<PAGE> 1
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[Fee required]
For the fiscal year ended December 31, 1998 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
ACT OF 1934
[No fee required]
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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.001 par value per share
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the Common Stock of the Registrant held by
nonaffiliates at March 25, 1999 was approximately $1,096,839.
Number of shares of Common Stock outstanding as of March 25, 1999: 12,053,027
shares.
Documents Incorporated by Reference:
None
================================================================================
<PAGE> 2
URANIUM RESOURCES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I............................................................................................................1
ITEM 1. BUSINESS...............................................................................................1
The Company..................................................................................................1
Marketing Strategy/Uranium Sales Contracts................................................................2
Reserves..................................................................................................4
The ISL Mining Process....................................................................................4
Environmental Considerations and Permitting; Water Rights.................................................6
The Uranium Industry.........................................................................................8
General...................................................................................................8
Market Price Formation....................................................................................9
Sources of Supply........................................................................................10
Required Primary Production..............................................................................12
Uranium Prices...........................................................................................13
Competition..............................................................................................13
ITEM 2. PROPERTIES............................................................................................13
South Texas Producing Properties.........................................................................13
South Texas Development Properties.......................................................................15
New Mexico Development Properties........................................................................16
Santa Fe Properties......................................................................................20
Reclaimed Properties.....................................................................................20
Reclamation and Restoration Costs and Bonding Requirements...............................................21
ITEM 3. LEGAL PROCEEDINGS.....................................................................................21
Longoria.................................................................................................21
ProBank..................................................................................................22
Benton Bankruptcy........................................................................................22
Indian Lands Jurisdictional Dispute......................................................................23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................................................23
PART II..........................................................................................................32
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.................................32
Market Information.......................................................................................32
Holders..................................................................................................32
Dividends................................................................................................32
ITEM 6. SELECTED FINANCIAL DATA...............................................................................33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................35
Forward Looking Statements...............................................................................35
Capital Resources and Liquidity..........................................................................35
Writedown of Uranium Properties..........................................................................38
Environmental Aspects....................................................................................39
Results of Operations....................................................................................39
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........................................42
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...........................................................43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..................43
PART III.........................................................................................................44
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...................................................44
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ITEM 11. EXECUTIVE COMPENSATION...............................................................................47
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................................52
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................................54
PART IV..........................................................................................................55
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K......................................55
SIGNATURES..............................................................................................59
</TABLE>
Index to Consolidated Financial Statements,
Auditors' Report, Financial Statements
and Supplemental Data F-1 to F-23
Index to Exhibits. E-1 to E-3
ii
<PAGE> 4
URANIUM RESOURCES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
PART I
The "Company" or "Registrant" is used in this report to refer to
Uranium Resources, Inc. and its consolidated subsidiaries. Items 1 and 2 contain
"forward-looking statements" and 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 management's
expectations regarding the Company's reserve base, timing of receipt of mining
permits, production capacity of mining operations planned for properties in
South Texas and New Mexico and planned dates for commencement of production at
such properties, business strategies and other plans and objectives of the
Company's management for future operations and activities and other such
matters. The words "believes," "plans," "intends," "strategy," "projects,"
"targets," or "anticipates" 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" beginning on
page 24.
Certain terms used in this Form 10-K are defined in the "Glossary of
Certain Terms" appearing at the end of Part I hereto.
ITEM 1. BUSINESS
THE COMPANY
Uranium Resources, Inc., a Delaware corporation (the "Company"), was
formed in 1977 to acquire, explore and develop properties for the mining of
uranium in the United States using the in situ leach ("ISL") mining process. The
Company is recognized as a leader in the field of ISL mining.
In the ISL process, groundwater fortified with oxidizing agents is
pumped into the ore body causing the uranium contained in the ore to dissolve.
The resulting solution is pumped to the surface where it is further processed to
a dried form of uranium which is shipped to conversion facilities for sale to
the Company's customers. The ISL process is generally a more cost effective and
environmentally benign mining method than conventional mining techniques.
In March 1988, the Company commenced production from its Kingsville
Dome property in South Texas and produced a total of approximately 1.5 million
pounds of uranium from that property prior to September 1990 when it was shut-in
because of low uranium prices. Production was reestablished in March 1996 and an
additional 1.9 million pounds of uranium have been produced through 1998.
Additional reserves exist at Kingsville Dome, but additional capital investment
will be required in order to develop those reserves.
In October 1990, the Company commenced production from its Rosita
property in South Texas and produced a total of approximately 1.1 million pounds
of uranium from that property prior to March 1992 when it was shut-in because of
low uranium prices. Production was reestablished in June 1995 and an additional
1.5 million pounds of uranium have been produced through 1998. The Rosita
property is essentially at the end of its productive capacity, although some
minor reserves still remain to be produced.
1
<PAGE> 5
The volatility of the uranium market saw spot prices that ranged from
$12.00 per pound in January to lows at year-end of $8.75. The steady decline
during the year, which was attributed primarily to low utility demand, has begun
to firm somewhat to the current $10.85, but remains below the level needed by
the Company to obtain the necessary financing to allow development of new
production areas at its Kingsville Dome and Vasquez sites.
In response, during the fourth quarter of 1998 the Company began
implementation of the shut-in and placement of its Kingsville Dome and Rosita
production facilities on stand-by in response to market conditions. The Company
intends to maintain nominal production from each of these sites for as long as
the incremental production cost of operating is at or below the cost of
purchasing uranium to fulfill its 1999 delivery requirements.
The Company is also implementing cost reduction initiatives to reduce
expenditures below 1998 levels throughout the Company. These include a targeted
33% reduction in total corporate overhead. Expenditures in New Mexico are
projected to be reduced by between 60%-70% to those levels consistent with
remaining permitting and land holding costs. With the shut-in of production in
South Texas, capital expenditures are expected to be reduced by approximately
90%. Subject to the successful implementation of the cost cutting measures, the
Company projects its ability to maintain a positive liquidity position through
at least 1999.
The Company has entered into discussions with various domestic and
international uranium companies regarding the possible divestment or joint
venturing of all or a portion of its assets. To date no expressions of interest
have been received. The Company plans to continue to pursue these efforts.
The Company has relinquished its mineral lease on the Alta Mesa
property located in South Texas which contained 6.2 million pounds of in-place
proven and probable uranium reserves (estimated 4.0 million pounds recoverable).
Efforts in 1998 to renegotiate the lease to defer a delay rental of
approximately $530,000 were not successful and in January 1999 the Company
relinquished its rights to this property, which resulted in a pre-tax write-off
of approximately $5.0 million in the fourth quarter of 1998.
The Company continues to hold its Vasquez development project in South
Texas and has three development projects in two districts in New Mexico, the
Churchrock district and the Crownpoint district. Permitting and licensing is in
process at all such projects. Commencement of production at these properties is
subject to a rebound in uranium prices to profitable levels, timely permitting,
the availability of sales contracts and the availability of capital.
As of February 28, 1999, the Company had 54 employees, including its
professional staff consisting of 8 geologists, 5 engineers and two certified
public accountants. To support its production, exploration and permitting
activities, the Company maintains a regional office in Albuquerque, New Mexico,
and field offices at the Kingsville Dome site, the Rosita site and in
Crownpoint, New Mexico.
MARKETING STRATEGY/URANIUM SALES CONTRACTS
Long-term contracts are the primary source of revenue to the Company.
Spot sales will be utilized to manage inventories and optimize revenues. The
Company intends to use matched sales in amounts up to its available quotas
through 2003 to maximize profitability. All contracts together will result in a
portfolio that is targeted to provide upside market price participation while
limiting down-side price risk.
2
<PAGE> 6
As of December 31, 1998, based on prices escalated in accordance with
the contract terms through that date, the Company had long-term contracts for
approximately $26,873,000 of future sales for deliveries through 2002, as
compared with contracts for approximately $54,542,000 as of December 31, 1997.
The Company's long-term sales contract portfolio includes a mix of various
pricing terms. The Company has contracts that have a market-related price, with
a price ceiling and price floor subject to escalation for between 80%-100% of
future inflation. The Company also has contracts with fixed prices which are
also subject to escalation for between 80%-100% of future inflation. These
contracts contain sales prices in excess of $15.00 per pound at December 31,
1998. One other contract is based upon 99% of market price without a floor or a
ceiling.
The following table provides information concerning the Company's
long-term sales contracts from January 1, 1999 through 2002 with prices
escalated through December 31, 1998 and using the December 31, 1998 spot price
of uranium for the market price based contracts:
<TABLE>
<CAPTION>
1999 2000 2001 2002 Total
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Number of customers 4 4 3 2 N/A
Total long-term contracted Deliveries (thousands of pounds) 532 808 622 481 2,443
Total sales (thousands) $ 6,286 $ 8,868 $ 6,384 $ 5,335 $26,873
Average minimum sales price per pound $ 11.81 $ 10.98 $ 10.27 $ 11.09 $ 11.00
</TABLE>
For deliveries in periods subsequent to 1999, certain buyers have the
option to adjust deliveries between 10% to 20%. In general, except for the
options of the buyers to decrease deliveries by a specified percentage, and
except for force majeure events, the buyers either must take delivery and pay
for the entire amount contracted for or, if delivery is refused on any portion
of the contract, pay to the Company the difference between the minimum contract
price and the amount received by the Company upon the sale of the uranium to a
third party. Certain of the contracts also provide the buyer with options to
renew beyond the periods reflected in the table.
Should any of the Company's customers be unable to perform its
obligations to purchase and pay for the uranium because of force majeure or
otherwise, this could have a material adverse effect on the Company's results of
operations if the Company would not be able to sell such material under another
long-term contract or in a spot market sale.
The Company's contracted sales of uranium from January 1, 1999 through
December 31, 2002 are represented by long-term contracts with four different
customers. In 1998 and 1997, the Company had sales to three customers that
amounted to more than 10% of total sales. These customers represented 27%, 18%
and 14% of sales in 1998 and 18%, 15% and 13% of sales in 1997.
3
<PAGE> 7
RESERVES
The following table sets forth the Company's total in-place proven and
probable uranium reserves as of December 31, 1998. The reserves are generally
based on estimated recovery factors of 65%-75%, certain cut-off grades and a
price of $16 per pound.
<TABLE>
<CAPTION>
In-Place Reserves
As of Recoverable
December 31, 1998 Reserves as of
Producing (P) / ---------------------------- December 31,
Properties Development (D) Proven(1) Probable(1) 1998
---------- --------------- --------- ------------ --------------
(Amounts in thousands of pounds of U(3)O(8))
<S> <C> <C> <C> <C>
Texas
Kingsville Dome P 80 2,239 1,763
Rosita P -- 348 261
Vasquez D 2,248 1,439 2,397
New Mexico
Churchrock
Section 8 D 6,529 -- 4,244
Section 17 D 3,451 4,992 5,488
Mancos D 4,164 -- 2,707
Crownpoint D 30,758 8,201 25,323
Santa Fe D 1,418 13,306 9,571
------ ------ ------
TOTALS 48,648 30,525 51,754
====== ====== ======
</TABLE>
(1) The Company has historically established the timing of its proven reserves
at Kingsville Dome preceding the development of its wellfields. The activities
to determine proven reserves involves drilling of delineation holes to define
the geologic character of the ore body. The Company has done this activity close
to the timing of expected production to make efficient use of its capital
resources. See Glossary of Certain Terms for definition of Proven and Probable
Reserves.
The foregoing table does not include approximately 27.0 million pounds
of proved and probable in-place reserves (estimated 17.6 million pounds
recoverable) contained on acreage adjoining the Crownpoint property for which
the Company executed leases with the landowners in 1992. These leases are
subject to ratification by the U.S. Bureau of Indian Affairs (the "BIA"). See
Item 2. Properties - New Mexico Development Properties - Crownpoint District.
THE ISL MINING PROCESS
The ISL mining process, a form of solution mining, differs dramatically
from conventional mining techniques. The ISL technique avoids the movement and
milling of significant quantities of rock and ore as well as mill tailings waste
associated with more traditional mining methods and generally results in a more
cost-effective and more environmentally-benign extraction operation in
comparison to conventional uranium mining. Historically, the majority of U.S.
uranium production resulted from either open pit surface mines or underground
shaft operations. These conventional mining methods are, in many cases, capital
and labor intensive and are not cost competitive with the majority of non-U.S.
conventional producers.
The ISL process was first tested for the production of uranium in the
mid-1960's and was first applied to a commercial-scale project in 1975 in South
Texas. The ISL process had become well established in the South Texas uranium
district by the late 1970's, where it was employed in connection with
approximately twenty commercial projects, including two operated by the Company.
4
<PAGE> 8
In the ISL process, groundwater fortified with oxygen and other
solubilizing agents is pumped into a permeable ore body causing the uranium
contained in the ore to dissolve. The resulting solution is pumped to the
surface where the uranium is removed from the solution and processed to a dried
form of uranium which is shipped to conversion facilities for sale to the
Company's customers.
An ISL project involves several major components:
ORE BODY EVALUATION
Ore bodies which are currently being mined by the ISL process are
associated with groundwater saturated permeable sandstone formations typically
located between 100 and 2,000 feet below the surface. The uranium ore is
deposited in a roll front configuration where the groundwater passing through
the sandstone passes from a natural oxidizing environment to a naturally
occurring reducing environment. This change causes the dissolved uranium in the
groundwater to become insoluble, and it then attaches to the grains of the
sandstone. Some important factors in evaluating an ore body for the ISL process
are permeability, the thickness of the ore zone, depth, size, grade of ore,
shape of the ore body, nature of uranium mineralization, host rock mineralogy,
and the hydrology. These factors are important in determining the design of the
wellfield, the type and flow of the leaching solution, and the nature of the
surface ISL facilities.
WELLFIELD DESIGN
The wellfield is the mechanism by which the leaching solution, or
lixiviant, is circulated through the ore body. The wellfield consists of a
series of injection, production (extraction) and monitoring wells drilled in
specified patterns. These patterns will vary primarily with the configuration of
the ore and the hydrologic characteristics of each deposit. Determining the
wellfield pattern is crucial to minimizing costs and maximizing efficiencies of
production. Injection and production wells vary in diameter from four to six
inches. Generally, these wells are drilled down to the bottom of the ore zone
(through which the lixiviant must be circulated to achieve production).
Injection and production wells are cased with polyvinyl chloride ("PVC") or
fiberglass casings which are cemented in place from the bottom of the ore zone
to the surface. The wells are then completed into the ore zone.
LIXIVIANT CHEMISTRY
The lixiviant, consisting of native groundwater fortified with an
oxidant and an anionic complexing agent, is introduced via the injection wells
to the ore bearing aquifer. The oxidant (gaseous oxygen) changes the uranium
valence state making the uranium soluble in the lixiviant. The lixiviant (sodium
bicarbonate) complexes the original uranium to a soluble ion, uranyl
dicarbonate, which dissolves the uranium. The dissolved uranium then flows to
the surface with the lixiviant fluid which is circulated through the ore body
until economic recovery is achieved.
URANIUM RECOVERY PROCESS
The uranium recovery process consists of a lixiviant circuit, an
elution/precipitation circuit and a drying and packaging process. The lixiviant
circuit flows from the ore body, where the uranium is dissolved. The lixiviant
stream is then circulated to an ion exchange column on the surface where uranium
is extracted from the lixiviant by absorption onto the resin beads of the ion
exchange columns. The lixiviant is then refortified and reinjected into the ore
body. When the ion exchange column's resin beads are loaded with uranium, the
loaded uranium is removed and placed into the elution circuit where the uranium
is flushed with a salt water solution which precipitates the uranium from the
beads. This leaves the uranium in a slurry, which is then dried and packaged for
shipment as uranium powder.
5
<PAGE> 9
The Company has historically utilized a central plant for the ion
exchange portion of the production process. In order to increase operating
efficiency and reduce future capital expenditures, the Company began the design
and development of wellfield-specific remote ion exchange methodology. Instead
of piping the solutions over large distances through large diameter pipe lines
and mixing the waters of several wellfields together, each wellfield will be
mined using a dedicated satellite ion exchange facility. This will allow for ion
exchange to take place at the wellfield instead of at the central plant.
Nominal design for the remote ion exchange facilities flow will be in
the range of 1,200 gpm, about 25% of the design flow of the central plant at the
Kingsville Dome project. Each of these units will consist of several
ion-exchange columns and a resin transfer facility. When fully loaded with
uranium, the resin will be transferred to a trailer and the resin trucked to the
central plant for elution. After stripping the uranium from the resin, the resin
will be transferred into the trailer and transported back to the satellite plant
at the wellfield.
These satellite facilities will allow each wellfield to be mined using
its own native groundwater only, thus eliminating the problems associated with
progressive buildup of dissolved solids in the groundwaters and thereby
enhancing mining efficiencies and uranium recoveries.
WELLFIELD RESTORATION
At the conclusion of mining, the mine site is decommissioned and
decontaminated and the well-field is restored and reclaimed. Wellfield
restoration involves returning the aquifer to a condition consistent with its
pre-mining use and removing evidences of surface disturbance. The restoration of
the wellfield can be accomplished by flushing the ore zone for a time with
native ground water and/or using reverse osmosis to remove ions, minerals and
salts to provide clean water for reinjection to flush the ore zone.
Decommissioning and decontamination of the mine site entails decontamination,
dismantling and removal for disposal or reuse of the structures, equipment and
materials used at the site during the mining and restoration activities.
ENVIRONMENTAL CONSIDERATIONS AND PERMITTING; WATER RIGHTS
The production of uranium is subject to extensive regulations,
including federal and state (and potentially tribal) environmental regulations,
that have a material effect on the economics of the Company's operations and the
timing of project development. The Company's primary regulatory costs have been
related to obtaining and complying with the regulatory licenses and permits that
must be obtained from federal and state agencies prior to the commencement of
uranium mining activities.
Environmental considerations include the prevention of groundwater
contamination by vertical or horizontal escape of leaching solution (through
proper design and operation of the wellfield and the use of monitoring wells to
detect any potential excursions from the mining area) and the treatment and
disposal of liquid and/or solid discrete surface waste or by-product materials
(so-called "11e. (2) by-product material" under federal law). The majority of
by-product material that is generated is liquid and generally is disposed of by
a combination of reverse osmosis, brine concentration and evaporation or, after
treatment, by surface deposition or discharge or through underground injection
wells. Any such disposal must be approved by the governing authority having
jurisdiction over that aspect of the Company's activities. Once mining is
completed, the Company is required to reclaim the surface areas and restore
underground water quality to the level of quality mandated by applicable
regulations or license requirements. A small amount of solid discrete surface
waste materials generated by the ISL process is disposed of by delivery to a
licensed by-product material disposal site or to a licensed conventional uranium
mill tailings pile. While such sites may not be readily available in the future,
the Company believes that any increase in the cost of such disposal will
continue to be insignificant relative to total costs of production and will not
be a material portion of restoration/reclamation costs.
6
<PAGE> 10
In both Texas and New Mexico there are two primary regulatory
authorizations required prior to operations: a radioactive material license and
underground injection control ("UIC") permits which relate both to the injection
of water for production purposes and to the disposal of by-product material
through underground injection wells. Uranium mining is subject to regulation by
the U.S. Nuclear Regulatory Commission ("NRC") under the federal Atomic Energy
Act ("AEA"); however, the AEA also allows for states with regulatory programs
deemed satisfactory by the NRC to take primary responsibility for licensing and
regulating certain activities, such as uranium recovery operations. When a state
seeks this responsibility, it enters into an agreement with the NRC whereby the
NRC agrees to recede from the exercise of most of its counterpart jurisdiction,
leaving the matters to be administered by the state. Texas has entered into such
an agreement; however, New Mexico is not a party to such an agreement.
The federal Safe Drinking Water Act ("SDWA") creates a nationwide
regulatory program protecting groundwater which is administered by the U.S.
Environmental Protection Agency ("EPA"). To avoid the burden of dual federal and
state (or Indian tribal) regulation, the SDWA allows for the permits issued by
the UIC regulatory programs of states and Indian tribes determined eligible for
treatment as states to suffice in place of a UIC permit required under the SDWA.
A state whose UIC program has been determined sufficient for this purpose is
said to have been granted "primary enforcement responsibility" or "primacy," and
a UIC permit from a state with primacy suffices in lieu of an EPA-issued permit,
provided the EPA grants, upon request by the permitting state, an "aquifer
exemption" or "temporary aquifer designation" modifying the permitting state's
UIC program to recognize the temporary placement of mining fluids into the
intended mining zone within the horizontal confines of the proposed mining area.
Although the EPA's consent to aquifer exemptions or temporary aquifer
designations for certain mineral deposits is often issued almost automatically,
the EPA may delay or decline to process the state's application if the EPA
questions the state's jurisdiction over the mine site. Both Texas and New Mexico
have been granted "primacy" for their UIC programs, and the Navajo Nation has
been determined eligible for treatment as a state but is not due to submit its
program for EPA approval for several years. Until such time as the Navajo Nation
has been granted "primacy," ISL uranium mining activities within Navajo Nation
jurisdiction will require a UIC permit from the EPA. Despite some procedural
differences, the substantive requirements of the Texas, New Mexico and EPA UIC
programs are very similar.
In addition to its radioactive materials licenses and UIC permit, the
Company is also required to obtain from appropriate governmental authorities a
number of other permits or exemptions, such as for waste water discharge, land
application of treated waste water, or for air emissions.
The current environmental regulatory program for the ISL industry is
well established. Many ISL mines have gone full cycle through the
permit-operating-restoration cycle without any significant environmental impact.
However, the public anti-nuclear lobby can make environmental permitting
difficult and permit timing less than predictable.
In Texas, the radioactive materials license required for ISL uranium
mining is granted by the Texas Department of Health ("TDH") and the UIC permits
are granted by the Texas Natural Resource Conservation Commission ("TNRCC"). The
TNRCC also regulates air quality and surface deposition or discharge of treated
wastewater associated with the ISL mining process. In order for a licensee to
receive final release from further radioactive materials license obligations
after all of its mining and post-mining clean-up has been completed, approval
must be issued by the TDH along with concurrence from the NRC.
In New Mexico, radioactive materials' licensing is handled directly by
the NRC, rather than by the State of New Mexico. Furthermore, depending upon
whether a site located within New Mexico falls under state or Navajo Nation
jurisdiction, the permitting of the UIC aspects of ISL mining may be conducted
by either the New Mexico Environmental Department ("NMED") or the EPA or
possibly both in case of jurisdictional conflict. The jurisdictional issue when
raised as to any development property, could result in litigation between the
state and the EPA, with the possibility of delays in the issuance of affected
UIC permits. The Company is currently a party to such litigation with respect to
certain of its New Mexico properties. See "Litigation".
7
<PAGE> 11
Water is essential to the ISL process. It is readily available in South
Texas for the Company's operations and obtaining water rights is not required
because water is subject to capture. In New Mexico the use of water rights is
administered through the New Mexico State Engineer subject to Indian tribal
jurisdictional claims. The State Engineer carefully and strictly regulates
obtaining new water rights, and the transfer or change in use of existing water
rights. The State Engineer may also grant an application for a "temporary water
right" which will not establish a vested right but may provide a sufficient
quantity of water to fulfill the applicant's needs. The State Engineer exercises
jurisdiction over underground water basins with "reasonably ascertainable
boundaries." Accordingly, new appropriations or changes in purpose or place of
use or points of diversion of existing water rights, such as those in the San
Juan and Gallup Basins where the Company's properties are located, must be
obtained by permit from the State Engineer. Applications are required to be
published and are subject to hearing if protested. There are three criteria for
decision, that the application: (1) not impair existing water rights, (2) not be
contrary to the conservation of water within New Mexico, and (3) not be
detrimental to the public welfare. Applications may be approved subject to
conditions that govern exercise of the water rights. Appeals from decisions of
the State Engineer are to the district court of the county in which the work or
point of desired appropriation is situated and from there to the New Mexico
Court of Appeals. Finally, jurisdiction over water rights may become an issue in
New Mexico when an Indian nation, such as the Navajo Nation, objects to the
State Engineer's authority to grant or transfer a water right or to award a
temporary water right, claiming tribal jurisdiction over Indian country. This
issue could result in litigation between the Indian nation and the state which
may delay action on water right applications, and, depending on who prevails as
to any particular property, could result in a requirement to make applications
to the appropriate Indian nation and continuing jurisdiction by the Indian
nation over use of the water. All of the foregoing issues arise to a greater or
lesser extent in connection with the Company's New Mexico properties.
There can be no assurance that the regulatory permits or licenses in
Texas or New Mexico, or the applications for water rights in New Mexico,
required for any project of the Company will be approved by the necessary
governing authority in the form contemplated by management, or in any other
form, or within the time periods necessary to commence timely production.
Additionally, regulations and permit requirements are subject to revisions and
changes that may materially affect the Company's operations. Any delay or
failure in obtaining such permits or water rights could materially and adversely
affect the business and operations of the Company.
In addition to the costs and responsibilities associated with obtaining
and maintaining permits, and the regulation of production activities, the
Company is subject to those environmental laws and regulations applicable to the
ownership and operation of real property in general, including but not limited
to the potential responsibility for the activities of prior owners and
operators.
THE URANIUM INDUSTRY
GENERAL
The only significant commercial use for uranium is to fuel nuclear
power plants for the generation of electricity. At November 30, 1998, 429
nuclear power plants were operating in the world including 104 in the United
States. It is estimated that these plants consumed 163 million pounds of uranium
during the year.
Nuclear plants generated approximately 17% of the world's electricity
in 1997 up from less than 2% in 1970. In the United States nuclear power plants
generated approximately 20.1% of the country's electricity needs and 36% of the
electricity needs of the European Union. According to the Uranium Institute,
nuclear generating capacity is expected to grow at an approximate 1% rate
through the year 2005 and annual consumption of uranium is projected to range
between 164 - 176 million pounds.
8
<PAGE> 12
MARKET PRICE FORMATION
At December 31, 1998 the spot price was $8.75 per pound U(3)O(8) (the
form in which the Company sells its production) compared to $12.05 at December
31, 1997. As the following graph depicts, 1998 represented the lowest level of
utility contracting for U(3)O(8) for any year to date during the 1990's. This
lack of contract demand was a direct result of extremely heavy demand that
occurred during 1996; a period in which spot prices rose to $16.50 per pound. In
1999 there is expected to be a solid recovery in utility contract activity which
the Company believes will fuel a recovery in spot prices. In January 1999, the
spot price increased to $10.50 per pound, the price has increased to $10.85 at
March 22, 1999.
UTILITY LONG-TERM CONTRACTING VOLUME OVER THE 1990-1999 PERIOD
[GRAPH]
COPYRIGHT 1999, THE UX CONSULTING COMPANY, LLC
SOURCE: THE URANIUM MARKET OUTLOOK - JANUARY 1999
9
<PAGE> 13
A large percentage of utility U(3)O(8) requirements to fuel reactor
operations for 2000 and beyond is uncontracted as set forth in the following
graph. Utilities typically become active in covering a majority of their
uncontracted needs 12 to 18 months in advance. Therefore, the Company believes
that it will witness a significant increase in contracting activity during 1999.
UNCONTRACTED UTILITY REQUIREMENTS, 1999-2008
[GRAPH]
COPYRIGHT 1999, THE UX CONSULTING COMPANY, LLC
SOURCE: THE URANIUM MARKET OUTLOOK - JANUARY 1999
SOURCES OF SUPPLY
Traditional Supply Sources
Based on reports by the Ux Consulting Company, LLC ("Ux") and the
Uranium Institute ("UI"), worldwide production of uranium (U(3)O(8)) for 1998 is
estimated to be approximately 88.7 million pounds down from 92.8 million pounds
in 1997. A significant reduction to approximately 77 million pounds is expected
in 1999 based upon cutbacks announced by major uranium producers as a result of
depressed market prices during 1998. At this rate, production will meet only 47%
of estimated consumption by utilities during 1999 of approximately 164 million
pounds.
10
<PAGE> 14
Production from existing mines is projected by Ux to decline during the
next few years as lower cost reserves are exhausted. Accordingly, production
from existing mines in the year 2005 is projected by Ux to be only 50 million
pounds. This represents less than 30% of consumption as projected by the UI for
2005 of approximately 175 million pounds. Consumption has outstripped production
in each year since 1985 with the shortfalls filled by drawdowns of inventories
amassed prior to that time. The UI estimates that excess utility inventory
(inventory in excess of preferred inventory) at the end of 1998 was
approximately 105 million pounds, less than one year of forward reactor
requirements. Preferred inventory is by nature influenced by price. In rising
markets utilities tend to build inventory as a hedge against future price
increases. Conversely, utilities tend to reduce inventory in falling markets.
Both actions exaggerate price movement. Producers, traders and other market
participants were judged to have approximately 78 million pounds of inventory at
the end of 1997. A significant portion of this total is normal inventory levels,
but it can serve to reduce production requirements. The Company believes that
approximately 50% or 39 million pounds may be considered excess to normal
inventory levels. The total "excess inventory" of utilities and producers,
therefore is estimated to be approximately 144 million pounds.
Non-Traditional Supply Sources
As excess inventory is reduced, the availability of non-traditional
supplies will play an increasingly important role in establishing market
equilibrium. These supplies consist of Government stockpiles, Russian and U.S.
highly enriched uranium ("HEU"), inventory of the United States Enrichment
Corporation ("USEC"), tails re-enrichment, and savings achieved through the
reprocessing of spent fuel. The following chart represents the rate at which the
Company believes non-traditional supplies could be available to the market place
through 2005:
<TABLE>
<CAPTION>
AVAILABILITY OF NON-TRADITIONAL SUPPLY
(MILLION POUNDS U(3)O(8))
SOURCE 1999 2000 2001 2002 2003 2004 2005
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
RUSSIAN HEU 24.0 24.0 24.0 24.0 24.0 24.0 24.0
U.S. HEU 2.6 2.6 2.6 2.6 2.6 2.6 2.6
USEC INVENTORY 5.2 12.8 14.9 21.4 13.1 0.0 0.0
REPROCESSING SAVINGS 5.0 5.0 5.0 6.0 6.0 6.0 7.0
TAILS RE-ENRICHMENT 6.0 6.0 6.0 6.0 6.0 6.0 6.0
------ ------ ------ ------ ------ ------ ------
TOTAL 42.8 50.4 52.5 60.0 57.7 38.6 39.6
</TABLE>
DESCRIPTIONS:
Russian HEU: In 1993, the U.S. and Russia entered into an Agreement to
convert highly enriched uranium ("HEU") derived from dismantling Russian nuclear
weapons into fuel suitable for use in commercial reactors. At a maximum
conversion rate of 30 metric tons HEU per annum approximately 24 million pounds
of U(3)O(8) would be available in each year of which approximately 6.7 million
pounds per year will be used internally by Russia.
U.S. HEU: Rate of sale estimated by the UI. Sales are subject to a
determination to be made by the Secretary of Energy, as required under the USEC
Privatization Act, that such sales will have no adverse impact on the domestic
mining industry or the U.S./Russia HEU Agreement.
USEC Inventory: In July 1998, USEC consummated its privatization with a
public offering of stock. In its prospectus USEC disclosed that it had inventory
of approximately 75 million pounds U(3)O(8) equivalent of which approximately 61
million pounds would be available to sell through 2005. This
11
<PAGE> 15
inventory represents amounts of uranium transferred to it by the DOE. Additional
inventory may be realized through USEC's ability to underfeed its enrichment
plants through the same period. The rate of USEC's sales as indicated in the
above chart were determined by Nuclear Assurance Corp. - a leading industry
consultant.
Reprocessing: It is expected that reprocessing of spent fuel will save
5-7 million pounds of demand in each year through 2005. This activity is
primarily focused in Europe and Japan.
Tails Re-enrichment: This is a new activity primarily pursued by Russia
in order to utilize their excess enrichment capacity. The Company estimates that
this activity could yield approximately 6.0 million pounds U(3)O(8) per annum
through 2005.
The potential disposition of Government inventories is the most
significant non-traditional supply factor effecting the market. On March 24,
1999 an agreement between Tenex, the commercial arm of the Russian Federations'
Ministry of Atomic Energy, and three Western commercial entities was executed
that will provide more certainty regarding the disposition of Russian HEU
derived uranium. In an effort to support this transaction and the continuation
of the U.S./Russia HEU Agreement, DOE budgeted $325 million to pay for
approximately 28 million pounds of HEU derived uranium delivered to the U.S.
during 1997-1998. As part of this agreement, DOE will hold this purchased
uranium, and its own remaining inventory (approximately 30 million pounds) off
the market for a ten year period beginning in 1999. The Company believes that
these events will have a positive impact on current market conditions.
REQUIRED PRIMARY PRODUCTION
New production will be needed to fill the gap between utility demand
and the estimated supply sources. The following table represents the Company's
estimate of new production required to reach market equilibrium through 2005:
<TABLE>
<CAPTION>
PRIMARY PRODUCTION REQUIREMENTS
----------------------------------------------------------
(MILLION POUNDS U(3)O(8))
SOURCE 1999 2000 2001 2002 2003 2004 2005
------ ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
CONSUMPTION 164.0 167.9 166.2 168.8 171.6 176.5 175.4
(1) EXISTING MINES PRODUCTION 77.0 70.6 65.3 49.4 49.7 49.3 49.3
(2) NON-TRADITIONAL SUPPLIES 42.8 50.4 52.5 60.0 57.7 38.6 39.6
(3) EXCESS INVENTORY DRAWDOWN* 44.2 32.0 22.0 16.0 11.0 10.0 8.8
NEWLY REQUIRED PRODUCTION
(CONSUMPTION LESS ITEMS 1+2+3) 0.0 14.9 26.4 43.4 53.2 78.6 77.7
TOTAL PRODUCTION REQUIRED
(EXISTING + NEW) 77.0 85.5 91.7 92.8 102.9 127.9 127.0
</TABLE>
*Represents the Company's estimate of annual timing of excess inventory
drawdowns totaling 144 million pounds from 1999-2005.
The above table indicates that new production will be required starting
in 2000. This production, however, will not be forthcoming at current market
prices. Further, any reduction or delay in the availability of non-traditional
supplies will increase the need for new production. There can be no assurance
that the Company can successfully compete against larger and better capitalized
producers for a share of such production.
12
<PAGE> 16
URANIUM PRICES
Spot prices reflect the price at which uranium may be purchased for
delivery within one year. Historically, spot prices have been more volatile than
long-term contract prices, increasing from $6.00 per pound in 1973 to $43.00 per
pound in 1978, then declining to a low of $7.25 per pound in October 1991. The
spot price per pound as of March 22, 1999 was $10.85.
The following graph shows spot prices per pound from 1978 to March 22,
1999, as reported by Trade Tech.
[GRAPH]
- ---------
All prices beginning in 1993 represent U(3)O(8) deliveries available to U.S.
utilities.
COMPETITION
The Company markets uranium to utilities in direct competition with
supplies available from various sources worldwide. The Company competes
primarily on the basis of price.
ITEM 2. PROPERTIES
SOUTH TEXAS PRODUCING PROPERTIES
The Company currently has two producing properties which are located in
South Texas, Rosita and Kingsville Dome. The following is a description of those
properties.
13
<PAGE> 17
KINGSVILLE DOME
The Property. The Kingsville Dome property consists of mineral leases
from private landowners (and a small portion owned in fee) on 3,068 gross (3,043
net) acres located in central Kleberg County, Texas. The leases provide for
royalties based upon uranium sales. The leases have expiration dates ranging
from 1999 to 2007. With a few minor exceptions, all the leases contain shut-in
royalty clauses which permit the Company to extend the leases not held by
production by payment of a royalty.
Reserves. As of December 31, 1998, the property contained approximately
2.3 million pounds of in-place proven and probable uranium reserves (estimated
1.8 million pounds recoverable).
Production History. Initial production commenced in May 1988. In May
1989, due to the continuing decline in the spot price of uranium, the Company
deferred development of the next wellfield, and the plant was shut-in in
September 1990. Total production from May 1988 through September 1990 was
approximately 1.5 million pounds.
Wellfield development activities resumed in December 1995, and
production commenced in March 1996. Production at Kingsville Dome was
approximately 1.9 million pounds from recommencement of production in March 1996
through December 31, 1998 with 445,000 pounds produced in 1998.
The Company plans to shut-in and place on stand-by production at the
Kingsville Dome site in early 1999 because of the outlook for near-term uranium
market conditions. Nominal production from this site is expected to continue
provided the incremental production costs at this facility are at or below the
cost of purchasing uranium in the marketplace.
Further Development Potential. As part of the Company's historical
production activities, it has engaged in significant development and exploration
efforts at Kingsville Dome. Additional exploration activities are not currently
planned and are not anticipated until uranium market conditions firm. The
Company spent approximately $3.0 million in capital expenditures in 1998 and
does not project to make significant expenditures in 1999.
Permitting Status. Radioactive material licensing and UIC permit
hearings for currently producing areas have been completed, and the necessary
permits have been issued. Some minor amendments to the license and permit for
further production within the permit area will be required as development
proceeds. The term of the license and UIC permit is effectively open-ended.
Restoration and Reclamation. Restoration of groundwater was conducted
during 1998 and is expected to continue in 1999.
ROSITA
The Property. The Rosita property consists of mineral leases on 3,359
gross and net acres located in northeastern Duval County, Texas. All the leases,
except minor leases, are held by production. The leases provide for royalties
based upon uranium sales.
Reserves. As of December 31, 1998, the property contained approximately
348,000 pounds of in-place proven and probable uranium reserves (estimated
261,000 pounds recoverable).
Production History. The Company began initial production at Rosita in
October 1990. Total production from Rosita for the eighteen months through March
31, 1992 was approximately 1.1 million pounds. In March 1992, due to depressed
uranium prices, the Company shut-in production.
14
<PAGE> 18
Wellfield development activities resumed at Rosita in March 1995 and
production recommenced in June 1995. From that date through December 31, 1998
approximately 1.5 million pounds were produced with 178,000 pounds produced in
1998.
The Company plans to shut-in and place on stand-by production at the
Rosita site in early 1999 because of the outlook for near-term uranium market
conditions. Nominal production from this site is expected to continue provided
the incremental production costs at this facility are at or below the cost of
purchasing uranium in the marketplace.
Further Development Potential. The Company estimates that there are
approximately 261,000 pounds of uranium remaining to be produced from the Rosita
project. The timing of production from this property will be dependent upon
future uranium prices, the availability of sales contracts and the availability
of capital. The Company spent approximately $244,000 for development activities,
permitting and land holding costs in 1998. Significant expenditures for these
activities are not expected in 1999.
Permitting Status. Radioactive materials licensing and UIC permit
hearings for currently producing areas have been completed, and the necessary
permits have been issued. Some minor amendments for further production within
the permit area will be required as development proceeds. The term of the
license and UIC permit is effectively open-ended.
Restoration and Reclamation. The Company began groundwater restoration
during 1998 and expects to continue these activities in 1999.
SOUTH TEXAS DEVELOPMENT PROPERTIES
VASQUEZ
The Property. The property consists of two mineral leases on 842 gross
and net acres located in southwestern Duval County, Texas. These leases expire
in February 2000, subject to extension for permitting delays. The leases provide
for royalties based on uranium sales. The Company leases are with the owner of
both the surface of the land and the uranium estate. As a result of these
leases, the Company has the right to mine 100% of the uranium on this property.
Reserves. As of December 31, 1998, the property contained approximately
3.7 million pounds of in-place proven and probable uranium reserves (estimated
2.4 million pounds recoverable).
Development Plan. The timing of production will be dependent on a
number of factors. The Company spent approximately $440,000 in capital
expenditures in 1998 and does not anticipate significant expenditures in 1999.
Prior to the commencement of production at Vasquez the Company anticipates
having to demonstrate financial surety of approximately $1.0 million which it
expects to meet by posting a bond collateralized by cash in an amount equal to
50% of the bond.
Permitting Status. All of the required permits for this property except
the Production Area Authorization ("PAA") have been received from the TNRCC and
the TDH. The permit application for the PAA has been completed and submitted to
the TNRCC. This application is currently under review and the Company expects
the permit to be in place in 1999.
15
<PAGE> 19
NEW MEXICO DEVELOPMENT PROPERTIES
GENERAL
The Company has various interests in properties located in the
Churchrock and Crownpoint districts in New Mexico. As to these properties, the
Company holds both patented and unpatented mining claims, mineral leases and
some surface leases from private parties, the Navajo Nation and Navajo
allottees. In addition, in March 1997, the Company acquired from Santa Fe
certain uranium mineral interests and exploration rights for uranium on
significant acreage in New Mexico, a small portion of which falls within the
Churchrock district.
In keeping with its overall corporate strategy, the Company's
development plan for its New Mexico properties will proceed incrementally,
subject to timely permitting, the availability of water rights, the availability
of sales contracts and the availability of capital. The Company plans to develop
the Churchrock district first and the Crownpoint district next.
REGULATORY FRAMEWORK
NRC License. In New Mexico, uranium production requires a radioactive
materials license issued by the NRC. The Company has applied for one NRC license
covering all properties located in both the Churchrock and Crownpoint districts
(except the Mancos property) and has included the properties in both districts
(except the Mancos leases) under one Final Environmental Impact Statement
("FEIS") which is a prerequisite for the NRC license.
The NRC has finalized and completed the publication of the FEIS in the
first quarter of 1997. The NRC issued an operating license in January 1998 that
would allow operations to begin in the Churchrock district. In mid-1998, the NRC
determined that certain Churchrock and Crownpoint residents who requested a
hearing were qualified as to standing. Under the source materials licensing
procedures of the NRC, hearings are accomplished as informal legal
presentations. As of March 1, 1999, intervenors have presented briefs covering
nine areas of contention within the license. The administrative law judge has
ruled on four of the contentions and has found in favor of the Company in each
of his decisions. The judge was directed by the Commission to complete the
hearing process by the end of June 1999. Although all the decisions to date have
been favorable to the Company, there can be no assurance that the license will
be maintained in its current form; allowing the Company to proceed with its
planned operations or that the NRC process will be concluded on a timely basis.
UIC Permit. NMED has jurisdiction under the New Mexico Water Quality
Act to regulate UIC activities within the State of New Mexico, and the New
Mexico UIC program has received "primary enforcement responsibility" from the
EPA under the federal SDWA. However, by the terms of regulations issued by the
EPA and the primacy determination made for the State of New Mexico, New Mexico's
UIC primacy does not extend to New Mexico's exercise of UIC regulation or
permitting over facilities located on "Indian lands," a term whose geographic
reach the EPA has defined as coextensive with that of "Indian country". Because
even a permit issued by a state holding UIC primacy cannot suffice in lieu of a
federal UIC permit issued under the SDWA unless the EPA issued a corresponding
aquifer exemption or temporary aquifer designation, the EPA's opinion that a
site lies within Indian country virtually compels a state UIC applicant to
secure an EPA UIC permit for UIC activities to be conducted on such a site.
16
<PAGE> 20
In addition to the EPA's assertions, the Navajo Nation claims
regulatory jurisdiction over a significant portion of the Company's New Mexico
development properties. These claims subject the development of those properties
within the area claimed as "Indian country" to further uncertainties, including
a potential for delays in UIC permitting. For certain properties not permitted
by the EPA at the time a Navajo regulatory program is promulgated and accepted
by the EPA for a determination of primacy, the Company would then apply to the
Navajo EPA for its UIC permits. Although a Navajo UIC program may adopt unique
application, permitting, and enforcement procedures, it would, nonetheless, be
required to impose virtually the same substantive requirements as the Company is
prepared to satisfy under existing New Mexico and EPA UIC programs.
This dispute over UIC jurisdiction is currently focused on a portion of
the Churchrock and Crownpoint properties. Despite this current jurisdictional
dispute among the EPA, the State of New Mexico, and the Navajo Nation, the
Company maintains good relations with the State of New Mexico, the Navajo
Nation, and the EPA. However, there can be no assurance that the jurisdictional
dispute will not have a material adverse effect on the Company's development
plans in New Mexico.
In February 1998, the United States Supreme Court in Alaska v. Native
Village of Venetie Tribal Government interpreted the terms "Indian country" and
"dependent Indian Communities". Such interpretation stated that "Indian country"
includes "all dependent Indian communities within the United States" and that
such lands refer to a specific category of Indian lands that are not reservation
nor allotted lands. Such lands must meet the following two criteria; (i) they
must have been set aside by the Federal Government for the use of Indians as
Indian land; and (ii) they must be under federal superintendence. On the basis
of this ruling the Company believes that its private fee lands and federal
claims positions in New Mexico may fall under the jurisdiction of the State of
New Mexico for regulatory purposes.
Water Rights. For general information on water rights in New Mexico,
see "Business-Environmental Considerations and Permitting; Water Rights."
CHURCHROCK DISTRICT
The Property. The Churchrock properties encompass 2,225 gross and net
acres and include mineral leases, patented mining claims and unpatented mining
claims. The properties are located in McKinley County, New Mexico, and consist
of three parcels, known as Section 8, Section 17 and Mancos. None of these
parcels lies within the area generally recognized as constituting the Navajo
Reservation. The Company owns the mineral estate in fee for both Sections 17 and
the Mancos properties. The surface estate on Section 17 is owned by the U.S.
Government and held in trust for the Navajo Nation. The Company owns patented
and unpatented mining claims on Section 8. The Company is obligated to pay
certain royalties based on uranium sales. The unpatented claims currently
require an annual payment of $100 per claim payable to the Bureau of Land
Management to remain in full force and effect and are subject to certain
overrides. On March 25, 1997, the Company acquired from Santa Fe, the fee
mineral interests in Section 17 and Mancos thereby acquiring the position owned
by the lessor and extinguished certain of the royalty obligations on those
properties.
Reserves. As of December 31, 1998, Section 8 contained approximately
6.5 million pounds of in-place proven and probable uranium reserves (estimated
4.2 million pounds recoverable), Section 17 contained approximately 8.4 million
pounds of in-place proven and probable uranium reserves (estimated 5.5 million
pounds recoverable), and the Mancos property contained approximately 4.2 million
pounds of in-place proven and probable uranium reserves (estimated 2.7 million
pounds recoverable).
17
<PAGE> 21
Development Plan. The New Mexico properties will be developed in
accordance with the licenses issued by the NRC. It is anticipated that the first
property to be licensed and developed will be Churchrock. Costs related to
permitting activities and land holding costs were approximately $1.0 million in
1998. The Company does not anticipate significant spending for permitting and
land holding costs in 1999. The Company anticipates having to demonstrate
financial surety in connection with production activities which it expects to
meet by posting a bond collateralized by cash in an amount equal to 50% of the
bond.
Exploration Potential. The measured in-place reserves in Sections 8 and
17 and Mancos encompass only a small portion of the properties owned by the
Company. The Company believes that substantial additional mineralization exists
on these properties. Because of greater depths, this mineralization is estimated
to be recoverable at a higher cost and accordingly require higher uranium prices
to make them economical to produce.
Water Rights. The Company originally acquired mineral leases on
Sections 8 and 17 from United Nuclear Corporation ("UNC") and, in connection
therewith, acquired certain rights to use water from UNC. An application to use
one of these rights has been the subject of extensive administrative proceedings
and litigation with the New Mexico State Engineer and the Navajo Nation over the
nature and extent of UNC's water rights. The State Engineer determined that the
consumptive use and diversion amount UNC originally sought to transfer for use
by the Company were in excess of the rights held by UNC and denied the
application on the grounds that the UNC rights were insufficient to support the
Company's mining operations. The Company has since reapplied and revised its
water budget to be consistent with the rights of UNC as determined by the State
Engineer. The State Engineer conducted a hearing in March 1998 regarding the
application for the transfer of the water rights. A claim by the Navajo Nation
to jurisdiction over these water rights was denied by the State Engineer's
hearing officer and in the prior proceeding, the state district court. These
decisions do not preclude a contrary claim from being made in another
proceeding. No decision on the water right has been made as of February 28,
1999.
Permitting Status. On June 21, 1989 the EPA issued its aquifer
exemption covering that portion of the Churchrock site known as Section 8, and
on November 1, 1989, NMED issued its permit, covering UIC activities on Section
8. On October 7, 1994, NMED issued an amended permit covering UIC activities on
both Section 8 and Section 17. The permit for Section 17 was contested by the
Navajo Nation which claimed UIC regulatory jurisdiction over the site, based on
the fact that the surface estate is owned by the Navajo Nation. The EPA, acting
as an advocate for the Navajo Nation, has asserted the Navajo Nation's claim and
has refused to amend its previously issued aquifer exemption covering Section 8
to add the portion of the Churchrock facility on Section 17. The Navajo Nation
has asserted jurisdiction over Section 8 as being a "dependent Indian
community". The EPA has informed the Company that the regulatory jurisdiction of
the property is considered to be in "dispute" and would require an EPA-issued
permit prior to the commencement of mining. The Company does not plan to pursue
permits for Mancos at this time.
In June 1996, the Company filed with the NMED two applications to renew
the permit in two distinct parts, one covering the Section 8 portion and the
other the Section 17 portion of Churchrock. This was to assure that the Company
maintained a "clear" UIC authorization on the Section 8 portion of the site. The
surface estate on Section 8 is not owned by the Navajo Nation or Navajo
allottees. Because the renewal application was timely filed, the permit covering
the Section 8 property has remained continuously in effect pending final
determination on the renewal application by the NMED. The Navajo Nation has
asserted jurisdiction over the UIC for Section 8, claiming that the land lies
within a "dependent Indian community." While the EPA has not yet taken a final
position on this issue, they have determined that a dispute does exist between
the NMED and the Navajo tribe. As a result of this dispute, the EPA has
indicated that an EPA permit will be required on this property. This situation
could potentially delay or obstruct development of Section 8. The State of New
Mexico and the Company have appealed the action of the EPA to the United States
Court of Appeals for the Tenth Circuit. Oral arguments were presented to
18
<PAGE> 22
the Court on January 21, 1999. A decision by the Court is pending. The outcome
of this suit may ultimately affect UIC jurisdiction on all Indian lands.
CROWNPOINT DISTRICT
The Property. The Crownpoint properties are located in the San Juan
Basin, 22 miles northeast of the Company's Churchrock deposits and 35 miles
northeast of Gallup, New Mexico, adjacent to the town of Crownpoint. The
Properties consist of 1,578 gross and net acres, as follows:
(a) 162 gross and net acres on Section 24. The Company has
100% of the mineral estate on this acreage pursuant to a combination of
a 40% fee interest, a mineral lease on the other 60% of the mineral
estate unpatented mining claims. This acreage is subject to an
obligation of the Company to pay a production payment on the first
50,000 pounds of uranium produced and an override based on uranium
sales;
(b) 959 gross and net acres on Sections 19 and 29 pursuant to
a lease from private mineral owners (expiring August 2007) which
provides for royalties and an override based on uranium sales; and
(c) 457 gross and net acres of unpatented mining claims in
Sections 9, 24 and 25.
In addition to the foregoing, the Company has 1,440 gross and net acres
of mineral leases (hereinafter referred to as "Unit 1") from Navajo allottees
who are the beneficial owners of the surface and mineral rights. The leases are
subject to approval by the Bureau of Indian Affairs (the "BIA"). The BIA Area
Director is expected to approve the leases after completion of the license.
These leases expire 10 years after the approval by the BIA.
Reserves. With respect to all the Crownpoint acreage except Unit 1, as
of December 31, 1998, the property contained approximately 39.0 million pounds
of in-place proven and probable reserves (estimated 25.3 million pounds
recoverable). The Company estimates that Unit 1 contains approximately 27.0
million pounds of in-place proven and probable reserves (estimated 17.6 million
pounds recoverable). The Unit 1 reserves are not included as part of the
Company's reserve base.
Development Plan. The New Mexico properties will be developed according
to the license conditions issued by the NRC. Under the license, the first
operating property will be Churchrock followed by Unit 1 and Crownpoint. Costs
relating to permitting activities and land holding costs for Crownpoint were
$876,000 in 1998, and are not expected to be significant in 1999.
Water Rights. With respect to Crownpoint, the Company has acquired
three applications for appropriations of water which give the Company the first
three "positions in line" on the hearings list for the San Juan Basin. Certain
aspects of all three applications were protested and are subject to hearings.
Water rights relating to Unit 1 may likely involve the claim of the jurisdiction
of the Navajo Nation, and this jurisdictional issue might also be present for
other parts of Crownpoint. The Company plans to proceed with water rights for
Crownpoint at a future date.
Permitting Status. The NRC license is part of the overall development
plan for both the Churchrock and Crownpoint districts discussed above. The
Company has recently submitted a revised UIC permit application for Section 24.
There can be no assurance that the UIC permit will be granted. The surface
estate on Section 19 and 29 is owned by the U.S. Government and held in trust
for the Navajo Nation and may be subject to the same jurisdictional dispute as
for Section 17 in Churchrock.
19
<PAGE> 23
SANTA FE PROPERTIES
GENERAL
In March 1997 the Company acquired from Santa Fe certain uranium
mineral interests and exploration rights for uranium in New Mexico.
The Properties. The properties consist of: (a) 37,000 acres as to which
the Company has acquired a fee interest in the entire mineral estate, excluding
coal ("Category I Properties"); (b) approximately 140,000 acres as to which the
Company has acquired the fee interest in uranium (the "Category II Properties");
and (c) approximately 346,000 acres as to which the Company has acquired the
exclusive right to explore for uranium and other minerals excluding coal (the
"Category III Properties").
The Company is obligated to spend on exploration $200,000 per year for
the ten-year period starting in March 1997 and $400,000 per year for the
seven-year period starting in March 2007. This expenditure can be made on any of
the Category II or Category III properties.
The license is for 17 years, expiring in March 2014. In the event that
the sale price of uranium shall exceed $25 per pound for any twelve-month period
URI has committed to spend on exploration (or pay to Santa Fe) during the
following 5 years an aggregate of $5 million; and in the event that the sale
price of uranium shall exceed $30 per pound for any twelve-month period URI has
committed to spend on exploration (or pay to Santa Fe) during the following 5
years an aggregate of $10 million.
With respect to Category II and Category III properties, at such time
as URI shall apply for a mining permit with respect to any such properties Santa
Fe has the right to put the remaining mineral interests owned by it (excluding
coal) to the Company at a price of $200 per acre for any acreage in any section
which is covered by the mining application. The acreage price shall be increased
by the same percentage as the percentage increase in the price of uranium on the
date of such application over $15.80 per pound. URI has the option to purchase
at any time the entire mineral estates (excluding coal) on such properties on
the same terms.
Reserves. The Company estimates that the Category I Properties contain
14.7 million pounds of proven in-place uranium reserves (estimated 9.6 million
pounds recoverable).
Development Plan. The planned development strategy is to integrate
qualified properties from the Santa Fe lands into the production plans for
Churchrock and Crownpoint.
Exploration Potential. There is significant exploration potential for
the Santa Fe properties. Numerous ore grade holes drilled on the properties
demonstrates this potential; however, because the deposits are not delineated,
development costs are uncertain.
RECLAIMED PROPERTIES
The Company has completed production and groundwater restoration on its
Benavides and Longoria projects in South Texas. The Company is currently
completing the final stages of surface reclamation on these projects which the
Company believes will not involve material expenditures.
20
<PAGE> 24
On August 28, 1995, Manuel T. Longoria, as owner of the ranch
containing the site of the Company's Longoria mine, brought suit against the
Company in state district court in Duval County, Texas, asserting claims said to
have arisen at various times over the last eighteen years. See "Business-Legal
Proceedings."
The Company acquired the Section 17 leases in the New Mexico Churchrock
district from United Nuclear Corporation ("UNC"). UNC had conducted underground
mining for uranium on Section 17 and had reclaimed these properties. In
connection with the acquisition, the Company assumed any liability of UNC for
any remaining remediation work that might be required. NMED has not determined
what, if any, additional remediation will be required under the New Mexico
Mining Act. If more remediation work is required, the Company believes it will
not involve material expenditures.
RECLAMATION AND RESTORATION COSTS AND BONDING REQUIREMENTS
Upon completion of production from a wellfield, the Company is
obligated under state and federal law to restore the aquifer to a condition
consistent with its pre-mining use. This involves restoration of the aquifer,
plugging and abandoning the injection and production wells and reclaiming the
surface. With respect to operations at Kingsville Dome and Rosita, as well as
reclamation and restoration of the Benavides and Longoria projects, the TNRCC
and TDH requires the Company to provide financial surety to cover the costs of
such restoration and reclamation. The surety bond requirement at December 31,
1998 was approximately $6.2 million. The Company fulfills this requirement
through the issuance of surety bonds from the United States Fidelity and
Guaranty Company ("USF&G") and has deposited as collateral for such bonds cash
of approximately $3.6 million. The Company is obligated to fund the cash
collateral account with an additional $0.50 for each pound of uranium production
until the account accumulates an additional $1.0 million. The Company estimates
that its future reclamation liabilities with respect to current operations at
December 31, 1998 approximates $5.2 million, which has been charged to earnings.
These financial surety obligations are reviewed and revised annually by the
TNRCC and TDH.
The Company anticipates that it will be required to provide financial
surety of approximately $1.0 million as a condition to receipt of the requisite
permits for the mining of the Vasquez project. The Company anticipates that
USF&G or other bonding entities will provide the requisite bond under
arrangements similar to those in place for Rosita and Kingsville Dome.
In New Mexico surety bonding will be required prior to development of
the properties. The Company anticipates that it will be required to provide
financial surety as a condition to receipt of the requisite permits for the
Churchrock project which it anticipates will be provided by USF&G, or other
bonding entities under arrangements similar to those in place for Rosita and
Kingsville Dome. The amount of the surety bond will be subject to annual review
and revision by the NRC and State of New Mexico.
ITEM 3. LEGAL PROCEEDINGS
LONGORIA
On August 28, 1995, Manuel T. Longoria, as owner of the ranch
containing the site of the Company's Longoria mine near Bruni in Duval County,
Texas, brought suit against the Company in state district court in Duval County,
Texas asserting claims said to have arisen at various times over the last 18
years. In the action styled Longoria v. Uranium Resources, Inc., et al.,
Longoria claims the Company has leased the site knowing that the proposed mining
would contaminate the site; that the Company had knowingly or negligently
conducted mining operations in a manner which contaminated the Longoria property
with toxic and hazardous material which present a serious health hazard. The
suit asks for remediation of the Longoria property and for unspecified actual
and punitive damages.
21
<PAGE> 25
With regard to the claim for remediation, the Company, upon the
conclusion of mining at the Longoria site and the nearby sites, began
reclamation in the manner required by its permits and by state and federal
regulations. Such reclamation has been completed and the Company has made
application to the TDH for final release of its obligations on the property and
anticipates to receive such release in early 1999.
The suit is pending at March 31, 1999 and the Company does not believe
the conclusion of this lawsuit will have a material operating or financial
impact on the Company.
PROBANK
On July 12, 1995, the Company filed a lawsuit in the federal district
court in Colorado against Professional Bank, a Colorado chartered bank
("ProBank"). In the action styled Uranium Resources, Inc. v. Professional Bank,
the Company alleged that ProBank transferred $1,080,000, without the Company's
authorization, from the Company's account at ProBank to the accounts maintained
at ProBank of various entities and an individual affiliated with Oren L. Benton.
The Company recovered $300,000 of the total in 1995 and recovered $575,000 from
ProBank in June 1997 in settlement of the action against ProBank.
BENTON BANKRUPTCY
During 1994, the Company encountered liquidity problems that resulted
in the Company entering into certain transactions with companies controlled by
Mr. Benton (the "Benton Companies"). On February 23, 1995, Benton and various of
the Benton Companies filed for protection under Chapter 11 of the Federal
Bankruptcy Code (the "Benton Bankruptcy"). On February 19, 1998, David J.
Beckman, as Liquidating Trustee for the CSI Liquidating Trust and the NTC
Liquidating Trust commenced an action against the Company in the United States
Bankruptcy Court for the District of Colorado seeking to recover certain
transfers made from CSI Enterprises, Inc. ("CSI") and Nuexco Trading Corporation
("NTC") to the Company. The Adversary Proceeding is styled David J. Beckman v.
Uranium Resources, Inc., Adversary Proceeding No. 98-1131 SBB ("Adversary
Proceeding"). Specifically, the Liquidating Trustee seeks to recover (a)
$1,400,000 paid by NTC to the Company on or about November 7, 1994 and (b)
transfers by CSI to the Company of $80,000 (12/2/94), $40,000 (12/9/94), $45,000
(12/16/94), $36,150 (2/10/95) and $1,900 (2/14/95). The Liquidating Trustee
seeks to recover these amounts pursuant to 11 U.S.C. ss. 547, 11 U.S.C. ss.
544(b), 11 U.S.C. ss. 550 and state law. The Adversary Proceeding was originally
set for trial commencing March 8, 1999. Based upon the status of settlement
negotiations, the parties filed a Joint Motion to Vacate Trial and Related
Matters on November 25, 1998. On December 4, 1998, the court entered an order
vacating the March 8, 1999 trial date and all related deadlines. Settlement
negotiations between the parties are presently ongoing. The Company does not
believe any such settlement or other outcome from this matter will have a
material adverse impact on the operating results or financial position of the
Company.
The Company has asserted certain claims against Benton and the Benton
Companies in the bankruptcy proceedings. The Adversary Proceeding was set for
trial beginning on November 16, 1998. As a result of ongoing settlement
negotiations between the parties, the trial date was vacated. The parties are
currently in the process of finalizing their settlement agreement and pleadings
to be filed in the Bankruptcy Court in connection with the settlement.
OTHER
The Company is subject to periodic inspection by certain regulatory
agencies for the purpose of determining compliance by the Company with the
conditions of its licenses. In the ordinary course of business, minor violations
may occur, however, these are not expected to cause material expenditures.
22
<PAGE> 26
INDIAN LANDS JURISDICTIONAL DISPUTE
See "Churchrock District-Permitting Status" for a discussion of the
Company's Appeals for the Tenth Circuit relating to permitting jurisdiction over
certain of the Company's mineral properties in New Mexico.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
23
<PAGE> 27
--------------------
CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company is including the following cautionary statement to take
advantage of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995 for any forward-looking statement made by, or on behalf of,
the Company. The factors identified in this cautionary statement are important
factors (but not necessarily all of the important factors) that could cause
actual results to differ materially from those expressed in any forward-looking
statement made by, or on behalf of, the Company. Where any such forward-looking
statement includes a statement of the assumptions or bases underlying such
forward-looking statement, the Company cautions that, while it believes such
assumptions or bases to be reasonable and makes them in good faith, assumed
facts or bases almost always vary from actual results, and the differences
between assumed facts or bases and actual results can be material, depending
upon the circumstances. Where, in any forward-looking statement, the Company, or
its management, expresses an expectation or belief as to the future results,
such expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result, or be achieved or accomplished. Taking into
account the foregoing, the following are identified as important risk factors
that could cause actual results to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, the Company:
COMPANY LIQUIDITY
As a result of the volatility of spot prices in the uranium
marketplace, the Company has begun implementing plans to shut-in and place on
stand-by its two South Texas facilities in early 1999. Nominal production from
these sites is expected to continue provided their incremental production costs
remain at or below the cost of purchasing uranium in the marketplace. 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 1999 to preserve cash by reducing
expenses and maximizing the cash flow from its existing sales contracts. The
Company accelerated the 1999 delivery under one of its contracts to December
1998.
The Company is consolidating certain of its administrative locations
and reducing its workforce. These measures were initiated in the fourth quarter
of 1998 and will continue in 1999. The Company projects that upon the successful
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 alternatives are not
available, the Company's operations and liquidity would be negatively impacted
and the Company may be unable to continue operating as a going concern. Even if
the market price of uranium increases and the demand for new production meets
the industry's expectations, there can be no assurance that the Company can
survive long enough to participate in meeting such demand or that it will have
access to the capital necessary to bring new production on line.
CONTINUING SIGNIFICANT CAPITAL REQUIREMENTS
An ISL mining operation requires a substantial amount of capital prior
to the commencement of, and in connection with, production of uranium, including
costs related to acquiring the rights to mine uranium, securing regulatory
permits and licenses, exploration and definitional drilling to determine the
underground configuration of the ore body, designing and constructing the
uranium processing plant, drilling and developing in order to establish the
infrastructure for the production wells for each wellfield and complying with
financial surety requirements established by various regulatory agencies
regarding the future restoration and reclamation activities for each property.
24
<PAGE> 28
The Company expects to fund its 1999 capital requirements from cash
flow from operations and existing working capital financing arrangements.
However, certain capital requirements for new development projects in 1999 and
beyond may require additional sources of capital. There can be no assurance that
the Company will raise sufficient capital to fund these capital requirements.
POTENTIAL ADVERSE EFFECT OF FEDERAL AND STATE REGULATIONS
The development and production of uranium is subject to extensive
governmental regulations that materially affect the economics of the Company's
operations and the timing of project development. To produce uranium, the
Company must secure and maintain multiple permits, obtain adequate water rights
and comply with extensive federal, state and potential tribal regulations for
environmental protection, including regulations relating to air and water
quality, the prevention of groundwater contamination, the reclamation and
restoration of wellfield aquifers and the treatment, transportation and disposal
of liquid and/or byproduct material and solid wastes generated by the Company's
uranium mining and processing activities. To date, the Company's operations have
not been materially and adversely affected by the inability to obtain or
maintain required permits or water rights, or by any groundwater contamination
or the disposal of waste or byproduct material. However, should the Company be
unable to obtain or maintain permits or water rights for development of its
properties or otherwise fail to adequately handle future environmental issues,
the Company's operations could be materially and adversely affected by
expenditures or delays in the Company's ability to initiate or continue
production at its properties.
The Company must obtain all necessary permits from the appropriate
governmental agency before it can commence production at any of its development
properties. The Company's future production is highly dependent on its ability
to bring these development properties into production. Applications for
permitting of certain of these properties have been filed. There can be no
assurances that all the necessary permits will be obtained or that such permits
will be obtained in a timely manner. Any significant delays in obtaining the
necessary permits could have a material adverse effect upon the Company and its
developmental plans for these properties.
The Company has expended significant resources, both financial and
managerial, to comply with environmental protection laws, regulations and
permitting requirements and anticipates that it will be required to continue to
do so in the future. Although the Company believes its producing properties
comply in all material respects will all relevant permits, licenses and
regulations pertaining to worker health and safety as well as those pertaining
to the environment, the historical trend toward stricter environmental
regulation may continue. The uranium industry is subject to not only the worker
health and safety and environmental risks associated with all mining businesses,
but also to additional risks uniquely associated with uranium mining and
processing. The possibility of more stringent regulations exists in the areas of
worker health and safety, the disposal of wastes and byproduct material, the
decommissioning, decontamination and reclamation of mining, milling, refining
and conversion sites, and other environmental matters, each of which could have
a material adverse effect on the costs or the viability of a particular project.
The Company is required to provide financial surety to state
environmental agencies for plugging wells, groundwater restoration and site
decommissioning, decontamination and reclamation. The Company estimates that its
current restoration, decommissioning, decontamination and reclamation costs are
approximately $5.2 million, which amount the Company has accrued as a liability
on its financial statements. The Company satisfied its financial surety
requirements imposed by environmental regulators with surety bonds totaling
approximately $6.2 million at December 31, 1998, $3.6 million of which is
collateralized by the Company with cash. The Company anticipates that its future
financial surety requirements will increase significantly when future
development and production occurs at its sites in Texas and New Mexico. The
amount of the financial surety for each producing property is subject to
25
<PAGE> 29
annual review and revision by regulators. There can be no assurance that the
Company will have sufficient capital to meet these future financial surety
obligations.
RESERVE ESTIMATES
Reserve estimates are necessarily imprecise and depend to some extent
on statistical inferences drawn from limited drilling, which may prove
unreliable; and there can be no assurance that the indicated level of recoveries
will be realized. Should the Company encounter mineralization or formations at
any of its mines or projects different from those predicted by drilling,
sampling and similar examinations, uranium reserve estimates may have to be
adjusted and mining plans may have to be altered in a way that could adversely
affect the Company's operations. Moreover, short-term operating factors relating
to the uranium reserves, such as the need for sequential development of ore
bodies and the processing of new or different uranium grades, may adversely
affect the Company's profitability in any particular accounting period.
NEED TO REPLACE RESERVES
The Company's producing uranium mines are, in general, characterized by
a series of individual wellfields that produce at differing declining production
rates. Each wellfield's production decline rate depends on ore reserve
characteristics, and, in the case of the Company, varies from a steep decline
rate of six months, to a relatively slow production decline rate of eighteen
months. The Company's future uranium reserves and production, and therefore cash
flow and income, are highly dependent upon the Company's level of success in
exploiting its current reserves and acquiring or developing additional reserves.
Proven reserves at the Company's currently producing sites are expected to be
depleted in 1999, although there is the potential for developing additional
wellfields at Kingsville Dome. There can be no assurance that the Company's
development properties will be placed into production or that the Company will
be able to continue to find and develop or acquire reserves.
COMPETITION
There is global competition in the uranium industry for mineral
properties, capital, customers and the employment and retention or qualified
personnel. In the production and marketing of uranium concentrates there are
approximately 15 major uranium-producing entities, some of which are government
controlled and some of which are significantly larger and better capitalized
than the Company.
The Company competes with larger producers in Canada, Australia and
Africa, as well as with other United States ISL producers of uranium and other
producers that recover uranium as a by-product of other mineral recovery
processes. The Company also expects to compete with uranium recovered from the
de-enrichment of highly enriched uranium obtained from the dismantlement of U.S.
and Russian nuclear weapons and sold in the market by the United States
Enrichment Corporation and/or the United States Department of Energy, as well as
from imports to the United States of uranium from the CIS. The amount of uranium
produced by competitors or imported into the United States may have a material
impact on uranium prices.
URANIUM PRICE VOLATILITY
The Company's earnings are dependent on the price of uranium, which is
determined primarily by global supply and demand and by the relationship of that
price to the Company's costs of production. Historically, uranium prices have
been subject to fluctuation, and the price of uranium has been and will continue
to be affected by numerous factors beyond the Company's control, including the
demand for nuclear power, political and economic conditions, and governmental
legislation in uranium producing and consuming countries and production levels
and costs of production of other producing companies. Certain of the Company's
current long and medium-term contracts have pricing mechanisms related to spot
market prices. In recent year's, prior to 1996, imports of uranium, including
imports of uranium from the CIS, have resulted in significant downward pressure
on uranium prices.
26
<PAGE> 30
The spot market price for uranium has demonstrated a large range since
January 1995. Prices have risen from $9.65 per pound as of January 31, 1995 to a
high of $16.50 per pound as of May 31, 1996. The spot price as of December 31,
1998 and March 22, 1999 was $8.75 and $10.85 per pound, respectively.
URANIUM CONTRACTS PROFITABILITY
As of December 31, 1998, the Company had contracts for delivery of an
estimated 2.4 million pounds of uranium to domestic utilities from January 1,
1999 through 2002. Profitability to the Company on these deliveries will depend
on the cost of purchasing uranium in the marketplace and the cost of producing
uranium at the Company's mining properties, the Company's ability to produce
uranium to meet its sales commitments and the spot market price of uranium.
LIMITED MARKET; DEPENDENCE ON A FEW CUSTOMERS
The Company's primary source of revenue is derived from its sale of
uranium to U.S. nuclear power plants. Uranium's only current commercial use is
as fuel for nuclear power reactors. Accordingly, the Company's present and
potential customers are electric utilities that operate nuclear power plants.
The United States is the world's largest producer of nuclear-generated
electricity. As of November 1998, there were 104 nuclear units in the United
States. Currently, there are no new nuclear power plants under construction in
the U.S. As of November 1998, there were 429 nuclear power plants in the World,
with 30 power plants being constructed in parts of the world other than the U.S.
There can be no assurance that the Company can continue to compete successfully
for such customers.
A significant portion of the Company's contracted sales of uranium from
January 1, 1999 through December 31, 2002 are represented by long-term contracts
with four different customers. In 1998 and 1997, the Company had sales to three
customers that amounted to more than 10% of total sales. These customers
represented 27%, 18% and 14% of sales in 1998 and 18%, 15% and 13% of sales in
1997. In 1996, the Company had sales to five customers that amounted to more
than 10% of total sales. Those customers represented 20%, 16%, 15%, 12% and 11%
of sales in that year. The loss of any of these customers or curtailment of
purchases by such customers could have a material adverse effect on the
Company's financial condition and results of operations.
COMPETITION FROM ALTERNATIVE ENERGY SOURCES AND PUBLIC ACCEPTANCE OF NUCLEAR
ENERGY
Nuclear energy competes with other sources of energy, including oil and
gas, coal and hydro-electricity. These alternative energy sources are to some
extent interchangeable with nuclear energy, particularly over the longer term.
Lower prices of oil, gas, coal and hydro-electricity for an extended period of
time, as well as the possibility of developing in the future other low cost
sources for energy, have made and could continue to make nuclear power a less
attractive fuel source for the generation of electricity, thus resulting in
lower demand for uranium. Furthermore, the growth of the uranium and nuclear
power industry beyond or maintenance at its current level will depend upon
continued and increased acceptance of nuclear technology as a means of
generating electricity. Because of unique political, technological and
environmental factors that affect the nuclear industry, the industry is subject
to public opinion risks which have and could continue to have an adverse impact
on the demand for nuclear power and increase the regulation of the nuclear power
industry.
27
<PAGE> 31
POTENTIAL ADVERSE IMPACT OF LOSS OF KEY PERSONNEL
Certain of the Company's employees have significant experience in the
uranium ISL mining industry. The number of individuals with ISL experience is
small. The continued success of the Company is dependent upon the efforts of
these key individuals, and the loss of any one or more of such persons' services
could have a material adverse effect on the Company's business operations and
prospects. The Company has not entered into employment contracts with or
purchased key man life insurance for any of these individuals.
MINING RISKS AND INSURANCE
The business of uranium mining generally is subject to a number of
risks and hazards, including environmental hazards, industrial accidents,
flooding, interruptions due to weather conditions and other acts of nature. Such
risks could result in damage to or destruction of the Company's wellfield
infrastructure and production facilities, as well as to adjacent properties,
personal injury, environmental damage and processing and production delays,
causing the Company monetary losses and possible legal liability. While the
Company maintains, and intends to continue to maintain, liability, property
damage and other insurance consistent with industry practice, no assurance can
be given that such insurance will continue to be available, be available at
economically acceptable premiums or be adequate to cover any resulting
liability.
28
<PAGE> 32
GLOSSARY OF CERTAIN TERMS
claim............................... A claim is a tract of land, the right to
mine of which is held under the federal
General Mining Law of 1872 and
applicable local laws.
concentrates........................ A product from a uranium mining and
milling facility, which is commonly
referred to as uranium concentrate or
U(3)O(8).
conversion.......................... A process whereby uranium concentrates
are converted into forms suitable for
use as fuel in commercial nuclear
reactors.
cut-off grade....................... Cut-off grade is determined by the
following formula parameters: estimates
over the relevant period of mining
costs, ore treatment costs, general and
administrative costs, refining costs,
royalty expenses, process and refining
recovery rates and uranium prices.
gross acres......................... Total acres under which the Company has
mineral rights and can mine for uranium.
Indian country...................... A term derived from jurisdictional
determinations in criminal law
enforcement proceedings under 18 U.S.C.
ss. 1151 and understood to encompass
territory situated within Indian
reservations, land owned by Indian
allottees and land within a dependent
Indian community.
lixiviant........................... When used in connection with uranium in
situ leach mining, a solution that is
pumped into a permeable uranium ore body
to dissolve uranium in order that a
uranium solution can be pumped from
production wells.
net acres........................... Actual acres under lease which may
differ from gross acres when fractional
mineral interests are not leased.
ore................................. Naturally occurring material from which
a mineral or minerals of economic value
can be extracted at a reasonable profit.
over feeding........................ Operating enrichment plants in a manner
that reduces plant operating costs but
increases the amount of uranium required
to produce a given quantity of enriched
uranium.
probable reserves................... Reserves for which quantity and grade
and/or quality are computed from
information similar to that used for
proven (measured) reserves, but the
sites for inspection, sampling, and
measurement are farther apart or are
otherwise less adequately spaced. The
degree of assurance, although lower than
that for proven (measured) reserves, is
high enough to assume continuity between
points of observation.
29
<PAGE> 33
proven reserves..................... Reserves for which (a) quantity is
computed from dimensions revealed in
outcrops, trenches, workings or drill
holes; grade and/or quality are computed
from the results of detailed sampling
and (b) the sites for inspection,
sampling and measurement are spaced so
closely and the geologic character is so
well defined that size, shape, depth and
mineral content of reserves are
well-established.
reclamation......................... Reclamation involves the returning of
the surface area of the mining and
wellfield operating areas to a condition
similar to pre-mining.
recoverable reserves................ Reserves that are either proven or
probable, are physically minable, and
can be profitably recovered under
conditions specified at the time of the
appraisal, based on a positive
feasibility study. The calculation of
minable reserves is adjusted for
potential mining recovery and dilution.
reserve............................. That part of a mineral deposit which
could be economically and legally
extracted or produced at the time of the
reserve determination.
restoration......................... Restoration involves returning an
aquifer to a condition consistent with
its pre-mining use and removing
evidences of surface disturbance. The
restoration of the wellfield can be
accomplished by flushing the ore zone
with native ground water and/or using
reverse osmosis to remove ions to
provide clean water for reinjection to
flush the ore zone.
resources........................... A resource is a concentration of
naturally occurring minerals in such a
form that economic extraction is
currently or potentially feasible.
roll front.......................... The configuration of sedimentary uranium
ore bodies as they appear within the
host sand. A term that depicts an
elongate uranium ore mass that is "C"
shaped.
spot price.......................... The price at which uranium may be
purchased for delivery within one year.
surety obligations.................. A bond, letter of credit, or financial
guarantee posted by a party in favor of
a beneficiary to ensure the performance
of its or another party's obligations,
e.g., reclamation bonds, workers'
compensation bond, or guarantees of debt
instruments.
tailings............................ Waste material from a mineral processing
mill after the metals and minerals of a
commercial nature have been extracted;
or that portion of the ore which remains
after the valuable minerals have been
extracted.
Trade Tech.......................... A Denver-based publisher of information
for the nuclear fuel industry; the
successor to the information services
business of Nuexco.
30
<PAGE> 34
uranium or uranium
concentrates........................ U(3)O(8), or triuranium octoxide.
U(3)O(8)............................ Triuranium octoxide equivalent contained
in uranium concentrates, referred to as
uranium concentrate.
waste............................... Barren rock in a mine, or mineralized
material that is too low in grade to be
mined and milled at a profit.
31
<PAGE> 35
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Prior to March 24, 1999 the Company's Common Stock was traded on
Nasdaq under the trading symbol URIX. The following table sets forth the high
and low sales prices for the Common Stock as reported through Nasdaq for the
periods indicated:
<TABLE>
<CAPTION>
Common Stock
Fiscal Quarter Ending High Low
- --------------------- ---- ---
<S> <C> <C>
December 31, 1998 25/32 5/32
September 30, 1998 2-3/8 7/32
June 30, 1998 3 2
March 31, 1998 4-3/8 2-1/8
December 31, 1997 7-1/8 2-1/2
September 30, 1997 7 3-7/8
June 30, 1997 6-3/8 4-3/4
March 31, 1997 8 5
</TABLE>
The high and low sales prices for the common stock for the period
January 1, 1999 through March 23, 1999, was $0.50 and $0.125, respectively.
On March 23, 1999, the Company's common stock was delisted from the
Nasdaq National Market. Effective March 24, 1999, the Company's common stock
began being quoted on the OTC Bulletin Board.
HOLDERS
As of December 31, 1998, the Company had 12,053,027 shares of Common
Stock outstanding held of record by 127 persons.
DIVIDENDS
The Company did not declare or pay any cash or other dividends on its
Common Stock during the years ending December 31, 1996, 1997 or 1998. The
Company does not anticipate paying dividends for the foreseeable future.
32
<PAGE> 36
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(In thousands, except per share and per pound amounts)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA
Uranium sales:
Produced uranium $ 10,984 $ 14,737 $ 17,827 $ 7,195 $ 959
Purchased uranium 12,363 15,003 6,437 14,634 16,375
Cost of uranium sales (21,286) (29,269) (20,122) (17,235) (13,466)
-------- -------- -------- -------- --------
Earnings from operations before
writedown of uranium properties 2,061 471 4,142 4,594 3,868
Writedown of uranium properties (23,112) -- -- (163) --
-------- -------- -------- -------- --------
Earnings (loss) from operations
before corporate expenses (21,051) 471 4,142 4,431 3,868
Corporate expenses (2,730) (2,937) (3,055) (3,496) (2,177)
-------- -------- -------- -------- --------
Earnings (loss) from operations (23,781) (2,466) 1,087 935 1,691
Interest and other, net 56 868 (328) (324) 163
Loss on acceleration of uranium contract -- -- -- -- (349)
Loss on termination of joint venture
and transfer to stockholders -- -- -- (1,781) --
-------- -------- -------- -------- --------
Earnings (loss) before income taxes (23,725) (1,598) 759 (1,170) 1,505
Federal income tax (benefit) (4,745) (273) -- (234) 300
======== ======== ======== ======== ========
Net earnings (loss) $(18,980) $ (1,325) $ 759 $ (936) $ 1,205
======== ======== ======== ======== ========
Earnings (loss) per common share:
Basic $ (1.57) $ (0.11) $ 0.09 $ (0.12) $ 0.17
======== ======== ======== ======== ========
Diluted $ (1.57) $ (0.11) $ 0.08 $ (0.12) $ 0.17
======== ======== ======== ======== ========
Weighted average common stock
and equivalents outstanding:
Basic 12,053 11,760 8,789 8,098 6,929
Diluted 12,053 11,760 10,031 8,098 7,193
CONSOLIDATED OPERATING AND OTHER DATA
Cash provided by operations $ 8,201 $ 4,931 $ 9,294 $ 5,301 $ 5,080
Pounds of uranium produced 623 871 1,360 612 --
Pounds of uranium purchased 865 1,275 488 660 1,329
Pounds of uranium delivered 1,586 2,240 1,656 1,633 1,081
Capital expenditures $ 6,168 $ 14,901 $ 14,607 $ 3,583 $ 3,183
Average sales price per pound(1) $ 15.13 $ 13.71 $ 16.35 $ 15.64 $ 16.03
Average cost of produced
pounds sold (2) $ 16.58 $ 15.61 $ 11.34 $ 10.28 $ 13.60
Average cost of purchased
pounds sold $ 10.12 $ 10.40 $ 10.21 $ 9.41 $ 10.68
Cash cost per produced pound(3) $ 13.17 $ 12.17 $ 8.51 $ 7.11 N/A
Average cost per produced
pound(2) $ 17.11 $ 15.85 $ 12.12 $ 10.09 N/A
Average cost per purchased
pound $ 10.12 $ 10.40 $ 10.21 $ 9.52 $ 10.07
</TABLE>
(1) Excludes sales of the Russian component of deliveries made under the matched
sales amendment. The economic benefit of such sales are treated as
"pass-through" sales.
(2) Average cost per produced pound consists of all operating costs, depletion,
depreciation and accrued restoration and reclamation costs.
(3) Cash cost per pound consists of all operating costs and wellfield
development costs associated with producing wellfields.
33
<PAGE> 37
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA
Cash and cash equivalents $ 3,714 $ 2,325 $ 16,934 $ 4,716 $ 2,528
Working capital (deficit) 5,198 5,999 15,269 4,710 (2,545)
Uranium properties (net) 39,472 61,303 42,444 37,200 37,230
Total assets 49,696 74,864 68,794 48,085 44,850
Total debt (1) 7,882 8,419 12,577 7,487 9,227
Total liabilities 16,363 22,959 23,497 18,214 16,632
Total shareholders' equity 33,333 51,905 45,297 29,872 28,218
</TABLE>
(1) Includes current portion of long-term debt and notes payable.
34
<PAGE> 38
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
This Item 7 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 and estimate of future net cash flows attributable to 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" beginning on
page 24.
CAPITAL RESOURCES AND LIQUIDITY
Operating Cash Flows
At December 31, 1998, the Company's cash and cash equivalents were
$3,714,000 compared to $2,325,000 at year end 1997. Cash and cash equivalents in
1997 decreased by $14,609,000 from 1996 year end levels. The Company's uranium
operations generated positive cash flow of $8,201,000 for the year ended
December 31, 1998, in comparison to positive cash flow from operations in 1997
and 1996 of $4,931,000 and $9,294,000, respectively. The Company's net working
capital at December 31, 1998 and 1997 was $5,198,000 and $5,999,000,
respectively.
As a result of the volatility of spot prices in the uranium
marketplace, the Company has begun implementing plans to shut-in and place on
stand-by its two South Texas facilities by early 1999. Nominal production from
these sites is expected to continue provided their incremental production costs
remain at or below the cost of purchasing uranium in the marketplace. 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 1999 to preserve cash by reducing
expenses and maximizing the cash flow from its existing sales contracts. The
Company accelerated the 1999 delivery under one of its contracts to December
1998.
The Company is consolidating certain of its administrative locations,
and reducing its workforce. The implementation of these measures were initiated
in the fourth quarter of 1998 and continue in 1999. The Company projects that
upon the successful 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 and the Company may be unable to continue operating
as a going concern.
In March 1998, the Company entered into an agreement to extend the
maturity date of its $6,000,000 secured convertible note from May 31, 1998 to
May 31, 2000. As a result of this two year extension, the Company reclassified
this obligation as a long-term obligation and had a positive impact of
$6,000,000 to its net working capital at December 31, 1997. The note is
convertible into shares of the Company's common stock. In return for the
extension in the maturity of the note, the conversion price was adjusted from
$4.00 per share to $3.00. The exercise price of certain outstanding warrants
held by the noteholder to purchase 1,000,000 shares of the Company's common
stock was also adjusted from $4.00 per share to $3.00 per share, and the
expiration date of the warrants was extended by two years, to May 31, 2000.
35
<PAGE> 39
During January 1995, when companies controlled by Oren L. Benton (the
"Benton Companies") held effective control of the common stock of the Company,
the Company transferred $1 million to the Benton Companies in connection with a
planned joint venture to process uranium at a Benton Companies' mill. Shortly
thereafter, an additional $1,080,000 was transferred to or for the benefit of
Mr. Benton or certain Benton Companies without the authorization of the
Company's Board of Directors. In February 1995, Mr. Benton and certain of the
Benton Companies filed for bankruptcy. The Company has recovered $875,000
related to the unauthorized transfer ($300,000 in 1995 and $575,000 in 1997);
however, the remaining $1.2 million will not be recovered. A loss for these
transactions of $1.78 million was recorded in 1995 and the recovery of the
$575,000 resulted in an increase to other income in 1997.
Investing Cash Flows
The Company resumed development activities at its Rosita site during
the second quarter of 1995 and uranium production began in June 1995. During
1997 and 1998, $2,450,000 and $244,000 in capital expenditures were incurred at
Rosita, respectively. Capital expenditures to be incurred for 1999 at Rosita are
expected to be minimal.
Significant development activities at the Company's Kingsville Dome
facility began in December 1995 and resulted in commencement of production at
this site in March 1996. Capital expenditures at Kingsville Dome during 1997 and
1998 totaled $8,998,000 and $2,999,000, respectively and are expected to be
minimal in 1999. The Company expects to fund its 1999 activities at its
Kingsville Dome and Rosita projects from cash on hand, sales proceeds under
uranium deliveries and through existing financing arrangements. See "Operating
Cash Flows" for discussion of operating plans for Rosita and Kingsville Dome.
In June 1996, the Company acquired the rights to a significant uranium
deposit in South Texas known as the Alta Mesa project. The Company spent
$4,000,000 to acquire the uranium rights to the property which contains
approximately 6.2 million pounds of in-place proven and probable reserves. The
primary term of the lease was to expire in December 1999 and required either
minimum production from the property or a payment of approximately $530,000 . In
December 1998, the Company attempted to renegotiate the lease. The renegotiation
was not successful and in January 1999 the Company relinquished its rights to
this property which resulted in a pre-tax write-off of approximately $5.0
million in the fourth quarter of 1998. Capital expenditures related primarily to
permitting activities and land holding costs have totaled approximately $515,000
and $103,000, respectively in 1997 and 1998.
The initial capital costs to acquire the rights to the Alta Mesa
property were obtained through a one-year note from the Lindner Dividend Fund.
This $4.0 million note was repaid in January 1997 from the proceeds from the
Company's equity placement completed in December 1996.
Capital expenditures at the Company's Churchrock, Crownpoint and
Vasquez projects for permitting and land holding costs totaled approximately
$2,900,000 and $2,800,000 in 1997 and 1998, respectively and are not expected to
be significant in 1999. Capital requirements for 1999 and beyond for these
projects are expected to be met through future sales proceeds from current and
additional uranium delivery contracts and through future sources of debt and/or
equity financing.
Cash used for other investing activities for 1997 and 1998 totaled
$524,000 and $345,000, respectively and was for the purchase of certificates of
deposit to fund certain bonding requirements at the Company's producing and
development properties. These certificates of deposit are pledged under these
bonding requirements and therefore are not readily available to the Company. See
Note 1 - "Restricted Cash" of the Notes to Consolidated Financial Statements.
Financing Cash Flows
In May 1996, the Company entered into a one-year $3.0 million revolving
credit facility. This facility was renewed and expanded to a $5.0 million credit
facility which concludes July, 1999. This agreement 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%. Principal advances, net of
repayments, under the facility amounted to $1,685,000 in 1998.
36
<PAGE> 40
In June 1996, the Company received $4.0 million in proceeds from the
one-year note entered into with the Lindner Dividend Fund, noted previously. 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 principal and accrued interest on this note was paid in January 1997.
In December 1996, the Company completed an equity placement in which
2,000,000 shares of the Company's common stock were sold in a public offering.
Net proceeds to the Company totaled over $14,000,000 with $4,900,000 of the
proceeds used in January 1997 to repay the $4.0 million note from the Lindner
Dividend Fund and to pay certain other long-term obligations. The balance of the
proceeds was used for working capital purposes and to fund development
activities at the Company's projects.
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.
In 1997 the Company generated $133,000 from the issuance of 40,000
shares of common stock associated with the exercise of certain stock warrants.
In 1996, the Company also generated approximately $630,000 from the issuance of
approximately 167,000 shares of common stock upon the exercise of certain stock
options and 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 was an existing royalty obligation from the Company to Santa Fe on
certain properties then 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 right to explore for uranium, 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.
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 to levels which would
enable the Company to obtain the necessary financing to allow development of new
production areas in South Texas during this period is uncertain.
37
<PAGE> 41
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 1999 sales contracts through incremental
production from Kingsville Dome and Rosita, 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 in
early 1999. Nominal production from these sites will continue to be maintained
provided their incremental production costs are at or below the cost of
purchasing uranium in the marketplace. The timing of the resumption of
full-scale production from these sites will be dependent upon future uranium
prices, the availability of sales contracts and the availability of capital.
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.
WRITEDOWN OF URANIUM PROPERTIES
PRODUCING PROPERTIES
In view of the continuing weakness in uranium prices, the Company
reviewed the carrying values of its uranium properties and 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 December 31, 1998 (after giving effect to the writedown) was
approximately $6,106,000 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
assumed 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 1998 and as a result operate at costs that are significantly below those
experienced for 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.
ALTA MESA
In June 1996, the Company acquired the Alta Mesa property in South
Texas for $4 million. In 1998, the Company determined that this project would
not be pursued toward development and the Company terminated the lease agreement
and wrote off the net carrying value of the property in 1998 of $5,021,000.
38
<PAGE> 42
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.
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.
Years Ended December 31, 1998, 1997 and 1996
The following is a summary of the key operational and financial
statistics related to the Results of Operations:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
(In thousands, except per pound data)
<S> <C> <C> <C>
Uranium sales revenue (1) $ 23,347 $ 29,741 $ 24,264
Total pounds delivered 1,586 2,240 1,656
Average sales price/pound(2) $ 15.13 $ 13.71 $ 16.35
Pounds produced 623 871 1,360
Pounds purchased 865 1,275 488
Average production cost of produced pounds $ 17.11 $ 15.85 $ 12.12
Average cost of purchased pounds $ 10.12 $ 10.40 $ 10.21
Average cost of produced pounds sold $ 16.58 $ 15.61 $ 11.34
Average cost of purchased pounds sold $ 10.12 $ 10.40 $ 10.21
</TABLE>
(1) 1998, 1997 and 1996 uranium sales revenues include approximately $1.5
million, $2.8 million and $4.5 million, respectively, from the sale of Russian
uranium which is sold under the matched sales Amendment.
(2) Average sales price does not include the sales of Russian material sold as a
"pass through" sale under the matched sales Amendment.
39
<PAGE> 43
Revenue from uranium sales in 1998 decreased by $6,394,000 from 1997
amounts. This decrease resulted primarily from lower uranium deliveries this
year (1,586,000 pounds) compared to 1997 (2,240,000 pounds). Deliveries were
comprised of produced pounds, purchased uranium sold into existing contracts and
purchased uranium whose economic benefit is essentially treated as a "pass
through" sale (this includes the delivery of Russian origin uranium under the
Company's matched sales contracts). The quantity of the pass through sales
increased from 685,000 pounds in 1997 to 717,000 pounds in 1998 and while such
sales have a positive impact on revenues they have virtually no impact on
earnings from operations or net income.
The deliveries of the Company's produced pounds and non-pass through
purchased pounds in 1996 was approximately 1,266,000 pounds compared to
1,555,000 in 1997. The average sales price for such sales in 1996 was $16.35 per
pound compared to $14.68 in 1997. The deliveries in 1996 included 250,000 pounds
of spot sales made pursuant to matched sale agreements, the average price for
these deliveries was $17.95 per pound. No spot sales under the matched sales
agreements were made in 1997. The average sales price for total uranium
deliveries (including Russian origin uranium) in 1997 and 1996 was $13.28 per
pound and $14.65 per pound, respectively.
Revenue from uranium sales in 1996 was $24,264,000 on deliveries of
1,656,000 pounds. Sales made in 1996 under the matched sales agreements totaled
780,000 pounds during the year. The deliveries in 1996 also included 250,000
pounds sold in the spot market.
Details of the cost of uranium sales were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Cost of purchased uranium $ 8,745 $ 13,258 $ 4,979
Royalties 580 834 1,198
Operating expenses 5,347 6,564 4,866
Provision for restoration and reclamation costs 692 1,032 1,480
Depreciation and depletion of uranium properties 5,923 7,581 7,599
Writedown of uranium properties 23,112 -- --
------------ ------------ ------------
Total cost of uranium sales $ 44,399 $ 29,269 $ 20,122
============ ============ ============
</TABLE>
Combined production for the year from Kingsville Dome and Rosita was
623,000 pounds which approximated the Company's "produced pound" delivery
requirements under its 1998 uranium sales contracts. A result of these decreased
production levels was an increase in the 1998 per pound costs of uranium
production to an average cost of $17.11 per pound from the two facilities. This
increase in unit costs resulted from the fixed costs of operations remaining at
levels which were not absorbed as efficiently by the fewer pounds that were
produced during the year.
In the fourth quarter of 1998 the Company announced its Kingsville Dome
and Rosita production facilities would be shut-in and placed on stand-by early
in 1999. Nominal production from these sites will continue to be maintained
provided their incremental production costs are at or below the cost of
purchasing uranium in the marketplace. The timing of the resumption of
full-scale production from these sites will be dependent upon future uranium
prices, the availability of sales contracts and the availability of capital.
In 1997, a number of organizational and operating changes, including
plant design modifications, were implemented to address specific production
inefficiencies. The main operating changes related to the water quality of the
mine areas under wellfield at each site. Certain redesign of the plants and
wellfield patterns were performed to mitigate the effects of continuously
recycled ground water utilized in the production process by minimizing the
amount of mine water that previously was used in multiple wellfields.
40
<PAGE> 44
The average cost of uranium purchases made in 1998 was $10.12 per pound
compared to $10.40 in 1997 and $10.21 in 1996. Total deliveries in 1998 were
1,586,000 pounds of which 865,000 were purchased pounds and 721,000 were
produced pounds (average cost of $16.58 per pound). Deliveries in 1997 consisted
of 1,275,400 purchased pounds, at an average cost per pound of $10.40, and
965,000 produced pounds at $15.61 per pound. During 1996, the Company delivered
487,500 purchased pounds at an average cost per pound of $10.21 and 1,168,000
pounds of produced uranium at an average cost of $11.34 per pound.
Operating expenses totaled $5,347,000 ($7.41 per pound) in 1998
compared to $6,564,000 ($6.80 per pound) in 1997 and $4,866,000 ($4.92 per
pound) for produced pounds that were sold in 1996. Total operating expenses and
depreciation and depletion include standby costs for the Kingsville Dome and
Rosita facilities when these facilities are not in production. These costs have
been recorded as direct charges to operations. Standby costs for 1996 was
$313,000.
The provision for restoration and reclamation in 1998 of $692,000
consists primarily of costs from produced pounds sold during the year ($0.95 per
pound). Restoration and reclamation in 1997 was $910,000 ($0.95 per pound) for
production sold in 1997 and $120,000 for costs associated with reclamation
activities related to the Benavides project (a previous mining location). The
provision for restoration and reclamation in 1996 consists of $1,100,000 ($0.94
per pound) for production sold during 1996 and $380,000 for costs associated
with reclamation activities related to the Benavides project.
The depreciation and depletion provision in 1998 was $5,923,000
(average rate of $8.21 per pound) compared to $7,580,000 in 1997 (an average
rate of $7.86 per pound) and $7,578,000 in 1996 (an average rate of $6.49 per
pound).
Royalties in 1998 were $579,000 compared to $834,000 in 1997 and
$1,198,000 in 1996. The decrease in 1998 and 1997 is directly attributable to
the lower production from Rosita and Kingsville Dome and the corresponding
reduction in sales of produced uranium compared to each prior year.
Corporate expenses consisting of general and administrative ("G&A")
expenses decreased to $2,672,000 in 1998 from $2,914,000 in 1997 and $3,055,000
in 1996. The reduction in 1998 from 1997 costs reflected primarily from lower
overall compensation levels and cost reductions that were implemented in 1998.
The decrease in 1997 from 1996 resulted primarily from legal and accounting fees
and other expenses incurred in 1996 associated with the unsuccessful acquisition
bid for a significant uranium production company and continuing legal costs
associated with the unauthorized transfer of funds in 1995.
Interest and other income in 1998 totaled $208,000, down from 1997
levels. Interest and other income increased by $754,000 in 1997 compared to
1996. This change in 1997 resulted primarily from the settlement in June 1997 of
the Company's lawsuit against the Professional Bank of Denver, Colorado
($575,000) and an increase in interest income for that year. The higher interest
income resulted from higher average available cash and investment balances that
were generated from the Company's equity placement in December 1996.
Total interest cost for 1998, net of capitalized amount, were
comparable to those levels experienced in 1997. Total interest costs for 1997,
net of capitalized amounts decreased from 1996. This decrease resulted from the
repayment in January 1997 of the additional $4.0 million borrowed in June 1996
to finance the purchase of the Alta Mesa property ($134,000 reduction in
interest cost). Interest cost in 1997 increased as a result of the Company
entering into a financial surety agreement with USF&G for the issuance of surety
bonds related to the Company's reclamation and restoration commitments at its
current and prior mine locations (increase of $85,000). Net interest cost in
1997 also decreased compared to 1996 because of higher capitalized interest
during the current year (approximately $367,000). The increase in permitting and
development activities in New Mexico and Texas properties required the
additional capitalization of interest related to these projects. Total interest
costs for 1996 including capitalized amounts increased from the prior year
primarily because of the $4.0 million borrowings received in June
41
<PAGE> 45
1996 and from advances received under the Company's credit facility with
NationsBank which commenced May 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.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
URANIUM PRICE VOLATILITY
The Company is subject to market risk related to the market price of
uranium. The Company's earnings are dependent on the price of uranium, which is
determined primarily by global supply and demand and by the relationship of that
price to the Company's costs of production. Historically, uranium prices have
been subject to fluctuation, and the price of uranium has been and will continue
to be affected by numerous factors beyond the Company's control, including the
demand for nuclear power, political and economic conditions, and governmental
legislation in uranium producing and consuming countries and production levels
and costs of production of other producing companies. Certain of the Company's
current long and medium-term contracts have pricing mechanisms related to spot
market prices. In recent year's, prior to 1996, imports of uranium, including
imports of uranium from the CIS, have resulted in significant downward pressure
on uranium prices.
The spot market price for uranium has demonstrated a large range since
January 1995. Prices have risen from $9.65 per pound as of January 31, 1995 to a
high of $16.50 per pound as of May 31, 1996. The spot price as of March 22, 1999
was $10.85 per pound.
42
<PAGE> 46
URANIUM CONTRACTS PROFITABILITY
As of December 31, 1998, the Company had contracts for delivery of an
estimated 2.4 million pounds of uranium to domestic utilities from January 1,
1999 through 2002. Profitability to the Company on these deliveries will depend
on the cost of purchasing uranium in the marketplace and the cost of producing
uranium at the Company's mining properties, the Company's ability to produce
uranium to meet its sales commitments and the spot market price of uranium.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by Item 8 appears on pages F-1 through F-23
of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
43
<PAGE> 47
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The Board of Directors of the Company consists of the three individuals
shown below. Directors hold office until the next annual meeting of stockholders
and until their successors are elected and qualified. Directors are elected by
plurality vote.
The following table sets forth certain information concerning the
individuals nominated for election as directors of the Company:
<TABLE>
<CAPTION>
Positions and Offices
Name Age with the Company
---- --- ---------------------
<S> <C> <C>
Paul K. Willmott 59 Chairman, Chief Executive Officer,
President and Director
Leland O. Erdahl 70 Director
George R. Ireland 42 Director
</TABLE>
NOMINEES FOR DIRECTOR
PAUL K. WILLMOTT has served as a director of the Company since August
1994, as President of the Company since February 1995 and as Chairman of the
Board and Chief Executive Officer since July 31, 1995. Mr. Willmott served as
the Company's Chief Financial Officer from April 12, 1995 to September 25, 1995.
Mr. Willmott retired from Union Carbide Corporation ("Union Carbide") where he
was involved for 25 years in the finance and operation of Union Carbide's
world-wide mining and metals business. Most recently, Mr. Willmott was President
of UMETCO Minerals Corporation, a wholly-owned subsidiary of Union Carbide, from
1987 to 1991, where he was responsible for Union Carbide's uranium and vanadium
businesses. From January 1993 until February 1995, Mr. Willmott was engaged by
the Concord Mining Unit as a senior vice president where he was primarily
involved in the acquisition of UMETCO Minerals Corporation's uranium and
vanadium operating assets. Mr. Willmott graduated from Michigan Technological
University with a Bachelor of Science degree in Mining in 1964 and a Bachelor of
Science Degree in Engineering Administration in 1967. He has been an active
member of the American Institute of Mining Engineers, the Canadian Institute of
Mining Engineers and a number of state professional organizations.
LELAND O. ERDAHL has served as a director of the Company since July 11,
1994. From 1986 to 1991, Mr. Erdahl served as President and Chief Executive
Officer for Stolar, Inc., a high-tech company involved in the radio wave imaging
of geologic media and underground radio transmission for voice and data. He was
also President and CEO of Albuquerque Uranium Corporation, a uranium mining
company, from 1987 to 1991. He is a Certified Public Accountant and is a
graduate from the College of Santa Fe. He is currently a director of Hecla
Mining Company, Canyon Resources Corporation, Original Sixteen to One Mine, Inc.
and a trustee for a group of John Hancock Mutual Funds. In March 1997, Mr.
Erdahl entered into a contract with AMAX Gold, Inc. to serve as Vice President
and Chief Financial Officer. This contract was concluded June 1, 1998. Mr.
Erdahl also serves on the compensation committee of Hecla Mining Company, Canyon
Resources Corporation, Original Sixteen to One Mine, Inc. and Freeport McMoRan
Copper & Gold, Inc.
44
<PAGE> 48
GEORGE R. IRELAND has served as a director since May 25, 1995. Mr.
Ireland is a financial analyst for and a partner in Knott Partners L.P., a
private investment partnership. Mr. Ireland specializes in investing in
securities of natural resource and other basic industrial companies, both
domestically and abroad. From 1987 to 1991, he was a Vice President of Fulcrum
Management, Inc., which was the manager of the VenturesTrident Limited
Partnerships, (venture capital funds dedicated to investing in the mining
industry), and Senior Vice President and Chief Financial Officer of MinVen Gold
Corporation, a company in which the VenturesTrident funds had a significant
investment. Mr. Ireland graduated from the University of Michigan with degrees
in Geology and Resource Economics. He also attended the Graduate School of
Business Administration of New York University. Mr. Ireland is a director of
Merrill & Ring, Inc., a private land and timber holding company in the state of
Washington. Mr. Ireland acted as a consultant to Ryback Management Corporation
and performed due diligence on the Company in connection with Ryback's loan of
$6 million to the Company on behalf of members of the Lindner Group in 1995. Mr.
Ireland is not otherwise affiliated with the Lindner Group or Ryback.
ARRANGEMENTS REGARDING ELECTION OF DIRECTORS
On May 25, 1995, George R. Ireland and James B. Tompkins were appointed
to the Board of Directors following the closing of certain transactions with the
Lindner Group. In connection with these transactions, the Company has agreed to
nominate two individuals designated by the Lindner Group for election to the
Board. Messrs. Ireland and Tompkins were the Lindner Group's designees.
Effective July 28, 1998, Mr. Tompkins resigned his position as a
Director of the Company.
OTHER EXECUTIVE OFFICERS
The executive officers of the Company serve at the discretion of the
Board of Directors and are subject to annual appointment by the Board at its
first meeting following the Annual General Meeting of the Stockholders. The
officers of the Company hold office until their successors are appointed by the
Board of Directors. All officers of the Company are employed on a full-time
basis. There is no family relationship between any director and executive
officer of the Company.
The following table sets forth certain information concerning executive
officers who are not also directors of the Company:
<TABLE>
<CAPTION>
Positions and Offices
Name Age with the Company
---- --- ---------------------
<S> <C> <C>
Joe H. Card 45 Senior Vice President - Marketing
Richard F. Clement, Jr. 55 Senior Vice President - Exploration and
President - Hydro Resources, Inc.
Richard A. Van Horn 52 Senior Vice President - Operations
Thomas H. Ehrlich 39 Vice President, Chief Financial Officer, Secretary
and Treasurer
Mark S. Pelizza 46 Vice President - Health, Safety and Environmental
Affairs
Craig S. Bartels 50 Vice President - Technology - Hydro Resources, Inc.
</TABLE>
45
<PAGE> 49
The following sets forth certain information concerning the business
experience of the foregoing executive officers during the past five years.
JOE H. CARD joined the Company as Vice President - Marketing in March
1989. In February 1993, he was promoted to Senior Vice President - Marketing.
Previously, he spent four years with UG U.S.A., Inc., a U.S. marketing
subsidiary of a major German mining company, most recently as Marketing Manager.
His responsibilities were related to the entire uranium fuel cycle, primarily in
dealing with U.S. nuclear utilities customers. Prior to his work at UG U.S.A.,
Inc., Mr. Card spent five years with Mitsubishi International Corporation as
marketing manager. He earned a B.B.A. degree in Finance from the University of
Georgia in 1975 and an M.B.A. from Georgia State University in 1978.
RICHARD F. CLEMENT, JR. joined the Company as Vice
President-Exploration in 1983. In April 1990, he was appointed Senior Vice
President-Exploration. Mr. Clement was a director of the Company from February
1985 to July 1994 at which time he resigned his positions as director and
officer of the Company. During the period from July 1994 to February 1996, Mr.
Clement remained with the Company as Exploration Manager. In February 1996, he
was again appointed Senior Vice President-Exploration of the Company as well as
the President and a Director of Hydro Resources, Inc., a wholly owned subsidiary
of the Company. Prior to joining the Company, he spent 16 years with Mobil Oil
Corporation, most recently as vice president and exploration manager for Mobil
Energy Minerals-Australia, where he initiated and managed Mobil's Australian
coal, uranium and other minerals exploration and acquisition programs. Mr.
Clement received his B.S. degree in Geology from Boston College in 1965 and his
M.S. degree in Geology from the University of Vermont in 1967.
RICHARD A. VAN HORN joined the Company in March 1997 and assumed the
position of Senior Vice President of Operations on April 1, 1997. Previously, he
spent three years with Energy Fuels Nuclear, Inc. as General Manager - Colorado
Plateau Operations with responsibility for the daily management of and planning
for Energy Fuels Nuclear, Inc. mining activities on the Colorado Plateau. Prior
to his work at Energy Fuels Nuclear, Inc., Mr. Van Horn spent eighteen years
with Union Carbide Corporation where he was involved with the finance and
operation of that company's worldwide mining and metals business. From 1990 to
1994, Mr. Van Horn was Director of Operations of UMETCO Minerals Corporation, a
wholly owned subsidiary of Union Carbide Corporation, responsible for all
operating aspects of UMETCO's uranium and vanadium business on the Colorado
Plateau prior to its sale to Energy Fuels Nuclear, Inc. Mr. Van Horn graduated
from the Colorado School of Mines with a Engineer of Mines degree in mining in
1973.
THOMAS H. EHRLICH, a certified public accountant, rejoined the Company
in September 1995 as Vice President and Chief Financial Officer and was
appointed Secretary and Treasurer of the Company in December 1995. Immediately
prior to that, Mr. Ehrlich spent nine months as a Division Controller with
Affiliated Computer Services, Inc., an information technology services provider
in Dallas, Texas. Mr. Ehrlich originally joined the Company in November 1987 as
Controller-Public Reporting and was promoted to Controller and Chief Accounting
Officer in February 1990. In February 1993, Mr. Ehrlich assumed the additional
duties of Vice President and Secretary of the Company. Prior to joining the
Company, he spent four years with Deloitte Haskins & Sells and worked primarily
with clients that were publicly held companies. Prior to his work at Deloitte
Haskins & Sells, he spent three years in various accounting duties at Enserch
Exploration, Inc., an oil and gas company in Dallas, Texas. Mr. Ehrlich received
his B.S. B.A. degree in Accounting from Bryant College in 1981.
MARK S. PELIZZA has served as the Company's Environmental Manager since
1980, and as such, he has been responsible for all environmental regulatory
activities. In February 1996, he was appointed Vice President - Health, Safety
and Environmental Affairs of the Company. Prior to joining the Company, he was
employed for two years by Union Carbide as an Environmental Planning Engineer at
Union Carbide's Palangana solution mining plant in South Texas. Mr. Pelizza
received a M.S. Degree in Engineering Geology from Colorado School of Mines in
1978 and a B.S. Degree in Geology from Fort Lewis College in 1974.
46
<PAGE> 50
CRAIG S. BARTELS, a Registered Professional Engineer, rejoined the
Company as Vice President-Technology of Hydro Resources, Inc., a wholly owned
subsidiary of the Company in July 1996. From January 1995 to July 1996, he was
Manager of Wellfield Operations for Crow Butte Resources, Inc., a uranium ISL
mining company. Mr. Bartels originally joined the Company in early 1981 and held
positions with the Company as Reservoir Engineer, Plant Manager, and Manager of
Wellfield Operations through October 1994. Earlier, he was with Union Carbide,
eventually becoming Technical and Plant Superintendent for their solution mining
operation. Mr. Bartels also spent six years with Natural Gas Pipeline Company of
America, a major gas transmission company, as drilling and reservoir engineer
for their gas storage operations. Mr. Bartels received a B.S. Degree in
Petroleum Engineering from Montana School of Mines in 1972.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to
annual and long-term compensation for services in all capacities for the years
ended December 31, 1998, 1997 and 1996 paid to the Company's Chief Executive
Officer and certain other executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------- ---------------------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION(2)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- --------------------------- ----- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Paul K. Willmott 1998 $ 200,701 $ 0 $ 561 40,000 $ 1,887
Chairman, President and 1997 $ 202,200 $ 0 $ 283 26,280 $ 5,474
Chief Executive Officer 1996 $ 166,525 $ 13,140 $ 168 37,670 $ 2,851
Joe H. Card 1998 $ 128,200 $ 0 $ 2,757 15,000 $ 1,255
Senior Vice President - 1997 $ 129,987 $ 0 $ 3,954 15,800 $ 3,618
Marketing 1996 $ 117,894 $ 10,500 $ 145,729 13,440 $ 1,730
Richard F. Clement, Jr 1998 $ 144,045 $ 0 $ 2,156 10,000 $ 1,027
Senior Vice President - 1997 $ 149,743 $ 0 $ 2,754 15,100 $ 87,860
Exploration/President - 1996 $ 125,247 $ 10,000 $ 2,462 91,130 $ 13,129
Hydro Resources, Inc.
Richard A. Van Horn 1998 $ 132,749 $ 0 $ 1,960 25,000 $ 1,200
Senior Vice President - 1997 $ 104,569 $ 0 $ 168 55,000 $ 19,349
Operations
Craig S. Bartels 1998 $ 131,106 $ 0 $ 2,211 6,000 $ 1,022
Vice President - 1997 $ 130,791 $ 0 $ 168 3,700 $ 3,010
Technology - Hydro 1996 $ 56,809 $ 3,700 $ 42 50,000 $ 567
Resources, Inc.
</TABLE>
- ----------
(1) Represents amount paid for out-of-pocket medical and dental expenses under
the Company's Supplemental Health Care Plan and for Mr. Card in 1996
compensation from the exercise of employee stock options.
(2) Represents contributions made by the Company under the Company's 401(k)
Profit Sharing Plan (see "401(k) Profit Sharing Plan" below); and for Mr.
Clement in 1997 includes moving costs received upon his relocation to
Albuquerque, New Mexico ($84,281) and for Mr. Van Horn in 1997 includes moving
costs received upon his relocation to Corpus Christi, Texas ($19,349).
47
<PAGE> 51
SUPPLEMENTAL HEALTH CARE PLAN
The Company has adopted a health care plan (the "Supplemental Plan")
for the officers of the Company and certain of the employees of the Company who
are also stockholders, which supplements the standard health care plan available
to all eligible employees of the Company (the "Standard Plan"). The Supplemental
Plan pays directly to the participant 80% of all out-of-pocket medical and
dental expenses not covered under the Standard Plan, including deductibles and
co-insurance amounts. Additionally, the Supplemental Plan provides to each
participant $100,000 of accidental death and dismemberment insurance protection
and a world wide medical assistance benefit. Each participant in the
Supplemental Plan may receive a maximum annual benefit of $50,000 or $100,000,
at the Company's option. The Company pays an annual premium under the
Supplemental Plan equal to $210 per participant plus 10% of claims paid. There
are currently ten officers and employees covered by the Supplemental Plan.
401(k) PROFIT SHARING PLAN
The Company maintains a defined contribution profit sharing plan for
employees of the Company (the "401(k)") that is administered by a committee of
trustees appointed by the Company. All Company employees are eligible to
participate upon the completion of six months of employment, subject to minimum
age requirements. Each year the Company makes a contribution to the 401(k) out
of its current or accumulated net profits (as defined) in an amount determined
by the Board of Directors but not exceeding 15% of the total compensation paid
or accrued to participants during such fiscal year. The Company's contributions
are allocated to participants in amounts equal to 25% (or a higher percentage,
determined at the Company's discretion) of the participants' contributions, up
to 4% of each participant's gross pay. For the plan year ended July 31, 1998,
the Company contributed amounts equal to 25% of the participant's contributions,
up to 4% of gross pay. For the plan year ended July 31, 1997, the Company
contributed amounts equal to 50% of the participants' contribution, up to 4% of
gross pay. For the plan year ended July 31, 1996, the Company contributed
amounts equal to 75% of the participants' contributions, up to 4% of gross pay.
Participants become 20% vested in their Company contribution account for each
year of service until full vesting occurs upon the completion of five years of
service. Distributions are made upon retirement, death or disability in a lump
sum or in installments.
STOCK OPTION PLANS
On December 19, 1995, the Company's Stockholders approved the 1995
Stock Incentive Plan (the "1995 Plan") for key employees of the Company. The
1995 Plan initially authorized grants of incentive stock options and
non-qualified options to purchase up to an aggregate of 750,000 shares of Common
Stock. The Company adopted an amendment to the 1995 Plan which increased the
number of shares of Common Stock authorized to be issued to 1,250,000 shares.
The Employees' Stock Option Committee of the Board of Directors is responsible
for the administration of the 1995 Plan and has the full authority, subject to
the provisions of the 1995 Plan, to determine to whom and when to grant options
and the number of shares of Common Stock covered by each grant. As of February
28, 1999, a total of 670,030 shares are reserved for issuance upon exercise of
options granted under the 1995 Plan and 579,970 shares were reserved for
exercise upon the future grant of options under the 1995 Plan. No shares have
been issued upon the exercise of options under the 1995 Plan.
The 1995 Plan replaced the Company's previous plan maintained for
employees under which the Company was authorized to grant non-qualified options.
All outstanding options under that plan will remain in effect but no new options
will be granted under that plan. As of February 28, 1999, a total of 104,623
shares are reserved for issuance under that plan.
48
<PAGE> 52
DEFERRED COMPENSATION PLAN
Effective January 11, 1999, the Company adopted the 1999 Deferred
Compensation Plan (the "Deferred Compensation Plan") for the benefit of
executive officers and directors of the Company and its subsidiaries. Under the
Deferred Compensation Plan, each year participants may elect to defer up to 100%
of their salary for the duration of the year. Salary deferred will be paid to
each participant on January 11, 2006. Upon termination of employment with the
Company or its subsidiaries, a participant's account is frozen and the
participant is entitled to receive the deferred amount on January 11, 2006. The
Deferred Compensation Plan is administered by the Company's Board of Directors.
At the time of the deferral election, a participant may elect to
receive payment of up to 100% of the deferred amount of salary in shares of the
Company's Common Stock. An aggregate of 454,846 shares of Common Stock may be
issued under the Deferred Compensation Plan. The number of shares to be received
pursuant to any election will be based on the closing market price of the
Company's Common Stock on January 11, 1999. At the end of each quarter, a
participant will receive any shares of Common Stock he or she has so elected to
receive in lieu of deferred salary and may make a new election for the next
quarter to increase or decrease the percent of deferred salary to be received in
shares of Common Stock. The portion of the Deferred Compensation Plan that
permits a participant to make an election to receive shares of Common Stock is
subject to stockholder approval.
The Company's directors and executive officers have elected to defer an
aggregate amount of $238,067 of their 1999 salaries pursuant to the Deferred
Compensation Plan, $170,567 of which will be received by such directors and
executive officers in shares of the Company's Common Stock (based on a value of
$0.375 per share, the closing price on the Nasdaq National Market on January 11,
1999).
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with respect to
options granted to the executive officer named in the Summary Compensation Table
in the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
---------------------------- -------------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE OF
GRANTED FISCAL BASE PRICE EXPIRATION
NAME (#)(1) YEAR ($/SH) DATE 5% ($) 10%($)
- ------------------------- ----------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Paul K. Willmott 40,000 23% $ 2.9375 02/23/08 $ 191,900 $ 303,900
Joe H. Card 15,000 9% $ 2.9375 02/23/08 $ 71,963 $ 113,963
Richard F. Clement, Jr 10,000 6% $ 2.9375 02/23/08 $ 47,975 $ 75,975
Richard A. Van Horn 25,000 15% $ 2.9375 02/23/08 $ 119,938 $ 189,938
Craig S. Bartels 6,000 3% $ 2.9375 02/23/08 $ 28,785 $ 45,585
</TABLE>
(1) Options were granted under the Company's Stock Incentive Plan and vest 25%
one year after grant and 25% after each succeeding year.
49
<PAGE> 53
AGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following sets forth information with respect to each exercise of
stock options during the fiscal year ended December 31, 1998 and the year-end
value of unexercised options held by each of the executive officers named in the
Summary Compensation Table.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED ON VALUE REALIZED OPTIONS AT FISCAL OPTIONS AT FISCAL
NAME EXERCISE (#) ($) YEAR END (#) YEAR END ($)
---- ------------ -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
Paul K. Willmott(1) -- -- 75,000/25,000 **
75,000/25,000 **
30,150/10,050 **
18,836/18,834 **
6,570/19,710 **
0/40,000 **
19,000/0 **
1,000/0 **
Joe H. Card(2) -- -- 1,750/0 **
4,548/1,516 **
6,720/6,720 **
3,950/11,850 **
0/15,000 **
Richard F. Clement, Jr.(3) -- -- 24,750/0 **
20,790/6,930 **
8,066/8,064 **
37,500/37,500 **
3,775/11,325 **
0/10,000 **
Richard A. Van Horn(4) -- -- 13,750/41,250 **
0/25,000 **
Craig S. Bartels(5) -- -- 25,000/25,000 **
925/1,775 **
0/6,000 **
</TABLE>
- ----------------------
** Represents an option whose grant price is above the December 31, 1998 closing
price on the NASDAQ-NMS.
(1) Based on the closing price on the NASDAQ-NMS on December 31, 1998 ($0.50)
less the grant prices of $4.13, $8.38, $6.88, $9.75, $7.125, $2.9375, $4.25 and
$5.88, respectively.
(2) Based on the closing price on the NASDAQ-NMS on December 31, 1998 ($0.50)
less the grant prices of $2.94, $6.88, $9.75, $7.125 and $2.9375, respectively.
(3) Based on the closing price on the NASDAQ-NMS on December 31, 1998 ($0.50)
less the grant price of $2.94, $6.88, $9.75, $16.13, $7.125 and $2.9375,
respectively.
(4) Based on the closing price on the NASDAQ-NMS on December 31, 1998 ($0.50)
less the grant price of $5.50 and $2.9375, respectively.
(5) Based on the closing price on the NASDAQ-NMS on December 31, 1998 ($0.50)
less the grant price of $11.13, $7.125, and $2.9375, respectively.
50
<PAGE> 54
DIRECTOR COMPENSATION
Under the Company's Directors' Stock Option Plan ("Directors' Plan"),
each new non-employee director elected or appointed to the Board of Directors
for the first time shall be granted an option to purchase 20,000 shares of
Common Stock as of the date of such election or appointment and, upon the
re-election of a non-employee director at an annual meeting of the Company's
stockholders, such director will be granted an option to purchase an additional
1,000 shares as of the date of such election. As of February 28, 1999, a total
of 69,000 shares are reserved for issuance upon exercise of options granted
under the Directors' Plan and 79,000 shares were reserved for exercise upon the
future grant of options under the Directors' Plan. Mr. Erdahl holds options
covering 25,000 shares under the Directors' Plan and Mr. Ireland holds options
covering 25,000 shares under the Directors' Plan. Mr. Willmott holds options
covering 20,000 shares under the Directors' Plan. In addition, Messrs. Ireland
and Erdahl each hold options to purchase 100,000 shares of Common Stock. Those
options were not granted under the Directors' Plan. On November 17, 1997, the
Company entered into agreements with each of its non-employee directors to amend
the terms of these nonqualified stock options such that the expiration date of
the option was extended for three years until 2001 and the exercise price was
increased by $0.25 per share. Cash compensation for 1998 to the non-employee
directors was paid at the rate of $3,000 per quarter plus $1,000 per meeting
attended of the Board and committees of the Board.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In August 1994, the Company formed a Compensation Committee to
determine the compensation of the executive officers and to set the guidelines
for compensation for the employees of the Company. During the fiscal year ended
December 31, 1998, the Compensation Committee was comprised of Leland O. Erdahl,
George R. Ireland and James B. Tompkins (until his resignation on July 28,
1998). No member of the Compensation Committee has been or was during the fiscal
year ended December 31, 1998, an officer or employee of the Company or any of
the Company's subsidiaries. In addition, no member of the Compensation Committee
during the fiscal year ended December 31, 1998 had any relationship requiring
disclosure under the caption "Certain Relationships and Related Transactions."
No executive officer of the Company serves or served on the compensation
committee of another entity during the fiscal year ended December 31, 1998 and
no executive officer of the Company serves or served as a director of another
entity who has or had an executive officer serving on the Compensation Committee
of the Company.
COMPENSATION AGREEMENTS WITH KEY EXECUTIVES
In June 1997, the Company entered into Compensation Agreements with six
of its key executives. Each of these agreement provide that in the event of a
change in control of the Company, the executive will have certain rights and
benefits for a period of either twenty-four or thirty-six months following such
change in control. In particular, the agreements specify that the executive will
continue to receive compensation and benefits for the remainder of the
applicable period if the Company terminates the executive or if the executive
terminates his employment following the occurrence of certain actions without
the executive's consent. However, the Company is not obligated to provide such
rights and benefits to the executive if the executive was terminated for cause
or does not resign as an officer and/or director promptly after receiving
written request from the Company to do so.
51
<PAGE> 55
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 27, 1999, certain
information regarding persons known by the Company to be the beneficial owner of
more than 5% of the outstanding shares of the Company's Common Stock.
<TABLE>
<CAPTION>
PRINCIPAL STOCKHOLDERS
AMOUNT AND
NATURE OF
BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) PERCENT OF CLASS(2)
- ------------------------------------ ---------- -------------------
<S> <C> <C>
Barry R. Feirstein
Feirstein Capital Management Corp. 1,260,786 10.5%
767 Third Avenue, 28th Floor
New York, NY 10017
Lindner Dividend Fund
7711 Carondelet Avenue, Suite 700 2,625,000(3),(4) 18.0%
Clayton, MO 63105
Lindner Bulwark Fund
7711 Carondelet Avenue, Suite 700 875,000(3),(5) 6.0%
Clayton, MO 63105
The Winchester Group
335 Madison Avenue 2,239,877 18.6%
New York, NY 10017
Santa Fe Pacific Gold Corporation
(a wholly owned subsidiary of 1,200,000 10.0%
Newmont Gold Company)
1700 Lincoln Street
Denver, CO 80203
</TABLE>
- ----------
(1) Each person has sole voting and investment power with respect to the shares
listed, unless otherwise indicated. Beneficial ownership includes shares over
which the indicated beneficial owner exercises voting and/or investment power.
(2) The shares owned by each person, and the shares included in the total number
of shares outstanding, have been adjusted, and the percentages owned have been
computed, in accordance with Rule 13d-3(d)(1) under the Securities Exchange Act
of 1934. Shares subject to options or warrants currently exercisable or
exercisable within 60 days are deemed outstanding for computing the percentage
ownership of the person holding such options or warrants, but are not deemed
outstanding for computing the percentage ownership of any other person.
(3) Lindner Growth Fund, Lindner Dividend Fund, Lindner Bulwark Fund (the
"Lindner Group") are members of the same family of mutual funds and may be
deemed collectively as a controlling stockholder of the Company. The Lindner
Group is managed by Ryback Management Corporation ("Ryback"), an investment
adviser. Ryback has discretionary authority over the shares owned beneficially
by the Lindner Group, including the power to vote and dispose of such shares.
(4) Includes 500,000 outstanding shares owned beneficially by Lindner Dividend
Fund, 1,500,000 shares issuable upon conversion of certain notes and 625,000
shares issuable upon exercise of certain warrants.
(5) Includes 500,000 shares issuable upon conversion of certain notes and
375,000 shares issuable upon exercise of certain warrants.
52
<PAGE> 56
DIRECTORS AND EXECUTIVES
The following table sets forth as of December 31, 1998 certain
information regarding the beneficial ownership of the Company's Common Stock by
(i) each director and nominee for director of the Company, (ii) each of the
executive officers named in the Summary Compensation Table set forth below under
the caption Executive Compensation, and (iii) all directors and executive
officers as a group.
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS(2)
---------------- ----------------------- -------------------
<S> <C> <C>
Paul K. Willmott 278,269(3) 2.1%
Joe H. Card 28,028(4) *
Leland O. Erdahl 124,000(5) *
George R. Ireland 155,500(6) 1.2%
Richard F. Clement, Jr. 235,319(7) 1.8%
Richard A. Van Horn 20,000(8) *
Craig S. Bartels 28,500(9) *
All executive officers and directors 1,183,617(10) 9.2%
as a group (9 persons)
</TABLE>
* Less than 1%.
(1) Each person has sole voting and investment power with respect to the shares
listed, unless otherwise indicated. Beneficial ownership includes shares over
which the indicated beneficial owner exercises voting and/or investment power.
(2) The shares owned by each person, and the shares included in the total number
of shares outstanding, have been adjusted, and the percentages owned have been
computed, in accordance with Rule 13d-3(d)(1) under the Securities Exchange Act
of 1934. Shares subject to options currently exercisable or exercisable within
60 days are deemed outstanding for computing the percentage ownership of the
person holding such options, but not deemed outstanding for computing the
percentage ownership of any other person.
(3) Includes 276,544 shares that may be obtained by Mr. Willmott through the
exercise of stock options which are currently exercisable. Does not include
87,606 shares that may be obtained by Mr. Willmott through the exercise of stock
options exercisable more than 60 days from the date hereof.
(4) Includes 28,028 shares that may be obtained by Mr. Card through the exercise
of stock options which are currently exercisable. Does not include 24,026 shares
that may be obtained by Mr. Card through the exercise of stock options
exercisable more than 60 days from the date hereof.
(5) Includes 122,500 shares that may be obtained by Mr. Erdahl through the
exercise of stock options which are currently exercisable. Does not include
3,500 shares that may be obtained by Mr. Erdahl through the exercise of stock
options exercisable more than 60 days from the date hereof.
(6) Includes 116,500 shares that may be obtained by Mr. Ireland through the
exercise of stock options which are currently exercisable. Does not include
7,500 shares that may be obtained by Mr. Ireland through the exercise of stock
options exercisable more than 60 days from the date hereof.
(7) Includes 105,189 shares that may be obtained by Mr. Clement through the
exercise of stock options which are currently exercisable. Does not include
63,511 shares that may be obtained by Mr. Clement through the exercise of stock
options exercisable more than 60 days from the date hereof.
(8) Includes 20,000 shares that may be obtained by Mr. Van Horn through the
exercise of stock options which are currently exercisable. Does not include
60,000 shares that may be obtained by Mr. Van Horn through the exercise of stock
options exercisable more than 60 days from the date hereof.
(9) Includes 28,350 shares that may be obtained by Mr. Bartels through the
exercise of stock options which are currently exercisable. Does not include
31,350 shares that may be obtained by Mr. Bartels through the exercise of stock
options exercisable more than 60 days from the date hereof.
(10) Includes 764,113 shares that may be obtained through the exercise of stock
options which are currently exercisable or will become exercisable within 60
days.
53
<PAGE> 57
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
EXTENSION OF MATURITY DATE AND ADJUSTMENT OF CONVERSION PRICE OF
LINDNER LOAN
On May 25, 1995, the Company received $6,000,000 in cash (the "Lindner
Loan") through the issuance of 6.5% secured convertible notes in the aggregate
principal amounts of $1,500,000 and $4,500,000. The Lindner Loan was initially
convertible at $4.00 per share into 375,000 and 1,125,000 shares of Common
Stock, the Lindner Investments (on behalf of Lindner Bulwark Fund) ("Bulwark")
and Lindner Dividend Fund, Inc. ("Dividend"), respectively. In addition, the
Company issued immediately exercisable warrants (the "Lindner Warrants") to
purchase 375,000 shares and 1,125,000 shares of the Company's Common Stock at an
initial exercise price of $4.00 per share to Lindner Investments (on behalf of
Lindner Bulwark Fund) and Dividend, respectively. Dividend has exercised its
right to purchase 500,000 shares under the Lindner Warrants.
In March 1998, the Company entered into an agreement to extend the
maturity date of its $6,000,000 secured convertible note from May 31, 1998 to
May 31, 2000. In return for the extension in the maturity of the note, the
conversion price was adjusted from $4.00 per share to $3.00 per share. The
exercise price of the remaining Lindner warrants to purchase 1,000,000 shares of
the Company's common stock was also adjusted from $4.00 per share to $3.00 per
share, and the expiration date of the warrants was extended by two years, to May
31, 2000.
54
<PAGE> 58
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements.
See the Index to Consolidated Financial Statements on page F-1 for a
listing of those financial statements filed as part of this Annual
Report.
(a) (2) Financial Statement Schedules.
See the Index to Consolidated Financial Statements on page F-1 for a
listing of those financial statements filed as part of this Annual
Report.
(a) (3) Exhibits.
See the Index to Exhibits on page E-1 for a listing of the exhibits
that are filed as part of this Annual Report.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated October 27, 1998 which
disclosed that the Nasdaq Stock Market ("Nasdaq") had notified the Company of
Nasdaq's determination that the Company was not in compliance with the minimum
bid price for continued listing of the Company's Common Stock on the Nasdaq
National Market.
55
<PAGE> 59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 31, 1999
URANIUM RESOURCES, INC.
By: /s/ Paul K. Willmott
-------------------------------
Paul K. Willmott, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Date
- --------- ----
/s/ Paul K. Willmott March 31, 1999
- -----------------------------------------------------
Paul K. Willmott,
Director, President and Chief Executive Officer
/s/ Thomas H. Ehrlich March 31, 1999
- -----------------------------------------------------
Thomas H. Ehrlich,
Vice President - Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Leland O. Erdahl March 31, 1999
- -----------------------------------------------------
Leland O. Erdahl, Director
/s/ George R. Ireland March 31, 1999
- -----------------------------------------------------
George R. Ireland, Director
56
<PAGE> 60
URANIUM RESOURCES, INC. AND CONSOLIDATED SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants...........................F-2
Consolidated Balance Sheets........................................F-3
Consolidated Statements of Operations..............................F-5
Consolidated Statements of Common Shareholders' Equity.............F-6
Consolidated Statements of Cash Flows..............................F-7
Notes to Consolidated Financial Statements.........................F-8
</TABLE>
The additional financial data referred to below should be read in
conjunction with these financial statements. Schedules not included with this
additional financial data have been omitted because they are not applicable, or
the required information is shown in the financial statements or notes thereto.
The individual financial statements of the subsidiaries of the Company have been
omitted because all such subsidiaries are included in the consolidated financial
statements being filed.
ADDITIONAL FINANCIAL DATA
Financial statement schedules for the years ended
December 31, 1998, 1997 and 1996
II - Valuation and Qualifying Accounts and Reserves.........F-23
The accounts of the Company are maintained in United States dollars.
All dollar amounts in the financial statements are stated in United States
dollars except where indicated.
F-1
<PAGE> 61
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Uranium Resources, Inc.:
We have audited the accompanying consolidated balance sheets of Uranium
Resources, Inc. (a Delaware Corporation) and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998. These consolidated financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Uranium Resources, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company has incurred operating losses in
1998 and 1997 due largely to a significant decline in the market price of
uranium. Further, the Company has limited capital resources available to support
its ongoing operations until such time, if ever, the Company is able to resume
full-scale operations. These factors among others discussed in Note 2, raised
substantial doubt concerning the ability of the Company to continue as a going
concern. The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. The schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
state in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Dallas, Texas
February 26, 1999
F-2
<PAGE> 62
URANIUM RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,713,566 $ 2,325,158
Short-term investment:
Certificate of deposit, restricted 582,623 464,664
Receivables, net 1,482,806 4,507,090
Uranium inventory 956,590 2,260,200
Materials and supplies inventory 92,495 91,047
Prepaid and other current assets 244,301 253,910
------------ ------------
Total current assets 7,072,381 9,902,069
------------ ------------
Property, plant and equipment, at cost:
Uranium properties 98,073,350 97,100,015
Other property, plant and equipment 538,974 580,676
Less-accumulated depreciation and depletion (59,059,968) (36,235,274)
------------ ------------
Net property, plant and equipment 39,552,356 61,445,417
Long-term investment:
Certificate of deposit, restricted 3,066,703 2,839,531
Other assets 4,299 676,952
------------ ------------
$ 49,695,739 $ 74,863,969
============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of
these consolidated statements.
F-3
<PAGE> 63
URANIUM RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,829,255 $ 3,233,277
Notes payable 1,685,000 1,950,000
Accrued interest payable 113,778 5,035
Current portion of long-term debt 8,000 7,000
Royalties payable 632,626 630,284
Current portion of restoration reserve 324,000 511,000
Other accrued liabilities 348,337 405,814
------------ ------------
Total current liabilities 4,940,996 6,742,410
------------ ------------
Other long-term liabilities and deferred credits 4,969,394 4,787,427
Long-term debt, less current portion 6,189,007 6,462,343
Deferred federal income taxes 263,810 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 (loss) (7,300,178) 11,679,643
Less: Treasury stock (152,500 shares), at cost (9,418) (9,418)
------------ ------------
Total shareholders' equity 33,332,532 51,904,789
------------ ------------
$ 49,695,739 $ 74,863,969
============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of
these consolidated statements.
F-4
<PAGE> 64
URANIUM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Uranium sales -
Produced uranium $ 10,984,040 $ 14,737,579 $ 17,827,204
Purchased uranium 12,363,274 15,002,838 6,437,105
------------ ------------ ------------
Uranium sales 23,347,314 29,740,417 24,264,309
Costs and expenses:
Cost of uranium sales -
Direct cost of purchased uranium 8,745,246 13,257,989 4,979,407
Royalties 579,439 833,534 1,197,890
Operating expenses 5,347,145 6,564,363 4,866,436
Provision for restoration and reclamation costs 692,317 1,032,587 1,479,939
Depreciation and depletion 5,922,508 7,580,809 7,599,047
------------ ------------ ------------
Earnings from operations before
writedown of uranium properties
and other uranium assets 2,060,659 471,135 4,141,590
Writedown of uranium properties and
other uranium assets 23,111,956 -- --
------------ ------------ ------------
Total cost of uranium sales 44,398,611 29,269,282 20,122,719
------------ ------------ ------------
Earnings (loss) from operations
before corporate expenses (21,051,297) 471,135 4,141,590
Corporate expenses -
General and administrative 2,672,319 2,913,776 3,033,819
Depreciation 57,150 22,956 20,875
------------ ------------ ------------
Total corporate expenses 2,729,469 2,936,732 3,054,694
------------ ------------ ------------
Earnings (loss) from operations (23,780,766) (2,465,597) 1,086,896
Other income (expense):
Interest expense, net of capitalized interest (152,009) (168,789) (610,403)
Interest and other income, net 207,954 1,036,290 282,370
------------ ------------ ------------
Earnings (loss) before federal income taxes (23,724,821) (1,598,096) 758,863
Federal income tax provision (benefit):
Current -- 44,775 25,000
Deferred (4,745,000) (318,000) (25,000)
------------ ------------ ------------
Net earnings (loss) $(18,979,821) $ (1,324,871) $ 758,863
============ ============ ============
Net earnings (loss) per common share:
Basic $ (1.57) $ (0.11) $ 0.09
============ ============ ============
Diluted $ (1.57) $ (0.11) $ 0.08
============ ============ ============
</TABLE>
The accompanying notes to finanacial statements are an integral part of
these consolidated statements.
F-5
<PAGE> 65
URANIUM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
<TABLE>
Common Stock
------------------------------- Paid-In Retained Treasury
Shares Amount Capital Earnings Stock
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1995 8,645,698 8,798 17,626,510 12,245,651 (9,418)
Net income -- -- -- 758,863 --
Common stock issuance 2,000,000 2,000 14,030,949 -- --
Common stock issuance for
employee stock option plans 119,329 120 441,219 -- --
Common stock issuance
for stock warrants 48,000 48 191,952 -- --
-------------- -------------- -------------- -------------- --------------
Balances, December 31, 1996 10,813,027 $ 10,966 32,290,630 $ 13,004,514 $ (9,418)
Net loss -- -- -- (1,324,871) --
Common stock issuance for
employee stock option plans 25,500 25 74,944 -- --
Common stock issuance
for stock warrants 14,500 14 57,985 -- --
Common stock issuance
for property 1,200,000 1,200 7,798,800 -- --
-------------- -------------- -------------- -------------- --------------
Balances, December 31, 1997 12,053,027 $ 12,205 $ 40,222,359 $ 11,679,643) $ (9,418)
Net loss -- -- -- (18,979,821) --
Re-valuation of
common stock warrants -- -- 407,564 -- --
-------------- -------------- -------------- -------------- --------------
Balances, December 31, 1998 12,053,027 $ 12,205 $ 40,629,923 $ (7,300,178) $ (9,418)
============== ============== ============== ============== ==============
</TABLE>
The accompanying notes to financial statements are an integral part of
these consolidated statements.
F-6
<PAGE> 66
URANIUM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operations:
Net earnings (loss) $(18,979,821) $ (1,324,871) $ 758,863
Reconciliation of net income to cash provided by operations-
Provision for restoration and reclamation costs 692,317 1,032,587 1,479,939
Depreciation and depletion 5,979,658 7,603,765 7,619,922
Writedown of uranium properties and other assets 23,111,956 -- --
Credit for deferred income taxes (4,745,000) (318,000) (25,000)
Decrease in restoration and reclamation accrual (69,357) (317,270) (513,975)
Other non-cash items, net 688,458 205,169 274,243
------------ ------------ ------------
Cash flow provided by operations, before changes in
operating working capital items 6,678,211 6,881,380 9,593,992
Effect of changes in operating working capital items-
(Increase) decrease in receivables 3,024,284 (2,677,551) 2,175,652
(Increase) decrease in inventories 247,334 496,100 (1,000,793)
Increase in prepaid and other current assets (398,040) (446,910) (367,894)
Increase (decrease) in payables and accrued liabilities (1,350,414) 677,795 (1,107,157)
------------ ------------ ------------
Net cash provided by operations 8,201,375 4,930,814 9,293,800
Investing activities:
Increase in investments (345,131) (524,355) (2,067,746)
Additions to property, plant and equipment -
Kingsville Dome (2,998,871) (8,998,305) (6,695,472)
Rosita (244,290) (2,450,105) (2,001,722)
Vasquez (439,929) (384,192) (94,626)
Alta Mesa (103,399) (514,503) (4,403,070)
Churchrock (1,044,948) (1,013,257) (596,725)
Crownpoint (876,474) (1,152,783) (709,590)
Other property (460,115) (387,379) (105,831)
Increase in other assets (27,240) (25,487) (156,593)
------------ ------------ ------------
Net cash used in investing activities (6,540,397) (15,450,366) (16,831,375)
Financing activities:
Proceeds from borrowings 8,135,000 3,500,000 10,869,000
Payments and refinancings of principal (8,407,570) (7,722,535) (5,779,379)
Issuance of common stock and warrants, net -- 132,969 14,666,288
------------ ------------ ------------
Net cash provided by (used in) financing activities (272,570) (4,089,566) 19,755,909
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 1,388,408 (14,609,118) 12,218,334
Cash and cash equivalents, beginning of period 2,325,158 16,934,276 4,715,942
------------ ------------ ------------
Cash and cash equivalents, end of period $ 3,713,566 $ 2,325,158 $ 16,934,276
============ ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of
these consolidated statements.
F-7
<PAGE> 67
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND DESCRIPTION OF COMPANY
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles and include the accounts of
Uranium Resources, Inc. ("URI") and its wholly owned subsidiaries (collectively
"the Company"). All significant intercompany transactions have been eliminated
in consolidation.
URI was formed in 1977 and incorporated in Delaware in 1987. The
Company is primarily engaged in the business of acquiring, exploring, developing
and mining uranium properties, using the in situ leach ("ISL") or solution
mining process. The primary customers of the Company are major utilities who
utilize nuclear power to generate electricity. The Company continuously
evaluates the creditworthiness of its customers. The Company has been, in the
past, involved in a number of significant ISL uranium mining joint venture
arrangements and has also provided consulting, plant design and construction
expertise to other companies. At present the Company owns both producing and
development properties in South Texas and development properties in New Mexico.
The Company's Rosita and Kingsville Dome uranium production facilities in South
Texas resumed operations in June 1995 and March 1996, respectively, and were
both in operation at December 31, 1998.
INVENTORIES
Uranium inventory consists of uranium concentrates (U(3)O(8)) 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. The cost of produced uranium includes
all operating production costs, and provisions for depreciation, depletion and
future restoration obligations. Materials and supplies inventory is valued at
the lower of average cost or market.
BORROWED URANIUM
Uranium is occasionally borrowed from other parties to facilitate
deliveries under sales contracts. Repayment of the loan is normally made from
production or from purchased uranium. The liability for borrowed uranium is
recorded at the latest spot market price (estimated replacement cost) and the
cost is adjusted to the actual amount when the borrowed material is repaid.
PROPERTY, PLANT AND EQUIPMENT
Uranium Properties
Capitalization of Development Costs - All acquisition, exploration and
development costs (including financing, salary and related overhead costs)
incurred in connection with the various uranium properties are capitalized.
Gains or losses are recognized upon the sale of individual property interests.
All costs incurred in connection with unsuccessful acquisition and exploration
efforts and abandoned properties are charged to expense when known. All
properties with significant acquisition or incurred costs are evaluated for
their realizability on a property-by-property basis. Any impairment of such
costs is recognized by providing a valuation allowance (see Note 2 - "Uranium
Properties - Writedown of Abandoned Property"). Total exploration and evaluation
costs capitalized in 1998, 1997 and 1996 were $327,000, $120,000 and $116,000,
respectively.
F-8
<PAGE> 68
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1998
Depreciation and Depletion - In general, depletion of uranium mineral
interests and related development costs is computed on a property-by-property
basis using the units-of-production method based on the proved and probable
recoverable uranium reserves as estimated periodically by the Company's
geologists and engineers. Depreciation and depletion is provided on the
investment costs, net of salvage value, of the various uranium properties'
production plants and related equipment using the estimated production life of
the uranium reserves. Other ancillary plant equipment and vehicles are
depreciated using a straight line method based upon the estimated useful lives
of the assets.
Other Property
Other property consists of corporate office equipment, furniture and
fixtures and transportation equipment. Depreciation on other property is
computed based upon the estimated useful lives of the assets. Repairs and
maintenance costs are expensed as incurred. Gain or loss on disposal of such
assets is recorded as other income or expense as such assets are disposed.
Capitalization of Interest
The Company capitalizes interest cost with respect to properties
undergoing exploration or development activities that are not subject to
depreciation or depletion. The average interest rate on outstanding borrowings
during the period is used in calculating the amount of interest to be
capitalized. Interest capitalized in the twelve months ended December 31, 1998,
1997 and 1996 amounted to $704,000, $378,000 and $11,000, respectively. Total
interest costs in these periods were $856,000, $547,000 and $621,000,
respectively.
RESTORATION AND RECLAMATION COSTS
Various federal and state mining laws and regulations require the
Company to reclaim the surface areas and restore underground water quality to
the pre-existing mine area average quality. Accruals for the estimated future
cost of restoration and reclamation are made on a per-pound basis as part of
production costs, or when it is determined by an engineering study that an
adjustment to the accrual is required.
REVENUE RECOGNITION FOR CERTAIN URANIUM SALES
The Company recognizes revenue from the sale of uranium under which
substantially all of its obligations related to the delivery have been
completed. Under certain uranium sales contracts which contain origin-specific
delivery requirements, the revenue from the portion of a sale which requires the
satisfaction of future obligations is recorded as unearned revenue until these
commitments are satisfied. Commitments that are expected to be completed within
one year are classified as current; all others are recorded as long-term
deferred credits.
EARNINGS PER SHARE
Effective with the year ended December 31, 1997, the Company adopted
Statement of Financial Accounting Standards No. 128 ("FAS 128"), "Earnings per
Share", which sets standards for the calculation and presentations of earnings
per share. FAS 128 supercedes APB Opinion No.15, Earnings per Share. Net
earnings (loss) per common share - basic has been calculated based on the
weighted average shares outstanding during the year and net earnings (loss) per
common share - diluted has been calculated assuming the exercise or conversion
of all dilutive securities on January 1 of each year presented or as of the date
of issuance if later.
F-9
<PAGE> 69
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1998
The weighted average number of shares used to calculate basic earnings
per share were 12,053,000, 11,760,000 and 8,789,000 in 1998, 1997 and 1996,
respectively. The weighted average number of shares used to calculate diluted
earnings per share were 12,053,000, 11,760,000 and 10,031,000 in 1998, 1997 and
1996, respectively. The potential common stock that was excluded from the
calculation of diluted earnings per share were 2,405,021, 2,413,977 and 46,000
in 1998, 1997 and 1996, respectively.
UNAMORTIZED DEBT ISSUANCE COSTS
Debt discount and related expenses arising from the issuance of debt
securities are amortized by the effective interest method.
CONSOLIDATED STATEMENTS OF CASH FLOWS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Additional disclosures of cash flow information follow:
<TABLE>
<CAPTION>
Twelve Months Ended December 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash paid during the period for:
Interest $ 567,000 $ 687,000 $ 501,000
</TABLE>
The change in inventories in the Consolidated Statements of Cash Flows
during 1998, 1997 and 1996 excludes the changes in uranium inventories for
non-cash capitalized restoration and depreciation and depletion provisions. Such
increases (decreases) totaled ($1,088,000), ($816,000) and $1,923,000,
respectively.
An additional non-cash transaction occurred in 1997 and such major
transaction is summarized as follows:
In March 1997, 1,200,000 common shares were issued to Santa Fe
Pacific Gold in exchange for certain uranium mineral interests
and exploration rights covering approximately 523,000 acres in
New Mexico. $7,800,000
RESTRICTED CASH
At December 31, 1998, 1997 and 1996, the Company had pledged a
certificate of deposit of $3,649,000, $3,304,000 and $2,780,000, respectively,
in order to collateralize surety bonds required for future restoration and
reclamation obligations related to the Company's South Texas production and
development properties. These funds are not readily available to the Company and
are not included in cash equivalents.
F-10
<PAGE> 70
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1998
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions. Such estimates and assumptions may affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RISKS AND UNCERTAINTIES
Historically, the market for uranium has experienced significant price
fluctuations. Prices are significantly impacted by global supply and demand
which is affected by the demand for nuclear power, political and economic
conditions, governmental legislation in uranium producing and consuming
countries, and production levels and costs of production of other producing
companies. Increases or decreases in prices received could have a significant
impact on the Company's future results of operations.
2. FUTURE OPERATIONS
The financial statements of the Company have been prepared on the basis
of accounting principles applicable to a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. Due to a continued period of depressed prices for uranium as
compared to the Company's cost to produce uranium, the Company has generated
operating losses in each of the last two years. Unaudited information subsequent
to December 31, 1998 indicates that operating losses are continuing. Such price
declines have reduced the market price of uranium to levels that are currently
below the Company's cost to produce uranium and below levels needed by the
Company to obtain the necessary financing to allow development of new production
areas at its South Texas sites. Due to circumstances described above, the
Company has made the decision to shut-in its current producing operations until
prices recover. The Company has limited financial resources available to support
its ongoing operations, fund payments of debt, potential claims in litigation
and provide for restoration of its properties until such time, if ever, uranium
prices recover to profitable levels. Further, the Company will require
additional capital resources to fund the cost to resume production and to fund
development of its undeveloped properties. There is no assurance the Company
will be successful in raising such capital or that uranium prices will recover
to levels which would enable the Company to operate profitably. These factors,
raise substantial doubt concerning the ability of the Company to continue as a
going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts (including
approximately $39.5 million in net property, plant and equipment) or the amount
and classification of liabilities that might result should the Company be unable
to continue as a going concern. The ability of the Company to continue as a
going concern is dependent upon a recovery of uranium prices, its ability to
successfully produce uranium at economically feasible levels and its ability to
successfully raise capital to support ongoing operations and future development
efforts.
F-11
<PAGE> 71
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1998
3. URANIUM PROPERTIES
KINGSVILLE DOME PROPERTY
In 1981, the Company acquired an exploration property in South Texas,
known as Kingsville Dome, from Exxon Corporation. After significant production
in 1988-1990, the property was put on a standby basis because of low uranium
spot prices and production ceased in September 1990.
Wellfield development activities began in December 1995 at Kingsville
Dome which lead to the resumption of production at the property in March 1996.
Total uranium production for the period March 1996 through December 31, 1996 was
approximately 860,000 pounds at a cost of approximately $12.31 per pound.
Production in 1997 totaled 640,000 pounds at an average cost of approximately
$15.47 per pound. Production in 1998 totaled 445,000 pounds at an average cost
of approximately $16.93 per pound.
Cost of uranium sales in 1996 in the Consolidated Statements of
Operations includes $293,000 of costs incurred to maintain the facility while
Kingsville Dome was on standby and not in production. At December 31, 1998 the
property contained approximately 1.8 million pounds of estimated recoverable
proved and probable reserves and the net carrying value of the property was
approximately $6,106,000.
ROSITA PROPERTY
In late 1985, the Company acquired several lease holdings in a uranium
prospect ("Rosita") in South Texas. Construction and development activities
began in the first quarter of 1990 and were completed in September 1990 with
production commencing immediately thereafter. The property was originally put on
a standby basis and production ceased in March 1992.
Wellfield development activity began in early 1995 at Rosita which lead
to the resumption of production at the property in June 1995. Total production
for the year ended December 31, 1997 was approximately 230,000 pounds at a cost
of approximately $16.92 per pound. Production in 1998 totaled 178,000 pounds at
an average cost of approximately $17.55 per pound.
At December 31, 1998, the property contained approximately 261,000
pounds of estimated recoverable proved and probable uranium reserves and the net
carrying value of the property at December 31, 1998 was approximately $900,000.
ALTA MESA PROPERTY
In June 1996, the Company acquired the Alta Mesa property consisting of
4,575 acres of leases in South Texas for a cash payment of $4 million of which
$1 million was recoverable against one-half of future royalties. In December
1998, the Company terminated the lease agreement and wrote off the net carrying
value of $5,021,000.
CHURCHROCK PROPERTIES
In December 1986, the Company acquired properties in the Churchrock
region of New Mexico containing approximately 6,951,000 pounds of estimated
recoverable proved and probable uranium reserves.
F-12
<PAGE> 72
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1998
In September 1991, an additional 200 acres of leases were obtained in
exchange for a future production royalty payment which, based upon the expected
selling price of the uranium production, may vary between 5% and 10%.
Preliminary analysis of the drilling data of these 200 acres indicates
approximately 5,488,000 pounds of estimated recoverable proved and probable
reserves.
Permitting activities are currently ongoing on both of these
properties. The net carrying value of these properties at December 31, 1998 was
approximately $8,958,000.
CROWNPOINT PROPERTY
In August 1988, the Company acquired the Crownpoint property,
consisting of 163 acres of leases and related equipment and buildings for cash
payments of $550,000, amounts payable in future years of $950,000 and a sliding
scale overriding royalty on future production. The present value of the future
payable amount, $407,054 at December 31, 1996, is recorded as a purchase money
obligation. Additionally, also in 1988, the Company staked 321 acres of claims
in the same area. In August 1993, the Company acquired approximately 959 acres
of leases adjoining the Crownpoint properties. Initial interpretation of the
drilling data for all the properties acquired in 1988 and 1993 indicate total
estimated recoverable proved and probable uranium reserves of approximately
25,323,000 pounds. The net carrying value of these properties at December 31,
1998 was approximately $9,187,000.
SANTA FE PROPERTIES
In March 1997 the Company acquired from Santa Fe certain uranium
mineral interests and exploration rights for uranium in New Mexico. The major
components of the transaction include the following detail.
The Properties. The properties consist of: (a) 37,000 acres as to which
the Company has acquired a fee interest in the entire mineral estate, excluding
coal ("Category I Properties"); (b) approximately 140,000 acres as to which the
Company has acquired the fee interest in uranium (the "Category II Properties");
and (c) approximately 346,000 acres as to which the Company has acquired the
exclusive right to explore for uranium (the "Category III Properties").
The Company is obligated to spend on exploration $200,000 per year for
the ten year period starting in March 1997 and $400,000 per year for the seven
year period starting in March 2007. This expenditure can be made on any of the
Category II or Category III properties. The net carrying value of the property
at December 31, 1998 was approximately $11,378,000.
WRITEDOWN OF ABANDONED PROPERTY
In 1998, the Company determined that the Alta Mesa property and certain
evaluation projects in South Texas would not be pursued toward development and
acquisition. The costs related to these projects were expensed in 1998 resulting
in a pre-tax charge of approximately $5,240,000.
PROPERTY REALIZABILITY
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 access the
financing/capital that may be necessary to develop and produce future projects.
As discussed in Note 1, the market price of uranium has been volatile in recent
years and there can be no assurance that the Company
F-13
<PAGE> 73
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1998
can continue to enter into new sales contracts at prices that are above the
Company's existing or future production costs or that it will be able to recover
its investment in its 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 for 1998 with respect to its existing
producing properties of approximately $18,000,000. 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 December
31, 1998 (after giving effect to the writedown) was approximately $6,106,000 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 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 1998
and as a result operate at costs that are significantly below those experienced
for 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.
4. CONTRACT COMMITMENTS
SALES CONTRACTS
The Company has entered into several long-term contract commitments to
sell uranium. Included in URI's long-term contracts are sales to be made under
the Amendment to the Russian Suspension Agreements (the "Amendment"). Such sales
involve the sale of Russian origin uranium providing it is matched with U.S.
uranium mined after March 11, 1994. Under these arrangements, the Russian
uranium is essentially sold at its approximate purchase price. As a result,
these "pass-through" sales of specifically Russian origin uranium are not
expected to have a significant impact on the future profitability of the
Company's operations but they are an important aspect of the Company's ability
to sell its uranium at prices that exceed market. Total future sales of uranium
concentrates (excluding the Russian component of sales made under the Amendment)
of approximately 3,882,000 pounds represent future revenues of approximately
$54,542,000 over the various contract periods from January 1, 1998 through 2002.
The average current price of such future contracted deliveries, with escalation
calculated through December 31, 1997, is $14.05. The Company has contracts which
include various pricing provisions including contracts with market related
prices and price ceilings and price floors which escalate for between 80%-100%
of future inflation, contracts with fixed prices which escalate for between
80%-100% of future inflation and another contract whose pricing is based upon
99% of market prices without a price ceiling or floor.
All revenues for the twelve months ended December 31, 1998 were from
sales to six customers, three of which represented more than 10% of total
revenues. Sales to these three customers totaled $10,831,000, $4,085,000 and
$3,375,000 in 1998.
All revenues for the twelve months ended December 31, 1997 were from
sales to nine customers, four of which represented more than 10% of total
revenues. Sales to these four customers totaled $5,500,000, $4,650,000,
$4,445,000 and $3,851,000 in 1997. All revenues for the twelve months ended
December 31, 1996 were from sales to nine customers, five of which represented
more than 10% of total revenues. Sales to these five customers totaled
$4,860,000, $3,861,000, $3,565,000, $2,790,000 and $2,663,000 during 1996.
F-14
<PAGE> 74
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1998
5. SHORT-TERM DEBT
NATIONSBANK CREDIT AGREEMENT
In May 1996 the Company entered into a $3.0 million revolving-credit
facility with NationsBank, N.A. ("Nations"). In July, 1997 the facility was
renewed and expanded to $5.0 million and for a two-year term. This facility is
secured by the Company's uranium inventory and/or its receivables from its
uranium sales contracts with interest on the loan accruing at the prime rate
plus 1%. Principal and interest payments under the facility are due monthly. As
of December 31, 1998, $1,685,000 was outstanding under this facility.
LINDNER SHORT-TERM NOTE
In June 1996 the Company entered into an agreement with Lindner
Dividend Fund for a $4.0 million note to acquire the Alta Mesa property. The
terms of the note provide for the payment of both the principal and accrued
interest by June 1997. Interest on the note accrued at a rate of 6.5% per annum.
The entire principal amount plus accrued interest was repaid in January 1997.
6. LONG-TERM DEBT
LINDNER NOTE
On May 25, 1995 the Company entered into an agreement with Lindner
Investments and Lindner Dividend Fund, (the "Lender") two mutual funds managed
by Ryback & Associates, for a $6 million secured convertible note with the
Company (the "Lindner Note"). The Lindner Note was initially issued for a term
of three years and bore interest at an annual rate of 6.5% and was convertible
at any time during the three-year term into 1.5 million shares of the Company's
common stock at an initial conversion price of $4.00 per share. The Lender also
received a three-year warrant to purchase 1.5 million shares of the Company's
common stock at an initial price of $4.00 per share. In 1995, the Lender
exercised 500,000 shares of warrants under the agreement for an infusion of $2.0
million to the Company. Certain other financial advisors associated with the
transaction were granted warrants and options to purchase up to 150,000 shares
at an initial exercise price of $4.00 per share. As of December 31, 1998, these
certain other financial advisors have exercised 62,500 shares of warrants under
the agreement and 37,500 shares of warrants have expired.
In March 1998, the Company entered into an agreement with the Lender to
extend the maturity date of the Lindner Note to May 31, 2000. The note is
convertible at any time during this term into 2.0 million shares of the
Company's common stock at a conversion price of $3.00 per share. The exercise
price and expiration date of the warrant was also adjusted. The remaining
1,000,000 shares under the warrant can be purchased by the Lender at $3.00 per
share at any time during the term of the agreement which was extended 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. As of December 31, 1998, $141,000 has been amortized.
The Lindner Note is secured by a mortgage on the Company's Rosita and
Kingsville Dome uranium properties in Texas. Part of the proceeds form the
Lindner Note were used to pay down existing payables and provide funding to
complete the production start-up of the Company's Rosita property. The balance
of the proceeds were used to fund pre-production activities at the Company's
Kingsville Dome facility to permit commencement of production in 1996.
F-15
<PAGE> 75
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1998
PURCHASE MONEY OBLIGATION
In 1987, the Company acquired certain long-term sales contract delivery
rights in exchange for cash plus an assignment of a $3,000,000 future production
payment, at $1.00 per pound of production sold from the Kingsville Dome and
Rosita projects, starting in 1988. The production payment was recorded as a
purchase money obligation at an original calculated present value of $2,379,839.
The balance of the production payment was repaid in January 1997 ($730,074).
SUMMARY OF LONG-TERM DEBT
<TABLE>
<CAPTION>
At December 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Long-term debt of the Company consists of:
Lindner Note $5,733,520 $6,000,000
Crownpoint property (Note 2) 450,000 407,054
Other 13,487 62,289
---------- ----------
6,197,007 6,469,343
Less - Current portion 8,000 7,000
========== ==========
Total long-term debt $6,189,007 $6,462,343
========== ==========
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
For the Twelve Months Ended: For the Twelve Months Ended:
- --------------------------- ---------------------------
<S> <C> <C> <C>
December 31, 1999 8,000 December 31, 2002 --
December 31, 2000 6,005,000 December 31, 2003 and beyond $ 450,000
December 31, 2001 --
</TABLE>
7. RELATED-PARTY TRANSACTIONS
During January 1995, a control group of companies based in Denver,
Colorado (the "Benton Companies") held effective control of the common stock of
the Company, the Company transferred $1.0 million to the Benton Companies in
connection with a planned joint venture to process uranium at a Benton
Companies' mill. The specific Benton Companies which were to be part of the
planned joint venture did not receive the transferred funds. In February 1995,
the Benton Companies filed for bankruptcy (the "Benton Bankruptcy"). Because of
the bankruptcy, the realizability of the Company's $1.0 million investment is
doubtful. Shortly thereafter, the then Chairman and CFO of the Company, who were
also officers of the Benton Companies, transferred $1.08 million out of the
Company without the authorization of the Company's Board of Directors. The
Company recovered $300,000 in June 1995 and $575,000 in mid-1997 from the $1.08
million transfer, but $1.2 million of the initial $2.08 has not been recovered.
The Company recorded losses totaling $1.78 million for these transactions in
1995. The $575,000 recovered in 1997 was recorded to other income in the second
quarter of that year.
In connection with the Benton Bankruptcy, the bankrupt estates have
commenced an action against the Company in the United Stated Bankruptcy Court
for the District of Colorado. The action seeks to recover approximately
$1,600,000 from various transactions entered into with the Benton Companies.
Settlement negotiations regarding this matter were ongoing at December 31, 1998.
The Company does not
F-16
<PAGE> 76
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1998
believe any such settlement or other outcome from this matter will have a
material adverse impact on the operating results or financial position of the
Company. The Company has asserted claims against Benton and the Benton Companies
in the bankruptcy proceedings.
8. SHAREHOLDERS' EQUITY
COMMON STOCK
Common Stock Issued in 1997
In March 1997, the Company issued 1,200,000 shares of common stock to
Santa Fe Pacific Gold Corporation in exchange for certain uranium mineral
interests in New Mexico. The value of the common stock for the transaction was
$6.50 per share and resulted in an increase to shareholders equity of $7.8
million.
Issuance of Treasury Shares
On May 25, 1995, the Company issued 35,000 shares of the Company's
common stock which were held as treasury shares to financial advisors in
connection with the Lindner Note as discussed in Note 5.
WARRANTS
Lindner Warrants
In connection with the May 1995 Lindner Note as discussed in Note 5,
the Company issued a three-year warrant to purchase 1,500,000 shares of the
Company's common stock at an initial conversion price of $4.00 per share. The
warrants were initially exercisable at any time through May 1998. In 1995,
500,000 warrants were exercised. In addition, the Lindner Note was convertible
at any time during the three year term into 1,500,000 shares of the Company's
common stock at an initial conversion price of $4.00 per share, none of which
have been converted at December 31, 1998. In March 1998, the Company extended
the maturity date of the Lindner Note and revised the terms of the warrants and
the convertible securities. See Note 5 - Long-Term Debt "Lindner Note" for
further discussion.
Financial Advisors' Warrants/Options
On May 25, 1995, the Company issued a three-year warrant to purchase
100,000 shares of the Company's common stock at an initial conversion price of
$4.00 per share to certain financial advisors associated with the Lindner Note
transaction. The warrants were convertible at any time through May 1998 and
62,500 warrants were exercised. In addition, the Company granted options to
purchase 50,000 shares at an initial conversion price of $4.00 per share. The
options are immediately exercisable and expire on March 6, 2000. As of December
31, 1998, none of the warrants have been exercised.
STOCK OPTIONS
Directors Stock Options
On May 25, 1995, the Company granted options to certain directors of
URI, to purchase 200,000 shares of the Company's common stock at an exercise
price of $4.50 per share. All such options are immediately exercisable and were
originally scheduled to expire May 24, 1998 or 30 days after the holder
F-17
<PAGE> 77
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1998
ceases to be a director of the Company or one year after such holder's death,
whichever occurs first. In November 1997, the term of these options was revised
for three years and the exercise price was increased to $4.75 per share. None of
these options have been exercised as of December 31, 1998 and 100,000 of these
options remain outstanding.
On August 16, 1995, the Company granted options to a director of URI,
to purchase 100,000 shares of the Company's common stock at an exercise price of
$8.38 per share which was the fair market value of a share of common stock on
August 16, 1995. Such options are immediately exercisable and were originally
scheduled to expire May 24, 1998, 30 days after the holder ceases to be a
director of the Company or one year after his death, whichever occurs first. In
November 1997, the term of these options was revised for three years and the
exercise price was increased to $8.63 per share. none of these options have been
exercised as of December 31, 1998.
Other Stock Options
On July 31, 1995, the Company granted options to a former officer of
the Company to purchase 50,000 shares of the Company's common stock at an
exercise price of $4.75 per share which was the fair market value of a share of
common stock on that date. All of these options were exercised in 1996.
Market for Common Stock
Prior to March 24, 1999, the Company's Common Stock was traded on
Nasdaq but was delisted for noncompliance with the minimum bid price
requirements of Nasdaq. Effective March 24, 1999, the Company's Common Stock
began being quoted on the OTC Bulletin Board.
F-18
<PAGE> 78
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1998
9. STOCK-BASED COMPENSATION PLANS
The Company has three stock option plans, the Employees' Stock Option
Plan, the Stock Incentive Plan and the Directors' Stock Option Plan. The Company
accounts for these plans under APB Opinion No. 25, under which no compensation
cost has been recognized. Had compensation cost for these plans been determined
consistent with FASB Statement No. 123 ("FAS 123"), the Company's net earnings
(loss) and earnings (loss) per share ("EPS") for the year ended December 31,
1998, 1997 and 1996 would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ----------- ----------
<S> <C> <C> <C> <C>
Net Earnings (Loss): As reported $(18,979,821) $(1,324,871) $ 758,863
Pro forma $(19,684,005) $(2,983,028) $ (519,164)
Basic EPS: As reported $ (1.57) $ (0.11) $ 0.08
Pro forma $ (1.63) $ (0.25) $ (0.06)
Diluted EPS: As reported $ (1.57) $ (0.11) $ 0.08
Pro forma $ (1.63) $ (0.25) $ (0.06)
</TABLE>
The fair value of each option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1997, 1996 and 1995, respectively: expected
volatility of 68%, 70% and 65% and risk-free interest rates of 5.6%, 6.4% and
6.0%. An expected life of 5.2, 5.0 and 4.6 years was used for options granted to
the employees and directors, respectively.
The FAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, and accordingly the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.
The Directors' Stock Option Plan provides for the grant of 20,000 stock
options to each of the non-employee directors along with additional annual
grants of stock options upon re-election as directors at the Company's annual
meeting. Currently there are 69,000 stock options outstanding under the
Directors' Stock Option Plan. Also, on January 15, 1992, the Board of Directors
approved the grant of 577,248 stock options under the Employees' Stock Option
Plan. All of the previously outstanding options were canceled upon the
effectiveness of the new options. On August 10, 1994, the Board of Directors
increased the available options under the Employees' Stock Option Plan and the
Directors' Stock Option Plan to 850,000 options and 150,000 options,
respectively. On October 11, 1995, the Board of Directors elected to discontinue
grants under the Employees' Stock Option Plan with the adoption of a stock
incentive plan covering key employees. The Stock Incentive Plan provides for the
grant of a maximum of 750,000 stock options. These options may be qualified or
nonqualified. On June 5, 1998, the Company's stockholders elected to increase
the available options under the Stock Incentive Plan to 1,250,000 options. As of
December 31, 1998, there are 688,695 options outstanding under the Stock
Incentive Plan. Additional details about the options granted under the stock
option plans are as follows:
F-19
<PAGE> 79
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
-----------------------------------------------
At December 31, 1998
-----------------------------------------------
Options
Exercise Options Available Options Options Options
Date of Grant Price Granted for Exercise Exercised Canceled Outstanding
- ------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
January 15, 1992 $ 2.94 617,248 104,623 327,625 185,000 104,623
May 22, 1992 $ 3.00 2,000 -- 1,000 1,000 --
--------- --------- --------- --------- --------- ---------
Balances at December 31, 1992 619,248 104,623 328,625 186,000 104,623
--------- --------- --------- --------- --------- ---------
February 26, 1993 $ 2.50 10,000 -- 2,500 7,500 --
May 27, 1993 $ 3.50 2,000 -- 500 1,500 --
--------- --------- --------- --------- --------- ---------
Balances at December 31, 1993 631,248 104,623 331,625 195,000 104,623
--------- --------- --------- --------- --------- ---------
July 11, 1994 $ 4.38 20,000 20,000 -- -- 20,000
August 10, 1994 $ 4.25 140,000 19,000 1,000 120,000 19,000
December 15, 1994 $ 5.88 3,000 2,000 -- 1,000 2,000
--------- --------- --------- --------- --------- ---------
Balances at December 31, 1994 794,248 145,623 332,625 316,000 145,623
--------- --------- --------- --------- --------- ---------
February 24, 1995 $ 4.13 210,000 75,000 -- 110,000 100,000
April 12, 1995 $ 3.88 10,000 7,500 -- -- 10,000
May 26, 1995 $ 3.75 40,000 15,000 -- 20,000 20,000
August 16, 1995 $ 8.38 100,000 75,000 -- -- 100,000
August 31, 1995 $ 6.88 127,508 80,688 -- 19,924 107,584
October 11, 1995 $ 6.94 35,000 26,250 -- -- 35,000
December 19, 1995 $ 5.50 3,000 1,500 -- 1,000 2,000
--------- --------- --------- --------- --------- ---------
Balances at December 31, 1995 1,319,756 426,561 332,625 466,924 520,207
--------- --------- --------- --------- --------- ---------
February 22, 1996 $ 9.75 178,810 75,844 -- 27,140 151,670
May 29, 1996 $ 17.00 3,000 1,000 -- 1,000 2,000
May 30, 1996 $ 16.13 75,000 37,500 -- -- 75,000
July 22, 1996 $ 11.13 50,000 25,000 -- -- 50,000
--------- --------- --------- --------- --------- ---------
Balances at December 31, 1996 1,626,566 565,905 332,625 495,064 798,877
--------- --------- --------- --------- --------- ---------
February 10, 1997 $ 7.125 182,405 39,138 -- 25,880 156,525
April 1, 1997 $ 5.50 55,000 13,750 -- -- 55,000
May 1, 1997 $ 5.00 3,000 500 -- 1,000 2,000
--------- --------- --------- --------- --------- ---------
Balances at December 31, 1997 1,866,971 619,293 332,625 521,944 1,012,402
--------- --------- --------- --------- --------- ---------
February 23, 1998 $ 2.9375 172,000 -- -- 6,500 165,500
June 5, 1998 $ 2.50 3,000 -- -- 1,000 2,000
--------- --------- --------- --------- --------- ---------
Balances at December 31, 1998 2,041,971 619,293 332,625 529,444 1,179,902
========= ========= ========= ========= ========= =========
</TABLE>
The exercise price for the options granted under the stock option plans
has been the approximate market price of the common stock on the date granted.
The terms of the options provide that no options may be exercised for one year
after grant, and then for ratable exercise over the subsequent four-year period,
with a total exercisable period of ten years.
The exercise price for the options granted under the Stock Incentive
Plan has been the approximate market price of the common stock on the date
granted. The terms of the options are determined by the Board of Directors upon
grant; however, no options may be exercised after a period of ten years.
F-20
<PAGE> 80
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1998
10. FEDERAL INCOME TAXES
The deferred federal income tax liability consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Property development costs - net of amortization $ 545,000 $ 6,775,000
Property acquisition costs 2,652,000 2,652,000
Accelerated depreciation 229,000 210,000
Restoration reserves (1,817,000) (1,605,000)
Net operating loss and percentage
depletion carryforwards (7,015,000) (5,396,000)
Valuation allowance and other - net 5,670,000 2,331,000
----------- -----------
Total deferred income tax liability $ 264,000 $ 4,967,000
=========== ===========
</TABLE>
Major items causing the Company's tax provision to differ from the federal
statutory rate of 34% were:
<TABLE>
<CAPTION>
For the Twelve Months Ended December 31,
----------------------------------------------------------------------------------------------
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
% of Pretax % of Pretax % of Pretax
Amount Income Amount Income Amount Income
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Pretax income (loss) (23,724,821) $ (1,598,096) $ 758,863
------------ ------------ ------------ ------------ ------------ ------------
Pretax income (loss) times
statutory tax rate (8,066,000) (34%) (543,000) (34.0%) 258,000 34.0%
Increases (reductions) in
taxes resulting from:
Percentage depletion 8,066,000 34% 543,000 34.0% (258,000) (34.0%)
Alternative minimum tax (4,745,000) 0.0% (273,225) 0.0% -- 0.0%
------------ ------------ ------------ ------------ ------------ ------------
Income tax expense (benefit) (4,745,000) (20%) $ (273,225) (17.1%) $ -- 0.0%
============ ============ ============ ============ ============ ============
</TABLE>
The Company's net operating loss carryforwards generated in 1998 and in
prior years have generally been valued, net of valuation allowance, at
Alternative Minimum Tax ("AMT") rates imposed by the 1986 Tax Reform Act ("the
86 ACT"). It is expected that these deferred tax assets will be realized at such
rates.
At December 31, 1998, approximately $22,428,000 of percentage depletion
(available for regular tax purposes) had not been utilized to shelter book
income and is available to carry forward to future accounting periods. The
Company received a $42,000 refund from prior years federal income payments in
1998 and paid $45,000 in federal income taxes in 1997. No tax payments were
required in 1996.
The Company also has available for regular federal income tax purposes
at December 31, 1998 estimated net operating loss carryforwards of approximately
$25,046,000 which expire primarily in 1999 through 2014, if not previously
utilized. At December 31, 1998, the Company had investment tax credit
carryforwards of approximately $11,000, after adjusting for the reductions
required by the 86 ACT, which expire for regular tax purposes in 1999 through
2000.
F-21
<PAGE> 81
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1998
11. OTHER LONG-TERM LIABILITIES AND DEFERRED CREDITS
Other long-term liabilities and deferred credits on the balance sheet consisted
of:
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Reserve for future restoration and reclamation costs,
net of current portion of $324,000 and $511,000 in
1998 and 1997 (Note 1) $4,968,382 $4,251,108
Unearned revenue from Russian matched sales (Note 1) 1,012 536,319
---------- ----------
$4,969,394 $4,787,427
========== ==========
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
The Company's mining operations are subject to federal and state
regulations for the protection of the environment, including water quality.
These laws are constantly changing and generally becoming more restrictive. The
ongoing costs of complying with such regulations has not been significant to the
Company's annual operating costs. Future mine closure and reclamation costs are
provided for as each pound of uranium is produced on a unit-of-production basis.
The Company reviews its reclamation obligations each year and determines the
appropriate unit charge. The Company also evaluates the status of current
environmental laws and their potential impact on their accrual for costs. The
Company believes its operations are in compliance with current environmental
regulations.
The Company is from time to time involved in various legal proceedings
of a character normally incident to its business. Management does not believe
that adverse decisions in any pending or threatened proceedings will have a
material adverse effect on the Company's financial condition or results of
operations.
13. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure about the fair value
of financial instruments. The Company is unable to assess the fair value of its
debt instrument at December 31, 1998 due to the Company's financial position and
its inability to secure comparable financing.
F-22
<PAGE> 82
SCHEDULE II
URANIUM RESOURCES, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Additions
-----------------------
Balance at Charged to Charged to
Beginning Costs and Other Balance at End
Description of Period Expenses Accounts Deductions(a) of Period
----------- ---------- ---------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Accrued restoration Costs ................ $4,762,108 $ 692,317 $ 92,687(b) $ 69,356 $5,292,382(d)
Year ended December 31, 1997:
Accrued restoration costs ................ $4,136,495 $1,032,587 $ 89,703(b) $ 317,271 $4,762,108(d)
Year ended December 31, 1996:
Accrued restoration costs ................ $2,990,151 $1,479,939 $ 180,380(b) $ 513,975 $4,136,495(d)
</TABLE>
- ----------------
(a) Deductions represent costs incurred in the restoration process.
(b) Increase (decrease) resulted primarily from the change in the amounts
of restoration provision included in ending uranium inventory.
(c) Decrease resulted primarily from restoration provision amounts in
beginning inventory which were expensed in the current year.
(d) Amounts recorded as current liabilities at December 31, 1998, 1997 and
1996 are $324,000, $511,000 and $368,000, respectively.
F-23
<PAGE> 83
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ ----------- -------------
<S> <C> <C>
3.1* Restated Certificate of Incorporation of the Company, as amended
(filed with the Company's Annual Report on Form 10-K dated March 27,
1997).
3.2* Restated Bylaws of the Company (filed with the Company's Form S-3
Registration No. 333-17875 on December 16, 1996).
4.1* Registration Rights Agreement dated March 25, 1997 between the
Company and Santa Fe Pacific Gold Corporation (filed with the
Company's Annual Report on Form 10-K dated March 27, 1997).
10.1* Amended and Restated Directors Stock Option Plan (filed with the
Company's Form S-8 Registration No. 333-00349 on January 22, 1996).
10.2* Amended and Restated Employee's Stock Option Plan (filed with the
Company's Form S-8 Registration No. 333-00403 on January 22, 1996).
10.3* 1995 Stock Incentive Plan (filed with the Company's Form S-8
Registration No. 333-00405 on January 22, 1996).
10.4* Non-Qualified Stock Option Agreement dated August 16, 1995, between
the Company and Leland O. Erdahl (filed with the Company's Annual
Report on Form 10-K dated March 27, 1996).
10.5* Non-Qualified Stock Option Agreement dated May 25, 1995, between the
Company and George R. Ireland (filed with the Company's Annual
Report on Form 10-K dated March 27, 1996).
10.6* Non-Qualified Stock Option Agreement dated May 25, 1995, between the
Company and James B. Tompkins (filed with the Company's Annual
Report on Form 10-K dated March 27, 1996).
10.7* Stock Option Agreement dated March 6, 1995 between the Company and
James P. Congleton, as amended on May 25, 1995 (filed with the
Company's Annual Report on Form 10-K dated March 27, 1996).
10.8* Warrant to Purchase Common Stock dated May 25, 1995, between the
Company and Grant Bettingen, Inc. (filed with the Company's Annual
Report on Form 10-K dated March 27, 1996).
10.9* Non-Qualified Stock Option Agreement dated July 31, 1995, between
the Company and Wallace M. Mays (filed with the Company's Form S-8
Registration Statement No. 33-64481 on November 21, 1995).
10.10* Contract for the Purchase of Natural Uranium Concentrates (U3O8)
dated April 5, 1994 between Uranium Resources, Inc., URI, Inc. and
Pacific Gas & Electric Company (filed with the Company's Annual
Report on Form 10-K for the year ended December 31, 1994).(1)
10.11* Agreement for the Sale of Uranium Concentrates dated as of August
23, 1990 between OES Fuel, Incorporated, Uranium Resources, Inc. and
URI, Inc. (filed with Post-Effective Amendment No. 3 to the
Company's Form S-1 Registration Statement as filed with the
Securities and Exchange Commission on December 7, 1990).(1)
</TABLE>
<PAGE> 84
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ ----------- -------------
<S> <C> <C>
10.12* Summary of Supplemental Health Care Plan (filed with Amendment No. 1
to the Company's Form S-1 Registration Statement (File No. 33-32754)
as filed with the Securities and Exchange Commission on February 20,
1990).
10.13* Note and Warrant Purchase Agreement entered into May 25, 1995 by and
among Lindner Investments, Lindner Dividend Fund and the Company
(filed with the Company's Current Report on Form 8-K dated May 25,
1995).
10.14* Loan Agreement entered into June 18, 1996 by and between Lindner
Dividend Fund and the Company (filed with the Company's Annual
Report on Form 10-K dated March 27, 1997).
10.15* Uranium Concentrates Sales Agreement dated August 21, 1996 by and
between the Company and Commonwealth Edison Company (filed with the
Company's Quarterly Report on Form 10-Q/A-2 for the quarter ended
September 30, 1996).(1)
10.16* Agreement of Santa Fe Pacific Gold Corporation as Uranco, Inc.
Shareholder with the Company and Guarantee of the Company dated as
of March 25, 1997 (filed with the Company's Annual Report on Form
10-K dated March 27, 1997). (1)
10.17* Stock Exchange Agreement and Plan of Reorganization dated as of
March 25, 1997 (filed with the Company's Annual Report on Form 10-K
dated March 27, 1997).
10.18* License to Explore and Option to Purchase dated March 21, 1997
between Santa Fe Pacific Gold Corporation and Uranco, Inc. (filed
with the Company's Annual Report on Form 10-K dated March 27, 1997).
(1)
10.19* Amendment #1 to Nonqualified Stock Option Agreement dated November
17, 1997 between the Company and Leland O. Erdahl (filed with the
Company's Annual Report on Form 10-K dated March 27, 1998) .
10.20* Amendment #1 to Nonqualified Stock Option Agreement dated November
17, 1997 between the Company and George R. Ireland (filed with the
Company's Annual Report on Form 10-K dated March 27, 1998).
10.21* Amendment #1 to Nonqualified Stock Option Agreement dated November
17, 1997 between the Company and James B. Tompkins (filed with the
Company's Annual Report on Form 10-K dated March 27, 1998).
10.22* Compensation Agreement dated June 2, 1997 between the Company and
Paul K. Willmott (filed with the Company's Annual Report on Form
10-K dated March 27, 1998).
10.23* Compensation Agreement dated June 2, 1997 between the Company and
Richard F. Clement, Jr. (filed with the Company's Annual Report on
Form 10-K dated March 27, 1998).
10.24* Compensation Agreement dated June 2, 1997 between the Company and
Joe H. Card (filed with the Company's Annual Report on Form 10-K
dated March 27, 1998).
10.25* Compensation Agreement dated June 2, 1997 between the Company and
Richard A. Van Horn (filed with the Company's Annual Report on Form
10-K dated March 27, 1998).
10.26* Compensation Agreement dated June 2, 1997 between the Company and
Thomas H. Ehrlich (filed with the Company's Annual Report on Form
10-K dated March 27, 1998).
</TABLE>
<PAGE> 85
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ ----------- -------------
<S> <C> <C>
10.27* Compensation Agreement dated June 2, 1997 between the Company and
Mark S. Pelizza (filed with the Company's Annual Report on Form 10-K
dated March 27, 1998).
10.28* Note and Warrant Exchange Agreement dated March 23, 1998 between the
Company and Lindner Investments (filed with the Company's Annual
Report on Form 10-K dated March 27, 1998).
10.29* 6.5% Secured Convertible Note for $1,500,000 dated March 23, 1998
between the Company and Lindner Investments (filed with the
Company's Annual Report on Form 10-K dated March 27, 1998).
10.30* 6.5% Secured Convertible Note for $4,500,000 dated March 23, 1998
between the Company and Lindner Investments (filed with the
Company's Annual Report on Form 10-K dated March 27, 1998).
10.31* Warrant to Purchase Common Stock for 625,000 shares dated March 23,
1998 between the Company and Lindner Investments (filed with the
Company's Annual Report on Form 10-K dated March 27, 1998).
10.32* Warrant to Purchase Common Stock for 325,000 shares dated March 23,
1998 between the Company and Lindner Investments (filed with the
Company's Annual Report on Form 10-K dated March 27, 1998).
10.33 Uranium Resources, Inc. 1999 Deferred Compensation Plan.
21.1* Subsidiaries of the Company (filed with the Company's Annual Report
on Form 10-K dated March 27, 1998).
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Schedule.
</TABLE>
* Incorporated by reference pursuant to Rule 12b-32 under the Securities and
Exchange Act of 1934, as amended.
(1) Certain provisions have been omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment.
<PAGE> 1
EXHIBIT 10.33
URANIUM RESOURCES, INC
1999 DEFERRED COMPENSATION PLAN
ARTICLE I
INTRODUCTION
1.1 This 1999 Deferred Compensation Plan (the "Plan") provides selected
executive employees and directors of Uranium Resources, Inc. and its wholly
owned subsidiaries an opportunity to defer a portion of their compensation for
calendar year 1999.
This document constitutes the entire Plan. Any and all prior or
contemporaneous oral or written communications hereby are superseded and
abolished.
ARTICLE II
DEFINITIONS AND GENERAL PROVISIONS
2.1 "ACCOUNT" or "ACCOUNTS" means the individual deferral accounts
separately maintained under this Plan on the books of the Corporation for the
benefit of each Participant. Each Account shall be credited with a Participant's
Earned Compensation less any portion of such Earned Compensation as to which
shares of Common Stock have been distributed in accordance with Article V.
2.2 "CODE" means the Internal Revenue Code of 1986, as amended and then
in effect.
2.3 "COMMITTEE" means the Plan Committee described in Article VII
hereof.
2.4 "COMMON STOCK" means the shares of the Corporation's common stock,
$.001 par value per share.
2.5 "CORPORATION" means Uranium Resources, Inc, a Delaware corporation,
together with any successor thereto which adopts this Plan by appropriate
written action.
2.6 "COMPENSATION" means those amounts otherwise payable in cash or by
check or electronic deposit by the Corporation to an Eligible Person as salary
for a Plan Year, which amounts are includable in his gross income for federal
income tax purposes (without regard to Compensation deferred under this or any
other plan maintained by the Corporation), including but not limited to
directors' fees, salary and bonus, but excluding any and all nonelective
contributions (including matching contributions) made by the Corporation to any
employee benefit plan (within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended). Without limiting the
generality of the foregoing, the limitations imposed by Code Section 401(a)(17)
do not apply to Compensation as defined under the Plan.
2.7. "DEFERRAL PERCENT" means the portion (expressed as a percentage)
of the Compensation that a Participant elects to defer pursuant to Section 4.1
hereof.
2.8 "DEFERRED AMOUNT" means the amount of Compensation that a
Participant elects to defer pursuant to Section 4.1 hereof.
2.9 "DESIGNATED RECIPIENT" means any person who becomes entitled to
receive any distribution hereunder by reason of the death of a Participant.
2.10 "EARNED COMPENSATION" means at any date the amount of Compensation
that the Corporation is obligated to pay Participant for services rendered
before giving effect to the Participant's deferral election.
2.11 "EFFECTIVE DATE" of the Plan means January 11, 1999.
2.12 "ELIGIBLE PERSON" means any employee or director of the
Corporation or any of its wholly owned subsidiaries, but only so long as such
person meets all of the requirements of Section 3.1(a) of the Plan.
E-1
<PAGE> 2
2.13 "ERISA" means The Employee Retirement Income Security Act of 1974,
as amended and then in effect.
2.14 "PARTICIPANT" means any Eligible Person who defers Compensation
under the Plan.
2.15 "PLAN YEAR" means the period of time commencing January 11, 1999
and ending on December 31, 1999.
2.16 "SHARE PERCENT" means the portion (expressed as a percentage) of
the Deferred Amount that a Participant elects to receive in shares of Common
Stock.
2.17 "VESTED SHARES" means the number of shares of Common Stock
determined in accordance with Section 5.4.
2.18 GENERAL PROVISIONS. The masculine wherever used herein shall
include the feminine and singular and plural forms are interchangeable. Certain
terms of more limited application have been defined in the provisions to which
they are principally applicable. The division of the Plan into Articles and
Sections with captions has been done for convenience only and is not to be taken
as limiting or extending the meaning of any of its provisions.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 General Eligibility Conditions.
(a) To become eligible to participate in this Plan, an
individual must be (i) an executive employee or a director of the
Corporation or any of its wholly owned subsidiaries and (ii) designated
as an Eligible Person on Exhibit A.
(b) Once an Eligible Person becomes a Participant, such
individual shall continue to be eligible to defer Compensation under
the terms of this Plan until such individual fails to meet at least one
of the conditions described above. If a Participant ceases to meet such
conditions, his interest in the Plan and amounts deferred prior to the
date he ceases to be an Eligible Person shall continue to be held
subject to the terms of the Plan, and Vested Shares and Deferred
Amounts shall be distributable to him in accordance with Article VI.
For the purposes of Deferred Amounts that are to be distributed
thereafter and for such purpose only, such person shall continue to be
a Participant.
3.2 Deadline For Participation. To actively participate in the Plan, an
Eligible Person must execute a Deferred Compensation Election in the form
attached hereto as Exhibit C and shall file such election with the Committee on
or before January 11, 1999.
ARTICLE IV
DEFERRAL OF COMPENSATION
4.1 Deferral Elections. For any Plan Year, an Eligible Person may elect
to defer receipt of up to 100% of his Compensation. Once made the Compensation
deferral elections shall be irrevocable for the Plan Year unless the Corporation
and the Participant agree otherwise.
4.2 Period of Deferral. All amounts that the Participant elects to
defer shall be paid on January 11, 2006, subject to the Participant's right to
receive all or any portion of the amount deferred in shares of Common Stock as
set forth in Article V.
4.3 Vesting. A Participant shall always be one hundred percent (100%)
vested in amounts credited to his Account.
4.4 Base Salary for Other Purposes. Except as otherwise expressly
prohibited by law or the terms of a benefit plan, any Deferred Amounts shall
continue to be counted as part of the Participant's base salary for purposes of
any other contracts between Participant and the Corporation, including, without
limitation, those certain compensation agreements dated June 2, 1997 between the
Corporation and certain of the Participants.
E-2
<PAGE> 3
ARTICLE V
ELECTION TO RECEIVE COMMON STOCK
5.1 Share Election. For any Plan Year, a Participant may elect to
receive up to 100% of his Deferred Amount in shares of Common Stock. Once made
the Participant may not change the share election without the consent of the
Committee, except on the last day of each calendar quarter during the Plan Year.
Any such change shall be effective only with respect to Deferred Amounts
credited for the calendar quarters following such change.
5.2 Number of Shares to be Received. The number of shares of Common
Stock to be credited shall equal the Deferred Amount, multiplied by the Share
Percent and divided by $0.375, which was the price of the last trade of the
Common Stock on NASDAQ on January 11, 1999, the effective date of this Plan. No
fractional shares shall be issued.
5.3 Distribution of Shares. As of the last day of March, June,
September and December (each a "Distribution Date") during the Plan Year the
Corporation shall issue to each Participant his Vested Shares as set forth in
Section 5.4; provided, however, that the first distribution shall not occur
until the stockholders of the Corporation shall have approved the Plan; and
provided, further, however, that the Committee may elect to distribute shares of
Common Stock at different times in its sole and absolute discretion.
5.4 Vested Shares. A Participant shall have a vested interest only in
that number of shares of Common Stock determined in accordance with the
following formula: Vested Shares = Earned Compensation, Multiplied by Deferral
%, Multiplied by Share Percent and divided by $0.375.
5.5 Limitation on Sale of Shares. All certificates representing any of
the shares of Common Stock shall have endorsed thereon the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED."
5.6 Withholding. The Corporation will make appropriate withholding for
all relevant federal, state and local tax purposes from the non-deferred portion
of Compensation for any Participant with respect to the shares of Common Stock
that a Participant has elected to receive based on a per share value of $0.375.
On each Distribution Date if the fair market value of the Common Stock is in
excess of $0.375 per share, the Corporation will be required to withhold
additional amounts based upon such excess. The source of such additional amounts
will be Compensation otherwise payable to the Participant on a Distribution
Date, to the extent sufficient. If such amounts are insufficient, the
Participant will be required to pay to the Corporation the appropriate amounts
as a condition to receipt of the shares.
ARTICLE VI
DISTRIBUTIONS
6.1 Distribution of Cash. All amounts credited to an Account as to
which a Participant has not elected to take such amount in shares of Common
Stock shall be distributed to the Participant or his Designated Recipient on
January 11, 2006; provided that the Committee may elect, in its sole and
absolute discretion, to distribute such Deferred Amounts at an earlier date.
6.2. Distribution of Shares of Common Stock. Any amounts as to which
the Participant has elected to receive shares of Common Stock as provided in
Article V shall be distributed to the Participant or his Designated Recipient as
provided in Article V.
6.3 If No Designated Recipient. If Participant has not designated a
Designated Recipient, any distribution hereunder after the death of a
Participant shall be payable first to his surviving spouse, if any, and if none,
to his estate.
E-3
<PAGE> 4
6.4 Effect of Termination of Employment. Upon termination of employment
of a Participant for any reason, including death, such Participant's Account
will be frozen on the date of termination. The Account shall be credited with a
Participant's Deferred Amount of the Earned Compensation through the date of
termination, and the Participant shall be entitled to receive on January 11,
2006 the Deferred Amount of the Earned Compensation less any of the Deferred
Amount received in shares of Common Stock pursuant to Article V.
ARTICLE VII
PLAN ADMINISTRATION
7.1 Administration. The Plan shall be administered by a committee as
provided in Section 7.2 hereof, as an unfunded deferred compensation plan.
7.2 Plan Committee.
(a) The Committee shall be the Corporation's Board of
Directors. No member of the Committee shall act or participate in any
action of the Committee directly affecting his own Account under the
Plan, unless such action is of general application to all Participants.
The Committee is authorized to interpret the Plan and, from time to
time, may adopt such rules and regulations, consistent with the
provisions of the Plan, as it may deem advisable to carry out the
purposes of the Plan.
(b) The Committee shall have all powers necessary to
accomplish the purpose of the Plan, including, but not limited to, (i)
the discretionary authority to interpret the Plan; (ii) the
discretionary authority to determine all questions relating to the
rights and status of Eligible Persons, Participants and Designated
Recipients; and (iii) the discretionary authority to make any and all
rules and regulations needed or advisable for the administration of the
Plan as are not inconsistent with the terms and provisions hereof.
(c) Without limiting the powers set forth herein, the
Committee shall have the power to: (i) change or waive in writing any
requirements of the Plan to conform with law or to meet special
circumstances not anticipated or covered in the Plan; (ii) determine
the times and places for holding meetings of the Committee and the
notice to be given of such meetings; (iii) employ or otherwise retain
such agents and assistants, counsel (who may be of counsel to the
Corporation herein), and clerical and other service providers as the
Committee may require in carrying out the provisions of the Plan; and
(iv) authorize one or more of their number, or any agent thereof, to
execute or deliver any instrument on behalf of the Committee.
7.3 Statement of Participant's Account. As soon as practicable
following the close of each Plan Year, and otherwise from time to time as the
Committee in its sole discretion may direct, the Committee shall mail, via first
class mail, to each Participant a written statement setting forth the Account of
such Participant as of the end of a Plan Year. Any statement provided in
accordance with this Section shall be deemed to have been accepted as correct,
unless written notice to the contrary is received by the Committee within thirty
(30) days after the mailing of such statement to the Participant.
7.4 Payment of Expenses. All costs and expenses incurred in
administering the Plan shall be paid by the Corporation.
ARTICLE VIII
AMENDMENT AND TERMINATION
8.1 Amendment. The Corporation hereby reserves the right, at any time
and from time to time, by written action of its Board of Directors (or by
written action of an officer or officers of the Corporation to whom such Board
of Directors has expressly delegated the authority to amend the Plan), to amend,
modify or alter any or all of the provisions of the Plan without the consent of
any Eligible Person, Participant, Designated Recipient or other person; however,
no amendment shall operate retroactively so as to affect adversely any rights to
which a Participant may be entitled under the provisions of the Plan as in
effect prior to such action. Any such amendment, modification or alteration
shall be expressed in an instrument executed by an authorized officer or
officers of the Corporation, and shall become effective as of the date
designated in such instrument.
E-4
<PAGE> 5
8.2 Termination. The Corporation reserves the right to suspend,
discontinue or terminate the Plan, at any time, in whole or in part, by written
action of its Board of Directors, effective as of the date designated in such
written action, without the consent any Eligible Person, Participant, Designated
Recipient or other person.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 Employment Remains At Will. Nothing in the adoption, maintenance or
operation of the Plan shall confer on any employee, Eligible Person or
Participant the right to continued employment by the Corporation or by any
affiliate or subsidiary corporation thereof, or be treated or considered
evidence of an intent to provide continued employment to such individual, or
affect in any way the right of the Corporation or such affiliate or subsidiary,
to terminate such individual's employment, at any time and for any reason. Any
question as to whether and when there has been a termination of a Participant's
employment, and the cause of such termination, shall be determined by the
Committee; any such determination by the Committee shall be final, binding and
conclusive.
9.2 Facility of Payments. Whenever, in the opinion of the Committee, a
person entitled to receive any payment, or installment thereof, is under a legal
disability or is unable to manage his financial affairs, the Committee shall
have the discretionary authority to direct payments to such person's legal
representative, or to a relative or friend of such person for his benefit.
Alternatively, the Committee may in its discretion apply the payment for the
benefit of such person in such manner as the Committee deems advisable. Any such
payment or application of benefits, made in good faith and in accordance with
the provisions of this Section, shall completely discharge any liability of the
Plan, the Corporation and the Committee with respect to such payment or
application of benefits.
9.3 Plan Is Unfunded; No Obligation to Fund. All Accounts or interests
in the Plan are unfunded and the Corporation shall have no obligation to
establish any special or separate fund, or segregate any of its assets in order
to assure the payment of any amounts due or becoming due and payable under the
Plan; however, to provide for the discharge of its obligations under the Plan,
the Corporation may in its sole discretion establish a fund in its name, or
acquire property or contract rights in its name; provided that no Participant or
other person (other than the Corporation) shall acquire a legal or equitable
interest in any such fund, property or contract. The right of a Participant or
his Designated Recipient to receive a distribution hereunder shall constitute an
unsecured claim against the general assets of the Corporation, and no
Participant or Designated Recipient or other person shall have any right in or
against any amounts credited under the Plan or any other specific assets of the
Corporation. All amounts credited under the Plan to any Accounts maintained for
or on behalf of a Participant shall constitute general assets of the Corporation
and may be disposed of by the Corporation at such time and for such purposes as
it may deem appropriate.
9.4 Anti-Alienation. No right, benefit or interest in the Plan shall be
subject to anticipation, alienation, sale, assignment, pledge, partition, lien,
levy, encumbrance or charge; and any attempt to anticipate, alienate, sell,
assign, pledge, partition, lien, levy, encumber or charge the same shall be
void. No such right, benefit or interest shall be liable for or subject to the
debts, contracts, liabilities, or torts of the person entitled to such benefits,
including claims for alimony, marital assets or property, support, or separate
maintenance by the spouse of the Participant. If a Participant should become
insolvent or bankrupt, or attempt to anticipate, alienate, sell, assign, pledge,
encumber or charge any right to benefits under this Plan, such Participant's
interest in the Plan, in the discretion of the Committee, shall be extinguished;
in such event, the Committee in its sole discretion may hold or apply the
interest at issue, or any part thereof, for the benefit of such Participant,
such Participant's spouse, or such Participant's Designated Recipient, in such
manner as the Committee in its sole discretion may deem proper. Notwithstanding
the generality of the foregoing, the Corporation shall have the unrestricted
right to set off against or recover out of any payments or benefits becoming
payable to or for the benefit of a Participant, at the time such payments or
benefits otherwise become payable hereunder, any amounts owed or owing to the
Corporation by such Participant.
9.5 Indemnification. Each Participant, by executing a Compensation
Deferral Agreement and becoming a Participant hereunder, acknowledges and agrees
to indemnify and hold the Corporation harmless from and against any damages,
losses and expenses (including without limitation litigation costs incurred by
the Corporation in connection with the administration of the Plan) arising from
third-party claims disputes involving such Participant's Plan interest
(including without limitation, tax liens and levies, creditors' claims,
garnishment and bankruptcy proceedings, and proceedings in domestic relations
court).
9.6 Unclaimed Interests. If the Committee shall at any time be unable
to make distribution or payment of benefits hereunder to a Participant or any
Designated Recipient of a Participant by reason of the fact that such
Participant's or Designated Recipient's whereabouts is unknown, the Committee
shall so certify, and thereafter
E-5
<PAGE> 6
the Committee shall attempt to locate such missing person. In the event that
such missing person is not located with seven (7) years, then the Committee
shall cause the Corporation to pay over to the Secretary of State of the state
whose law has jurisdiction over such matters any and all amounts then owed to
such person, in accordance with the unclaimed funds law of such state, and the
Corporation's obligations thereto shall thereupon be considered fully and
completely discharged and satisfied.
9.7 References to Code, Statutes and Regulations. Any and all
references in this Plan to any provision of the Code, ERISA, or any other
statute, law, regulation, ruling or order shall be deemed to refer also to any
successor statute, law, regulation, ruling or order.
9.8 Liability. The Corporation, and its directors, officers and
employees, shall be free from liability, joint or several, for personal acts,
omissions, and conduct, and for the acts, omissions and conduct of duly
appointed agents, in the administration of this Plan.
9.9 Governing Law; Severability. The Plan shall be construed according
to the laws of the State of Texas, and all provisions hereof shall be
administered according to the laws of that State, except to the extent preempted
by federal law (including, without limitation, ERISA). In the event that any one
or more of the provisions of the Plan shall for any reason be held to be
invalid, illegal, or unenforceable, such invalidity, illegality or
unenforceability shall not affect any other provision of the Plan; rather, the
Plan shall be construed as if such invalid, illegal, or unenforceable provisions
had never been contained herein, and there shall be deemed substituted such
other provision as will most nearly accomplish the intent of the parties to the
extent permitted by applicable law.
9.10 Taxes. The Corporation shall be entitled to withhold and remit any
federal, state and local taxes from any distribution made hereunder which the
Corporation believes are necessary, appropriate or required by relevant law,
regulation or ruling.
9.11 Tax Consequences of Participation. While the Plan is designed to
provide Eligible Persons the opportunity to defer Compensation on a tax-deferred
basis, the Corporation makes no representation, warranty or guarantee of any
federal, state or local tax consequences of participation in the Plan to any
Participant or Designated Recipient (or personal representative or
attorney-in-fact for such Participant or Designated Recipient).
9.12 Stockholder Approval. Implementation of the portion of this Plan
that allows a Participant to make a share election is subject to the approval of
the stockholders of the Corporation. In the event that the stockholders of the
Corporation do not approve the share election aspect of this Plan, such aspect
of the Plan will be deleted and the remainder of the Plan shall continue to be
in full force and effect.
IN WITNESS WHEREOF, URANIUM RESOURCES, INC, by action of its Board of
Directors, has duly adopted Uranium Resources, Inc. 1999 Deferred Compensation
Plan, effective as of the 11th day of January, 1999.
URANIUM RESOURCES, INC
/s/ Paul K. Willmott
------------------------------------
Title: Director, President and Chief
Executive Officer (Principal
Executive Officer)
E-6
<PAGE> 7
EXHIBIT C
DEFERRED COMPENSATION ELECTION
THIS DEFERRED COMPENSATION ELECTION AGREEMENT is entered into pursuant
to the provisions of the Uranium Resources, Inc. 1999 Deferred Compensation Plan
("Plan"). All capitalized terms in this Agreement shall have the meanings
ascribed to them in the Plan.
1. Deferral Election. I hereby elect to defer receipt of the following
portion of my Compensation earned in respect of the calendar year 1999
(enter any desired percentage up to 100%):
I elect to defer ____% of my Compensation.
I understand that this election may not be changed except with the
consent of the Committee.
2. Deferral Period. All Deferred Amounts will be deferred until January
11, 2006, except for any portion of the Deferred Amount I elect to
receive in Common Stock.
3. Share Election. I hereby elect to receive the following percent of my
Deferred Amount in shares of Common Stock of the Corporation determined
by multiplying the Deferred Amount by the Share Percent and dividing
the product so obtained by $.0375 (enter any desired percentage up to
100%):
I elect to take ____% of my Deferred Amount in shares of
Common Stock.
I understand that this share election can only be changed on the last
day of each calendar quarter and that any such change will be effective
only with respect to Deferred Amounts credited for the calendar
quarters following such change.
4. I understand that this Plan does not provide me with any actual rights
or interests in any particular funds, securities or property of the
Company, or any property or assets held by any agent of the Company or
the Committee, or in any shares of Common Stock of Uranium Resources,
Inc. I also understand that my right to receive distributions under the
Plan makes me a general unsecured creditor of the Company with no
greater priority than any other general unsecured creditor of the
Company.
5. Designated Recipient: In the event of my death, I designate the
following individual or entity as beneficiary to receive distributions
under the Plan:
___________________________________________________
___________________________________________________
___________________________________________________
6. Stockholder Approval. I understand that my ability to receive shares of
Common Stock is subject to the approval of the Stockholders of Uranium
Resources, Inc. and that if such approval is not obtained, I will not
be able to receive any such shares of Common Stock. My election to
defer a portion of my Compensation is not contingent upon such
Stockholder approval.
7. By electing to receive shares of Common Stock, I represent that I am
acquiring the shares of Common Stock for my own account, as principal,
for investment, and not with a view to the resale of such shares of
Common Stock or any interest therein and further understand and agree
that the following restrictions and limitations are applicable to my
purchase and any resale or other transfer I may make of the shares of
Common Stock:
(i) The shares of Common Stock shall not be sold or otherwise
transferred unless the shares of Common Stock are registered under the
Securities Act and applicable state securities laws or are exempt
therefrom.
E-1
<PAGE> 8
(ii) A legend in substantially the following form will be placed on
any certificates or other documents evidencing the shares of Common
Stock:
THE SECURITIES REPRESENTED BY THIS INSTRUMENT OR DOCUMENT HAVE
BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. WITHOUT SUCH
REGISTRATION, SUCH SECURITIES MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED, OR OTHERWISE TRANSFERRED AT ANY TIME WHATSOEVER,
EXCEPT UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED
FOR SUCH TRANSFER OR THE SUBMISSION TO THE COMPANY OF SUCH
OTHER EVIDENCE AS MAY BE SATISFACTORY TO THE COMPANY TO THE
EFFECT THAT ANY SUCH TRANSFER WILL NOT BE IN VIOLATION OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAW OR ANY RULE OR REGULATION PROMULGATED
THEREUNDER.
8. Distributions. I understand that distributions of shares of Common
Stock will be made as of the last day of March, June, September and
December (each a "Distribution Date") during the Plan Year; provided,
however, that the first distribution shall not occur until the
stockholders of the Corporation shall have approved the Plan; and
provided, further, however, that the Committee may elect to distribute
shares of Common Stock at different times in its sole and absolute
discretion. I further understand that all amounts credited to my
Account as to which I have not elected to take in shares of Common
Stock will be distributed to me or my Designated Recipient on January
11, 2006; provided that the Committee may elect, in its sole and
absolute discretion, to distribute such Deferred Amounts at an earlier
date.
9. Withholding. I understand that the Corporation will make appropriate
withholding for all relevant federal, state and local tax purposes from
the non-deferred portion of my Compensation with respect to the shares
of Common Stock that I have elected to receive based on a per share
value of $0.375. On each Distribution Date if the fair market value of
the Common Stock is in excess of $0.375 per share, the Corporation will
be required to withhold additional amounts based upon such excess. The
source of such additional amounts will be Compensation otherwise
payable to me on a Distribution Date, to the extent sufficient. If such
amounts are insufficient, I will be required to pay to the Corporation
the appropriate amounts as a condition to receipt of the shares.
10. Termination of Employment. I understand that upon my termination of
employment for any reason, including death, I will forfeit the right to
receive shares of Common Stock, except Vested Shares, and that my
account will be credited only with my Deferred Percent of Earned
Compensation to the date of such termination.
E-2
<PAGE> 9
11. Miscellaneous. I understand that this Agreement is subject to the
terms, conditions and limitations of the Plan, as in effect from time
to time, in all respects. I have received and reviewed the Plan as
currently in effect. I agree to accept as final and binding all
decisions and interpretations of the Committee relating to the Plan and
this Agreement.
______________________________________
Signature of Participant
______________________________________
Printed Name of Participant
______________________________________
Social Security Number of Participant
January 11, 1999
Received and accepted
on behalf of the Committee
this 11th day of January, 1999.
______________________________________
Paul K. Wilmott
E-3
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTS
As independent public accountants, we hereby consent to the
incorporation of our report dated February 26, 1999, included in the Company's
1998 Form 10-K, into the Company's previously filed Registration Statements on
Form S-8 File Nos. 333-05617, 333-00403 and 333-00349, and the company's
previously filed Registration Statements on Form S-3 File Nos. 333-05619 and
333-01371.
/s/ ARTHUR ANDERSEN LLP
Dallas, Texas
March 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,713,566
<SECURITIES> 582,623
<RECEIVABLES> 1,482,806
<ALLOWANCES> 0
<INVENTORY> 956,590
<CURRENT-ASSETS> 7,072,381
<PP&E> 98,073,350
<DEPRECIATION> (59,059,968)
<TOTAL-ASSETS> 49,695,739
<CURRENT-LIABILITIES> 4,940,996
<BONDS> 6,189,007
0
0
<COMMON> 12,205
<OTHER-SE> 49,683,534
<TOTAL-LIABILITY-AND-EQUITY> 49,695,739
<SALES> 23,347,314
<TOTAL-REVENUES> 23,347,314
<CGS> 44,398,611
<TOTAL-COSTS> 47,128,080
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 152,009
<INCOME-PRETAX> (23,724,821)
<INCOME-TAX> (4,745,000)
<INCOME-CONTINUING> (18,979,821)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,979,821)
<EPS-PRIMARY> (1.57)
<EPS-DILUTED> (1.57)
</TABLE>
