<PAGE> 1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the
--- Securities Exchange Act of 1934
For the quarterly period ended September 30, 1998 or
Transition report pursuant to Section 13 or 15(d) of the
--- Securities Exchange Act of 1934
For the transition period from to
---------- ----------
Commission file number 0-17171
URANIUM RESOURCES, INC.
(exact name of Registrant as specified in its Charter)
DELAWARE 75-2212772
(State of Incorporation) (I.R.S. Employer Identification No.)
12750 MERIT DRIVE, SUITE 1020, DALLAS, TEXAS 75251
(Address of principal executive offices, including zip code)
(972) 387-7777
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of Each Class of Common Stock Number of Shares Outstanding
----------------------------------- ----------------------------
Common Stock, $.001 par value 12,053,027 as of November 12, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
URANIUM RESOURCES, INC.
1998 THIRD QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1998 (Unaudited) and
December 31, 1997 3
Consolidated Statements of Operations -
Nine Months and Three Months Ended
September 30, 1998 and 1997 (Unaudited) 5
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1998
and 1997 (Unaudited) 6
Notes to Consolidated Financial
Statements - September 30, 1998 (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II -- OTHER INFORMATION 12
SIGNATURES 13
INDEX TO EXHIBITS E-1
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
URANIUM RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997 (NOTE 1)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
------------- -------------
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 978,515 $ 2,325,158
Short-term investment:
Certificate of deposit, restricted 3,561,963 3,304,195
Receivables, net 3,293,569 4,507,090
Uranium inventory 2,431,414 2,260,200
Materials and supplies inventory 98,977 91,047
Prepaid and other current assets 173,885 253,910
------------- -------------
Total current assets 10,538,323 12,741,600
------------- -------------
Property, plant and equipment, at cost:
Uranium properties 102,533,163 97,100,015
Other property, plant and equipment 538,973 580,676
Less-accumulated depreciation and depletion (58,513,873) (36,235,274)
------------- -------------
Net property, plant and equipment 44,558,263 61,445,417
Other assets 561,702 676,952
------------- -------------
$ 55,658,288 $ 74,863,969
============= =============
</TABLE>
The accompanying notes to financial statements are an integral
part of these consolidated balance sheets.
3
<PAGE> 4
URANIUM RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997 (NOTE 1)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
------------- -------------
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,287,041 $ 3,233,277
Notes payable 3,835,000 1,950,000
Accrued interest payable 2,179 5,035
Current portion of long-term debt 8,000 7,000
Royalties payable 606,220 630,284
Current portion of restoration reserve 381,000 511,000
Other accrued liabilities 369,456 405,814
------------ ------------
Total current liabilities 6,488,896 6,742,410
------------ ------------
Other long-term liabilities and deferred credits 5,416,569 4,787,427
Long-term debt, less current portion 6,144,227 6,462,343
Deferred federal income taxes 1,066,810 4,967,000
Shareholders' equity:
Common stock, $.001 par value, shares authorized:
25,000,000 shares issued and outstanding
(net of treasury shares): 1998 - 12,053,027
1997 - 12,053,027 12,205 12,205
Paid-in capital 40,629,923 40,222,359
Retained earnings (accumulated deficit) (4,090,924) 11,679,643
Less: Treasury stock (152,500 shares), at cost (9,418) (9,418)
------------ ------------
Total shareholders' equity 36,541,786 51,904,789
------------ ------------
$ 55,658,288 $ 74,863,969
============ ============
</TABLE>
The accompanying notes to financial statements are an integral
part of these consolidated balance sheets.
4
<PAGE> 5
URANIUM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (NOTE 1)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Uranium sales -
Produced uranium $ 2,579,457 $ 5,297,730 $ 8,689,883 $ 12,278,910
Purchased uranium 1,924,100 4,201,550 4,321,400 4,204,963
------------ ------------ ------------ ------------
Uranium sales 4,503,557 9,499,280 13,011,283 16,483,873
Costs and expenses:
Cost of uranium sales -
Direct cost of purchased uranium 1,574,701 3,505,489 3,591,371 3,505,489
Royalties 132,345 292,977 407,862 683,525
Operating expenses 1,358,149 3,156,980 3,979,050 5,645,615
Provision for restoration and reclamation costs 165,818 424,840 493,252 864,343
Depreciation and depletion 1,357,225 2,926,816 4,426,509 6,261,738
Writedown of uranium properties and other assets 18,034,694 -- 18,034,694 --
------------ ------------ ------------ ------------
Total cost of uranium sales 22,622,932 10,307,102 30,932,738 16,960,710
------------ ------------ ------------ ------------
Loss from operations
before corporate expenses (18,119,375) (807,822) (17,921,455) (476,837)
Corporate expenses -
General and administrative 530,978 744,313 1,806,461 2,236,225
Depreciation 4,966 5,749 14,698 17,410
------------ ------------ ------------ ------------
Total corporate expenses 535,944 750,062 1,821,159 2,253,635
------------ ------------ ------------ ------------
Loss from operations (18,655,319) (1,557,884) (19,742,614) (2,730,472)
Other income (expense):
Interest expense, net of capitalized interest (37,863) (34,391) (114,270) (134,013)
Interest and other income, net 47,513 75,462 144,317 932,754
------------ ------------ ------------ ------------
Total other income 9,650 41,071 30,047 798,741
------------ ------------ ------------ ------------
Loss before federal income taxes (18,645,669) (1,516,813) (19,712,567) (1,931,731)
Federal income tax benefit:
Current -- -- -- (225)
Deferred (3,730,000) (303,000) (3,942,000) (386,000)
------------ ------------ ------------ ------------
Net loss $(14,915,669) $ (1,213,813) $(15,770,567) $ (1,545,506)
============ ============ ============ ============
Net loss per common share and
common equivalent (basic and diluted) $ (1.24) $ (0.10) $ (1.31) $ (0.13)
============ ============ ============ ============
Weighted average common shares and common
equivalent shares per share data
Basic 12,053,027 12,028,288 12,053,027 11,661,904
============ ============ ============ ============
Diluted 12,053,027 12,028,288 12,053,027 11,661,904
============ ============ ============ ============
</TABLE>
The accompanying notes to financial statements are an integral
part of these consolidated statements.
5
<PAGE> 6
URANIUM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (NOTE 1)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operations:
Net loss $(15,770,567) $ (1,545,506)
Reconciliation of net income to cash provided by operations-
Provision for restoration and reclamation costs 493,252 864,343
Depreciation and depletion 4,441,207 6,279,148
Writedown of uranium properties and other assets 18,034,694
Credit for deferred income taxes (3,942,000) (386,000)
Decrease in restoration and reclamation accrual (23,891) (292,443)
Other non-cash items, net 528,549 69,966
------------ ------------
Cash flow provided by operations, before changes in
operating working capital items 3,761,244 4,989,508
Effect of changes in operating working capital items-
(Increase) decrease in receivables 1,213,521 (4,096,442)
(Increase) decrease in inventories (170,220) 478,976
Increase in prepaid and other current assets (219,030) (357,758)
Increase (decrease) in payables and accrued liabilities (2,009,514) 958,916
------------ ------------
Net cash provided by operations 2,576,001 1,973,200
------------ ------------
Investing activities:
Increase in investments (257,768) (440,292)
Additions to property, plant and equipment -
Kingsville Dome (2,974,452) (7,241,321)
Rosita (227,218) (1,896,291)
Vasquez (427,271) (157,265)
Alta Mesa (55,103) (210,157)
Churchrock (833,416) (607,060)
Crownpoint (594,670) (845,732)
Other property (405,672) (309,726)
Increase in other assets (26,752) (20,472)
------------ ------------
Net cash used in investing activities (5,802,322) (11,728,316)
------------ ------------
Financing activities:
Payments and refinancings of principal (5,455,322) (6,170,992)
Proceeds from borrowings 7,335,000 --
Issuance of common stock and warrants, net -- 87,399
------------ ------------
Net cash from (used in) financing activities 1,879,678 (6,083,593)
------------ ------------
Net decrease in cash and cash equivalents (1,346,643) (15,838,709)
Cash and cash equivalents, beginning of period 2,325,158 16,934,276
------------ ------------
Cash and cash equivalents, end of period $ 978,515 $ 1,095,567
============ ============
</TABLE>
The accompanying notes to financial statements are an integral
part of these consolidated statements.
6
<PAGE> 7
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The accompanying statements should be read in conjunction
with the audited financial statements included in the Company's 1997 Annual
Report on Form 10-K. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended September 30, 1998
are not necessarily indicative of the results that may be expected for the full
calendar year ending December 31, 1998.
2. LONG-TERM DEBT
EXTENSION OF NOTE TERMS
In March 1998, the Company entered into an agreement to extend the maturity
date from May 31, 1998 to May 31, 2000 on the $6,000,000 secured convertible
note that was issued to mutual funds managed by Ryback Management Company. The
note is convertible into shares of the Company's common stock. In exchange for
the extension in the term of the note, the conversion price was adjusted from
$4.00 per share to $3.00 per share. In the same transaction, the exercise price
for warrants held by the lenders to purchase 1,000,000 shares of the Company's
common stock has also been adjusted from $4.00 to $3.00 per share, and the
expiration date of the warrants has been extended from May 31, 1998 to May 31,
2000. In connection with this transaction the Company allocated $408,000 for the
value of the warrants resulting in an effective rate of 10% on the refinanced
note.
CAPITALIZED INTEREST
Interest capitalized in the nine months ended September 30, 1998 and 1997
was $497,000 and $265,000, respectively. Total interest costs in these periods
were $611,000 and $399,000, respectively.
3. URANIUM INVENTORY
Uranium inventory consists of uranium concentrates (U3O8) located at the
Company's Rosita and Kingsville Dome sites and also at converters awaiting
delivery to customers. All uranium inventories are valued at the lower of cost
(first-in, first-out) or market. In the first nine months of 1998, the Company
reduced the carrying value of its uranium inventory by $1,304,000 reflecting an
adjustment to the lower of its cost or market value. This adjustment increased
operating expenses by $852,000 and depreciation and depletion by $452,000 in the
first nine months of 1998. The lower of cost or market value adjustment for the
third quarter of 1998 was $463,000 and resulted in an increase to operating
expenses of $362,000 and depreciation and depletion of $101,000.
4. WRITEDOWN OF URANIUM PROPERTIES
The Company's ability to recover its investment in its uranium properties
is dependent upon a number of factors, including, the sales price of uranium,
the Company's ability to deliver profitable uranium production to its existing
and future sales contracts and the Company's ability to finance the capital
costs necessary to develop and produce future projects. The market price of
uranium has been volatile in recent years and is currently below the Company's
current cost of uranium production.
7
<PAGE> 8
In view of the continuing weakness in uranium prices, the Company has
completed a review of the carrying values of its uranium properties and has
determined that a writedown was required at September 30, 1998 with respect to
its existing producing properties of approximately $18,000,000. The writedown
was recorded as a non-cash charge against earnings in the third quarter of 1998.
The writedown in the carrying value of the Kingsville Dome and Rosita properties
totaled $12,300,000 and $5,600,000, respectively. The net carrying value of
these properties at September 30, 1998 (after giving effect to the writedown)
was approximately $6,500,000 for Kingsville Dome and $900,000 for Rosita.
The review utilized a number of estimates and assumptions, including
current and projected uranium prices (which assumes higher prices in the future)
and the timing and costs of future production activities. The estimates also
assume that the Company is able to operate each of its production sites in the
future at production rates that are higher than the Company's production rate
for the first nine months of 1998 and as a result operate at costs that are
significantly below those experienced for the first nine months of 1998. The
inability of the Company to achieve such assumptions would have an impact on the
Company's ability to recover its current and future investments in its uranium
properties.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward Looking Statements
This Item 2 contains "forward-looking statements" which are made pursuant
to the "safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995. These statements include, without limitation, statements relating to
liquidity, financing of operations, continued volatility of uranium prices,
estimates of future capital expenditures, proved undeveloped reserves and other
such matters. The words "believes," "expects," "projects," "targets," or
"estimates" and similar expressions identify forward-looking statements. The
Company does not undertake to update, revise or correct any of the
forward-looking information. Readers are cautioned that such forward-looking
statements should be read in conjunction with the Company's disclosures under
the heading: "Cautionary Statement for the Purposes of the 'Safe Harbor'
Provisions of the Private Securities Litigation Reform Act of 1995" in the
Company's 1997 Annual Report on Form 10-K.
CAPITAL RESOURCES AND LIQUIDITY
Operating Cash Flows and Liquidity
For the quarter ended September 30, 1998, the Company's cash and cash
equivalents were $979,000 a decrease of $515,000 as compared to a decrease of
$2,761,000 for the third quarter of 1997. Cash and cash equivalents decreased by
$1,347,000 for the nine months ended September 30, 1998 compared to a decrease
of $15,839,000 for the same period of 1997. The Company's uranium operations
generated a negative cash flow from operations of $1,751,000 for the quarter
ended September 30, 1998, in comparison to a cash flow from operations in the
same period in 1997 of $1,839,000. Net cash provided by uranium operations for
the nine months ended September 30, 1998 was $2,576,000 compared to cash flow
from operations of $1,973,000 for the same period in 1997. The Company's net
working capital at September 30, 1998 was $4,049,000.
As a result of the continued decline in uranium prices, the Company has
begun plans to shut-in and place on stand-by its two South Texas facilities by
the end of this year or the first quarter of 1999. The Company will continue to
maintain certain activities at these locations including its ongoing groundwater
restoration efforts. The Company has also begun implementing additional steps
for the remainder of 1998 and 1999 to preserve cash by reducing expenses and
maximizing the cash flow from its existing sales contracts. The Company has
agreed to accelerate the 1999 delivery under one its contracts to December of
this year.
8
<PAGE> 9
The Company is consolidating certain of its administrative locations, and
reducing its workforce. Additional measures are planned to be implemented in
1999. The Company projects that upon the implementation of these strategies it
will be able to maintain a continued positive liquidity position through at
least 1999. However, there can be no assurances that the Company will be able to
fully implement these strategies. If certain of these strategies cannot be
implemented and if alternative options are not available, the Company's
operations and liquidity would be negatively impacted.
Investing Cash Flows
South Texas Projects
During the nine months ending September 30, 1998, development expenditures
totaling $2,974,000 and $227,000 were incurred at the Company's Kingsville Dome
and Rosita sites, respectively. The expenditures at the Kingsville Dome project
were primarily for development of new wellfields in PAA #3 and on the
acquisition and construction of the new remote ion exchange plants to be used in
production from PAA #3.
Capital expenditures incurred at the Vasquez project for the nine months
ended September 30, 1998 were $427,000 and were related primarily to the
completion of permitting and licensing activities. Capital expenditures incurred
on the Alta Mesa project for the nine months ended September 30, 1998 were
minimal and were related primarily to permitting and licensing activities. The
Company expects to fund its 1998 operating and capital expenditures at its
Kingsville Dome, Rosita, Vasquez and Alta Mesa projects from cash on hand, sales
proceeds under its 1998 uranium deliveries and through existing financing
arrangements. The Kingsville and Rosita projects will be placed on stand-by and
future development at the Company's South Texas properties will be dependent
upon uranium prices and the availability of capital. (See "Dependence on Uranium
Prices" and "Impact of Uranium Price Declines").
New Mexico Projects
Capital expenditures at the Company's Churchrock and Crownpoint projects
for permitting and land holding costs totaled approximately $1,428,000 for the
nine months ending September 30, 1998 compared to costs of $1,453,000 for the
same period in 1997. Continued permitting and land holding costs for 1998 and
1999 are projected to be minimal and are expected to be met through operations.
Future development of these properties will be dependent on uranium prices and
the availability of capital. (See "Dependence on Uranium Prices" and "Impact of
Uranium Price Declines").
Financing Cash Flows
In May 1996, the Company entered into a $3.0 million revolving credit
facility. This facility was renewed and expanded for a two year term to a $5.0
million credit facility in July 1997. This facility is secured by the Company's
uranium inventory and/or by receivables from its uranium sales contracts.
Principal and interest payments under the loan are due monthly, with interest on
the loan accruing at the prime rate plus 1%. Borrowings under this facility at
September 30, 1998 totaled $3,835,000.
In June 1996, the Company received $4.0 million in proceeds from the
one-year note entered into with the Lindner Dividend Fund. The terms of the note
provided for the payment of both the principal and accrued interest by June 1997
with interest on the note accruing at a rate of 6.5% per annum. The $4.0 million
principal amount and accrued interest on this note was paid in January 1997.
The Company was obligated to pay a production payment royalty of $1.00 per
pound on the first three million pounds of uranium produced and sold from either
Kingsville Dome or Rosita. The Company has cumulatively produced in excess of
three million pounds of uranium from these properties and made the final payment
of approximately $730,000 on this obligation in January 1997.
9
<PAGE> 10
In the first nine months of 1997 the Company generated $87,000 from the
issuance of 25,500 shares of common stock associated with the exercise of
certain stock warrants.
Other Non-Cash Transactions
In March 1997, the Company acquired from Santa Fe Pacific Gold Corporation
("Santa Fe") certain mineral interests covering approximately 500,000 acres in
northwestern New Mexico in exchange for 1.2 million shares of the Company's
common stock and a commitment for certain exploration expenditures.
Approximately one-third of the acreage comprises uranium mineral rights and the
remaining acreage comprises exploration rights with rights to purchase and
develop any uranium mineral interests found. Included in the purchase is an
existing royalty obligation from the Company to Santa Fe on certain properties
currently under lease from Santa Fe. The Company estimates that there is
approximately 14.7 million pounds of proven in-place uranium reserves on 37,000
acres of the property on which it acquired the entire mineral estate (excluding
coal). Also included in the 500,000 acres is the fee interest in uranium on
approximately 140,000 acres and the exclusive uranium rights, for 17 years, on
approximately 346,000 acres.
DEPENDENCE ON URANIUM PRICES
The Company's operations are dependent on the price of uranium and its
relationship to the Company's cost of production. Historically, uranium prices
have demonstrated significant volatility and have been and will continue to be
affected by factors outside of the Company's control.
The most recent factor which has had a significant impact on the uranium
industry and on uranium prices was the privatization by the U.S. Government of
United States Enrichment Corp. ("USEC") (the entity which produces and sells
uranium fuel enrichment services for commercial nuclear power plants and natural
uranium) and the disclosure of substantial uranium inventories held by USEC
which could be available for sale into the uranium market. USEC has disclosed
that it holds approximately 75 million pounds of uranium and uranium equivalent
products of which some 33 million pounds may have been transferred to USEC by
the United States Department of Energy over and above what was provided for in
the USEC Privatization Act of 1996. Since the date USEC disclosures were
announced the spot price of uranium has declined 16%, from $10.90 to the current
price of $9.15 per pound.
IMPACT OF URANIUM PRICE DECLINES
While the ultimate impact and timing to the uranium markets of the USEC
privatization and the potential disposition of their newly disclosed uranium
inventory levels is uncertain, there is potential for this event along with the
ultimate disposition of the highly enriched Russian uranium and U.S. Government
uranium stockpiles to continue to depress uranium prices or to inhibit prices
from rising to higher levels over the next several years. The prospect of
potentially depressed uranium prices for continued periods could adversely
impact the Company's ability to secure additional long-term sales contracts at
prices that exceed the Company's overall costs.
The market price of uranium has fallen to levels that are currently below
the Company's cost of uranium production. The outlook for uranium prices through
the end of 1999 indicates that a price rebound during this period is not likely.
In order for the Company to maximize the existing and future cash flow
projected from its existing sales contracts and in light of the Company's
current operating position, its uranium sales contract portfolio and the current
and projected uranium market prices, a number of decisions have been made
regarding the Company's operating plans for 1999. The Company will satisfy the
delivery requirements under its remaining 1998 and 1999 sales contracts through
its existing inventory position and by taking advantage of the low uranium
prices and arbitraging its contractual position in the market. The production
operations in South Texas at the Kingsville Dome and Rosita facilities will be
shut-in and placed on stand-by once inventory levels have been achieved that
meet the Company's 1998 and 1999 "produced pound" contractual requirements. This
timing is expected to occur in the fourth quarter of this year or the first
quarter of 1999. The re-commencement of production at Kingsville and
10
<PAGE> 11
Rosita will be dependent upon a recovery of uranium prices to profitable levels
and the Company's ability to obtain the necessary capital to finance further
development of these projects. While on stand-by, the Company will continue to
maintain certain activities at these locations including its ongoing restoration
efforts.
In connection with the shut-in of production, the Company will be making
additional cost reductions at all levels. These cost savings will include the
consolidation of certain administrative locations, personnel reductions in both
its operating and its general and administrative workforce and reductions in
compensation for the Company's executive management.
The Company continues to evaluate its core uranium assets in Texas and New
Mexico in order to optimize the value of these assets to the Company. Possible
alternatives for these uranium assets may include the sale or joint venturing of
certain of these projects or the termination of the Company's rights for those
properties whose holding costs are determined to be in excess of their expected
value.
The Company has entered into discussions with a number of domestic and
international uranium production companies regarding the divestiture of all or a
portion of the Company or its assets. The discussions regarding a possible
merger or acquisition of the Company as a whole, have occurred over the past
several months, have not to date resulted in an expression of interest. However,
the communication has resulted in certain of these uranium production companies
expressing an interest in certain of the Company's projects and assets. These
discussions are currently in their preliminary stage and no assurance can be
given that such discussions will proceed or will result in an agreement.
WRITEDOWN OF URANIUM PROPERTIES
In view of the continuing weakness in uranium prices, the Company has
completed a review of the carrying values of its uranium properties and has
determined that a writedown was required at September 30, 1998 with respect to
its existing producing properties of approximately $18,000,000. The writedown
was recorded as a non-cash charge against earnings in the third quarter of 1998.
The writedown of the carrying value of the Kingsville Dome and Rosita properties
totaled $12,300,000 and $5,600,000, respectively. The net carrying value of
these properties at September 30, 1998 (after giving effect to the writedown)
was approximately $6,500,000 for Kingsville Dome and $900,000 for Rosita.
The review utilized a number of estimates and assumptions, including
current and projected uranium prices (which assumes higher prices in the future)
and the timing and costs of future production activities. The estimates also
assume that the Company is able to operate each of its production sites in the
future at production rates that are higher than the Company's production rate
for the first nine months of 1998 and as a result operate at costs that are
significantly below those experienced for the first nine months of 1998. The
inability of the Company to achieve such assumptions would have an impact on the
Company's ability to recover its current and future investments in its uranium
properties.
ENVIRONMENTAL ASPECTS
The Company utilizes ISL solution mining technology as its only mining
method. Unlike conventional uranium mining companies, the Company's mining
technology does not create "tailings". Nevertheless, the Company is highly
regulated. Its primary environmental costs to date have been related to
obtaining and complying with environmental mining permits and, once mining is
completed, the reclamation and restoration of the surface areas and underground
water quality to a condition consistent with applicable requirements. Accruals
for the estimated future cost of such activities are made on a per-pound basis
as part of production costs. See the Consolidated Statements of Operations for
the applicable provisions for such future costs. See also Note 1 - "Restoration
and Reclamation Costs" of Notes to Consolidated Financial Statements in the
Company's Form 10-K as of December 31, 1997.
11
<PAGE> 12
RESULTS OF OPERATIONS
Revenues, earnings from operations and net income for the Company can
fluctuate significantly on a quarter to quarter basis during the year because of
the timing of deliveries requested by its utility customers. The Company's
customers have generally elected, where possible, to take delivery of the bulk
of the annual deliveries under their long-term sales contracts later in each
year. Accordingly, operating results for any quarter or year-to-date period are
not necessarily comparable and may not be indicative of the results which may be
expected for future quarters or for the entire year.
The Company recorded a writedown of the carrying value of certain of its
uranium properties in the third quarter of 1998. (See "Writedown of Uranium
Properties".)
Three Months and Nine Months Ended September 30, 1998 and 1997
The following is a summary of the key operational and financial statistics
related to the Results of Operations:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(In thousands, except per (In thousands, except per
share data share data)
<S> <C> <C> <C> <C>
Uranium sales revenue(1) $ 4,504 $ 9,499 $ 13,011 $ 16,484
Total pounds delivered 328 730 860 1,165
Average sales price/pound(2) $ 15.00 $ 14.62 $ 15.66 $ 15.30
Pounds produced 162 165 519 588
Pounds purchased 160 415 360 415
Average production cost of produced pounds $ 16.69 $ 16.66 $ 17.23 $ 16.47
Average cost of purchased pounds $ 9.84 $ 9.93 $ 10.29 $ 9.93
Average cost of produced pounds sold (3) $ 14.35 $ 17.17 $ 14.85 $ 15.66
Average cost of purchased pounds sold $ 9.84 $ 9.86 $ 10.29 $ 9.86
</TABLE>
(1) Revenues for the three and nine months ended September 30, 1998 include
approximately $655,000 for the sales of Russian uranium sold under the Matched
Sales Amendment. The same periods in 1997 include approximately $2.8 million in
revenue from sales of similar Russian material.
(2) Average sales price does not include the sale of Russian material which is
considered as a "pass through" sale under the Matched Sales Amendment.
(3) Per pound costs in 1998 exclude adjustments made in the three months and
nine months ended September 30, 1998 to reduce the carrying value of the
Company's uranium inventory to the lower of its cost or market value by
approximately $463,000 and $1,304,000, respectively.
12
<PAGE> 13
Revenue from uranium sales in the third quarter of 1998 decreased by
$4,996,000 from 1997 amounts. The average sales price for total uranium
deliveries in the third quarter ending September 30, 1998 and 1997 was $15.00
per pound and $14.62 per pound, respectively (excluding the effect of the "pass
through" sales under the Company's Matched Sales program.) Total uranium
deliveries in the third quarter of 1998 of 328,000 pounds was 402,000 pounds
lower than those made in the same period in 1997.
Revenue from uranium sales in the first nine months of 1998 decreased by
$3,473,000 from 1997 levels. The average sales price for total uranium
deliveries in the first nine months of 1998 and 1997 was $15.66 per pound and
$15.30 per pound, respectively. Total uranium deliveries in the first nine
months of 1998 of 519,000 pounds was 69,000 pounds lower than those made in the
same period in 1997.
Details of the cost of uranium sales were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Cost of purchased uranium $ 1,575 $ 3,505 $ 3,591 $ 3,505
Royalties 132 293 408 684
Operating expenses 1,358 3,157 3,979 5,646
Provision for restoration and reclamation costs 166 425 493 864
Depreciation and depletion of uranium properties 1,357 2,927 4,427 6,262
------- ------- ------- -------
Total cost of uranium sales $ 4,588 $10,307 $12,898 $16,961
======= ======= ======= =======
</TABLE>
The Company produced 162,000 pounds of uranium from the Rosita and
Kingsville Dome facilities in the three months ending September 30, 1998,
compared to 165,000 pounds in the same quarter of 1997. The average per pound
production cost for the third quarter of 1998 was $16.69, compared to $16.66 in
the same quarter in 1997.
For the nine month period ending September 30, 1998, the Company produced
519,000 pounds compared to 588,000 pounds in the same period during 1997. The
average per pound production cost for the first nine months of 1998 was $17.23
compared to $16.47 in the same period in 1997.
In January 1998, the Company received the necessary regulatory permits at
Kingsville Dome to expand its production into PAA #3, located northwest of the
current production fields. This new production area is expected to contain
approximately 2.0 million in-place pounds (70% of which are projected to be
produced). Production in the first wellfield commenced in June 1998. Beginning
with the first wellfield in PAA #3, the Company has implemented new operating
techniques utilizing a remote ion exchange plant concept. This change in
technique has demonstrated an increased production efficiency and is expected to
reduce overall production costs, however, there can be no assurance that such
positive results will be sustainable over the Company's future wellfields.
Operating expenses attributable directly to the sale of Kingsville Dome and
Rosita produced pounds totaled $3,127,000 ($6.12 per pound) in the first nine
months ended September 30, 1998 compared to $5,646,000 ($6.98 per pound) for
Kingsville Dome and Rosita produced pounds that were sold in the same period in
1997.
The provision for restoration and reclamation in the first nine months
ended September 30, 1998 consists of $482,000 ($0.94 per pound) for production
sold during 1998 and $11,700 for costs associated with reclamation activities
related to the Benavides project (a previous mining location). The provision for
restoration and reclamation in the nine months ended September 30, 1997 consists
of $765,000 ($0.95 per pound) for production sold and $99,700 for costs
associated with reclamation at the Benavides project.
13
<PAGE> 14
The depreciation and depletion provision in the nine months ended September
30, 1998 consisted of $3,974,000 ($7.78 per pound) for Rosita and Kingsville
Dome production sold. The depreciation and depletion provision in the first nine
months of 1997 consisted of $6,262,000 ($7.74 per pound) for Rosita and
Kingsville Dome production sold.
In the first nine months of 1998, the Company reduced the carrying value of
its uranium inventory by $1,304,000 reflecting an adjustment to the lower of its
cost or market value. This adjustment increased operating expenses by $852,000
and depreciation and depletion by $452,000 in the first nine months of 1998. The
lower of cost or market value adjustment for the third quarter of 1998 was
$463,000. This adjustment increased operating expenses by $362,000 and
depreciation and depletion by $101,000 in the third quarter of 1998.
Royalty expenses in the first nine months of 1998 totaled $408,000 compared
to $684,000 in 1997. The decrease in 1998 is directly attributable to the
reduction in sales of produced uranium and a lower spot market price compared to
1997.
The average cost of uranium purchases made in the first nine months of 1998
was $10.29 compared to $9.93 for the same period in 1997. Total deliveries in
the first nine months of 1998 consisted of 511,000 produced pounds at an average
cost per pound of $14.85 and 349,000 purchased pounds at a cost of $10.29 per
pound. During the same period in 1997, the Company delivered 809,000 produced
pounds, at an average cost per pound of $15.66 and 355,000 purchased pounds at
an average cost per pound of $9.86.
Corporate expenses consisting of general and administrative ("G&A")
expenses decreased to $1,806,000 in the first nine months of 1998 from
$2,236,000 in the first nine months of 1997. This reduction resulted primarily
from employee incentive awards paid in the first nine months of 1997 of $170,000
compared to $4,000 in 1998 and a reduction in labor costs of $266,000.
Total other income for the first nine months of 1998 decreased by $769,000
from the same period in 1997. This change resulted from the settlement in June
1997 of the Company's lawsuit against The Professional Bank of Denver, Colorado
($575,000) and from lower interest income and was offset by a reduction in net
interest of $213,000 and $20,000 respectively for the first nine months of 1998.
The lower interest income resulted from reductions in average available cash and
investment balances which were generated from the Company's equity placement in
December 1996.
YEAR 2000 READINESS
The Company currently utilizes computer software in the management of its
operations and in accounting for its operating results that could be affected by
the date change in the year 2000 (the "Y2K issue"). All critical information
technology software and systems utilized by the Company has been purchased from
and are supported by third party vendors. The Company has conducted a review of
the potential impact of the year 2000 on such systems, and believes that it will
not encounter significant operational or financial costs related to compliance
with this issue.
The Y2K issue also involves the impact of the date change in the year 2000
on machines and process controls which may utilize embedded technology as a part
of their components. The Company relies on certain non-information technology
systems such as telephones, facsimile machines, and other equipment which may
have embedded technology such as microprocessors, which may or may not be year
2000 compliant. The assessment of this technology is outside of the Company's
control and such technology could adversely affect the Company's ability to
conduct business. Management believes any such disruption is not likely to have
a significant effect on the Company's financial position or operations.
14
<PAGE> 15
The Company may also be impacted by the Y2K issues of certain of the
Company's third-party suppliers and its customers. The third-party suppliers,
vendors, and customers area is currently in the assessment phase. Formal
communications have been initiated with the Company's vendors, customers and
others with whom the Company has significant business relationships. The Company
continues to evaluate responses and make additional inquiries as needed. As the
Company is in the process of collecting this information from third parties,
management cannot currently determine whether third party compliance issues will
materially affect its operations. However, the Company is not currently aware of
any third party issues that would cause a significant business disruption.
Management anticipates a complete evaluation to conclude by the end of the
second quarter 1999.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Report on Form 8-K was filed October 27, 1998.
Item 5 Other Events
Financial Data Schedule
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
URANIUM RESOURCES, INC.
Dated: November 16, 1998 By: /S/ Paul K. Willmott
-------------------------
Paul K. Willmott
Director, President and
Chief Executive Officer
Dated: November 16, 1998 By: /S/ Thomas H. Ehrlich
--------------------------
Thomas H. Ehrlich
Vice President - Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer)
17
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
27 FINANCIAL DATA SCHEDULE
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 978,515
<SECURITIES> 3,561,963
<RECEIVABLES> 3,293,569
<ALLOWANCES> 0
<INVENTORY> 2,431,414
<CURRENT-ASSETS> 10,538,323
<PP&E> 103,072,136
<DEPRECIATION> (58,513,873)
<TOTAL-ASSETS> 55,658,288
<CURRENT-LIABILITIES> 6,488,896
<BONDS> 6,144,227
0
0
<COMMON> 12,205
<OTHER-SE> 36,529,581
<TOTAL-LIABILITY-AND-EQUITY> 55,658,288
<SALES> 13,011,283
<TOTAL-REVENUES> 13,011,283
<CGS> 30,932,738
<TOTAL-COSTS> 32,753,897
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114,270
<INCOME-PRETAX> (19,712,567)
<INCOME-TAX> (3,942,000)
<INCOME-CONTINUING> (15,770,567)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,770,567)
<EPS-PRIMARY> (1.31)
<EPS-DILUTED> (1.31)
</TABLE>
