between USE and any USE affiliate, and Plateau. There
is no affiliation between USE and CPC.
The consideration paid by USE was determined by negotiation with
CPC, taking into account estimated annual Shootaring Mill holding
costs, and estimated future Mill decommissioning and site
reclamation costs as required by the NRC and the Utah Department of
Natural Resources, Division of Oil, Gas and Mining ("DOGM").
The Plateau acquisition was negotiated and closed solely for the
account of USE, in light of potential NRC objections to selling
Plateau to the USECC joint venture. Subsequent to closing, in
September 1993, USE and Crested agreed that after Plateau's
unencumbered cash has been depleted, USE and Crested each will
assume one-half of Plateau's obligations, and share equally in
Plateau operating cash flows, pursuant to the USECC Joint Venture.
SHOOTARING MILL AND FACILITIES. The Shootaring Mill is located in
south-eastern Utah, approximately 13 miles north of Lake Powell,
and 50 miles south of Hanksville, Utah via State Highway 276, then
four miles west on good gravel roads. The entire facility occupies
18.9 acres of a 264.52 acre plant site. The mill was designed to
process 750 tpd, but only operated on a trial basis for two months
in mid-summer 1982. In 1984, Plateau suspended operations and put
the mill on standby because of the depressed uranium concentrate
market.
Included with mill assets are tailings cells, laboratory
facilities, equipment shop and inventory.
The NRC issued a license to Plateau authorizing production of
uranium concentrates, however, since the mill was shut down, only
maintenance and required safety and environmental inspection
activities have been performed. The current source materials
license with the NRC is for a standby operation only and expired on
December 31, 1993. Prior to expiration, USE applied for, and
expects either license renewal or extension of its expiration date
in due course.
Plateau owns approximately 90,000 tons of uranium mineralized
material stockpiled at the mill site.
USE intends for Plateau to continue maintenance activities pending
evaluation of resuming Shootaring Mill operations to process
uranium ores to concentrates in anticipation of increased
concentrate prices. NRC and DOGM approval will be required prior
to commencing such operations.
Plateau also owns Canyon Homesteads, Inc. ("Canyon"), which
developed the Ticaboo, Utah townsite 3.5 miles south of the mill,
including a 66 room motel, general store, laundromat facility, 98
single family home sites, 151 mobile home sites, and 26
recreational vehicle sites (all with utility access). The townsite
is located on a State of Utah lease near Lake Powell, and is
planned to be operated as a commercial enterprise, for which
purpose in fiscal 1994 limited capital improvements and a general
refurbishing were effected (total costs approximately $400,000).
USE may further develop the townsite, and seeks financial partners.
There have been no further material expenditures on the Ticaboo
townsite in fiscal 1995. See "Commercial and Construction - Utah
Properties", below.
SHEEP MOUNTAIN PARTNERS ("SMP")
PARTNERSHIP. SMP is a Colorado general partnership formed in
December 1988 between USE and Crested, d/b/a USECC, and NUKEM, Inc.
through its wholly-owned subsidiary Cycle Resource Investment
Corporation ("CRIC"). NUKEM, of Stamford, Connecticut is a uranium
brokerage and trading concern. During fiscal 1991, certain
disputes arose among members of SMP. These matters are in
litigation. See Item 3 - Legal Proceedings."
In February 1988, USE and Crested acquired uranium mines and mining
equipment properties at Crooks Gap in south-central Fremont County,
Wyoming, from Western Nuclear, Inc. (a subsidiary of Phelps-Dodge).
USE and Crested, doing business as USECC, mined and sold uranium
ore from one of the underground mines in fiscal 1988 and 1989.
These Crooks Gap properties are adjacent to the Green Mountain
uranium properties referred to above.
USE and Crested sold 50 percent of their interests in the
properties to NUKEM's subsidiary CRIC for cash; the parties
thereafter contributed the properties to SMP, in which USE and
Crested received an undivided 50 percent interest. Each group was
to provide one-half of $350,000 to purchase equipment from Western
Nuclear, Inc.; USE and Crested also contributed their interests in
three uranium supply contracts to SMP and agreed to be responsible
for property reclamation obligations. The agreement provided that
each partner generally had a 50 percent interest in SMP net
profits, and an obligation to contribute 50 percent of funds needed
for partnership programs or discharge of liabilities. Capital
needs were to have been met by loans and credit lines.
SMP was directed by a management committee, with three members
appointed by USE and Crested, and three members appointed by
NUKEM/CRIC. The committee has not met since 1991.
PROPERTIES. SMP owns 77 unpatented lode mining claims on the
Crooks Gap properties, including one open-pit and five underground
uranium mines, mining equipment, and an inventory of uranium ore.
An ion-exchange plant (see below) is located near the SMP
properties, but is held by USECC and not SMP. Production from the
properties is subject to sliding-scale royalties payable to WNI;
the rates are from one to four percent on recovered uranium
concentrates. Two Wyoming State leases (one for minerals covering
640 acres, and one for surface use covering 142 acres) expired in
early 1994, and will not be renewed.
Various structures and equipment are located on the properties:
three operating and three non-operating mine headframes with
hoists; maintenance shops; offices; and other buildings, equipment
and supplies.
SMP also has interests in 59 unpatented mining claims, one State
mineral lease and one State surface use lease, which have been
conveyed to Pathfinder Mines Corporation ("PMC"). The conveyance
originally was made to induce PMC to mill ore produced from the
properties, at PMC's mill. These properties contain a previously-
mined open-pit uranium mine (the Congo pit) and three underground
mines. PMC has the right to mine a portion of these properties
(the Congo area), by open-pit or in-situ techniques to certain
depths, without royalty or other obligations to SMP. PMC has the
responsibility for reclamation work needed thereon as a result of
its activities. If PMC mines any portion of the properties outside
the Congo area, a 3% royalty is owed to SMP. Conversely, SMP has
the right to mine portions of the claims and leases outside the
Congo area (and specified surrounding zones) by underground mining
techniques, subject to a 3% royalty to PMC. PMC has completed an
exploration program on a portion of these properties, and advises
it presently does not intend any further development. The 59
claims and two leases may be reacquired from PMC by SMP. PMC has
decommissioned and dismantled its uranium mill in the vicinity.
An ion exchange plant on the former PMC properties (and now held by
USECC) was used to remove natural soluble uranium from mine water.
Decommissioning of this facility awaits final NRC approval.
PROPERTY MAINTENANCE. As operating manager for SMP, USECC is
responsible for exploration, mining, and care and maintenance of
SMP mineral properties. USECC was to have been reimbursed for
certain expenditures on the properties. Currently, USECC has a
limited care and maintenance staff on site to maintain the mines
and pump mine water to prevent flooding of the mines. NUKEM/CRIC
have refused to allow SMP to pay USECC for care and maintenance
services since the spring of 1991.
In 1988, USECC produced uranium from certain of the underground
mines located on the Crooks Gap properties. Production ceased in
fiscal 1989, because uranium could be purchased from the spot
market at prices below SMP mining and milling costs.
URANIUM MARKETING. NUKEM, Inc. was engaged by SMP to provide SMP
with financial expertise and marketing services. SMP entered into
a marketing agreement with CRIC, which was assigned to and assumed
by NUKEM, to provide marketing and trading services for SMP, which
included acquiring uranium for SMP by purchasing or borrowing.
Nukem was to be reimbursed at its direct costs for acquiring such
uranium for SMP. USECC, SMP and Nukem had acquired seven long-term
contracts for sales of uranium to eight domestic utilities. SMP
had paid annual nonaccountable fees of $300,000 for marketing to
NUKEM, but SMP ceased making such payments in the spring of 1991,
when NUKEM/CRIC refused to authorize payment of care and
maintenance costs.
SMP's uranium supply contracts either are base-price escalated or
market-related (referring to how price is determined for uranium to
be delivered). Base-price escalated contracts set a floor price
which is escalated over the term of the contract to reflect changes
in the GNP price deflator. The current base-price escalated
contract of SMP requires deliveries of from 94,200 to 424,100
pounds of uranium concentrates during various years in the 1990s.
The amounts deliverable under the contract may be increased or
decreased by the utility, in amounts from 10% to 25%. Prices of
uranium for deliveries under the base-escalated price contract
currently exceed prices at which uranium can be purchased in the
spot market.
Under the market-related contracts, the purchaser's cost depends on
quoted market prices and the price at which a willing seller will
sell its U3O8 during specified periods before delivery. Some of
these contracts place a ceiling on the purchase price, substituting
a base-price escalated amount, if the market price exceeds a
certain level. Under the terms of the various market-price related
contracts, SMP is required to deliver from 270,000 to 1,301,253
pounds of uranium annually from 1995 to 2000, which amounts may be
increased or decreased by specified percentages.
Through fiscal 1994, USE and its affiliates have satisfied most of
these contracts with either uranium previously produced by SMP,
borrowed from others, or purchased on the open market. A number of
disputes have arisen among USECC and its partner NUKEM/CRIC in SMP,
and USECC initiated litigation against NUKEM, CRIC and certain of
their affiliates. See "USE Legal Proceedings."
However, performance under the SMP utility supply contracts has
been in dispute since fiscal 1993, and may continue past May 31,
1995; the cooperation of NUKEM to assure deliveries to customers
pending resolution of the SMP disputes, is not assured. See "Legal
Proceedings".
PERMITS. Necessary permits to operate current mines on SMP
properties have been issued by the State of Wyoming. Amendments
are needed to open new mines within the permit area. As a
condition to the issuance of the permits, an NPDES permit under the
Clean Water Act has been obtained. Monitoring and treatment of
water removed from the mines and discharged in nearby Crooks Creek
is generally required. During the past year, SMP did not discharge
wastewater into Crooks Creek, and the mine water is presently being
discharged into the McIntosh Pit.
GOLD
LINCOLN MINE (CALIFORNIA)
SUTTER GOLD MINING COMPANY. In fiscal 1991, USE acquired an
interest in the Lincoln Project (including the underground Lincoln
Mine) in the Mother Lode Mining District of Amador County,
California. This property, formerly held by the Sutter Gold
Venture ("SGV"), a mining joint venture, is now wholly owned by
USECC Gold, a Wyoming limited liability company (owned by USE and
Crested). Until the end of fiscal 1994, Seine River Resources Inc.
("SRRI", a Vancouver Stock Exchange listed company which is not
affiliated with USE or its subsidiaries) was a joint venture party
in SGV. USECC Gold now is a subsidiary of Sutter Gold Mining
Company (see below).
32
USE expects to commence additional exploration and mine development
as soon as funding is provided through a joint venture or other
source. However, although USE is in discussions with possible
joint venture partners, funding is not presently available. This
property, therefore, may not be placed into production in 1996.
See "Permits and Future Plans."
The parties had intended to operate SGV as equal 50 percent
venturers. However, because of SRRI defaults on its obligations to
USE, USE and Crested had acquired (through USECC Gold) by the end
of fiscal 1993 a 90 percent aggregate equity interest in the
Lincoln Project (and the interests in USECC Gold were owned 88.89
percent by USE, and 11.11 percent by Crested). By the end of
fiscal 1994, SRRI owed USE and Crested $1,970,507 for SGV property
holding costs, permitting costs and mine maintenance expense
incurred and paid for by USE and Crested since March 1992,
including interest and management fees charged by USE and Crested.
As of May 23, 1994 SRRI agreed to assign its remaining 10 percent
interest in SGV to USE as payment for the $1,970,507 owed USE and
Crested. However, only the $1,389,272 of costs and expenses paid
for by USE and Crested was recorded; $581,235 for interest and
management fees was written off as uncollectible. SRRI also issued
400,000 common shares of stock and delivered them to USE as final
payment of any deficiencies for pre-fiscal 1994 indebtedness (owed
by SRRI to SGV) which had been secured with SRRI's interest in SGV
and upon which USE and Crested acquired in lieu of foreclosure (see
Note E to the USE Consolidated Financial Statements). A conveyance
of SRRI's 10% interest is being prepared for delivery to USE and
Crested pending the decision of Amador United Gold Mines on its
right of first refusal on the project.
Subsequent to the end of fiscal 1994, the Sutter Gold Venture was
terminated, USE and Crested formed a new Wyoming corporation
(Sutter Gold Mining Company), and agreed to exchange their
interests in USECC Gold for common stock of Sutter Gold Mining
Company (hereafter, "Sutter Gold"). Sutter Gold is owned 89
percent by USE and 11 percent by Crested; USECC Gold is a
subsidiary of Sutter Gold.
Sutter Gold continues to seek the capital funding needed to fund
mine development, construction of a gold mill and related
facilities, to put the gold mine into full production at an initial
rate of 300 tons per day. To date, there are no agreements in
principle to obtain such financing.
For information on the initial formation of SGV, and the respective
interests of USE, Crested and SRRI at formation and thereafter, see
Note E to the audited USE Consolidated Financial Statements.
During fiscal years 1992, 1993 and 1994, SGV conducted
environmental studies, drafted initial mine and mill designs, mined
bulk samples from the Lincoln Mine for assay and mill design
purposes, installed an underground water treatment plant to treat
mine water seepage, and performed other work to support application
for operating permits. See "Properties", below.
PROPERTIES. Sutter Gold (through USECC Gold) holds approximately
14 acres of surface and mineral rights (owned), 362 acres of
surface rights (leased), 217 acres of mineral rights (leased), and
374 acres of mineral rights (owned), all on patented mining claims
near Sutter Creek, Amador County, California. The properties are
located in the western Sierra Nevada Mountains (1,000 to 1,500 feet
elevation); year-round climate is temperate. Access is by
California State Highway 16 from Sacramento to California State
Highway 49, then by paved county road approximately .4 miles
outside Sutter Creek.
Total land holding costs are estimated at $574,000 for the two
fiscal years ending May 31, 1996, including $42,000 for payments on
two parcels (14 acres) purchased in 1994; $30,000 in one time costs
to acquire a surface easement and lease for land running from the
proposed mill site to California State Highway 49; payment of two
years' accrued royalties of $46,000, plus advance royalties coming
due in 1995 and 1996 totalling $96,000 on a surface and minerals
lease (with purchase option); payment of advance royalties and
lease rental payments coming due in 1995 and 1996 on other surface
and mineral properties, totalling $228,000; and property taxes of
$60,000 ($30,000 annually); and other miscellaneous lease payments.
Property taxes will increase to about $100,000 annually when the
mill is built and the mine is in production.
The leases are for varying terms (the earliest expires in November
1995), and require rental fees, advance production royalties, real
property taxes and insurance. Leases expiring before 2010 will
generally be extended, so long as minerals are continuously
produced from the property that is subject to the lease. Other
leases may be extended for various periods on terms similar to
those contained in the original leases. Production royalties are
from four to seven percent, and up to 20 percent for some areas of
high-grade ore. The various leases have different methods of
calculating royalty payments (net smelter return, gross proceeds,
and net profits interest).
Amador United Gold Mines ("Amador United") was a prior owner of
certain leases which it conveyed into the Lincoln Project when
owned by Meridian Minerals, in return for which Amador United
received a right of first refusal to buy the Lincoln Project (see
below) and a 20 percent net profits interest in production from any
of the Lincoln Project properties. Although all of the properties
which Amador United conveyed into the Lincoln Project were
relinquished by Meridian as uneconomic or of marginal utility to
the Project, Amador United remains entitled to its net profits
interest. "Net profits" will be determined by deducting from gross
revenues from sale of minerals produced by the Lincoln Project, an
amount equal to 105 percent of all costs and expenses in excess of
$6,000,000 which are directly or indirectly attributable and
necessary or incidental to the acquisition, exploration,
development, mining and marketing of minerals produced from all of
the properties comprising the Lincoln Project. Costs and expenses
are defined to include (but not be limited to): ad valorem real
property and personal property taxes; reasonably anticipated
reclamation costs; salaries and wages of employees assigned to
property acquisition, exploration, development, mining and
marketing activities; travel expenses and transportation of
employees, material equipment and supplies; all payments to
contractors; assay, metallurgical testing and other analyses to
determine the quality and quantity of minerals on all of the
properties; costs to obtain environmental permits and other
permits, rights-of-way and similar rights, as incurred in
connection with acquisition, exploration, development, mining and
marketing activities; property acquisition and holding expenses;
costs for feasibility studies; costs for title curative work; and
1.25 percent monthly interest on such costs and expenses which are
not paid.
Based on an estimated $15,000,000 of investments to date in the
Lincoln Project by Meridian and USE, and current estimates of up to
$17,974,000 additional investment required to put the properties
into full production, payment of any amount to Amador United for
its net profits interest will only occur after the Lincoln Project
has generated gross revenues in excess of the amount invested.
Lease royalties burdening the Lincoln Project properties are in
addition to Amador United's net profits interest.
In connection with SRRI's transfer of interests in the Lincoln
Project to USE and Crested at formation of the SGV, and thereafter
upon USE's and Crested's acquisition of SRRI's remaining interests
in SGV due to default by SRRI, Amador United was provided notice of
its right of first refusal to acquire such interests for amounts
equal to USE's and Crested's advances to SRRI. Amador United has
made technical objections to the notices given, however, USE and
Crested believe these objections are without merit.
In fiscal 1992, USE and Crested expended $2,537,400 on SGV for mine
development, mining and processing bulk samples of mineralization,
project permitting costs, holding costs, and related general and
administrative costs, which amount includes advances by USE and
Crested to cover SRRI's share of such costs. In fiscal 1993 and
1994, SGV spent $1,266,500 and $1,088,536, respectively, for
exploration and feasibility work to further delineate the Lincoln,
Comet and other zones, and for land holding, permitting and related
costs. All expenditures were funded by USE and Crested, including
SRRI's share of such costs. To Prospectus date, Sutter Gold (and
predecessor SGV) has spent over $12,100,000 to acquire the Lincoln
Project, and on mine development, exploration and feasibility work,
permitting and mill equipment.
GEOLOGY AND RESERVES. The minerals consulting firm Pincock, Allen
& Holt ("PAH") has prepared a prefeasibility study on the Lincoln
Project. PAH reviewed core drilling data on the Lincoln Zone on
100-foot centers from the surface, and drilling on the Comet Zone
from both surface and underground. PAH also reviewed data from
drilling on the Keystone Zone from surface on 200-foot centers.
Total data is from 162 exploration core holes (surface and
underground), with total footage of 64,700 feet. PAH based its
estimate of proven reserves on mineralized material within 25 feet
of sample information; probable reserves were based on material
located between 25 and 50 feet of sample information. In nearly
all cases, the veins (approximately 17 in number, though at some
points several veins appear to briefly converge) in the three areas
sampled are believed by PAH to extend well beyond these limits.
Using a cutoff grade of 0.25 ounces of gold per ton in place, PAH
estimates the Lincoln Project contains 194,740 tons of proven and
probable reserves grading 0.57 ounces of gold per ton. If
operating economics indicate a lower cutoff grade is feasible, the
amounts of reserves would increase.
In fiscal 1992, SGV mined 8,000 tons of material (including waste
rock and low grade mineralization) out of drifts and raises off the
Stringbean Alley decline (see "Permits and Future Plans", below) in
a bulk sampling program to test mining techniques and milling
recoveries. Milling results indicated at least 94 percent of the
gold in the ore should be recoverable with gravity, flotation and
cyanidation milling circuits (1,400 ounces of gold were recovered
in this program). Subsequent metallurgical tests by the
engineering firm Brown & Root, Inc. (using test data from the
Lincoln Project developed by Hazen Research, Inc.) indicate mill
recovery should be in excess of 96 percent. PAH believes the
recovery rate should be between 93 and 95 percent.
The geology within the Lincoln project is typical of the historic
Mother Lode region of California, with a steeply dipping to
vertical sequence of metavolcanic and metasedimentary rocks hosting
the gold-bearing veins. Depending on location along the strike
length on the vein systems, the gold-bearing veins are slate,
metavolcanic greenstone, or an interbedded unit of slates and
volcanics. The Lincoln Project covers over 11,000 feet of strike
length along the Mother Lode vein systems.
PERMITS AND FUTURE PLANS. In August 1993, the Amador County Board
of Supervisors issued a Conditional Use Permit ("CUP") allowing
mining of the Lincoln Mine and milling of production, subject to
conditions relating to land use, environmental and public safety
issues, road construction and improvement matters, and site
reclamation. The permit will allow construction of the mine and
mill facilities in stages as the project gets underway, thereby
reducing initial capital outlays. Additional permits (for road
work, dust control and construction of mill and other surface
improvements) will be applied for in due course.
Initial mining using standard cut-and-fill overhead stoping
techniques, is planned for the Lincoln and Comet Zones, by an
existing 15 feet by 12 feet by 2,800 feet decline (the Stringbean
Alley decline), which runs from the surface down through the Comet
and into the Lincoln Zone. This decline was developed by Meridian
Minerals. Screened tailings from the mill flotation circuit will
be used to back-fill the stopes and stabilize the wall rocks; this
recycling will also greatly reduce the volume of tailings going
into the tailings ponds. In the pre-production stage, the
Stringbean Alley decline will be extended down to 750 feet, then a
drift driven back horizontally along the 750 foot level (above sea
level).
The CUP requires that within 18 months after operations start up,
a new decline (to be named the Lincoln Decline) will have to be
completed running for 1,850 feet from the surface at the mill site
(1,340 feet above sea level) down to a new drift to be driven at
the 1,000 foot (above sea) level; the new decline will be used for
access of mining personnel and supplies to the underground
workings, as well as permit ore haulage up the decline by conveyor,
thus eliminating surface ore haulage from mine portal to the mill.
Concurrently with production mining, Sutter Gold intends to
maintain an aggressive underground development program to delineate
(on an on-going basis) two to three years of developed ore in
sight.
Sutter Gold may require up to $17,974,000 financing to construct
the mill and prepare the mine for full scale production, and for
interim holding costs. The mill design has been reviewed by PAH,
and Sutter Gold expects to follow PAH's recommendations in building
the recovery circuits. The mill will be constructed to allow a 500
ton per day operations, but initially equipped so as to handle 300
tons per day throughput. Exclusive of attached lab and other
support facilities, the central mill building is expected to cover
approximately 20,000 square feet, and will be constructed with
interior mezzanine levels to hold different banks of equipment.
Adequate power is available at the boundaries of the Lincoln
Project from the local utility; water also is available from a
utility if needed, although the Lincoln Mine is expected to produce
adequate water for mining and milling operations.
MOLYBDENUM
As holders of royalty, reversionary and certain other interests in
properties located at Mt. Emmons near Crested Butte, Colorado, USE
and Crested have received annual advance royalties of 50,000 pounds
of molybdenum, or cash equivalent (one-half to each), starting in
fiscal 1990, pursuant to agreements for sale of interests in the
Mt. Emmons properties to AMAX. The properties were acquired in the
1970s, and sold to AMAX in 1980. AMAX delineated a deposit of
molybdenum containing approximately 146 million tons of
mineralization averaging 0.43% molybdenum on the properties, making
the deposit one of the world's largest known primary molybdenum
deposits.
Advance royalties are paid in equal quarterly installments, until:
(i) commencement of production; (ii) failure to obtain certain
licenses, permits, etc., that are required for production; or (iii)
AMAX's return of the properties to the USE and Crested. During
fiscal 1994, USE recognized $126,800 of advance royalty revenue
under this arrangement. These royalties are shown in the
Statements of Operations as a component of gains from restructuring
mineral properties agreements. See Note F to the audited USE
Consolidated Financial Statements. The royalty payments reduce the
operating royalties (six percent of gross production proceeds)
which would otherwise be owed by AMAX in the event of production.
There is no obligation to repay the advance royalties, if the
property is not placed in production. AMAX is to pay $2,000,000 to
USE and Crested (one-half to each), if the Mt. Emmons properties
are put into production.
In fiscal 1995, USE and Crested reached agreement with AMAX (now
Cyprus Climax) to forego six quarters of advance royalties
(starting fourth quarter calendar 1994) for full payment for real
estate in Gunnison, Colorado owned by AMAX and the subject of a
purchase option held by USE and Crested. The option exercise price
was valued at $266,250.
Also as part of the original AMAX transaction, interest free loans
were made to USE and Crested. These loans were fully amortized by
the end of the first quarter of fiscal 1994 (see Notes F and G to
the audited USE Consolidated Financial Statements. In the event
AMAX sells its interest in the properties, USE and Crested would
receive 15 percent of the first $25,000,000 received by AMAX.
PARADOR MINING (NEVADA)
USE and Crested are sublessees and assignees from Parador Mining
Co., Inc. ("Parador"), on certain rights under two patented mining
claims located in the Bullfrog Mining District of Nye County,
Nevada. The claims are immediately adjacent to and part of a gold
mine operated by Bond Gold Bullfrog, Inc. ("BGBI"), a non-
affiliated third party. They have also been assigned certain
extralateral rights associated with the claims and certain royalty
rights relating to a prior lease on those properties. The lease to
USE and Crested is for a ten year primary term, is subject to a
prior lease to BGBI on the properties, and allows USE and Crested
to explore for, develop and mine minerals from the claims. If USE
and Crested conduct activities on the claims, they are entitled to
recover costs out of revenues from extracted minerals. After
recovering any such costs, USE and Crested will pay Parador a
production royalty of 50 percent of the net value of production
sold from the claims.
USE, Crested and Parador have informed BGBI that payments are owed
to them pursuant to extralateral rights on the claims. BGBI in
turn has initiated legal proceedings to establish the rights of the
various parties in the claims. Thereafter, Parador notified BGBI
that it had defaulted in its lease and terminated the lease. BGBI
denies that it has defaulted. See "Legal Proceedings".
OIL AND GAS
FORT PECK LUSTRE FIELD (MONTANA). USECC conducts oil production
operations at the Lustre Oil Field on the Ft. Peck Indian
Reservation in north-eastern Montana; five wells are producing, and
USE and Crested receive a fee based on oil produced. USE is the
operator of record. No further drilling is expected in this Field.
This fee and certain real property of USE and Crested, have been
pledged or mortgaged as security for a $1,000,000 line of credit
from a bank.
ENERGX, LTD. FORT PECK GAS PROJECT. ENERGX, LTD., a Wyoming
corporation and a subsidiary of USE and Crested formed in fiscal
1994, signed on October 29, 1993 an "Agreement Between The
Assiniboine and Sioux Tribes of the Fort Peck Indian Reservation
and ENERGX, LTD. to Explore, Develop and Produce Shallow Gas."
This Agreement has been approved by the Secretary of the Interior
and the United States Bureau of Indian Affairs. ENERGX intends to
drill and test three exploratory wells, and otherwise develop the
area, with NuGas Resources (see below). If ENERGX determines there
is potential for a natural gas field, ENERGX (and NuGas) will have
exclusive exploration rights for shallow gas (down to the top of
the Muddy formation, approximately 4,000 feet) on approximately
325,000 acres of tribal mineral lands on the Reservation for a
period of five years, and for successive five year terms, provided
ENERGX drills another five exploration wells during each term. The
first three dry holes would be at ENERGX sole expense (and now will
be funded by NuGas-see below).
Proceeds from production will be allocated to ENERGX (and now
NuGas-see below) for all wells' drilling and completion expense
(except for the initial three dry holes), lease operating expenses,
gas gathering and compression facilities, capital and operating
costs. Net revenues will be allocated 40 percent to the Tribes and
60 percent to ENERGX. Pursuant to United States Law, only the
Tribes may own beneficial interests in reservation minerals;
ENERGX' share of net revenues is compensation for operating
services. The Tribes also own 10 percent (nondilutable) of ENERGX
common stock.
Two major gas transmission systems cross the Fort Peck reservation
(Northern Border and Williston Basin).
The Fort Peck tribal lands are believed to contain significant
shallow gas deposits, analogous to the Bowdoin Gas Field (eastern
Montana) and other Cretaceous age gas producing reservoirs in the
Northern Great Plains Gas Province. Numerous wells drilled for
deep oil on the Fort Peck tribal lands have documented shallow gas
shows. However, no reserves have been established for the acreage
subject to the Agreement with ENERGX.
NUGAS AGREEMENT. By the Joint Venture Agreement ("JVA") of
July 18, 1994, NuGas Resources (U.S.) Inc., Calgary, Alberta,
Canada will drill and complete (or abandon) at NuGas' sole expense,
eight exploratory shallow gas wells on the Fort Peck Reservation
(three before December 31, 1994, and five more by July 1, 1996), to
earn a one-half interest in ENERGX' rights under the Fort Peck
Shallow Gas Agreement (see above). Well gathering, gas dehydration
and related equipment costs will be shared equally by NuGas and
ENERGX. ENERGX Will be carried for the first eight exploratory
wells (see below).
NuGas has contributed $100,000 to pay for costs of acquiring leases
and easements on non-Tribal lands contiguous to Tribal lands, so as
to assemble adequate sized drilling units for the first three
exploratory wells. Due to the unexpected complexity of assembling
the necessary land packages, NuGas and ENERGX have postponed the
drilling of the initial exploratory wells until the summer of 1995.
NuGas and ENERGX each will receive 50 percent of proceeds from gas
produced and sold out of the initial eight wells, until NuGas
receives 50 percent of such wells' drilling, completion, geological
and equipping costs; thereafter, distributions will be shared 30
percent each to NuGas and Energx, and 40 percent to the tribes
pursuant to the Fort Peck Shallow Gas Agreement. NuGas will not be
entitled to recoup any of drilling and geological costs related to
up to three dry holes drilled in the initial eight well drilling
program. All activities after the initial exploration drilling
program will be funded equally by NuGas and ENERGX.
ENERGX received $200,000 under the JVA as a prospect generation
fee, and will be the operator of the initial exploration program.
NuGas is a subsidiary of a Toronto Stock Exchange company with
substantial experience in shallow gas exploration and production,
principally in the northern plains states and Canada, where the
company currently operates more than 450 shallow gas wells and
produces 25,000,000 cubic feet of gas per day.
POWDER RIVER BASIN. ENERGX holds by lease approximately 960
acres of coalbed methane rights in the Powder River Basin,
Campbell County, Wyoming, having drilled two coalbed methane
stratigraphic test wells, and four production wells to test for and
produce coalbed methane. Casing has been set in each of the four
coalbed methane wells. The coal is expected to produce commercial
quantities of methane, once the hydrostatic pressure is reduced by
pumping water out of the coalbed formation.
One of the four wells is on water pump. Until methane production
commences, methane reserves cannot be reliably estimated.
WIND RIVER BASIN. Approximately 38 sections (25,000 acres) of
BLM leases (10 year term) in Fremont County, WY are now held by
ENERGX, believed to be prospective of shallow coalbed methane and
conventional stratigraphic natural gas and oil deposits. Acreage
in this part of the County has been leased by major oil and gas
companies in the past, but very little of the acreage has been
drilled. ENERGX may negotiate farmout arrangements with other
companies to test the acreage (two large independent oil and gas
exploration and production companies have acreage near ENERGX's
positions).
ENERGX operations to date have been funded with USECC equity
investments and advances, and transaction revenue (the NuGas
prospect generation fee). Future operations are to be funded by a
combination of private equity financing by ENERGX, and by industry
and private investor participants on prospects.
COMMERCIAL AND CONSTRUCTION
USE owns varying interests, alone and with Crested, in affiliated
companies in manufacturing and retailing, real estate,
transportation, and engineering businesses. The affiliated
organizations include Brunton, Western Executive Air, Inc. ("WEA"),
Four Nines Gold, Inc. ("FNG"), and Plateau through its wholly-owned
subsidiary Canyon Homesteads, Inc. Activities of these
subsidiaries and USE in these business sectors include a variety of
real estate operations (ownership and management of a commercial
office building, which includes the quarters where USE executive
offices are located, ownership and management of a trailer home
park in Riverton, Wyoming, and ownership and management of town
sites and a motel facility in Ticaboo, Utah). WEA owns and
operates an aircraft fixed base operation with fuel sales, charter
planes and flight school in Riverton, Wyoming. Manufacturing and
marketing of recreational products and professional engineering
products are carried on through Brunton. FNG provides civil
engineering contracting primarily for large concrete structure and
pipe work in municipal sewage systems, irrigation systems and other
water control projects.
MANUFACTURING
BRUNTON
Brunton operates in the industry segment of manufacture and sales
of outdoor professional and sporting products. All common stock of
Brunton except for shares previously owned by USE was acquired as
of May 1994, in exchange for 276,470 registered common shares of
USE.
Brunton is the manufacturer of the original Brunton pocket transit
(developed by D.W. Brunton in 1884), and has been manufacturing and
marketing pocket transits to the professional surveying, mining,
geology and military markets world wide since 1972 when the product
line was purchased from a Denver company and moved to Riverton,
Wyoming.
Brunton also manufactures and sells a line of sporting compass
products, and imports and distributes optical products and Lakota
cutlery, having acquired Lakota cutlery in 1982. These products
are marketed through traditional sporting goods channels by
distributors, catalog houses, retailers and chain stores nationally
and internationally. Additional markets include ad specialty,
military and the U.S. government. A majority of the products are
marketed as quality items commanding premium prices.
Brunton sales for fiscal 1994 (compared to fiscal 1993) by product
line were: 35 percent (44 percent) sporting compasses; 26 percent
(26 percent) professional products; 27 percent (21 percent) optical
products; and 7 percent (9 percent) cutlery. The balance of 1994
revenues were from interest income, paint shop custom work, and
warranty service.
No customer accounted for more than 10 percent of Brunton sales in
any of the three fiscal years ended May 31, 1994. Major customer
revenue contributions within product lines are discussed below.
Brunton has 34 full-time employees and 5 part-time employees, none
under collective bargaining agreements. Employee relations are
considered satisfactory.
PROFESSIONAL PRODUCTS
POCKET TRANSITS AND ACCESSORIES. Brunton is a manufacturer of
pocket transits. This instrument is a hand-held compass with a
mirrored protective cover and long bar sight, capable of
calculating both horizontal (compass bearings) and vertical
(inclination) angles. Primary advantages of the pocket transit
include small size and accuracy.
Several versions of this instrument are produced to satisfy the
needs of civil engineers, mining engineers, archaeologists,
foresters, geologists and military personnel. Many units are
waterproof. Numerous product options, high quality and ready
serviceability separate Brunton instruments from its competition.
Suggested retail price for the pocket transit range from $187 to
$263 per unit. Brunton also manufactures and sells non-magnetic
tripods and field accessories to the foregoing consumer groups.
MARKETING. Professional products are sold on a direct basis
to 275 wholesale dealers, distributors and catalog supply houses
throughout the world. In addition, Brunton markets professional
products to the U.S. government (GSA) and military organizations
including the U.S. Army.
COMPETITION. Brunton faces competition for its pocket
transits with look-a-like models manufactured in the far east by
companies substantially larger than Brunton who include their
competing unit as one of several surveying type instruments
available from the company. Despite larger competitors, and
despite somewhat higher prices for Brunton pocket transits,
management believes Brunton holds a consistent estimated 80 percent
United States market share for the pocket transit market. This is
due to name brand recognition, highest quality workmanship,
excellent wholesale and consumer service and consistent advertising
programs.
SEASONALITY. Sales of pocket transits are seasonal with
increased sales in the spring and summer due to minerals
exploration and college/university field exercises. Brunton
currently seeks to increase penetration of South American markets
to counter seasonality of North American sales.
MAJOR CUSTOMERS. One customer (Forestry Suppliers, Inc., a
catalogue supplier) accounted for 10 percent of professional
product sales in fiscal 1994 (15 percent in fiscal 1993). Loss of
this customer would not have a material adverse effect on Brunton.
SPORTING PRODUCTS
There are three lines of Brunton sporting products: compasses,
optics and cutlery. Compasses and optics are marketed under the
Brunton name; cutlery is marketed under the Lakota label.
COMPASSES. Brunton map compasses were first introduced in
1979 to the general sporting goods market. To the best of
management's knowledge, Brunton compasses continue to be the only
100 percent made in USA map compasses. A complete priced line of
compasses (22 different models) is offered, with a suggested retail
price range of $3.99 to $264, and are used by virtually any type of
outdoors person, from hunters to backpackers, boaters to mountain
climbers. All sporting compasses are liquid damped, which means
that the compass housing contains a clear oil-based fluid to dampen
the action of the magnetic needle, which allows for quicker and
more accurate instrument readings.
OPTICS. Brunton optics include a range of high quality
binoculars and monoculars, which are manufactured primarily in
Japan and Korea to Brunton specifications. Brunton optical
products are targeted to wholesale accounts that market to quality
conscious consumers willing to pay premium prices for quality
optical products. Additional features are found on its optics,
including upgraded lenses and prisms, fully-coated optics, long eye
relief (so eyeglass wearers can enjoy full field of view), and lens
coatings (to significantly reduce both ultraviolet (UV) and
infrared (IR) light from entering the product). Suggested retail
prices for the 11 standard optical products range from $129 to
$389.
Substantially all optics are manufactured for Brunton by one
Japanese firm. Although the services of such firm could be
replaced if necessary, attendant delays would adversely impact
Brunton and could result in eroding market share. Relations
between such firm and Brunton are considered excellent. However,
continued erosion of the dollar against the yen could lead to price
increases which may be difficult for Brunton to pass along to
customers.
CUTLERY. Lakota cutlery offers high quality cutlery for the
outdoors person, with models that include unique lockback and fixed
blade designs. Lakota cutlery is manufactured in Japan by quality
conscious subcontractors. Leather sheaths and packaging are
assembled at Brunton headquarters. A majority of Lakota designs
are for hunters, campers and fishermen. Twenty models are
currently in the Lakota line, with a suggested retail price range
of $32 to $155.
The current cutlery manufacturer could be replaced if necessary,
although Brunton would be adversely affected depending on the lead
time required for a new firm to come on line.
MARKETING. All Brunton sporting products are distributed
throughout the United States and overseas markets by its direct
sales force and manufacturers sales representatives, to over 1,000
retailers, including sporting goods retailers, mass merchants,
catalog houses, cutlery shops, and certain U.S. Army/Navy PX
stores. In addition, Brunton sells some of nearly every model of
its products to corporations and other organizations for
promotional purposes, premium and employee gift award programs, and
corporate identity programs.
In fiscal 1994, foreign sales represented 14 percent of sales (all
lines), and sales in the United States represented 86 percent of
sales. These percentages are not expected to change materially in
fiscal 1995.
COMPETITION. Competition in the compass line is provided by
several foreign firms, including Silva in Sweden and Suunto in
Finland. Brunton is unable to determine its market share for
compass sales, as data therefor is unreliable, but believes it is
a substantial competitor in the United States. Silva and Suunto
are believed to have larger market shares in the United States
compass market; such companies are believed to have resources
substantially greater than Brunton.
Lakota cutlery faces competition from over ten competitors, all of
which have larger United States market shares and greater marketing
and other resources than Brunton.
Brunton optical products compete with products from at least ten
other firms, all of which have a larger percentage of the United
States binocular market. Most of these competitors have
substantially greater marketing and other resources.
SEASONALITY. All Brunton sporting products experience
seasonal sales, with stronger sales in July through December and
declining in January and February.
MAJOR CUSTOMERS. Two national discount chains accounted for
approximately 21 percent of compass sales in fiscal 1994, compared
to 20 percent in fiscal 1993. Sales to one catalogue supplier
represented 18 percent of optical product sales in fiscal 1994,
compared to 35 percent in fiscal 1993. Sales to one catalogue
supplier represented 13 percent of cutlery sales in fiscal 1994.
The preceding percentages have not changed materially to date in
fiscal 1995.
Loss of any one of the major customers would not have a material
adverse effect on Brunton, however, loss of more than one in any
one product line could cause significant market share loss.
Intellectual Property
Brunton currently holds United States utility patent Nos. 4,175,333
(expires 2005), covering its pocket transit, and 5,079,846,
covering a liquid-type survival compass (expires 2009). Eight
other United States utility patents are held which cover different
compass constructions, expiring 1993 to 1994, and one United States
utility patent (4,578,864) is held on a cutlery model (expires
2002).
Five United States design patents are held on compasses and
cutlery, which expire between 1998 and 2004.
Foreign patent protection in certain countries (principally Canada
and Europe) has been obtained on a limited number of products.
United States patent applications are filed for significant new
products, as developed. No notice of adverse determinations has
been received with respect to pending applications.
REAL ESTATE
WYOMING PROPERTIES. USECC owns a 14-acre tract in Riverton,
Wyoming, with a two-story 30,400 square foot office building
(including underground parking). The first floor is rented to
affiliates, nonaffiliates and government agencies; the second floor
is occupied by USE and Crested and is adequate for their executive
offices. USECC also owns and operates Wind River Estates, a 100-
unit trailer park on 19.7 acres in Riverton. The preceding two
properties are mortgaged to the State of Wyoming as security for
future reclamation work on the SMP properties.
USECC owns a fixed base aircraft operation at the Riverton
Municipal Airport, including a 10,000 square foot aircraft hangar
and associated offices and facilities. This operation is located
on land leased from the City of Riverton, for a term ending
December 16, 2005, with an option to renew on mutually agreeable
terms for five years. The annual rent is presently $1,156
(adjusted annually to reflect changes in the Consumer Price Index),
plus a $0.02 fee per gallon of fuel sold.
USE and Crested own 18 undeveloped lots on 26.8 acres of the Wind
River Airpark near the Riverton Municipal Airport, and three
mountain sites covering 16 acres in Fremont County, Wyoming.
USECC owns various buildings, 600 city lots and other properties at
the Jeffrey City townsite in south-central Wyoming. More than
4,000 people resided in Jeffrey City in the early 1980s, when the
nearby Crooks Gap and Big Eagle uranium mining projects were
active. The townsite may be utilized for worker housing as the
Jackpot Mine and Sweetwater Mill are put into operation.
USE owns five city lots and a 20-acre tract with improvements
including two smaller office buildings and three other buildings
with 19,000 square feet of office facilities, 5,000 square feet of
laboratory space and repair and maintenance shops containing 8,000
square feet, all in Riverton, Wyoming.
COLORADO PROPERTIES. In connection with the AMAX transaction for
the molybdenum properties near Crested Butte, Colorado, USECC
acquired an option from AMAX (now Cyprus Climax) to purchase (until
June, 2002) approximately 57 acres for $200,000 in Mountain Meadows
Business Park, Gunnison, Colorado. The property is zoned
commercial and industrial, and is adjacent to Western State
College. In fiscal 1995, USECC and Cyprus Climax agreed on
exercise of the option by foregoing six quarters of advance
royalties from Cyprus Climas (the option purchase price was
$200,000). See "Molybdenum" above.
Thereafter, USE (together with Crested) signed option agreements
with Pangolin Corporation, a Park City, Utah developer, for sale of
the 57 acres, and a separate parcel owned in Gunnison County,
Colorado. If both options are exercised, the combined purchase
price is US$1,851,920. The acreage is not encumbered.
The first option (exercised in February, 1995) was for the 57
commercial and noncommercial zoned acres in the City of Gunnison,
Colorado; the purchase price was $970,300. Pangolin has paid
$345,000 cash and $625,300 by its three year nonrecourse promissory
note. 19.25 acres have been deeded to Pangolin; the remaining
acreage secures the note, and will be released to the buyer against
principal payments on the note as development (mixed commercial and
residential) advances.
The second option covers 472.5 acres of ranch land northwest of the
City of Gunnison, Colorado (purchase price $851,920). Pangolin has
paid $10,000 for the option; on option exercise and closing,
Pangolin will pay $40,000 in cash and $801,920 by two nonrecourse
promissory notes (each with principal and unpaid interest due on
the third anniversary of closing). At closing, 22.19 acres will be
deeded to Pangolin; different parcels of the remaining acreage will
secure the notes, and be released for principal payments in the
course of development. The option expiration date of February 20,
1995 is being extended on a monthly basis in anticipation of
exercise and closing within fiscal 1995.
Both notes ($150,000 and $651,920) will require annual payments of
accrued interest: the larger note accrues interest at 7.5 percent;
the initial interest rate on the smaller note is 7.5 percent for 90
days after closing if all principal and interest is paid by the
ninetieth day, and 12 percent thereafter (with a $35,000 principal
payment on the first anniversary). Separately, the Company (and
Crested Corp.) are negotiating a possible joint venture residential
lot development of an 88 acre parcel northwest of Crested Butte,
Colorado, previously the site of anthracite coal mining. No
agreement has been signed to date on this parcel.
UTAH PROPERTIES. Canyon Homesteads, Inc. (a Plateau subsidiary)
owns the Ticaboo Townsite in Ticaboo, Utah. Canyon Homesteads was
the majority partner in a joint venture which developed the
townsite in the 1980s; subsequent to May 31, 1994, USE acquired the
minority interest in the venture from a nonaffiliate.
The townsite is 3.5 miles south of the Shootaring Canyon Mill, and
includes a 66 room motel, general store, laundromat facility, 98
home sites, 151 mobile home sites, and 26 recreational vehicle
sites (all with utility access). The townsite is located on a
State of Utah lease near Lake Powell. In fiscal 1994, limited
capital improvements and a general refurbishing were effected by
USE (total costs approximately $400,000). There have been no
similar material expenditures in fiscal 1995. USE presently seeks
an operator/developer partner for upgrading this asset to a
commercial enterprise, located 13 miles from Lake Powell; no
agreements have been reached to date.
NET REVENUES BY USE SEGMENT
Minerals and construction operations have accounted for more than
15 percent of USE total revenues in the last three fiscal years.
Percentage contributions by the three USE segments in the last
three fiscal years was:
<TABLE>
Percentage of Net Revenue For Year/Nine Months
Ended
<CAPTION>
Feb. 28, May 31, May 31, May 31,
1995 1994 1993 1992
<S> <C> <C> <C> <C>
Minerals Operations 3% 50% 53% 26%
Commercial Operations 58% 13% 10% 13%
Construction Operations 13% 30% 22% 46%
</TABLE>
See Note I to audited USE Consolidated Financial Statements for
information concerning a significant customer in minerals
operations. Neither commercial nor construction operations are
dependent upon a single customer, or a few customers, the loss of
which would have a materially adverse effect on USE.
URANIUM AND MOLYBDENUM MARKET INFORMATION
URANIUM. During recent years there have been several major
producers of uranium in the United States (Pathfinder Mines
Corporation, Chevron Resources, Uranium Resources Inc., Freeport-
McMoRan Resource Partners, L.P., Energy Fuels Nuclear, Inc.,
Ferrett Exploration, General Atomics and others). There are
several major producers in Canada (Cameco, Cogema Canada, Ltd. and
Rio Algom); Australia (Energy Resources of Australia and
Pancontinental Mining, Ltd.); Africa (Cogema and RTZ's Rossing
unit), and Europe. Many of these operations are in standby mode
due to current low prices for U3O8. The market deteriorated as the
former Soviet Union, now known as the Commonwealth of Independent
States ("CIS"), increased exports to the western uranium spot
market, which slowed down the reduction of western inventories.
Uranium is primarily used in nuclear reactors that heat water to
drive turbines that generate electricity. There are presently
about 425 commercial nuclear power plants worldwide either
operating, under construction or on order. Current worldwide
consumption is about 150 million pounds of U3O8 per year, but
worldwide production is approximately 75 million pounds per year.
Published reports indicate that approximately 31 percent of the
worldwide nuclear-powered electrical generating capacity is in the
U.S., 49 percent is in western Europe, and 14 percent is in the Far
East. Although the reactors in western Europe have a greater
aggregate generating capacity and fuel usage, the supply of uranium
for those reactors has been obtained for relatively long periods,
and the market requiring the greatest supply of uranium for the
next few years is believed to be the United States. The Asia
Pacific region may also develop into a significant uranium
consumer, due to announced plans for rapid expansion of nuclear
power programs in Japan and Korea.
Pursuant to Suspension Agreements signed in fiscal 1993 between the
United States Department of Commerce ("DOC") and certain of the
Republics of the Commonwealth of Independent States ("CIS"), to
rectify prior damage to domestic United States uranium producers
from dumping sales by certain CIS republics of U3O8, all spot sales
of U3O8 delivered into the U.S. now reflect quota restrictions on
U3O8 imports from the CIS. However, there are provisions which
allow certain long-term uranium sales contracts entered into with
domestic utilities prior to March 5, 1992, to be grandfathered.
NUEXCO EXCHANGE VALUE. The market related contracts of SMP are
based on an average of the Nuexco Exchange Value ("NEV") for 2, 3
or more months before uranium delivery. The high and low NEV
reported on U3O8 sales during USE's past five fiscal years are
shown
below. NUEXCO Exchange Values are reported monthly and represent
NUEXCO's judgment of the price at which spot and near term
transactions for significant quantities could be concluded. NEVs
for fiscal 1993 are higher for U.S. transactions, due to the impact
of CIS import restrictions since late 1992. These prices ("US
NEV") were reported by NUEXCO for spot sales in the restricted U.S.
market.
<TABLE>
<CAPTION>
NUEXCO EXCHANGE VALUE
Years Ended US $/pound of U3O8
May 31, High Low
<S> <C> <C>
1989 15.10 9.85
1990 9.80 8.70
1991 11.70 8.35
1992 9.05 7.75
1993 10.05 7.75
1994 10.20 9.25
</TABLE>
US NEV at March 31, 1995 was $11.15.
On August 31, 1993, NUEXCO made a public release that clarified its
definition of the NEV with reference to restricted and unrestricted
terminology, so that the restricted market values apply to all
products and services delivered in the U.S. as well as non-CIS
origin products and services delivered outside the U.S.
In the U.S., uranium is generally supplied to electric utilities
under medium to long-term supply agreements, which require
deliveries more than one year after entry into the contract. These
agreements are designed to provide both the producer-supplier and
the customer with comfort as to the amount of uranium desired and
the availability of supply at a predictable price. Utilities
generally seek supply contracts at least two to three years before
their needs occur. It is expected that a large portion of U.S.
demand will be secured by electric utilities entering into
contracts in the next two to four years. There also is an active
spot market, through which approximately 5 to 10 percent of uranium
concentrate needs are satisfied.
NUEXCO reports that through the first six months of 1994, U.S.
utilities bought 6,300,000 lbs U3O8 in the spot and near term
market, and another 11,800,000 lbs. U3O8 was purchased under
outstanding long-term contracts. A portion of the spot and near
term market sales may have supplied purchases under long-term
contracts. While demand in 1994 appears to exceed domestic
production, there remains a near-term supply of U3O8 from domestic
producers' inventory, and from unrestricted (i.e., not under
quotas) foreign producers current production and inventory. USE
expects these and other factors (e.g., weapons grade uranium
conversions) will contribute to moderate concentrate price
increases, which otherwise might be expected from the shortfall of
United States production meeting demand, into fiscal 1996, in spite
of increasing interest from U.S. utilities in renewing long-term
contracts at higher than spot market prices. To date in fiscal
1995, long-term contract prices have increased moderately, and spot
prices have increased from $10.20 in fiscal 1994 to $11.15 at March
31, 1995.
MOLYBDENUM
Molybdenum is a metallic element with applications in both
metallurgy and chemistry. Principal consumers include the steel
industry, which uses molybdenum alloying agents to enhance strength
and other characteristics of its products, and the chemical, super-
alloy and electronics industries, which purchase molybdenum in
upgraded product forms.
The molybdenum market is cyclical with prices influenced by
production costs of foreign and domestic competition, world-wide
economic conditions, the U.S. dollar exchange rate, and other
factors such as the market for end-use products. When molybdenum
prices rose dramatically in the late 1970s, for example, steel
alloys were modified to reduce reliance on molybdenum. AMAX and
Cyprus Minerals Company were the two major primary producers of
molybdenum in the United States until late 1993, when the companies
merged.
Worldwide demand for molybdenum in 1989 was reportedly 210 million
pounds, its highest level ever. However, production for that
period was about 233 million pounds, as the industry and prices
continue to be affected by co- and by-product production of
molybdenum by other metals operations, and by excess capacity of
the primary producers. By-product producers of molybdenum
(primarily Chilean copper mining companies) dominate the molybdenum
market and have a major impact on available supplies. It is
unlikely that any new major primary deposits will commence
production during fiscal 1995.
Molybdenum prices on the open spot market have increased
substantially ($3.35 per pound of molybdic oxide (the refined
product) in September 1994, to $10.50-11.50 per pound in April
1995).
RESEARCH AND DEVELOPMENT
USE has incurred no research and development expenditures, either
on its own account or sponsored by customers, during the past three
fiscal years.
ENVIRONMENTAL
USE operations are subject to various federal, state and local laws
and regulations regarding the discharge of materials into the
environment or otherwise relating to the protection of the
environment, including the Clean Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act ("RCRA"), and the
Comprehensive Environmental Response Compensation Liability Act
("CERCLA"). With respect to mining operations conducted in
Wyoming, Wyoming's mine permitting statutes, Abandoned Mine
Reclamation Act and industrial development and siting laws and
regulations impact USE. Similar laws in California affect Sutter
Gold Mining Company operations. Utah statutes will effect
Plateau's operations.
To USE's knowledge, it is in compliance with current environmental
regulations. To the extent that production by SMP, GMMV or Sutter
Gold is delayed, interrupted or discontinued due to need to meet
additional provisions which relate to environmental protection,
future USE earnings could be adversely affected.
CERTAIN PERMITS, COSTS
A number of legislative proposals and regulations have been
introduced in Congress and in the legislative bodies of various
states which, if enacted, would significantly affect the minerals
industry. For example, in fiscal 1993 the Mining Law of 1872 was
revised to change methods of acquiring and maintaining mining
claims on public lands, by requiring the payment (two years in
advance) of an annual fee of $100 per claim for assessment rather
than performing $100 worth of work on each unpatented mining claim.
This law already has affected USE, as a number of unpatented claims
were dropped in fiscal 1993 due to high holding costs. A limited
number of such claims are currently held.
Status and estimated future costs for permits not previously
disclosed in this Report follow:
CROOKS GAP. An inoperative ion exchange facility at Crooks Gap
currently holds a NRC license for possession of uranium operations
byproducts. To date, a notice of minor violations was received
from the NRC, which USE has resolved. USE has applied to the NRC
for permission to decommission and decontaminate the plant, dispose
low level waste into the Sweetwater Mill tailings cell, and keep
intact such of the facility as does not require dismantling. Costs
for this two year effort (once approved by the NRC) are not
expected to exceed $150,000.
SMP. USE and Crested are not required to make additional
expenditures to comply with provisions of the mine permit and
licenses and to protect the environment at SMP, however, included
in general and administrative expenses are expenditures related to
preparation and filing of reports on maintaining the properties in
compliance with environmental regulations.
GMMV. During the twelve months ending May 31, 1995, it is
anticipated that expenditures by GMMV to comply with provisions of
the mine permits and licenses, or otherwise to protect the
environment, will be approximately $200,000, 50 percent of which
will be for capital expenditures.
SUTTER GOLD. In fiscal 1994, Sutter Gold spent approximately
$90,000 to build an underground mine water treatment and surface
disposal plant, in compliance with California environmental
regulations. This plant will be adequate for future mine water
treatment needs, even after the Lincoln Mine is put into
production.
A significant amount of the total capital requirements to put the
Lincoln Mine into production, will pay for road construction,
tailing ponds, mill circuit design and other capital items which
are required by the conditional use permit from the Amador County
Board of Supervisors.
Actual costs for compliance with environmental laws may vary
considerably from estimates, depending upon such factors as changes
in environmental regulation (e.g., the new Clean Air Act), and
conditions encountered in minerals exploration and mining.
With respect to environmental compliance expenditures by GMMV,
there ultimately will be an effect on USE earnings since GMMV
operations will be accounted for by the equity method. GMMV's
expenses for compliance with environmental laws (as well as other
matters) are not expected to materially affect USE from a cash flow
standpoint during the next two years, as Kennecott will fund the
first $50,000,000 of costs of GMMV. USE does not anticipate that
expenditures of SMP, GMMV and SGV to comply with laws regulating
the discharge of materials into the environment, or which are
otherwise designed to protect the environment, will have any
substantial impact on the USE's competitive position.
EMPLOYEES
USE has 52 full-time employees. Crested uses approximately 50
percent of the time of USE employees, and reimburses USE
accordingly. Payroll expense has been shared by USE and Crested
since 1981.
MINING CLAIM HOLDINGS
The majority of mining properties owned by USE and/or by USECC are
unpatented mining claims, valid title to which depends upon
numerous factual matters. Due to changes in the 1872 Mining Law,
USE and/or its co-venturers had the obligation to pay a rental fee
of $200 per claim for years ending on September 1, 1993 and 1994 by
August 31, 1993, and thereafter $100 annual per claim in order to
preserve the right to possession of unpatented mining claims. Due
to these changes in the 1872 Mining Law, USE dropped a large number
of claims to reduce holding costs. In addition to annual rental
fees, there are technical requirements which must be met to
establish a valid mining claim. Satisfaction of these technical
requirements cannot be assured.
As a result of the above changes in 1872 Mining Law, title to the
unpatented lode mining claims held by GMMV and SMP on the Wyoming
uranium properties now are maintained by annual filings with the
BLM of $100 per claim. Such claim filings are current.
USE LEGAL PROCEEDINGS
CONCERNING SHEEP MOUNTAIN PARTNERS
ARBITRATION. On June 26, 1991, CRIC submitted certain disputed
matters concerning SMP to arbitration before the American
Arbitration Association in Denver, Colorado, to which USE and
Crested filed a responsive pleading and counterclaim alleging
violations of contracts and duties by CRIC related to SMP. CRIC
asserted that USE and Crested, d/b/a/ USECC, were in default under
the SMP partnership agreement ("SMP Agreement"). Prior to
initiation of arbitration proceedings, USE and Crested had notified
CRIC it was in default under the SMP Agreement. The issues raised
in the arbitration proceedings were generally incorporated in the
Federal proceedings (see below), wherein the U.S. District Court of
Colorado stayed further proceedings in arbitration. See
"Stipulated Arbitration", below.
FEDERAL PROCEEDINGS. On July 3, 1991, USE and Crested
("plaintiffs") filed Civil Action No. 91-B-1153 in the United
States District Court for the District of Colorado against CRIC,
Nukem, Inc. ("Nukem"), and various affiliates of CRIC and Nukem
(together, the "defendants"), alleging that CRIC and Nukem
misrepresented material facts to and concealed material information
from the plaintiffs to induce their entry into SMP Agreement and
various related agreements. Plaintiffs also claim CRIC and Nukem
have wrongfully pursued a plan to obtain ownership of the USE-
Crested interests in SMP through various means, including
overcharging SMP for uranium "sold" to SMP by defendants.
Plaintiffs further allege that defendants refused to provide a
complete accounting with respect to dealings in uranium with and on
behalf of SMP, and that certain defendants misappropriated SMP
property, and engaged in other wrongful acts relating to the
acquisition of uranium by SMP.
Plaintiffs requested that the court order rescission of the SMP
Agreement and related contracts, and ask the court to determine the
amounts payable to CRIC by USECC as a result of any such rescission
order to place the parties in status quo. USE and Crested also
requested that the court order defendants to make a complete
accounting to them concerning the matters alleged in the Amended
Complaint. They requested an award of damages (including punitive,
exemplary and treble damages, interest, costs and attorneys' fees)
in an amount to be determined at trial. Plaintiffs had further
requested imposition of a constructive trust on all property of SMP
held by defendants, and on profits wrongfully realized by
defendants on transactions with SMP.
The defendants filed various motions, an answer and counterclaims
against plaintiffs, claiming plaintiffs had misappropriated a
partnership opportunity by being involved with Kennecott on the
Green Mountain uranium properties. Defendants also requested
damages (including punitive, exemplary and treble damages, interest
costs and attorney fees).
STIPULATED ARBITRATION. In fiscal 1994, the plaintiffs and
defendants agreed to proceed with exclusive, binding arbitration
before a panel of three arbitrators with respect to any and all
post-December 21, 1988 disputes, claims and controversies
(including those brought in the 1991 arbitration proceedings, the
Colorado State Court proceeding (see below), and the U.S. District
Court proceeding), that any party may assert against the other.
Each party may file or amend its claims in the arbitration
proceeding, to assert all claims it believes it has. All pre-
December 21, 1988 claims, disputes and controversies pending before
the U.S. District Court have been stayed by stipulation between the
parties, until the arbitrators enter an order and award in the
arbitration proceeding.
In connection with agreeing to proceed to arbitration as stated
above, the plaintiffs have affirmed the Sheep Mountain Partners
partnership, and are proceeding on common law damages and other
claims in the arbitration. Approximately $8.6 million cash,
comprising part of the damages claimed by plaintiffs, has been
placed in escrow by agreement of the parties pending resolution of
the disputes. Plaintiffs are claiming additional substantial
amounts of damages.
The arbitration evidentiary proceedings were completed in June
1995, and the award of the arbitrators is expected in calendar
1995. As in most litigation, there is no assurance of the outcome.
COLORADO STATE COURT PROCEEDING. On September 16, 1991, plaintiffs
filed Civil Action No. 91CV7082 in Denver District Court, seeking
reimbursement of $85,000 per month from the spring of 1991 for
maintaining the SMP underground uranium mines at Crooks Gap on a
standby basis. On behalf of SMP, CRIC filed an answer, affirmative
defenses and a counterclaim against plaintiffs. Plaintiffs filed
a motion for summary judgment; the court denied the motion and
stayed all proceedings pending resolution of the Federal
proceeding, which in turn have been stayed through arbitration (see
"Stipulated Arbitration" above).
BGBI LITIGATION PARADOR
On July 30, 1991, Bond Gold Bullfrog, Inc. ("BGBI") filed Civil
Action No. 11877 in the District Court of the Fifth Judicial
District of Nye County, Nevada, naming USE, Crested, USECC, Parador
and H. B. Layne Contractor, Inc. ("Layne"), as defendants. The
complaint primarily concerns extralateral rights associated with
two patented mining claims owned by Parador and initially leased to
a predecessor of BGBI. USE and Crested assert certain interests in
the claims under an April 1991 assignment and lease with Parador,
which claims are in and adjacent to BGBI's Bullfrog open pit and
underground mine. The Bullfrog Mine reportedly produced
approximately 220,000 ounces of gold in 1990, 199,000 ounces of
gold in 1991, and 323,800 ounces of gold in 1993.
The BGBI complaint alleges Layne owns 20 unpatented mining claims
adjacent to or in the vicinity of the subject claims, which 20
claims are allegedly under lease by Layne to BGBI. BGBI seeks a
declaratory judgment on any extralateral rights of defendants to
the various claims at the Bullfrog Mine. Parador, USE and Crested
had previously advised BGBI that they are entitled to royalty
payments with respect to extralateral rights of the subject claims
on minerals produced at the Bullfrog Mine, claiming that the lode
or vein containing the gold mineralization apexes on the Parador
claims and dips under the Layne claims.
BGBI also seeks quiet title to its leasehold interest in the
subject claims, alleging that the lease thereof to USE and Crested
is adverse to the interest claimed by BGBI, and that the assertions
by USE and Crested of an interest in the claims have no foundation.
BGBI seeks a determination that USE and Crested have no rights in
the Claims, and an order enjoining USE and Crested from asserting
any interest in them. BGBI further claims that in attempting to
lease an interest in the subject claims to USE and Crested, Parador
breached the provisions of its lease to BGBI, and that Parador is
responsible for the legal fees and costs incurred by BGBI in the
quiet title action which may be offset against royalties. Under an
arrangement to pay certain legal expenses of Parador, USE and
Crested may be responsible for any such amounts.
BGBI alleges that by entering into the Assignment and Lease of
Mining Claims with Parador, USE and Crested disrupted the
contractual relationship between BGBI and Parador. In addition,
BGBI claims that the USECC-Parador agreement slanders BGBI's title
to the Claims. BGBI seeks compensatory damages from Parador, USE
and Crested; punitive damages from USE and Crested; and costs and
other appropriate relief from Parador, USE and Crested, all in
amounts to be determined.
USE and Crested believe that they have rightfully acquired
interests in extralateral rights concerning the subject claims, and
have filed an answer, counterclaim against BGBI and cross-claim
against Layne asserting rights to royalties and other obligations
due from BGBI.
The parties have held discovery conferences and exchanged exhibits
and scheduled depositions. USE and Crested filed a motion for
summary judgement, which was denied. This litigation is not
anticipated to have a material adverse impact on USE, regardless of
its outcome. If USE's position concerning extralateral rights is
sustained, substantial additional revenues and income may be
received by USE and Crested. Trial on the issue of extralateral
rights is scheduled for July 1995.
CONCERNING ILLINOIS POWER
On October 29, 1993 Illinois Power Company ("IPC") filed Civil
Action No. 93-2247 in United States District Court, Central
District of Illinois, naming USE, Crested, USECC, CRIC, Nulux Nukem
Luxemburg GmbH (NULUX), Dresdner Bank, and SMP, seeking a
declaratory judgment that IPC was entitled to terminate the 1988
uranium supply contract between IPC (a utility) and USECC. Under
this contract, IPC agreed to purchase 1 million pounds of uranium
by increments from 1990 to 2000. Contract prices started at $20.00
per pound plus escalator provisions, and currently are
substantially over spot market prices.
Plaintiff IPC claimed authority to terminate the contract (assigned
by USECC to SMP, and thereafter assigned by SMP to Nulux and
Dresdner Bank), under contract provision permitting termination in
the event a contract party "enters into any voluntary or
involuntary receivership, bankruptcy, or insolvency proceedings."
Plaintiff IPC alleged that when USE and Crested filed (in July
1991) a motion (in United States District Court, District of
Colorado) for appointment of USE and Crested as receiver pendente
lite for SMP and the SMP assets (pending resolution of the
litigation claims among the SMP partners), such filing constituted
"receivership proceedings" under the contract with IPC, giving IPC
power to terminate the contract. Subsequent to filing their motion
for receiver, USE and Crested asked the court to defer ruling on
the motion for receiver.
No receiver has been appointed over USE, Crested, USECC or SMP or
their assets, in the United States District Court, District of
Colorado proceedings to date.
Plaintiff IPC had notified USE (and SMP and the other SMP
partners), that IPC will not accept the nine uranium concentrate
deliveries anticipated under the contract, from October 31, 1993
through June 1996.
18
Dresdner Bank was dismissed from the case in fiscal 1994. The
remaining defendants filed Motions for Summary Judgment.
Subsequent to hearing on May 27, 1994, the Court granted
defendants' motions to dismiss IPC's complaint, and granted summary
judgment on all of the defendants' counterclaims against IPC. A
trial to the court on the amounts of plaintiffs' damages had been
set for October 23, 1995. In June 1995, the parties settled by
amending the IPC contract (with IPC affirming the validity of the
contract), to provide for SMP delivery of 486,483 pounds of uranium
oxide over a three year period, at prices substantially in excess
of current spot market prices. IPC's payments on the contract as
it is performed will be escrowed, with escrowed payments to go to
the prevailing party or as otherwise directed by the arbitrators in
the SMP arbitration. Payments after the SMP dispute is resolved,
will be made as directed by the arbitrators in their award.
MARKET FOR USE COMMON SHARES AND RELATED STOCKHOLDER MATTERS
Shares of USE common stock are traded on the over-the-counter
market, and prices are reported on a "last sale" basis by the
National Market System ("NMS") of the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"). The
range by quarter of high and low sales prices for USE common stock
is set forth below for fiscal 1993, 1994, and the first three
quarters of fiscal 1995.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Fiscal year ending May 31, 1995
_______________________________
First quarter ended 8/31/94 $5.13 $3.88
Second quarter ended 11/30/94 4.75 3.50
Third quarter ended 2/28/95 4.63 3.38
Fiscal year ending May 31, 1994
_______________________________
First quarter ended 8/31/93 $6.25 $4.25
Second quarter ended 11/30/93 5.00 4.12
Third quarter ended 2/28/94 4.12 3.75
Fourth quarter ended 5/31/94 5.13 4.12
Fiscal year ended May 31, 1993
______________________________
Fourth quarter ended 5/31/93 $5.38 $2.50
Third quarter ended 2/28/93 3.63 2.25
Second quarter ended 11/30/92 3.75 2.63
First quarter ended 8/31/92 4.25 2.88
</TABLE>
At April 3, 1995, there were 837 stockholders of record for USE
common stock.
USE has never paid cash dividends on any class of stock. There are
no contractual restrictions on USE's present or future ability to
pay cash dividends, however, USE intends to retain any earnings in
the near future for operations.
USE MANGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is managements's discussion and analysis of those
significant factors which have affected USE's liquidity, capital
resources and results of operations during the periods covered in
the USE Consolidated Financial Statements included with this
Prospectus.
LIQUIDITY AND CAPITAL RESOURCES AT FEBRUARY 28, 1995 (UNAUDITED)
Working capital declined during the nine months ended February 28,
1995 by $2,170,900 to working capital of $404,000. Cash and cash
equivalents decreased by $401,000 during the period ended February
28, 1995. This decrease was primarily as a result of operating and
investing activities.
USE utilized $268,400 in its investing activities during the nine
months ended February 28, 1995. This was primarily as a result of
USE and its subsidiary Crested Corp. ("Crested") funding Sheep
Mountain Partners ("SMP"), Plateau Resources Limited ("Plateau"),
Energx, Ltd. ("Energx") and the Sutter Gold Mining Company
("SGMC"). As USE and Crested provide various services for GMMV and
SMP, the non-affiliated participants are invoiced for their
proportionate share of the approved operating costs. GMMV is
current on its reimbursements to USE and Crested for all the
operating costs. Due to disputes existing between the SMP
partners, USE and Crested have not been reimbursed for care and
maintenance costs expended on the SMP mineral properties since the
spring of 1991.
The other significant changes in current assets occurring during
the most recently completed period, were a decrease in accounts
receivable of $131,200 and an increase in inventory of $61,800.
Inventories increased as a result of USE's subsidiary Brunton
expanding its optics product line.
Other changes in working capital were increases in accounts payable
and accrued expenses of $672,100 and current portion of long term
debt of $1,128,400. The increase in current portion of long term
debt is primarily due to the draw down by USE and Crested of a line
of credit with a bank. The line of credit is for $1,000,000 and as
of February 28, 1995 USE and Crested had utilized $960,000 of the
credit facility leaving $40,000 available for operations.
The primary requirements for USE's working capital continue to be
the funding of on-going administrative expenses, including legal
costs incurred as a result of the SMP litigation and arbitration
with Nukem/CRIC; the mine and mill development and holding costs of
SGMC; holding costs of Plateau; development of gas properties of
Energx; uranium (U3O8) delivery costs, and property holding costs
of SMP. As a result of the disputes between the SMP partners, USE
and Crested have been delivering certain of their respective
portions of the U3O8 concentrates required to fill various delivery
requirements on long-term U3O8 contracts with domestic utilities.
Currently, Nukem/CRIC are making the SMP deliveries of U3O8. It is
not known how long this arrangement will continue. The capital
requirements to fill USE's and Crested's portion of the remaining
commitments in fiscal 1995 will depend on the spot market price of
uranium and is also dependent on the outcome of proceedings
involving Nukem/CRIC.
The primary source of USE's capital resources for the remainder of
fiscal 1995, will be (i) cash on hand; (ii) sale of all or a
partial interest in mining and investment properties, (iii) sale of
equipment; (iv) private placement of USE's common stock; (v)
settlement of litigation; (vi) sale of royalties on mineral
properties; (vii) proceeds from the sale of uranium under the SMP
contracts; (viii) and borrowings from financial institutions. Fees
from oil production, rentals of various real estate holdings and
equipment, aircraft chartering and the sale of aviation fuel will
also provide cash. Additional working capital to that on hand at
February 28, 1995 will be required to hold and maintain existing
mineral properties, permitting, the construction of a mill, and
mine development of SGMC, funding of litigation against Nukem/CRIC
and the development of Plateau associated properties and
administration costs. USE and Crested are currently seeking a
joint venture partner and/or other means of financing the
construction of the SGMC mill and mine development.
The funding of SMP care and maintenance costs may require
additional funding, depending on the outcome of the SMP
arbitration. USE and Crested sought rescission of the SMP
Partnership Agreement as well as damages from Nukem/CRIC in U.S.
District Court. The parties to the litigation agreed to a
consensual binding arbitration on claims accruing after the
formation of the SMP partnership. In the opinion of management,
the arbitration proceedings are progressing favorably for USE and
Crested, however, it is premature at this time to predict the
outcome. It is currently anticipated that the arbitration hearings
will be concluded by June 2, 1995. It is further anticipated that
the Arbitration Panel will enter its award some time during August
or September 1995 depending on the Panel's availability.
34
During the quarter ended February 28, 1995, USE began selling
shares of its common stock through a private placement to
individual investors. As of February 28, 1995 a total of 289,396
shares had been sold for a total of $868,188. The balance of the
private placement was completed during March 1995. The total
number of shares sold was 400,000 at $3.00 per share for total
proceeds of $1,200,000. No commissions were paid. USE has agreed
to either buy the stock back on October 15, 1995 or issue an
additional share for every three shares purchase or a total of
133,333 additional shares. USE has further agreed to register all
the shares issued in the private placement by February 28, 1996.
Through June 30, 1995 USE has received $1,104,900 net proceeds from
a private placement of 332,500 restricted common shares with
accredited investors, at $4.00 per share. In the second or third
quarter of fiscal 1996, USE will file a registration for resale of
the securities The private offering, which started in June 1995,
seeks total financing of $7,000,000 from sale of 1,750,000 shares.
Net proceeds of approximately $6,000,000 will be applied to
property holding and general and administrative expense, and to
commencement of uranium mining and recommissioning of the mill at
Plateau Resources' facility in Utah. The offering is being
conducted on a best efforts basis by a broker-dealer; USE has
agreed to pay the broker-dealer sales commissions of 10 percent
plus a nonaccountable expense allowance of 3 percent.
RESULTS OF OPERATIONS
NINE MONTHS ENDED FEBRUARY 28, 1995 COMPARED TO NINE MONTHS ENDED
FEBRUARY 28, 1995 (UNAUDITED)
Revenues for the period ended February 28, 1995 remained consistent
with the same period of the previous year; however the components
changed somewhat.
35A
Commercial revenues increased by $3,259,218 as a result of the
consolidation of sales of Brunton for the nine month period
(Brunton was acquired in May 1994). Although the revenues from
Brunton were not consolidated for the quater ended February 28,
1994, Brunton had revenues of $2,832,214 furing that period. Other
increases in revenues were rentals and miscellaneous of $151,063
and $136,427, respectively. Rental revenues increased due to
increased occupancy of office space and the trailer court, and
equipment rentals. Miscellaneous principally was composed of room
rents and restaurant sales at Ticaboo, Utah. However, this
increase in miscellaneous revenues was offset by reductions in such
revenue recognized by USECC and Four Nines Gold ($3,836 and
$20,706, respectively).
Revenues from mineral sales and mineral property transactions
decreased by $2,893,700 and $505,900, respectively. The reduction
in mineral sales is as a result of the SMP arbitration. During
fiscal 1994, USE and Crested made all or a portion (50 percent) of
certain of the uranium deliveries required under the SMP contracts.
However, during fiscal 1995, USE and Crested have not been allowed
to make such deliveries, due to disputes with the other SMP
partners; under agreements reached on an interim basis for
remainder of time required for the SMP dispute resolution, all
deliveries have been made by Nukem and CRIC. Once the arbitration
proceedings are concluded, deliveries will be made in accordance
with the award. The arbitration outcome cannot be predicted.
The reduction in mineral property transactions is related to the
Mt. Emmons molybdenum property, in which USE and Crested have a six
percent gross royalty. In aaddition to the gross royalty, there
were promissory notes of $7,500,000 each issued to USE and Crested
in 1980, with provision for advance royalties. In 1985, AMAX, USE
and Crested agreed to amortize the notes at an annual rate of
$1,000,000 each to USE and Crested ($250,000 each, per quarter), in
lieu of advance royalties. The advance royalties were to be
reinstated at a lower amount later. During fiscal 1994, the final
$500,000 was amortized on the long term note, so there was
consequently no amortization of such debt in the nine months ended
February 28, 1995. The remaining component of the decrease in gain
from restructuring mining properties agrements, is as a result of
the fluctuation of the market price of molybdenum, which is paid in
kind by AMAX for the advance royalty.
Construction operation revenues for the nine months ended February
28, 1995 decreased by $1,085,100 from the same period last year due
to decreased contract work performed by USE's subsidiary Four Nines
Gold, Inc. ("FNG"). The reason for this decrease can be attributed
to FNG not being successful in the bidding process for new
construction work. during fiscal 1995, FNG spent the majority of
its time bidding on a large ($3,500,000) contract for structure
work. During the lst quarter of fiscal 1995, FNG was awarded this
contract, which is projected to be profitable. Long term growth
and profits for the construction industry is based on FNG's ability
to competitively bid for work and at the same time remain
profitable. It is anticipated that FNG will continue to grow,
however, there will be periods of time that show declines, as was
experienced during the nine months ended February 28, 1995.
Revenues from the sale of assets increased by $1,258,600 during the
nine months ended February 28, 1995 compared to the corresponding
period of the prior year. The increase is due to sale for $993,077
of certain real estate in Colorado, and equipment in Wyoming, sale
for $100,000 of certain equipment by Plateau Resources, and sale
for $195,857 by Energx of an interest in a gas property. During
the corresponding period in 1994, there were only sales of
miscellaneous equipment for $30,000. As a result of certain of the
sales of assets during the nine months ended February 28, 1995
being partially financed by USE and Crested, the amount shown on
the Statement of Operations exceeds the amount of gain shown on the
Statement of Cash Flows. Accounts and notes receivable have been
adjusted accordingly.
Commercial operations accounted for 58 percent of the total USE
revenues during the nine months ended February 28, 1995. 81
percent of these revenues from commercial operations were from
Brunton. Construction revenues and the gain recognized on the sale
of assets accounted for 13 percent and 18 percent, respectively, of
total revenues. It is expected that if uranium oxide prices
continue to move up, sales of uranium oxide will be USE's primary
business segment.
The costs and expenses associated with mineral operations decreased
by $2,927,400, primarily due to no U3O8 sales in fiscal 1995. The
costs associated with commercial operations increased by
$2,267,400, as a result of the consolidation of Brunton
($1,796,300), increased costs at Plateau Resources ($156,700), and
increased operating costs ($314,400) for USE and Crested at the SMP
mines, Plateau Resources' mill in Utah, and Sutter gold property
costs. Construction costs declined by $983,800 due to decreased
construction activity in the period (which lowered labor costs as
well as other overhead). General and administrative expense
increased by $923,000 during the nine months ended February 28,
1995 compared to the prior year period, primarily due to legal
fees, and arbitration fees paid to the American Arbitration
Association (during the nine months ended February 28, 1995, the
total of these costs associated with the SMP proceedings was
$1,034,976).
On June 1, 1993, USE implemented SFAS No. 109. See Footnote 4 to
the unaudited USE Consolidated Financial Statements. The
cumulative effect for the period ended February 28, 1994, of this
tax accounting change was a decrease of net income of $267,000. No
charge for a change in tax accounting was made for the nine months
ended February 28, 1995.
Operations for the nine months ended February 28, 1995 resulted in
a net loss $1,315,800 as compared to a loss of $2,019,300 during
the same period of the previous year.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES AT MAY 31, 1994
WORKING CAPITAL COMPONENTS. Net cash used in operating activities
and financing activities were $3,808,400 and $285,900, respectively
for fiscal 1994. Cash provided by investing activities was
$4,796,400. For the year, these activities resulted in a net
increase of $702,100 in cash.
Working capital increased during the fiscal year ended May 31, 1994
by $2,516,700 to $2,574,900 (from $58,200 at May 31, 1993). The
principal components of the increase were a $702,100 increase in
cash and cash equivalents, an increase of $1,344,200 in inventory
which is primarily as a result of the acquisition of Brunton, and
$251,600 of trade receivables. The increase in cash resulted from
the acquisition and consolidation of Plateau through a stock
purchase agreement and the acquisition of Brunton (see Note F to
the USE Consolidated Financial Statements). The trade receivable
increased primarily as a result of the acquisition of Brunton. At
the time of the acquisition of Plateau, USE received $14,200,000 in
cash and the Shootaring Mill facilities for the assumption of
certain liabilities as described further in Note F to the
consolidated financial statements. $7,300,000 of these funds were
deposited in trust accounts for the future settlement of an
estimated $2,500,000 reclamation liability relative to the Plateau
assets and $4,800,000 for the resolution of any other environmental
claims associated with the Shootaring Mill owned by Plateau. The
remaining $6,900,000 of cash received from Plateau, together with
$293,500 of cash received when the remaining interest in Brunton
was acquired in May, 1994, gave USE $7,193,500 of cash from
investing activities that was used primarily to fund expenditures
made during 1994.
Cash was primarily used in operations and financing activities
during the period. Cash was used in the development of mining
properties, primarily SGV's Lincoln gold project, in the amount of
$796,300, development of the Energx gas properties, $207,900,
purchases and modification of property and equipment, $855,800 and
the continued investment in affiliates, $760,500. These activities
resulted in a net cash flow from investing activities of
$4,796,400.
Due to disputes among the SMP partners, USE and Crested have not
been reimbursed for care and maintenance costs for the SMP
properties since the spring of 1991. Such costs, including the
running of a decline to reduce pumping and production costs, were
approximately $1,400,000 in fiscal 1994.
CAPITAL REQUIREMENTS - GENERAL: The primary requirements for USE's
working capital during fiscal 1995 are expected to be the costs
associated with development activities of SGV, care and maintenance
costs of SMP, care and maintenance of the Plateau properties,
payments of holding fees for all mining claims, purchase of uranium
for delivery to utility customers of SMP, drilling and overhead
expenses of ENERGX, and corporate general and administrative
expenses, including costs associated with continuing litgation and
arbitration.
CAPITAL REQUIREMENTS - SGV: SGV's properties contain reserves of
gold. A portion of those properties has been the subject of a
preliminary feasibility study for the development of the
underground Lincoln Mine. The study estimated that for a 500 ton
per day ("tpd") mine/mill operation using a cyanide-flotation
process, up to $18,000,000 may be needed for mine site development,
mill and tailings construction, permitting and the like, to place
the proposed mine into full operation. However, more recent
studies indicate a gravity milling process will produce
satisfactory gold recovery rates. Thus, USE and Crested anticipate
building the gravity process system initially, estimated to cost
less than $3,000,000. USE and Crested have already purchased a
used semiautogeneous grinding mill and other equipment for the
front end of the facility.
Although pre-production mine development and underground
exploration is substantially complete, capital resources in
addition to those currently held on hand, will be needed to
complete mine development and construct a mill facility. The
timing of these expenditures will depend upon internal cash flows
or additional financing.
CAPITAL REQUIREMENTS - SMP: SMP's activities continue to consist
of negotiation of uranium sales agreements, purchases and
borrowings of uranium to fill contracts, and maintenance of the
Crooks Gap mines in a standby mode. There are no current plans to
mine the SMP Crooks Gap properties during fiscal 1995, however, USE
and Crested will continue to preserve the ore body and develop
concepts to reduce care and maintenance costs, including driving a
decline to reduce pumping costs (which also would reduce future
mining costs by reducing hoisting costs). Although funds are
available in SMP's bank account, these funds are restricted and
since early 1991 SMP has not paid USE and Crested the operating
costs and fees associated with their services as operating manager
of the Crooks Gap properties; such accumulated costs and fees were
$3,643,100 at May 31, 1994.
Notwithstanding disputes between the SMP partners, USE and Crested
have delivered an agreed-upon portion of the uranium concentrates
required to fill contract delivery requirements on certain long-
term U3O8 contracts since July 1, 1991. Working capital was
required for the purchase of these pounds on a short-term basis,
until resold under delivery contracts. However, there is no
assurance this protocol with NUKEM/CRIC will be in place for 1995
and thereafter. If the SMP partners are unable to agree on how to
separately effect contract performance for the various SMP
customers, resulting delivery delays and/or incomplete deliveries
could adversely affect the contracts, and therefore USE.
CAPITAL REQUIREMENTS - GMMV: Operations of GMMV are not requiring
USE's capital resources, as the initial $50,000,000 of expenses on
the GMMV properties is being paid by Kennecott. USE and Crested
continue to project the proposed Jackpot Mine can be put into
production for less than $25,000,000. However, depending on
results of exploration and development projects on the properties,
additional expenditures may be required. GMMV expenditures for
fiscal 1995 will depend on whether one or both declines for the
proposed mine are started. A decision by the management committee
of GMMV regarding the declines will be made after all necessary
permits are acquired. Nonetheless, GMMV should not require any
funding from USE during fiscal 1995.
CAPITAL REQUIREMENTS - PLATEAU: During fiscal 1994 the annual care
and maintenance costs for the Shootaring Mill were $1,098,000. It
is anticipated that these costs will continue until the mill is
either placed into production or decommissioned unless USE is able
to sell or Joint Venture a portion of the Plateau assets.
CAPITAL REQUIREMENTS - ENERGX: Another requirement of USE's and
Crested's working capital is the continued funding of ENERGX
overhead expenses and drilling operations. Subsequent to May 31,
1994, ENERGX entered into an agreement with a Canadian firm, NuGas,
to drill shallow gas wells on the Fort Peck indian reservation in
Montana. NuGas as a condition of its earn-in to the properties is
required to fund the drilling of the first eight wells. After the
first eight wells, Energx will be required to fund its share of all
future drilling. It is currently anticipated that if the first
eight wells are not profitable, there will be no additional wells
drilled. Therefore capital expenditures for Energx by USE are not
anticipated to be significant in fiscal 1995.
LONG-TERM DEBT AND OTHER OBLIGATIONS: In connection with the
transfer of properties to AMAX in 1980, AMAX made long-term loans
to USE and Crested of $7,500,000 each. AMAX later agreed to credit
each of USE and Crested $250,000 per quarter against principal, in
lieu of advance royalties due USE and Crested.
Indebtedness to AMAX is now fully retired (the final $500,000 was
amortized by AMAX without the use of cash during the quarter ended
August 31, 1993, in accordance with previously negotiated
arrangements); this final $500,000 installment was recognized as
revenue from mineral property transactions, as have been previous
such installments. These revenues from debt amortization did not
generate cash.
Long-term debt at May 31, 1994 was $1,678,600, the current portion
of which is $569,500 (see Note G to the audited USE Consolidated
Financial Statements), not including $600,000 of draw downs as of
September 1, 1994 on the new credit line discussed below).
RECLAMATION COSTS. Prior to fiscal 1994, USE and Crested assumed
the reclamation obligations, environmental liabilities and
contingent liabilities for employee injuries, from mining the
Crooks Gap and other properties in the Sheep and Green Mountain
Mining Districts. The reclamation obligations, which are
established by governmental regulators, were most recently set at
$1,451,800, which amount is shown on USE's balance sheet as a long-
term obligation.
To assure the reclamation work will be performed, regulatory
agencies require posting of a bond or other security. USE and
Crested satisfied this requirement with respect to SMP properties
by mortgaging their executive office building and a trailer park in
Riverton, Wyoming. A portion of the funds for the reclamation of
SMP's properties was to have been provided by SMP, which agreed to
pay up to $.50 per pound of uranium produced from its properties to
USE and Crested for reclamation work. The status of this
commitment could be impacted by the ultimate settlement of the
litigation with SMP.
Reclamation obligations on the contiguous Big Eagle properties and
the Sweetwater Mill, estimated at approximately $23,600,000, have
been assumed by the GMMV venturers, and secured by a bank letter of
credit provided by Kennecott. The reclamation and environmental
costs associated with the Sweetwater Mill will not commence prior
to conclusion of mining activities on Green Mountain. As uranium
is processed through the Mill, a reclamation reserve will be funded
on a per unit of production basis. Up to $8,000,000 (in 1990
dollars) in any reclamation costs which may be incurred prior to
commencement of production or 2001 will be paid for by UNOCAL.
Reclamation obligations of Plateau are covered by a $2,500,000 cash
bond to the U.S. Nuclear Regulatory Commission and a $4,800,000
cash deposit for the resolution of any environmental or nuclear
claims.
Reclamation work on any of the above properties need not be fully
completed until a decision is made to abandon the properties, or as
otherwise required by regulatory agencies. Reclamation and
environmental costs associated with any of these properties are not
expected to require USE funding in fiscal 1995, because such costs
are not anticipated to be incurred for many years.
See Note K to the audited USE consolidated financial statements
regarding reclamation and environmental costs, and the funding
thereof.
CAPITAL RESOURCES: The primary source of USE capital resources for
fiscal 1995 will be cash on hand, proceeds from sale of uranium
under SMP contracts, sale of certain marketable securities and
miscellaneous non-core assets, and proceeds from financing
activities. Fees from oil production (Ft. Peck Lustre Field,
Montana), rentals of real estate holdings and equipment, aircraft
chartering and aviation fuel sales, also will provide cash.
Additional sources of capital will be needed to develop and build
the mine and mill complex for the Lincoln Project, for which
capital costs Sutter Gold Mining Company presently is seeking
financing by joint venture partner or public offering of equity.
If such financing cannot be obtained, USE and Crested will be
forced to either sell the Lincoln Project or continue funding
Sutter Gold's property holding costs. Continued funding of such
costs could cause USE and Crested to incur short term working
capital needs. At Prospectus date, no arrangements for funding
needed for the project are under contract or agreement in
principle.
To fund the ENERGX drilling on the Fort Peck Reservation as well as
other locations, USE will seek a joint venture partner or obtain
financing through banking institutions or the public market. At
Prospectus date, no arrangements for such financing are under
contract or agreement in principle.
Funding of SMP care and maintenance costs may require additional
funding, depending on the outcome of the SMP litigation. See
"Business-Legal Proceedings." Although management is of the
opinion that the SMP litigation will be resolved in favor of USE
and Crested, which will result in funds being available to repay
USE and Crested for advances to SMP, this outcome is not assured.
In any event, further delays (at least to the end of fiscal 1995)
in resolution of the litigation are expected, and may cause short
term liquidity needs.
USE believes available working capital, operating revenues and
anticipated financing operations will continue to be adequate to
fund working capital requirements. However, with the exceptions of
GMMV and Plateau, USE will require additional sources of funding to
continue to develop and invest in its various mineral ventures.
As of the end of fiscal 1994, USE had negotiated a $1,000,000
commercial bank credit line, $300,000 of which was available for
uranium spot market purchases and $100,000 was available for short
term working capital. USE continues to implement a program to
reduce costs generally.
Although USE currently is not in production on any mineral
properties, development work continues on several of its major
investments. USE is not using hazardous substances and known
pollutants to any great degree in these activities. Consequently,
recurring costs for managing hazardous substances, and capital
expenditures for monitoring hazardous substances or pollutants,
have not been significant. Likewise, USE does not have properties
which require current remediation. USE is not aware of any claims
for personal injury or property damages that need to be accrued or
funded.
35
USE has received a notification of tax deficiency from the Internal
Revenue Service for fiscal years ended May 31, 1989, 1990 and 1991.
USE has filed a response to the proposed deficiency, and has
requested an administrative appeal of the initial examiner's
deficiency finding. To Prospectus date, USE has received a
preliminary indication that a major portion of the findings has
been resolved in favor of USE, however, no written confirmation has
been received to date, and therefore no quantitative amount of tax
deficiency can be determined. USE does not believe the remaining
issues will have a material effect on its financial condition.
Further, USE is confident the matters will be resolved favorably at
the administrative appeals level. Until such time, if ever, as the
deficiency claim goes to Tax Court after exhaustion of
administrative hearings, management is of the opinion that this
dispute is not a legal proceedings matter.
RESULTS OF OPERATIONS
FISCAL 1994 COMPARED FISCAL 1993
35A
Overall, while revenues declined only slightly (by $269,200) in
fiscal 1994 to $8,776,300 (compared to $9,045,500 for the prior
year), costs and expenses increased substantially (by $3,215,600)
in fiscal 1994 to $12,364,200 (compared to $9,148,600 for 1993).
Although operating losses were recorded for some activities, as
discussed below, two items contributed significantly to the overall
operating loss of $3,370,800 for the year. First, general and
administrative expense increased by $741,500 to $2,696,800
(compared to $1,955,300), reflecting the one-time legal and
accounting expenses of acquiring Brunton of approximately $45,000
(which closed at the end of fiscal 1994), increased general and
administrative expenses associated with Sutter Gold of
approximately $196,000, general and administrative expenses
associated with Plateau of approximately 154,000, the write down
of a note receivable to market prior to its assumption by Crested
by $143,000, and other increases in components of general and
administrative expense. Second, costs associated with mineral
operations, which are producing no revenues, increased by $469,100
to $1,129,000 (compared to $659,900 for the prior year). This
increase is due primarily to the litigation over the SMP and
Parador disputes ($295,700) and increased maintenance cost of heavy
mining equipment due to underground development work on the SMP
properties.
Cost of minerals sold increased by $1,277,800 as a result of an
increase in the numbers of pounds of uranium oxide delivered by USE
and Crested to the SMP contracts during fiscal 1994. Costs
associated with construction operations increased by $528,500 as a
result of increased contract work on cement structures. These
costs of construction are offsetby an increase of $579,000 in
construction contract revenues. Commercial operation expenses
increased by $416,400 as a result of the consolidation of the
Plateau Resources operations (commercial twonsite operations at
Ticaboo, Utah). Increased general and administrative expense also
was recorded in the amount of $212,000, primarily for costs
associated with USE corporate aircraft.
Mineral sales revenues increased primarily as a result of the sale
and delivery during the year of U3O8 in accordance with SMP utility
supply contracts, however an operating loss of $665,100 for the
year was recognized due to contracted price being lower than the
price at which USE could acquire the U3O8 and increased maintenance
costs on properties and equipment. Construction contract revenues
increased by $579,900 (to $2,606,400 compared to $2,026,500 for
fiscal 1993), due to increased contract work by USE's subsidiary
Four Nines Gold, Inc. ("FNG"), resulting to an operating profit of
$317,500 for construction contract activities for the year.
Interest income increased by $250,500 to $328,700 (compared to
$78,200 for fiscal 1993) because of higher cash balances from the
Plateau acquisition early in the year.
During the quarter ended August 31, 1993, USE implemented Statement
of Financial Accounting Standard No. 109 ("Accounting for Income
Taxes", hereafter "SFAS 109"). The cumulative effect of this tax
accounting change is a $267,000 decrease in net income for fiscal
1994.
Oil sales revenues (recorded for services provided by USE as
operator of the Ft. Peck Lustre Field) dropped by $102,600 to
$183,700 (compared to $286,300 in fiscal 1993) due to lower
production rates and lower prices for the first two quarters of
fiscal 1994. Separately, but related to oil and gas activities,
certain start-up operations in coalbed methane gas contributed
$157,800 to 1994 costs and expenses.
<PAGE>
RESULTS OF OPERATIONS
FISCAL 1993 COMPARED TO FISCAL 1992
During fiscal 1993, USE recorded $2,690,800 in revenues from the
sale of U3O8,which revenue was recognized as a result of the
dispute
between the SMP partners, which has resulted in USE and Crested
making their share of various deliveries under long-term supply
contracts, compared to $123,300 recognized from uranium sales in
fiscal 1992, due to higher delivery volumes in 1993. A dispute
arose between SMP and a utility during 1993 regarding the price
calculation for delivery under a market related contract. USE and
Crested elected to not make their portion of the delivery.
CRIC/Nukem indemnified the utility and delivered their portion as
well as USE's and Crested's portion. This matter may be resolved
as part of the on-going litigation and now arbitration with
Nukem/CRIC.
USE recognized $2,026,500 of construction revenues during fiscal
1993 as compared to construction revenues of $2,895,000 during
fiscal 1992, due to FNG not being successful in bidding as many
jobs during fiscal 1993.
Revenues from gold sales of $498,300 were recognized during 1992,
being gold processed from a bulk sample at SGV. There were no gold
sales during 1993. During fiscal 1993, USE recorded revenues from
the sale of various pieces of equipment and securities (SRRI stock)
of $326,000 and $408,600, respectively. No revenues from these
activities were recognized in fiscal 1992.
Revenues from the restructuring of mineral property agreements and
oil sales increased by $1,049,900 and $152,200. This increase is
not due to increased activity, but as a result of the consolidation
of operations of Crested in 1993. Operations of Crested were not
consolidated with USE in 1992, as the increase in ownership did not
occur until late May 1992.
Management fee revenues decreased by $398,900 to $228,900 for
fiscal 1993, as a result of (i) a portion of the management fees
and other charges to SGV being reduced due to increased ownership
by USE, and (ii) reduced activities by USE and Crested at GMMV.
During fiscal 1993, interest revenues decreased by $123,800 as a
result of smaller amounts of cash being invested in interest
bearing accounts and reduced interest rates.
Oil production expenses increased by $46,100 as a result of
maintenance required on various equipment on the Ft. Peck Lustre
Field in Montana being operated by USE. Oil prices for this
production averaged approximately $21.00 per barrel in both 1993
and 1992. As no exploration is conducted in this field, and USE is
compensated for services with the rate based on share of net
production income, commodity price swings (if any) only would
affect the amount of income received during the year. Year to year
changes in income from oil activities is not considered material to
USE operations.
Cost of mineral sales were $2,617,600 for uranium sales to supply
SMP contracts. For fiscal 1993, the average cost per pound for
uranium delivered was approximately $8.80, compared to
approximately $8.92 per pound in fiscal 1992. During fiscal 1993,
the NUEXCO uranium spot price per pound ranged from $8.75 early in
the period, up to $10.50 mid-period, then back to $10.00 at the end
of the period. The increases were largely due to import
restrictions levelled against the CIS (see "Business-Certain Market
Information-Uranium NUEXCO Exchange Value). These commodity prices
favorably impacted uranium margins for fiscal 1993, as prices paid
by buyers under market-related utility contracts increased
according to contract terms, which enabled USE to purchase at or
below spot and supply at a profit.
The decrease in construction costs of $880,500 is as a result of
the reduced amount of work performed by FNG during fiscal 1993.
During fiscal 1993, USE recorded an expense of $378,700 as a result
of the abandonment of certain mining claims. This is an increase
in mining claim abandonment of $203,300 over the prior year. It is
not anticipated that this is a recurring expense.
Mineral operations, commercial operations and general and
administrative expenses increased by $344,800, $847,600 and
$1,034,300, respectively. These increases are primarily as a
result of the consolidation of operations from Crested into the USE
Consolidated Financial Statements during the year ended May 31,
1993. Crested's operations were not consolidated during the year
ended May 31, 1992. All operations for USE and Crested are
recorded on the books of USECC Joint Venture. The increase in
these expenses of mineral operations, commercial operations and
general and administrative expense, do not reflect any increase in
activity or a material change in operations, but rather the
accounting treatment of the acquisition of additional equity in
Crested by USE in fiscal 1993.
Operations for fiscal 1993 resulted in a loss before provision for
income taxes and extraordinary item of $103,100. Equity in loss of
affiliates of $444,700, along with minority interest in losses of
consolidated subsidiaries of $325,900, resulted in a loss of
$221,900.
<PAGE>
EFFECTS OF CHANGES IN PRICES
Mining operations and the acquisition, development and disposition
of mineral properties are significantly affected by changes in
commodity prices. As prices for a particular mineral increase,
prices for prospects for that mineral also increase, making
acquisitions of such properties costly, and dispositions
advantageous. Conversely, a price decline facilitates acquisitions
of properties for that mineral, but makes sales of such properties
more difficult. Operational impacts of changes in mineral
commodity prices are common in the mining industry.
URANIUM AND GOLD. Changes in the prices of uranium and gold affect
USE to the greatest extent. When uranium prices were relatively
high in fiscal 1988, USE and Crested acquired the Crooks Gap
properties, and thereafter put the properties into production.
When uranium prices fell sharply during fiscal 1989-1991, USECC
suspended mining operations for SMP, because uranium could be
purchased at prices less than the costs of producing uranium.
Uranium production in the United States reportedly fell by 25
percent to 33 percent in 1990, due to the lowest prices for uranium
since the market developed in the 1960s. However, these low prices
created opportunities for acquiring the Sweetwater Mill and the
Shootaring Canyon Mill.
Changes in uranium prices directly affect the profitability of
SMP's uranium supply agreements with utilities. Certain of those
agreements become advantageous to USE when the spot market price
for uranium falls significantly below the price which a utility has
agreed to pay. Some of the supply agreements of SMP were acquired
before the fall of spot market prices during fiscal 1989-1991.
Those fixed-price contracts, which have contract prices exceeding
current spot market rates, are currently advantageous to USE, as
the uranium to fill them can be readily obtained at favorable
prices. Although such contracts benefit SMP and USE in a falling
market, a corresponding adverse impact would not be anticipated in
the event of substantially increased prices. SMP would produce
uranium from its Crooks Gap properties to fill those contracts, in
the event of a prolonged increase in the spot market price above
the contract prices.
For information on the particular impacts changing uranium spot
prices may have had on operations, see the period to period
discussions of Results of Operations, above.
USE believes SGV's Lincoln Mine will be profitable with gold prices
over $290 per ounce. Recent price improvements for gold (from
approximately $340 per ounce in fiscal 1993 to approximately $390
per ounce at April 3, 1995) would positively impact operating
margins at the Lincoln Mine, if such prices are sustained, when,
and if, the mine becomes operational.
MOLYBDENUM AND OIL. Changes in oil prices are not expected to
materially affect USE with respect to either its oil production
fees. However, a significant increase in the price of molybdenum
would increase the likelihood that the Mt. Emmons properties will
be developed by AMAX, and in the interim would increase income from
advance molybdenum royalties.
DIRECTORS AND EXECUTIVE OFFICERS
The directors of USE are divided into three classes of two persons
each. Directors are elected until the third succeeding annual
meeting and until their successors have been duly elected or
appointed and qualified or until death, resignation or removal.
Name, age and Positions Director
designation with USE since
John L. Larsen (63) Chairman, CEO and 1966
President (c)(d)(e)
Max T. Evans (70) Secretary 1978
(a)(c)(e)
Harold F. Herron (41) Vice President 1989
(b)(c)(e)
David W. Brenman (38) (b)(d) 1989
Don C. Anderson (67) Geologist (c) 1990
Nick Bebout (43) (a)(b)(d) 1989
__________
(b) Member of the compensation/stock option committee.
(c) Member of the executive committee.
(d) Member of the audit committee.
(e) ESOP trustee.
Executive officers are elected by the Board at annual directors'
meetings, which follow each Annual Shareholders' Meeting, to serve
until the officer's successor has been duly elected and qualified,
or until death, resignation or removal by the Board.
ROBERT SCOTT LORIMER, 44, has been the Controller and Chief
Financial Officer for both USE and Crested for more than the past
five years. Mr. Lorimer has also been the Chief Financial Officer
for both of those companies, since May 25, 1991, and their
Treasurer since December 14, 1990. There are no understandings
between Mr. Lorimer and any other person, pursuant to which he was
named as an officer, and he has no family relationship with any of
the other executive officers or directors of USE or Crested.
DANIEL P. SVILAR, 66, has been general counsel for both USE and
Crested for more than the past five years. He has also served as
Secretary and a director of Crested and Assistant Secretary for
USE. He serves at the will of the USE and Crested Boards of
Directors. There are no understandings between Mr. Svilar and any
other person pursuant to which he was named as an officer. He has
no family relationships with any of the other executive officers or
directors of the USE or Crested, except Nick Bebout, a director of
USE and Mr. Svilar's nephew.
FAMILY RELATIONSHIPS.
HAROLD F. HERRON, a director and vice-president, is the son-in-law
of John L. Larsen, a principal shareholder, director and Chief
Executive Officer of USE. Nick Bebout, a director, is a nephew of
Daniel P. Svilar, a principal shareholder and USE general counsel.
There are no other family relationships among the executive
officers or directors of USE.
BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS
JOHN L. LARSEN has been an officer and director of USE since 1966.
He is a director of USE subsidiary Ruby Mining Company, and an
officer and director of Crested Corp. Crested and Ruby have
registered classes of equity securities under the Exchange Act.
Mr. Larsen is an officer and director of Plateau Resources Limited,
a private Utah corporation and wholly-owned USE subsidiary.
MAX T. EVANS has been principally employed as an officer and chief
geologist of USE and Crested for more than the past five years. He
is a director of Crested. Mr. Evans received B.S. and M.S. degrees
in geology from Brigham Young University. Mr. Evans is an officer
and director of Plateau Resources Limited.
HAROLD F. HERRON has been a director of USE, and its Vice-President
since 1989. Since 1976, Mr. Herron has been an employee of
Brunton, and since 1987 he has been its president. Mr. Herron is
a director of Ruby and NWG, which have registered equity securities
under the Exchange Act. Mr. Herron received an M.B.A. degree from
the University of Wyoming after receiving a B.S. degree in Business
Administration from the University of Nebraska at Omaha. Mr.
Herron is an officer and director of Plateau Resources Limited.
DAVID W. BRENMAN has been a director of USE since January 1989.
Since September 1988, Mr. Brenman has been a self-employed
financial consultant. In that capacity, Mr. Brenman has assisted
USE and Crested in negotiating certain financing arrangements.
From February 1987 through September 1988, Mr. Brenman was a vice-
president of project financing for Lloyd's International Corp., a
wholly-owned subsidiary of Lloyd's Bank, PLC. From October 1984
through February 1987, Mr. Brenman was president, and continues to
be a director of Cogenco International, Inc., a company engaged in
the electric cogeneration industry, which has a class of equity
securities registered under the Exchange Act. Mr. Brenman has an
L.L.M. degree in taxation from New York University and a J.D.
degree from the University of Denver.
DON C. ANDERSON has been a geologist for USE since January 1990 and
a member of its Board since May 1990. Mr. Anderson was Manager of
Exploration and Development for Pathfinder Mines Corporation, a
major domestic uranium mining and milling corporation, from 1976
until retirement in 1988. Previously, he was Mine Manager for
Pathfinder's predecessor, Utah International, Inc., from 1965 to
1976. He received a B. S. degree in geology from Brigham Young
University.
NICK BEBOUT has been a director of USE since 1989. He is a
director and president of NUCOR, Inc., a private corporation
providing exploration and development drilling services to the
mineral and oil and gas industries. Mr. Bebout is also president
and a director of S.W. Financial Corp. ("SWF"), a corporation which
is evaluating potential acquisitions or business combinations with
other entities, but has no other current operations. SWF is
currently subject to certain periodic reporting requirements under
Section 15(d) of the Exchange Act.
EXECUTIVE COMPENSATION
Under a Management Agreement dated August 1, 1981, the Company and
Crested share certain general and administrative expenses,
including compensation of the officers and directors of the
companies (but excluding directors' fees) which have been paid
through the USECC Joint Venture ("USECC"). Substantially all the
work efforts of the officers of the Company and Crested are devoted
to the business of both the Company and Crested.
All USECC personnel are Company employees, in order to utilize the
Company's ESOP as an employee benefit mechanism. The Company
charges USECC for the direct and indirect costs of its employees
for time spent on USECC matters, and USECC charges one-half of that
amount to each of Crested and the Company.
The following table sets forth the compensation paid to the USE
Chief Executive Officer, and those of the four most highly
compensated USE executive officers who were paid more than $100,000
cash in any of the three fiscal years ended May 31, 1994. The
table includes compensation paid such persons by Crested and
Brunton for such persons' services to such subsidiaries.
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long
Term Compensation
____________________________
Annual Compensation
Awards Payouts
____________________________________________________________
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Name Annual Restricted All Other
and Compen- Stock LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)(4)
____________________________________________________________________________________________________
<S> <C> <C> <C> <S> <C> <C> <S> <C>
John L. Larsen 1994 $148,239 $ 7,028 -- $9,600(1) -0- -- $14,394
CEO, 1993 164,968 4,016 -- 7,200(1) 100,000(2) -- 15,026
President 1992 144,024 406,357 -- -- 100,100(3) -- 22,844
Daniel P. Svilar 1994 112,753 64,984 -- 8,640(1) -0- -- 17,300
Asst. Secretary 1993 108,000 2,991 -- 6,480(1) -0- -- 11,100
1992 108,000 5,088 -- -- 66,000(3) -- 11,309
Harold F. Herron 1994 105,983 18,268 -- -- -0- -- 9,743
Vice President 1993 99,469 12,617 -- -- -0- -- 4,824
1992 87,609 3,155 -- -- 11,000(3) -- 4,481
R. Scott Lorimer 1994 92,799 43,461 -- 6,181(1) -0- -- 13,260
Treasurer 1993 78,921 2,196 -- 4,548(1) -0- -- 8,111
1992 77,192 3,652 -- -- 29,700(3) -- 8,084
_________
<FN>
(1) Bonus shares equal to 20% of original bonus shares issued FY
1990, multiplied by $4.00 in 1994 and $3.00 in 1993, the closing
bid price on issue dates. These shares are subject to forfeiture
on termination of employment, except for retirement, death or
disability.
(2) 10-year non-qualified option at $2.00 per share.
(3) 10-year non-qualified option at $2.90 per share.
(4) Dollar values for ESOP contributions and 401K matching
contributions.
</TABLE>
EXECUTIVE COMPENSATION PLANS AND EMPLOYMENT AGREEMENTS
To provide incentive to Mr. Larsen for his efforts in having GMMV
develop a producing mine as soon as possible, in fiscal 1993 the
USE Board adopted a long-term incentive arrangement under which Mr.
Larsen is to be paid a non-recurring $1,000,000 cash bonus,
provided that the Nuexco Exchange Value of uranium oxide
concentrates has been maintained at $25.00 per pound for six
consecutive months, and provided further that USE has received
cumulative cash distributions of at least $10,000,000 from GMMV as
a producing property. It is not expected that this cash bonus will
become payable in fiscal 1995.
The Company has adopted a plan to pay the estates of Messrs.
Larsen, Evans and Svilar amounts equivalent to the salaries they
are receiving at the time of their death, for a period of one year
after death, and reduced amounts for up to five years thereafter.
The amounts to be paid in such subsequent years have not yet been
established, but would be established by the Boards of the Company
and Crested.
Mr. Svilar has an employment agreement with the Company and
Crested, which provides for an annual salary in excess of $100,000,
with the condition that Mr. Svilar pay an unspecified amount of
expenses incurred by him on behalf of the Company and its
affiliates. In the event Mr. Svilar's employment is involuntarily
terminated, he is to receive an amount equal to the salary he was
being paid at termination, for a two year period. If he should
voluntarily terminate his employment, the Company and Crested will
pay him that salary for nine months thereafter. The foregoing is
in addition to Mr. Svilar's Executive Severance and Non-Compete
Agreement with the Company (see below).
In fiscal 1992, the Company signed Executive Severance and Non-
Compete Agreements with Messrs. Larsen, Evans, Svilar and Lorimer,
providing for payment to such person upon termination of his
employment with the Company, occurring within three years after a
change in control of the Company, of an amount equal to (i)
severance pay in an amount equal to three times the average annual
compensation over the prior five taxable years ending before change
in control, (ii) legal fees and expenses incurred by such persons
as result of termination, and (iii) the difference between market
value of securities issuable on exercise of vested options to
purchase securities in USE, and the options' exercise price. These
Agreements also provide that for the three years following
termination, the terminated individual will not compete with USE in
most of the western United States in regards to exploration and
development activities for uranium, molybdenum, silver or gold.
For such non-compete covenant, such person will be paid monthly
over a three year period an agreed amount for the value of such
covenants (depending on the individual, ranging from $66,667 up to
$86,667). These Agreements are intended to benefit the Company's
shareholders, by enabling such persons to negotiate with a hostile
takeover offeror and assist the Board concerning the fairness of a
takeover, without the distraction of possible tenure insecurity
following a change in control. At Prospectus date, USE Company is
not aware of any proposed hostile takeover.
USE and Crested provide all of their employees with certain forms
of insurance coverage, including life and health insurance. The
health insurance plan does not discriminate in favor of executive
employees; life insurance of $50,000 is provided to each member of
upper management (which includes all persons in the compensation
table), $25,000 of such coverage is provided to middle-management
employees, and $15,000 of such coverage is provided to other
employees.
EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP"). USE has adopted an ESOP,
to encourage ownership of USE Common Stock by employees and provide
a source of retirement income to them. The ESOP is a combination
stock bonus plan and money purchase pension plan. It is expected
that the ESOP will continue to invest primarily in the Common
Stock. Messrs. Larsen, Herron and Evans are the ESOP trustees.
Contributions to the stock bonus plan portion of the ESOP are
discretionary and are limited to a maximum of 15% of the covered
employees' compensation for each year ended May 31. Contributions
to the money purchase portion of the ESOP are mandatory (fixed at
ten percent of the compensation of covered employees for each
year), are not dependent upon profits or the presence of
accumulated earnings, and may be made in cash or shares of Company
Common Stock.
The Company made a contribution of 46,332 shares to the ESOP for
fiscal 1994, all of which were contributed under the money purchase
pension plan. At the time the shares were contributed, the market
price was $4.00 per share, for a total contribution valued at
$185,000 which has been funded by the Company. Crested and the
Company are each responsible for one-half of that amount (i.e.,
$92,500), and Crested currently owes its one-half to the Company.
Employees are eligible to participate in the ESOP on the first day
of the plan year (June 1) following completion of one year of
service in which at least 1,000 hours are credited. Each
employee's participation in the ESOP continues until the ESOP's
anniversary date coinciding with or next following termination of
service by reason of retirement, disability or death. In these
cases, the participant will share in the allocation of USE's
contributions for the ESOP year in which the retirement, death or
disability occurs, and will have a fully-vested interest in
allocations to the participant's account.
An employee's participation in the ESOP does not cease upon
termination of employment. If the employment of a participant in
the ESOP is terminated for reasons other than disability, death, or
retirement (unless the employee receives a lump sum distribution
upon the termination of employment), participation continues
following the termination, until five consecutive one-year breaks
in service have been incurred. An employee is deemed to have
incurred a one-year break in service during any year in which 500
or fewer hours of service are completed.
Employee interests in the ESOP are earned pursuant to a seven year
vesting schedule. Upon completion of three years of service for
the Company, the employee is vested as to 20% of the employee's
account in the ESOP, and thereafter at the rate of 20% per year.
Any portion of an employee's ESOP account which is not vested is
forfeited upon termination of employment for any reason, other than
retirement, disability, or death.
The 46,332 shares issued to the ESOP for fiscal 1994 included 3,165
shares allocated to John L. Larsen's account, 1,962 shares
allocated to Max T. Evans' account, 713 shares allocated to Harold
F. Herron's account, 4,325 shares allocated to Daniel P. Svilar's
account, and 3,315 shares allocated to R. Scott Lorimer's account,
for a total of 13,480 shares allocated to accounts for all
executive officers as a group (five persons). The accounts of the
executive officers are fully vested, as they have all been employed
by the Company and USECC for more than the past seven years.
Allocations of shares for fiscal 1995 have not been made with
respect to any participant in the ESOP.
The maximum loan outstanding during fiscal 1993 under a loan
arrangement between USE and the ESOP, was $1,014,300 at May 31,
1994 for loans made in fiscal 1992 and 1991. Interest owed by the
ESOP was not booked by USE. Crested pays one-half of the amounts
contributed to the ESOP by USE. Because the loans are expected to
be repaid by contributions to the ESOP, Crested may be considered
to indirectly owe one-half of the loan amounts to USE.
During fiscal 1994, the Company was issued a proposed adjustment
from the Internal Revenue Service ("IRS") indicating that the ESOP
was not in compliance with certain sections of the Internal Revenue
Code. Based on management's response to the IRS notice, the IRS
has determined that the ESOP has complied with applicable sections
of the Internal Revenue Code, subject to operation of the ESOP in
compliance with ESOP provisions and applicable law and rules. No
Company deductions were disallowed by the IRS.
STOCK OPTION PLAN. USE has a combined incentive stock option/non-
qualified stock option plan, reserving an aggregate of 550,000
shares of Common Stock for issuance upon exercise of options
granted thereunder. Awards under the plan are made by a committee
of two or more persons selected by the Board (presently Messrs.
Bebout and Brenman). The committee establishes the exercise
periods and exercise prices for options granted under the plan.
Total grants to officers and directors as a group may not exceed
275,000 shares.
Options expire no later than ten years from the date of grant, and
on termination of employment, except in cases of death, disability
or retirement. Subject to the ten year maximum period, upon the
death, retirement or permanent and total disability of an optionee,
options are exercisable for three months (in case of retirement or
disability) or one year (in case of death) after such event. In
fiscal 1994, conditions relating to periods of Company service
before vesting of stock purchased on exercise of the non-qualified
options were removed.
For fiscal 1994, no qualified or non-qualified options were
granted.
The following table shows unexercised options, how much thereof
were exercisable, and the dollar values for in-the-money options,
at May 31, 1994.
<TABLE>
Aggregated Option/SAR Exercises in Last Fiscal year and FY-End
Option/SAR Values
<CAPTION>
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
FY-End(#) FY-End($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized($) Unexercisable Unexercisable
<S> <S> <C> <C> <C>
John L. Larsen, -0- -0- 100,000 $200,000(1)
CEO, President exercisable exercisable and
unexercised
100,100 $110,110(2)
exercisable exercisable and
unexercised
Max T. Evans, -0- -0- 57,200 $ 62,920(2)
Secretary exercisable exercisable and
unexercised
Harold F. Herron, -0- -0- 11,000 $ 12,100(2)
Vice President exercisable exercisable and
unexercised
Daniel P. Svilar -0- -0- 66,000 $ 72,600(2)
Assistant Secretary exercisable exercisable and
unexercised
R. Scott Lorimer -0- -0- 29,700 $ 32,370(2)
Treasurer exercisable exercisable and
unexercised
<FN>
(1) Equal to $4.00 closing bid on last trading day in FY 1994,
less $2.00 per share option exercise price, multiplied by all
shares exercisable.
(2) Equal to $4.00 closing bid on last trading day in FY 1994,
less $2.90 per share option exercise price, multiplied by all
shares exercisable.
</TABLE>
RESTRICTED STOCK PLANS. USE has issued stock bonuses to various
executive officers and directors of USE and others. These shares
are subject to forfeiture to the issuer by the grantee if
employment terminates otherwise than for death, retirement or
disability. If the required service is completed, the risk of
forfeiture lapses and the shares become the unrestricted property
of the holder. Messrs. Larsen, Evans, Svilar, Herron, Lorimer and
all executive officers as a group (five persons) received 13,200,
8,250, 11,880, 9,900, 7,920 and 51,150 shares of Common Stock,
respectively, under this restricted stock plan through fiscal 1993.
In fiscal 1994, another 7,500 shares were issued to such persons as
a bonus (20% of the 1990 shares). Additional bonuses of 20% of the
original shares will be issued annually through fiscal 1997. The
expenses relating to these stock issuances are shared equally by
the Company and Crested.
The Company has also issued restricted stock bonuses to non-
employee directors. A total of 5,500 shares are held by the two
directors who are not also employees of the Company (one-half to
each). See "Directors' Fees and Other Directors' Compensation".
SUBSIDIARY PLANS. During the year ended May 31, 1991, Brunton
adopted a salary deduction plan intended to qualify as a deferred
compensation plan under Internal Revenue Code Section 401(k).
Harold F. Herron and John L. Larsen are the only Company officers
who are able to participate in this retirement plan. The fiscal
1994 acquisition of Brunton by the Company has not affected the
Brunton 401(k) plan.
Other than as set forth above, neither USE nor any of its
subsidiaries have any pension, stock option, bonus, share
appreciation, rights or other plans pursuant to which they
compensate the executive officers and directors of USE. Other than
as set forth above, no executive officer received other
compensation in any form which, with respect to any individual
named in the Cash Compensation Table, exceeded ten percent of the
compensation reported for that person, nor did all executive
officers as a group receive other compensation in any form which
exceeded ten percent of the compensation reported for the group.
DIRECTORS' FEES AND OTHER COMPENSATION
The Company pays non-employee directors a fee of $150 per meeting
attended. All directors are reimbursed for expenses incurred with
attending meetings.
Prior to fiscal 1992, the Board authorized the Executive Committee
to make loans to members of the Board, or to guarantee their
obligations in amounts of up to $50,000, if such loans or surety
arrangements would benefit USE. Any loans or surety arrangements
for directors which are in excess of $50,000 will require Board
rather than Executive Committee approval. USE loaned $25,000 to
David W. Brenman under this plan prior to fiscal 1991. The loan to
Mr. Brenman bears interest at the prime rate of the Chase Manhattan
Bank and was due September 1, 1994, but has been extended to
September 1, 1995 by Board vote (Mr.Brenman abstaining). The loan
was provided as partial consideration for Mr. Brenman's
representation of the Company to the financial community in New
York City. The loan to Mr. Brenman originally was approved by the
executive committee.
Pursuant to shareholder approval of the 1992 Stock Compensation
Plan for Outside Directors at the 1992 Annual Meeting, in fiscal
1993 the Board issued 5,000 shares of Common Stock each to outside
directors Brenman, Anderson and Bebout, which shares vest 1,000
shares to each on the 1992 Annual Meeting date and each succeeding
four Annual Meetings through 1996.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PURCHASE OF COMMON SHARES [FISCAL 1995]. From December, 1994
through Prospectus date, certain affiliates of USE purchased 96,700
restricted common shares from USE (pursuant to the private
placement offer of 400,000 shares) at $3.00 per share (total
purchases $290,100), as follows: Daniel P. Svilar, general counsel
(16,700 shares, through a family partnership); R. Scott Lorimer,
chief financial officer (8,333 shares); Brunton (56,667 shares);
Max T. Evans, officer and director (6,667 shares); Nick Bebout,
director (8,333 shares, through Nucor, Inc., an affiliate of Mr.
Bebout).
TRANSACTIONS WITH BRUNTON [FISCAL 1993 AND 1994]. In fiscal 1993
and early fiscal 1994, USE and Crested had entered into financing
arrangements with Brunton totalling $1,173,260, as set forth below.
These transactions were effected prior to the acquisition of
Brunton by USE at the end of fiscal 1994.
SALE AND LEASE BACK. In November, 1992 USE and Crested sold
Brunton certain aircraft and heavy equipment for $404,000, and
Brunton leased the items back to USE and Crested for seven years
(level payments amortizing purchase price with interest at prime
plus two points, subject to Brunton's renegotiating term and
interest after three years). Brunton funded the loan with bank
financing secured with the items sold and the lease.
LOAN, STOCK SALE AND OPTION. By agreement of April 30, 1993,
Brunton (i) loaned USE and Crested $211,800 and $76,760,
respectively, secured by borrowers' 3,607,000 Brunton shares
(2,647,500 owned by USE and 959,500 owned by Crested), with the
loans (maturity of April, 2003) bearing interest at prime plus 2.5
points; (ii) purchased 50,000 shares of restricted USE Common Stock
for $137,500 ($2.75 each) and 160,000 shares of restricted Crested
Common Stock for $43,200 ($.27 each); and (iii) received options
through April 30, 1998 to purchase 150,000 shares of restricted USE
Common Stock for $525,000 ($3.50 each) and 300,000 shares of
restricted Crested Common Stock for $120,000 ($.40 each).
In fiscal 1994, the April 30, 1993 loans to USE and Crested
($288,560 principal) were repaid and the collateral Brunton shares
released back to USE and Crested. In late fiscal 1994, all common
stock of Brunton (except for Brunton shares previously owned by
USE) was acquired in exchange for 276,470 registered common shares
of USE.
CONVERTIBLE LOAN. In August 1993, Brunton loaned USE $300,000
(without security), due October 19, 1993. The loan, bearing
interest at 10 percent per annum, was convertible in whole or part
at Brunton's election into shares of USE Common Stock at the rate
of one share for $3.00 of debt (100,000 shares maximum). In fiscal
1994 (but prior to USE's acquisition of Brunton), the debt was
converted to 100,000 shares of USE Common Stock.
TRANSACTIONS CONCERNING SUTTER GOLD VENTURE. During fiscal 1991,
USE acquired an interest in an underground gold mine (the "Lincoln
Mine") being developed in the Mother Lode Gold Mining District of
Amador County, California. Until the end of fiscal 1994, the
leasehold interests had been held by and operations on the
properties conducted through the Sutter Gold Venture ("SGV"), a
joint venture between Seine River Resources Inc. ("SRRI", a
Vancouver Stock Exchange listed company not affiliated with USE or
Crested), and USECC Gold Limited Liability Company ("USECC Gold").
USECC Gold, in turn, had been owned 89 percent by USE and 11
percent by Crested.
The parties had intended to operate SGV as equal 50 percent
venturers. However, because of SRRI defaults on its obligations to
USE, USE and Crested had acquired (through USECC Gold) by the end
of fiscal 1993 a 90 percent aggregate equity interest in the
Lincoln Project. By the end of fiscal 1994, SRRI owed the Company
and Crested $1,970,507 for property holding, permitting and mine
maintenance costs incurred and paid for by the Company and Crested
since March 1992, including interest and management fees charged by
the Company and Crested.
As of May 23, 1994 SRRI agreed to assign its remaining 10 percent
working interest in the Lincoln Project for the $1,970,507 owed the
Company and Crested. However, only the $1,389,272 of costs and
expenses paid for by the Company and Crested was recorded; $581,235
for interest and management fees was written off as uncollectible.
SRRI also issued 400,000 common shares of stock and delivered same
to the Company as final payment of any deficiencies for pre-fiscal
1994 indebtedness which SRRI had owed to the Company and Crested,
which had been secured by SRRI's interests and acquired by the
Company and Crested in lieu of foreclosure when SRRI defaulted on
its payments.
Subsequent to the end of fiscal 1994, the SGV was terminated, the
Company and Crested formed a new Wyoming corporation (Sutter Gold
Mining Company), and agreed to exchange their respective interests
in USECC Gold for common stock of Sutter Gold Mining Company, in
the same percentage interests as the parties hold interests in
USECC Gold (which latter entity will continue to hold the property
interests of record, as a wholly-owned subsidiary of Sutter Gold
Mining Company).
A conditional use permit for the Lincoln Mine was issued by the
Amador County Board of Supervisors in August, 1993. USE and
Crested are exploring different sources of capital to develop the
Mine and build a milling complex, however, at Proxy Statement date
no financing agreements have been signed and there is no assurance
needed capital will be available.
TRANSACTIONS WITH SHEEP MOUNTAIN PARTNERS ("SMP"). In fiscal 1989,
USE and Crested through USECC sold a one-half interest in the Sheep
Mountain properties to Cycle Resource Investment Corporation
("CRIC"), a wholly-owned subsidiary of Nukem, Inc., and thereafter
USECC and CRIC contributed their 50% interests in the properties to
a new Colorado partnership, SMP, which was organized to further
develop and mine the uranium claims, market uranium and acquire
additional uranium sales contracts. Due to disputes (in
arbitration proceedings at Proxy Statement date) with CRIC and
Nukem, necessary mine maintenance has been funded by USECC alone
without reimbursement from SMP. At May 31, 1993, USE and Crested
had expended $2,056,900 on SMP mine maintenance and $136,500 for
the purchase of U3O8, all of which is owed USE and Crested by SMP.
For fiscal 1994, USE and Crested spent an additional $1,449,700 on
SMP property maintenance, none of which has been reimbursed by SMP.
At May 31, 1994, accumulated SMP property maintenance costs and
fees owed USE and Crested were $3,643,100 ($4,127,229 at February
28, 1995).
TRANSACTIONS WITH DIRECTORS. Three of USE's directors, Messrs.
Larsen, Evans and Herron, are trustees of the ESOP. In that
capacity they have an obligation to act in the best interests of
the ESOP participants. This duty may conflict with their
obligations as directors of USE in times of adverse market
conditions for the Common Stock, or in the event of a tender offer
or other significant transaction.
In general, the ESOP trustees exercise dispositive powers over
shares held by the ESOP, and exercise voting powers with respect to
ESOP shares that have not been allocated to a participant's
account. In addition, the Department of Labor has taken the
position that in certain circumstances ESOP trustees may not rely
solely upon voting or dispositive decisions expressed by plan
participants, and must investigate whether those expressions
represent the desires of the participants, and are in their best
interests.
Harold F. Herron, son-in-law of John L. Larsen, has been living in
and caring for a house owned by USE until such time as the property
was sold. In fiscal 1995, Mr. Herron purchased the house for
$260,000, the appraised value of the property, and was reimbursed
by USE for leasehold improvements totaling $22,800.
OTHER INFORMATION. USE has adopted a stock repurchase plan under
which it may purchase up to 275,000 shares of its Common Stock.
These shares would be purchased in part to provide a source of
shares for issuance upon the exercise of various outstanding
options.
Three of John L. Larsen's sons are employed by USE (as manager of
USECC's commercial operations, uranium marketing manager, and as
chief pilot, respectively). Mr. Larsen's brother is employed by
USE as drilling superintendent. Collectively, the four individuals
received $224,900 in compensation for those services during the
fiscal year ended May 31, 1994. That expense was shared by USE and
Crested, in accordance with the compensation arrangements for all
employees.
CERTAIN INDEBTEDNESS
TRANSACTIONS INVOLVING USECC. USE and Crested conduct the bulk of
their activities through their equally-owned joint venture, USECC.
From time to time USE and Crested advance funds to or make payments
on behalf of USECC in furtherance of their joint activities. These
advances and payments create intercompany debt between USE and
Crested. The party extending funds is subsequently reimbursed by
the other venturer. USE had a note receivable of $3,792,800 from
Crested at May 31, 1994. The largest aggregate debt of Crested to
USE during fiscal 1994 was $3,792,800.
DEBT ASSOCIATED WITH USE'S ESOP. During the year ended May 31,
1994, USE made a contribution of 46,332 shares of Common Stock to
the ESOP. Because Crested engages USE's employees to discharge
substantially all of its functions, these contributions benefitted
Crested. As a result, Crested owes USE $92,500 for one-half of
USE's contribution to the ESOP. Regular and substantial
contributions by the USE to the ESOP are required to maintain the
ESOP in effect. In fiscal 1993 USE contributed 46,591 shares of
Common Stock to the ESOP, for one-half of which Crested owes USE
$87,360.
LOANS TO THREE DIRECTORS. In fiscal 1992 USE loaned Mr. Evans
$24,200 against his promissory note due April 30,1993 and bearing
annual interest at ten percent. This loan is secured with 7,500 of
Mr. Evan's shares of Common Stock. Also in fiscal 1992, USE loaned
Mr. John L. Larsen $147,000 and further agreed to consolidation of
such new loan with outstanding indebtedness of $99,008 owed USE by
members of his immediate family (total debt $246,008), against Mr.
Larsen's promissory note for the total amount due April 30, 1993
and bearing annual interest at ten percent. The Board approved
these transactions to obtain a higher interest rate of return on
the funds compared to commercial rates, and to avoid having USE
stock prices depressed from such persons selling their shares to
meet personal obligations. The loan maturities were extended to
October 30, 1994, and again to May 31, 1996. At May 31, 1994, the
Larsen family indebtedness totaled $432,200, of which $322,800 is
represented by notes secured by 120,600 shares of USE's Common
Stock.
In fiscal 1995, USE made a five year non-recourse loan in the
amount of $112,170 to Harold F. Herron. The loan is secured by
30,000 shares of USE's Common Stock, bears interest at a rate of 7%
and is payable at maturity. The Board approved the loan to obtain
a higher interest rate of return on the funds compared to
commercial rates, and to avoid having USE stock prices depressed
from such persons selling their shares to meet personal
obligations. See Transactions with Directors above.
OTHER DEBT. At June 1, 1990, a brother of Nick Bebout, a director
of USE, and nephew of Daniel P. Svilar, general counsel, was
indebted to USE in the amount of approximately $408,800. This loan
was made in 1983, prior to the time Mr. Nick Bebout became a
director. The non-recourse note was secured by 60,000 shares of
USE's Common Stock and did not bear interest. During fiscal 1991,
Mr. Bebout repaid $36,200 of the loan. At May 23, 1994, the
principal amount of the debt was $372,600.
In fiscal 1993, the Board (Nick Bebout abstaining), extended
maturity of this $372,600 loan and the maturity of a separate
$72,700 loan (from Crested made in 1987, which Mr. Bebout secured
with 20,000 shares of USE Common Stock), to October 30, 1994. In
fiscal 1994, Crested assumed the liability for the non-recourse
loan to USE in exchange for the 60,000 shares of USE's Common Stock
at $260,600 (the market value of the pledged shares on the date of
the assumption). At the same time Crested accepted 22,000 shares
(the pledged shares plus 2,000 stock dividend shares received in
1990) of USE's Common Stock as full payment of the $72,700 non-
recourse loan made by Crested to Mr. Bebout.
36
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following is a list of all record holders who, as of February
28, 1995, beneficially owned more than five percent of the
outstanding shares of Common Stock, as reported in filings with the
Securities Exchange Commission or as otherwise known to the
Company. Except as otherwise noted, each holder exercises sole
voting and dispositive powers over the shares listed opposite the
holder's name. It should be noted that voting and dispositive
powers over certain shares are shared by two or more of the listed
holders. Such securities are reported opposite each holder having
a shared interest therein.
<TABLE>
Amount and Nature of Beneficial Ownership
<CAPTION>
Total
Name and address Voting Rights Dispositive Rights Beneficial Percent
of beneficial owner Sole Shared Sole Shared Ownership of Class(1)
<S> <C> <C> <C> <C> <C> <C>
John L. Larsen(2) 588,497 998,409 539,536 1,244,192 1,811,228 35.1%
201 Hill Street
Riverton, WY 82501
Max T. Evans(3) 107,666 681,259 95,950 927,042 1,022,992 21.0%
1410 Smith Road
Riverton, WY 82501
Daniel P. Svilar(4) 139,841 527,559 122,184 527,559 667,400 13.7%
357 Indiana Street
Hudson, WY 82515
Michael D. Zwickl(5) 53,625 515,359 53,625 515,359 568,984 11.8%
137 North Beech Street
Casper, WY 82601
Kathleen R. Martin(6) -0- 515,359 -0- 515,359 515,359 10.7%
309 North Broadway
Riverton, WY 82501
Crested Corp. 515,359 -0- 515,359 -0- 515,359 10.7%
877 North 8th West
Riverton, WY 82501
Harold F. Herron(7) 98,554 484,631 94,251 730,414 824,665 16.6%
3425 Riverside Road
Riverton, WY 82501
U.S. Energy Corp.
ESOP(8) 165,900 -0- 411,683 -0- 411,683 8.6%
877 North 8th West
Riverton, WY 82501
_________
<FN>
(1) Percent of class is computed by dividing the number of
shares beneficially owned plus any options held by the reporting
person, by the number of shares outstanding plus the shares
underlying options held by that person.
(2) Mr. Larsen exercises sole voting powers over 366,936
directly owned shares, 200,100 shares underlying options and 21,461
shares held in the U.S. Energy Corp. Employee Stock Ownership Plan
("ESOP") account established for his benefit. The directly owned
shares include 132,000 held in joint tenancy with Mr. Larsen's
wife. Those shares also include 27,500 shares gifted to his wife,
that have remained in Mr. Larsen's name. Shares over which shared
voting rights are exercised consist of 832,509 shares held by
corporations of which Mr. Larsen is a director, and 165,900 shares
held by the ESOP, which have not been allocated to accounts
established for specific beneficiaries. The shares held by
corporations of which Mr. Larsen is a director consist of 515,359
shares held by Crested Corp. ("Crested"), 154,538 shares held
directly by The Brunton Company ("Brunton"), 150,000 shares
underlying options held by Brunton and 12,612 shares held by Ruby
Mining Company ("Ruby"). Mr. Larsen shares voting powers over the
unallocated ESOP shares in his capacity as an ESOP Trustee. Shares
over which sole dispositive rights are exercised consist of
directly owned shares and options, less the 27,500 shares gifted,
but not transferred, to his wife. Shares for which shared
dispositive powers are held consist of the 411,683 shares held by
the ESOP, the 515,359 Crested shares, 154,538 Brunton shares,
150,000 share Brunton option and 12,612 Ruby shares. The shares
shown as beneficially owned by Mr. Larsen do not include 42,350
shares owned directly by his wife, who exercises the sole
investment and voting powers over those shares.
(3) Shares over which Mr. Evans exercises sole voting powers
consist of 38,750 directly owned shares, 57,200 shares underlying
options and 11,716 shares held in the ESOP account established for
his benefit. Shares for which Mr. Evans holds sole dispositive
powers are comprised of his directly held shares and the shares
underlying his options. Shares over which Mr. Evans exercises
shared voting rights consist of those held by Crested and the
unallocated ESOP shares. He exercises shared dispositive rights
over the shares held by Crested and the ESOP. Mr. Evans shares
voting and dispositive power over Crested's shares with the
remaining directors of that company, and he shares voting powers
over unallocated ESOP shares with the other ESOP Trustees.
(4) Mr. Svilar exercises sole voting powers over 56,184
directly owned shares, 66,000 shares underlying options and 17,657
shares held in the ESOP account established for his benefit. He
holds sole dispositive power for his directly held shares and the
shares underlying his options. The shares over which he exercises
shared voting and dispositive rights consist of 12,200 shares held
jointly with a family member, and the 515,359 shares held by
Crested, over which he exercises shared investment and voting
powers as a Crested director.
(5) Mr. Zwickl exercises sole voting and dispositive powers
over 53,625 shares held by two (2) limited partnerships. He is the
sole officer and director of the corporate general partner of those
partnerships. As a director of Crested, Mr. Zwickl exercises
shared voting and dispositive powers over the 515,359 shares held
by Crested.
(6) Consists of shares held by Crested over which shared
voting and dispositive powers are exercised with the other Crested
directors.
(7) Mr. Herron exercises sole voting powers over 71,251
directly owned shares, 12,000 shares held for his minor children
under the Wyoming Uniform Transfers to Minors Act (the Minor's
shares), 11,000 shares underlying options and 4,303 shares held in
the ESOP account established for his benefit. Sole dispositive
powers are exercised over the directly held shares, the Minor's
shares and the shares underlying options. Mr. Herron exercises
shared voting rights over 154,538 shares held by Brunton, 150,000
shares underlying options held by Brunton, 12,612 shares held by
Ruby, 1,581 shares held by Northwest Gold, Inc. ("NWG") and the
unallocated ESOP shares. Shared dispositive rights are exercised
over the shares held by the ESOP, and the shares held by Brunton,
Ruby and NWG. Mr. Herron exercises shared dispositive and voting
powers over the shares held by Brunton, Ruby and NWG as a director
of those companies. He exercises shared voting powers over
unallocated ESOP shares in his capacity as an ESOP Trustee. The
6,030 shares held of record by Mr. Herron's wife are excluded from
the shares reported as beneficially owned by him.
(8) The ESOP holds 411,683 shares, 165,900 of which have not
been allocated to accounts of individual plan beneficiaries. The
Trustees exercise the voting rights over the unallocated shares.
Plan participants exercise voting rights over allocated shares.
</TABLE>
DESCRIPTION OF SECURITIES
The USE Articles of Incorporation authorize issuance of 20,000,000
shares of common stock, $.01 par value, and 100,000 shares of
preferred stock, $.01 par value.
COMMON STOCK. Holders of USE common stock are entitled to receive
dividends when and as declared by the USE Board of Directors out of
funds legally available therefor.
Holders of USE common stock are entitled to one vote per share on
all matters upon which such holders are entitled to vote, and
further have the right to cumulate their votes in elections of
directors to the USE Board of Directors. Cumulation is effected by
multiplication of shares held by the number of director nominees,
and voting is by casting the product as desired among the nominees;
directors are elected by a plurality of votes cast.
Pursuant to the USE Articles and the Wyoming Management Stability
Act, shares of USE common stock held by Crested may be voted by
Crested in elections of USE directors, so long as USE conducts
substantial business in Wyoming and is "qualified" under such Act
as having assets in excess of $10,000,000, with a class of stock
listed on NASDAQ or on a principal exchange.
In the event of dissolution, liquidation or winding up of USE,
holders of USE common stock are entitled to share ratably in assets
remaining after creditors (including holders of any preferred
stock, as to liquidation preferences) have been paid.
All outstanding shares of USE common stock (including the USE
Shares offered for sale by this Prospectus) have been fully paid
and nonassessable.
PREFERRED STOCK. The USE Board of Directors is authorized to issue
shares of preferred stock in one or more series, with such rights
to redemption, liquidation preference, dividends, voting and other
matters as determined by the Board of Directors, without
authorization from the USE stockholders. Accordingly, the USE
Board of Directors could issue preferred shares with dividend
rights senior to the common shares. Under the WBCA, separate
classes of stock are entitled to vote separately on certain
substantive transactions (e.g., a merger or sale of most of the
company assets), with approval of the transaction subject to
approval by each class.
No shares of USE preferred stock have been issued, and no series
thereof has been established to date.
EXPERTS
The consolidated financial statements of USE included in this
Prospectus have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports. Reference is made to
said report which includes an explanatory paragraph that describes
the litigation discussed in notes E, F, and K to the USE
consolidated financial statements.
LEGAL MATTERS
Stephen E. Rounds, Denver, Colorado, has acted as special counsel
to USE in connection with this offering.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Legal $5,000.00*
Audit 2,000.00*
SEC and
state fees 500.00*
$7,500.00*
* Estimate
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Wyoming Business Corporation Act ("WBCA"), W.S. 17-16-850 et
seq., provides for indemnification of the registrant's officers,
directors, employees, and agents against liabilities which they may
incur in such capacities. A summarization of circumstances in
which such indemnification may be available follows, but is
qualified by reference to registrant's Articles of Incorporation
and the text of the statute.
In general, any officer, director, employee, or agent may be
indemnified against expenses, fines, settlements, or judgments
arising in connection with a legal proceeding to which such person
is a party, as a result of such relationship, if that person's
actions were in good faith, were believed by him or her to be in
(or at least not opposed to) registrant's best interests, and in
the case of any criminal proceeding, he or she had no reasonable
cause to believe his or her conduct was unlawful. Unless such
person is successful upon the merits in such an action,
indemnification may be awarded only after a determination by
decision of the board of directors (by directors not at the time
parties to the proceeding) or by majority shareholder vote
(excluding shares held or controlled by directors who are at the
time parties to the proceeding), or by opinion of special legal
counsel.
The circumstances under which indemnification would be made in
connection with an action brought on behalf of the registrant are
generally the same as stated above, except that indemnification is
permitted only for reasonable expenses.
In addition, registrant has statutory authority to purchase
insurance to protect its officers, directors, employees, and agents
against any liabilities asserted against them, or incurred in
connection with their service in such capacities. Further,
registrant may advance or reimburse funds to a director who is a
party to a proceeding, for reasonable expenses incurred in
connection with a proceeding.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a)(1) In August, 1993 the registrant sold a $300,000 convertible
promissory note to The Brunton Company, which note was subsequently
converted (on October 19, 1993) to 100,000 common shares of the
registrant at $3.00 per share (which are the shares to which this
registration statement relates).
(2) From November 28, 1995 to February 28, 1995 the registrant
has sold 289,396 common shares, out of a total 400,000 common
shares offered. This private placement was completed as of March
31, 1995, all shares having been sold.
(3) From June 8, 1995 through June 30, 1995 the registrant has
sold 332,500 restricted common shares to accredited investors at
$4.00 per share, out of 1,750,000 common shares offered. This
private placement is continuing at filing date.
(b)(1) and (2) No underwriters are involved in the foregoing
transactions pf (a)(1) and (2). RAF Financial Corp. is placement
agent for the (a)(3) private offering, and will receive a 10
percent sales commission and a 3 percent nonaccountable expense
allowance on shares sold.
(c)(1) See above.
(2) Shares are offered at $3.00. (3) Shares are offered at
$4.00.
(d)(1) The note and the conversion shares were offered and sold in
reliance on the section 4(2) exemption from section 5 registration.
(2) and (3) The common shares in the private placements are
offered and have been sold in reliance on the section 4(2)
exemption from registration, and rule 506 of regulation D
thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following financial statements are filed as a part of this
registration statement:
(1) Consolidated Financial Statements (audited only for fiscal
periods ending May 31)
Registrant and Affiliates
Report of Independent Public Accountants. . . . . . . .42-43
Consolidated Balance Sheets - May 31, 1994 and 1993 . .44-45
February 28, 1995
Consolidated Statements of Operations
for the Years Ended May 31, 1994, 1993 and 1992 . . . .46-47
Nine Months Ended February 28, 1995 and 1994
Consolidated Statements of Shareholders'
Equity for the Years Ended
May 31, 1994, 1993 and 1992 . . . . . . . . . . . . . .48-49
Consolidated Statements of Cash Flows
for the Years Ended May 31, 1994, 1993 and 1992
Nine Months Ended February 28, 1995 and 1994. . . . . .50-51
Notes to Consolidated Financial Statements . . . . . .52-75
(2) Financial Statement Schedules
(i) Registrant and Affiliates
II. Valuation and Qualifying Accounts . . . . . . . 82
(ii) Financials and Schedules of Affiliates
(a) Green Mountain Mining Venture*
Report of Independent Public Accountants
Balance Sheet - December 31, 1993 and 1992*
Statement of Operations for the Period from
June 1, 1990 (Date of Inception) through
December 31, 1993*
Statement of Changes in Partners' Capital for the
Period from June 1, 1990 (Date of Inception)
through December 31, 1993*
Statement of Cash Flows for the Period from
June 1, 1990 (Date of Inception) through
December 31, 1993*
Notes to Financial Statements*
* Incorporated by reference from Registrant's S-4
Registration Statement SEC File No. 33-72280)
initially filed in November 1993 and effective
April 13, 1994.
(b) Sheep Mountain Partners
USE's partner in SMP, Nukem/CRIC, has refused to provide
certain information concerning SMP to SMP's independent
public accountants. The information requested concerns
partnership costs for uranium purchases. USECC and
Nukem/CRIC disagree as to whether uranium costs of the
partnership means: (i) the price which Nukem/CRIC pays
for purchases of uranium for SMP; or (ii) the price which
CRIC charges SMP for uranium.
As a result, the independent public accountants have
informed USE that they have been unable to complete their
audit of SMP, and are unable to render a report on SMP's
financial statements. USE and SMP's independent public
accountants are seeking to resolve these uncertainties so
that SMP's financial statements may be finalized and
filed. When and if these matters are resolved, the SMP
financial statements will be filed under cover of an
amendment.
Balance Sheets - May 31, 1994 and 1993
Statements of Operations - Years Ended
May 31, 1994, 1993 and 1992
Statements of Changes in Partners' Capital -
Years Ended May 31, 1994, 1993 and 1992
Statements of Cash Flows - Years Ended
May 31, 1994, 1993 and 1992
Notes to the Financial Statements
Schedules to SMP's Financial Statements
*To be filed by amendment to registration statement.
All other schedules have been omitted because the
information is not applicable or because the information
is included in the financial statements.
37
(b) Exhibits.
Page
No.
2.1 Agreement and Plan of Share Exchange (Brunton)
3.1 USE Restated Articles of Incorporation
3.1(a) USE Articles of Amendment
3.2 USE Bylaws
4.1 USE 1989 Incentive Stock Option Plan, as amended 1/6/94
4.1(a) USE Restricted Stock Bonus Plan, as amended 2/7/94
5.1 and
24.2 Opinion and Consent of Stephen E. Rounds, Esq.
10.2 Stock Sale and Option Agreement with Brunton [includes
Brunton loans of $211,800 to USE and $76,760 to Crested]
(dated April 30, 1993).
10.3 Credit Facility (Brunton loan of $300,000 to USE,
convertible to USE common stock) (dated August 3, 1993)
10.4 Stock Purchase Agreement, and filed exhibits
(Plateau Resources)
24.1 Consent of Independent Public Accountants*
* Previously filed.
ITEM 17. UNDERTAKINGS.
The registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
38
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any fcts or events arising
after the effective date of the registrations statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(a)(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(a)(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of this offering.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors,
officers, and controlling persons of the registrant, the registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the
registrant in the successful defense of any action suit or
proceeding) is asserted by such officer, director, or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, duly authorized in the City of
Riverton, State of Wyoming, on July 5, 1995.
U.S. ENERGY CORP.
By:
John L. Larsen, President
and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933,
this registration statement was signed by the following persons in
the capacities and on the dates stated.
Signature Capacity Date
s/ John L. Larsen President, 7/5/95
____________________ and Director
s/ Max T. Evans Director 7/5/95
____________________
s/ Harold F. Herron Director 7/5/95
____________________
s/ Director
____________________
Don C. Anderson
s/
____________________ Director
David W. Brenman
s/ Nick Bebout Director 7/5/95
____________________
s/ R. Scott Lorimer Prin. Fin.Officer 7/5/95
____________________
