ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our financial statements for the three years ended December 31, 2021 and the related notes thereto. The purpose of this Item 7 is: (i) to provide material information relevant to an assessment of the financial condition and results of operations of Energy Fuels Inc., including an evaluation of the amounts and certainty of cash flows from operations and from outside sources; and (ii) to focus specifically on material events and uncertainties known to management that are reasonably likely to cause reported financial information not necessarily indicative of future operating results or of future financial condition. This Discussion and Analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth under the section heading “Item 1A. Risk Factors” and elsewhere in this Annual Report. See page 3, “Cautionary Statement Regarding Forward-Looking Statements.”
Outlook
Overview
The Company continues to believe that uranium supply and demand fundamentals point to higher sustained uranium prices in the future. In addition, Russia’s recent invasion of Ukraine and the recent entry into the uranium market by financial entities purchasing uranium on the spot market to hold for the long-term has the potential to result in higher sustained spot and term prices and, perhaps, induce utilities to enter into more long-term contracts with non-Russian producers like Energy Fuels to ensure security of supply and more certain pricing. However, the Company has not yet entered into sufficient long-term supply agreements to justify commencing uranium production at the Company’s mines and in-situ recovery (“ISR”) facilities. As a result, the Company expects to maintain uranium recovery at reduced levels until such time when sustained increased market strength is observed, additional suitable term sales contracts can be procured, or the U.S. government buys uranium from the Company following the establishment of the proposed U.S. uranium reserve (the “U.S. Uranium Reserve”). The Company also holds significant uranium inventories and is evaluating selling all or a portion of these inventories on the spot market in response to future upside price volatility or for delivery into contracts.
The Company will also continue to seek new sources of revenue, including through its emerging rare earth elements (“REE”) business, as well as new sources of other uranium-bearing materials not derived from conventional material and sourced by third parties (“Alternate Feed Materials”) and new fee processing opportunities at the White Mesa Mill (the “White Mesa Mill” or the “Mill”) that can be processed under existing market conditions (i.e., without reliance on current uranium sales prices). The Company is also seeking new sources of natural monazite sands for its emerging REE business, is evaluating the potential to recover radioisotopes for use in the development of targeted alpha therapy (“TAT”) medical isotopes for the treatment of cancer, and continues its support of U.S. governmental activities to assist the U.S. uranium mining industry, including the proposed establishment of the U.S. Uranium Reserve.
Extraction and Recovery Activities Overview
During the year ended December 31, 2021, the Company did not package any significant quantities of its final uranium product, uranium oxide concentrates (“U3O8” or “uranium concentrates”), at any of its facilities. At the Mill, the Company focused on ramping up its mixed REE carbonate (“RE Carbonate”) production and produced approximately 120 tonnes of mixed RE Carbonate during 2021. The Company recovered small quantities of uranium at the Mill during 2021, but such uranium was retained in-circuit and was not packaged in 2021. The Company also continued to maintain its Nichols Ranch and Alta Mesa ISR facilities on standby.
During 2022, the Company plans to recover 100,000 to 120,000 pounds of uranium at the Mill. The Company does not plan to extract and/or recover any amounts of uranium of any significance from its Nichols Ranch Project in 2022, which was placed on standby in the second quarter of 2020 due to the depletion of its seven constructed wellfields. In addition, the Company expects to keep the Alta Mesa Project and its conventional mining properties on standby during 2022.
During 2022, the Company expects to recover approximately 650 to 1,000 tonnes of mixed RE Carbonate containing approximately 300 to 450 tonnes of total rare earth oxide (“TREO”) at the Mill, subject to the receipt of sufficient quantities of natural monazite ore. No vanadium production is currently planned during 2022, though the Company is currently evaluating potential vanadium production in light of recent market improvements in vanadium pricing.
The Company has strategically begun to pursue uranium sales commitments, with pricing expected to have both fixed and market-related components. The Company believes that recent price increases, volatility, and focus on security of supply have
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increased the potential for the Company to make spot sales, and the Company is actively seeking additional term sales contracts with utilities at pricing that sustains production and covers corporate overhead. Therefore, existing inventories may increase to 791,000 to 811,000 pounds of U3O8 at year-end 2022 or may increase to a lesser extent or be reduced in the event the Company sells some inventory on the spot market in 2022. All V2O5 inventory is expected to be sold on the spot market if prices rise sufficiently above current levels but will otherwise continue to be maintained in inventory. The Company expects to sell all or a portion of its mixed RE Carbonate to Neo or other global separation facilities and/or to stockpile it for future production of separated REE oxides at the Mill or elsewhere.
ISR Activities
The Company expects to produce insignificant quantities of U3O8 in the year ending December 31, 2022 from Nichols Ranch. Until such time when market conditions improve sufficiently, suitable term sales contracts can be procured, or the proposed U.S. Uranium Reserve is established, the Company expects to maintain the Nichols Ranch Project on standby and defer development of further wellfields and header houses. The Company currently holds 34 fully permitted, undeveloped wellfields at Nichols Ranch, including four additional wellfields at the Nichols Ranch wellfields, 22 wellfields at the adjacent Jane Dough wellfields, and eight wellfields at the Hank Project, which is fully permitted to be constructed as a satellite facility to the Nichols Ranch Plant. The Company expects to continue to keep the Alta Mesa Project on standby until such time that market conditions improve sufficiently, suitable term sales contracts can be procured, or the proposed U.S. Uranium Reserve is established.
Conventional Activities
Conventional Extraction and Recovery Activities
During the year ended December 31, 2021, the Mill did not package any material quantities of U3O8, focusing instead on developing its REE recovery business. During the year ended December 31, 2021, the Mill produced approximately 270 tonnes of RE Carbonate, containing approximately 120 tonnes of TREO. The Mill recovered small quantities of uranium in 2021, which were retained in circuit. During 2022, the Company expects to recover 100,000 to 120,000 pounds of uranium at the Mill. The Company expects to recover approximately 650 to 1,000 tonnes of mixed RE Carbonate containing approximately 300 to 450 tonnes of TREO at the Mill, subject to the receipt of sufficient quantities of natural monazite ore. The Company is in advanced discussions with several sources of natural monazite sands, including the Company’s existing supplier, to secure additional supplies of monazite sands, which if successful, would be expected to allow the Company to increase RE Carbonate production. In addition to its 691,000 pounds of finished uranium inventories currently located at a North American conversion facility and at the Mill, the Company has approximately 355,000 pounds of U3O8 contained in stockpiled Alternate Feed Materials and ore inventory at the Mill that can be recovered relatively quickly in the future, as general market conditions may warrant (totaling about 1,046,000 pounds of U3O8 of total uranium inventory).
In addition, there remains an estimated 1.0 to 3 million pounds of solubilized recoverable V2O5 inventory remaining in tailings solutions awaiting future recovery, as market conditions may warrant.
The Company currently expects that planned uranium production from Alternate Feed Materials, processing natural monazite sands for the recovery of uranium and REEs, and the receipt of uranium-bearing materials from mine cleanup activities will keep the Mill in operation through and beyond 2022. The Company is also actively pursuing opportunities to process additional sources of natural monazite sands, new and additional Alternate Feed Material sources, and new and additional low-grade mineralized materials from third parties in connection with various uranium clean-up requirements. Successful results from these activities would allow the Mill to extend operations well into and beyond 2023. If, at any time, the Company is unable to justify full operation of the Mill, the Company would place uranium, REE and/or vanadium recovery activities at the Mill on standby. While on standby, the Mill would continue to dry and package material from the Nichols Ranch Plant, if operating, and continue to receive and stockpile Alternate Feed Materials for future milling campaigns. Each future milling campaign would be subject to receipt of sufficient mill feed and resulting cash flow that would allow the Company to operate the Mill on a profitable basis or to recover all or a portion of the Mill’s standby costs.
Conventional Standby, Permitting and Evaluation Activities
During the year ended December 31, 2021, standby and environmental compliance activities continued at the fully permitted and substantially developed Pinyon Plain Project. The Company plans to continue carrying out engineering, metallurgical testing, procurement and construction management activities at its Pinyon Plain Project. The timing of the Company’s plans to extract and process mineralized materials from this Project will be based on the results of the additional evaluation work and
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available financing, along with improvements in general market conditions, procurement of suitable sales contracts and/or the establishment of the proposed U.S. Uranium Reserve.
The Company is selectively advancing certain permits at its other major conventional uranium projects, such as the Roca Honda Project, which is a large, high-grade conventional project in New Mexico. The Company is also continuing to maintain required permits at its conventional projects, including the Sheep Mountain Project, La Sal Complex and Whirlwind Project. In addition, the Company will continue to evaluate the Bullfrog Project. Expenditures for certain of these projects have been adjusted to coincide with expected dates of price recoveries based on the Company’s forecasts. All of these projects serve as important pipeline assets for the Company’s future conventional production capabilities, as market conditions may warrant.
As more generally referenced above, the Company completed the sale of the Tony M, Daneros, Rim and certain other non-core conventional uranium assets to Consolidated Uranium Inc. (“CUR”, f/k/a International Consolidated Uranium, Inc., TSX-V:CUR) on October 27, 2021. See Part I, Item 1. Business Overview: Development of the Business – Major Transactions over the Past Five Years.
Uranium Sales
During the year ended December 31, 2021, the Company completed no sales of uranium, at its election, but is now actively engaged in pursuing selective long-term uranium sales contracts.
Vanadium Sales
As a result of strengthening Vanadium markets, the Company sold 5,000 pounds of FeV in 2021 at a weighted average price of $14.74 per pound. The Company expects to sell its remaining finished vanadium product when justified into the metallurgical industry, as well as other markets that demand a higher purity product, including the aerospace, chemical, and potentially the vanadium battery industries. The Company expects to sell to a diverse group of customers in order to maximize revenues and profits. The vanadium produced in the recent pond return campaign was a high-purity vanadium product of 99.6%-99.7% V2O5. The Company believes there may be opportunities to sell certain quantities of this high-purity material at a premium to reported spot prices. The Company may also retain vanadium product in inventory for future sale, depending on vanadium spot prices and general market conditions.
Rare Earth Sales
The Company commenced its ramp-up to commercial production of a mixed RE Carbonate in March 2021 and has shipped all of its RE Carbonate produced to-date to Silmet, where it is currently being fed into their separation process. All RE Carbonate produced at the Mill in 2022 is expected to be sold to Neo for separation at Silmet. Until such time as the Company expects to permit and construct its own separation circuits at the Mill, production in future years is expected to be sold to Neo for separation at Silmet and, potentially, to other REE separation facilities outside of the U.S. To the extent not sold, the Company expects to stockpile mixed RE Carbonate at the Mill for future separation and other downstream REE processing at the Mill or elsewhere.
As the Company continues to ramp up its mixed RE Carbonate production and additional funds are spent on process enhancements, improving recoveries, product quality and other optimization, profits from this initiative are expected to be minimal until such time when monazite throughput rates are increased and optimized. However, even at the current throughput rates, the Company is recovering most of its direct costs of this growing initiative, with the other costs associated with ramping up production, process enhancements and evaluating future separation capabilities at the Mill being expensed as development expenditures. Throughout this process, the Company is gaining important knowledge, experience and technical information, all of which will be valuable for current and future mixed RE Carbonate production and expected future production of separated REE oxides and other advanced REE materials at the Mill. As discussed above (see Part I, Item 1. Business Overview: The Company’s Rare Earth Elements Business), the Company is evaluating installing a full separation circuit at the Mill to produce both “light” and “heavy” separated REE oxides in the coming years, subject to successful licensing, financing, and commissioning and continued strong market conditions, and has hired Carester to support these REE separation initiatives.
The Company also continues to pursue new sources of revenue, including additional Alternate Feed Materials and other sources of feed for the Mill.
COVID-19
The Company continues to respond to the effects of the global COVID-19 pandemic on the Company’s business objectives, projections and workforce. To date, although the Company has made operational adjustments since the onset of the pandemic to
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ensure its workforce remains protected, the Company has not been required to shut down any operations as a result of COVID-19. None of these operational adjustments have been material to the Company. The Company has evaluated any potential future shutdown of Company production facilities as a result of COVID-19, and has determined that any such shutdown could be accommodated by the Company in a manner consistent with a typical shutdown of Company production facilities as a result of depressed commodity prices. Management believes the Company is well-capitalized and will be able to withstand facility shutdowns or depressed share prices as a result of COVID-19 for at least the next twelve months.
Expiry of All Outstanding Warrants
The Company’s warrants issued on September 20, 2016 to acquire Common Shares of the Company at the price of $2.45 per share, listed on the NYSE American (UUUU-WT), expired on Monday, September 20, 2021. Cash received from the exercise of warrants in 2021 totaled $9.84 million.
Update on Rare Earth Element Initiative
On March 1, 2021, the Company and Neo Performance Materials Limited (“Neo”) announced a new REE production initiative spanning European and North American critical material supply chains. Under an agreement in principle signed on March 1, 2021 and finalized into a definitive agreement in July 2021, Energy Fuels will process natural monazite sands, currently being mined in the state of Georgia by The Chemours Company, into an RE Carbonate at the Mill and ship a portion of the produced RE Carbonate to Neo's rare earth separations facility in Sillamäe, Estonia (“Silmet”). Silmet will then process the RE Carbonate into separated REE materials for use in REE permanent magnets and other REE-based advanced materials. On July 7, 2021, the Company announced that the first container (approximately 20 tonnes of product) of an expected 15 containers of mixed RE Carbonate had been successfully produced by Energy Fuels at the Mill and was en route to Silmet. This commercial-scale production of RE Carbonate by Energy Fuels from a U.S. mined REE resource positions Energy Fuels as the only company in North America that currently produces a monazite-derived, enhanced REE material. The physical delivery of this product also represents the launch of a new, environmentally responsible REE supply chain that allows for source validation and tracking from mining through to final end-use applications for manufacturers in North America, Europe, Japan, and other nations.
The Company also announced on March 1, 2021 that, in addition to supplying RE Carbonate to Neo, Energy Fuels is evaluating the potential to develop U.S. separation capabilities at the Mill, or nearby, as it works to increase its monazite sand supplies, thereby fully integrating a U.S. rare earth supply chain in the coming years, in addition to supplying RE Carbonate to European markets. On April 27, 2021, the Company announced it had engaged Carester to prepare a scoping study for the development of a solvent extraction REE separation circuit at the Mill utilizing the Mill's existing equipment and infrastructure to the extent applicable, to create a continuous, integrated and optimized REE production sequence. Based in Lyon, France, Carester is a leading global consultant in the production of separated REE products, with expertise in designing, constructing, operating and optimizing REE production facilities globally. Carester's scoping work included an evaluation of the Mill's current monazite leaching process, preparation of an REE separation flow sheet, capital and operating expense estimates, incorporation of new technologies where applicable, and recommendations on equipment vendors. Based on the results of this scoping work, the Company is evaluating installing a full separation circuit at the Mill to produce both “light” and “heavy” separated REE oxides in the coming years, subject to successful licensing, financing, and commissioning and continued strong market conditions, and has hired Carester to support these REE separation initiatives.
During Q1-2022, the Company began commercially separating Lanthanum (La) and Cerium (Ce) on a small scale from its RE Carbonate, using an existing solvent extraction circuit at the Mill. This represents the first commercial level REE separation to occur in the U.S. in many years.
On December 15, 2021, the Company announced the execution of a memorandum of understanding (“MOU”) with Nanoscale Powders LLC (“NSP”) for the development of a novel technology for the potential production of REE metals, subject to the finalization of definitive agreements. We believe this technology, which was initially developed by NSP, and will be advanced by the Company and NSP working together, has the potential to revolutionize the REE metal making industry by reducing costs of production, reducing energy consumption, and significantly reducing greenhouse gas emissions. Producing REE metals and alloys is a key step in a fully integrated REE supply chain, after commercial production of separated REE oxides and before the manufacture of neodymium iron boron (“NdFeB”) magnets used in electric vehicles, wind generation and other clean energy and advanced technologies.
In addition, during 2022, the Company announced the execution of a non-binding MOU for the supply of natural monazite sands from IperionX Limited's (“IperionX's”) Titan Project in Tennessee, if and when the project is developed and mined. IperionX's Titan Project covers a large area of heavy mineral sands properties in Tennessee prospective for titanium, zircon, monazite and other valuable minerals such as high-grade silica sand and other refractory minerals. In 2022, the Company also
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announced that the U.S. Department of Energy (“DOE”) Office of Fossil Energy and National Energy Technology Laboratory had exercised its option to award Energy Fuels, working with a team from Penn State University, an additional $1.75 million to complete a feasibility study on the production of REE products from natural coal-based resources, as well as from other materials such as REE-containing ores like the natural monazite sands the Company is currently processing at the Mill. This award follows the DOE providing Energy Fuels a $150,000 contract in 2020 for the successful completion of a conceptual design for the same initiative, resulting in a total award to Energy Fuels of $1.9 million.
See “See Part I, Item 1. Business Overview: The Company’s Rare Earth Elements Business” for a more detailed discussion of the Company’s REE initiative.
Collaboration with RadTran, LLC on Recovering Medical Isotopes for Advanced Cancer Therapies
On July 28, 2021, the Company announced the execution of a Strategic Alliance Agreement with RadTran, LLC, a technology development company focused on closing critical gaps in the procurement of medical isotopes for emerging TAT cancer therapeutics and other applications. Under this strategic alliance, the Company is evaluating the feasibility of recovering Th-232, and Ra-226 from its existing RE Carbonate and uranium process streams at the Mill and, together with RadTran, is evaluating the feasibility of recovering Ra-228 from the Th-232, Th-228 from the Ra-228 and concentrating Ra-226 at the Mill using RadTran technologies. Recovered Ra-228, Th-228 and Ra-226 would then be sold to pharmaceutical companies and others to produce Pb-212, Ac-225, Bi-213, Ra-224 and Ra-223, which are the leading medically attractive TAT isotopes for the treatment of cancer. Existing supplies of these isotopes for TAT applications are in short supply, and methods of production are costly and currently cannot be scaled to meet the demand created as new drugs are developed and approved. This is a major roadblock in the research and development of new TAT drugs as pharmaceutical companies wait for scalable and affordable production technologies to become available. Under this initiative, the Company has the potential to recover valuable isotopes from its existing process streams, therefore recycling back into the market material that would otherwise be lost to disposal for use in treating cancer. See “Part I, Item 1. Business Overview: The Company’s Strategic Alliance for the Development of Radioisotopes for Medical Therapeutics” for a more detailed discussion of this initiative.
Establishment of the San Juan County Clean Energy Foundation
On September 16, 2021, the Company announced its establishment of the San Juan County Clean Energy Foundation, a fund specifically designed to contribute to the communities surrounding the Mill in southeastern Utah. The Company made an initial deposit of $1 million into the Foundation and anticipates providing ongoing annual funding equal to 1% of the Mill’s future revenues, providing funding to local priorities. The Foundation will focus on supporting education, the environment, health/wellness, and local economic development in the City of Blanding, San Juan County, the White Mesa Ute Community, the Navajo Nation and other area communities.
Sale of Non-Core Assets to Consolidated Uranium Inc.
On October 27, 2021, CUR and the Company jointly announced the closing of a transaction whereby CUR acquired a portfolio of Energy Fuels’ non-core conventional uranium projects located in Utah and Colorado, including the Daneros mine, the Tony M mine (formerly a part of the Bullfrog Project), the Rim mine, the Sage Plain project, and several DOE leases located in Colorado, in consideration for a 19.9% share ownership interest in CUR and other consideration. See “Part I, Item 1. Business Overview: Development of the Business: Major Transactions over the Past Five Years” for a more detailed discussion of this transaction.
Filing of Base Shelf Registration Statement and Prospectus Supplements
Effective March 18, 2021, the Company filed a new base shelf registration statement on Form S-3 with the SEC allowing the Company to issue Common Shares, warrants, subscription receipts, preferred shares, debt securities, or any combination of such securities as units, in amounts, and at prices, and on terms to be determined based on market conditions at the time of sale, and as set forth in an accompanying prospectus supplement, for an aggregate offering amount of up to $300 million during the 36-month period that the statement remains effective. On March l6, 2021, the Company received a receipt for a corresponding base shelf prospectus in Canada for an aggregate offering amount in Canada of up to $300 million. On April 9, 2021, June 7, 2021, and January 3, 2022 the Company filed prospectus supplements to its effective U.S. registration statement on Form S-3 to sell up to an additional $33.5 million, $50 million, and $50 million respectively, of Common Shares under its ATM program, with sales only being made on the NYSE American at then-prevailing market prices, or any other existing trading market of the common shares in the United States.
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Known Trends or Uncertainties
The Company has faced depressed uranium and vanadium prices in previous years which have resulted in the Company having negative cash flows and net losses in previous years. We are not aware at this time of any trends or uncertainties that have had or are reasonably likely to have a material impact on revenues or income of the Company other than (i) continued strengthening of uranium and vanadium prices which could result in the Company selling inventories at increased prices; (ii) the proposed U.S. Uranium Reserve, which if implemented could result in improved uranium sales prices; and (iii) the Company’s REE and TAT radioisotope initiatives, which if successful could result in improved results from operations in future years. We are not aware at this time of any events that are reasonably likely to cause a material change in the relationship between costs and revenue of the Company.
Continued Efforts to Minimize Costs
Although the Company is pursuing two exciting new initiatives — its REE and TAT radioisotope initiatives — in addition to its existing uranium and vanadium lines of business, which will likely require the Company to grow certain of its operations, the Company will continue to seek ways to minimize the costs of all of its operations where feasible, while maintaining its critical properties in a state of readiness for potential improvements in market conditions.
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Results of Operations
The following table summarizes the results of operations for the years ended December 31, 2021, 2020 and 2019 (in thousands of dollars):
Years ended December 31,
Revenues
Rare Earth concentrates $ 1,385 $ — $ —
Vanadium concentrates 74 — 2,237
Uranium concentrates — — 66
Alternate Feed Materials processing and other 1,725 1,658 3,562
Costs and expenses applicable to revenues
Costs and expenses applicable to Rare Earth concentrates 1,235 — —
Costs and expenses applicable to Vanadium concentrates 48 — 1,805
Costs and expenses applicable to Uranium concentrates — — 63
Costs and expenses applicable to Alternate Feed Materials and other — — 2,079
Total costs and expenses applicable to revenues 1,814 — 3,947
Other operating costs
Selling, general and administration
Gain on disposal of non-core assets (Note 8) 35,733 — —
Basic net income (loss) per common share $ 0.01 $ (0.23) $ (0.40)
Diluted net income (loss) per common share $ 0.01 $ (0.23) $ (0.40)
Results of Operations
Year ended December 31, 2021 compared to year ended December 31, 2020
For the year ended December 31, 2021 the Company recorded net income of $1.45 million or $0.01 per share compared with a net loss of $27.87 million or $0.23 per share for the year ended December 31, 2020.
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For the year ended December 31, 2021, the Company recorded an operating loss of $35.43 million compared with an operating loss of $24.63 million for the year ended December 31, 2020.
Revenues
Previously, the Company’s revenues from uranium were based on delivery schedules under long-term contracts, which could vary from quarter to quarter. As of December 31, 2018, the Company no longer had any uranium sales contacts. Any future sales of uranium will be subject to sale in the spot market until a time when the Company can agree to terms for long-term sales contracts or potentially pursuant to direct government purchases under the proposed U.S. Uranium Reserve. In the year ended December 31, 2019, the Company initiated the selling of vanadium recovered from Pond Return at the Mill under a Sales and Agency Agreement appointing an exclusive sales and marketing agent for all vanadium pentoxide produced by the Company.
Revenues for the year ended December 31, 2021 totaled $3.18 million, which were primarily related to fees for mineralized material received from clean-up of a third-party uranium mine and RE Carbonate sales.
Revenues for the year ended December 31, 2020 totaled $1.66 million, all of which were related to fees for mineralized materials received from clean-up of a third-party uranium mine.
Operating Expenses
Uranium and Vanadium recovered and costs and expenses applicable to revenue
In the year ended December 31, 2021, the Company did not recover any material amount of U3O8 from ISR recovery activities orfrom Alternate Feed Materials at the Mill. In the year ended December 31, 2020, the Company recovered approximately 6,000 pounds of U3O8 from ISR recovery activities for the Company’s own account and approximately 67,000 pounds of V2O5 from Pond Return. The Company recovered approximately 190,500 pounds of U3O8 in the year ended December 31, 2020 from the tailings pond solutions and Alternate Feed Materials at the Mill.
Costs and expenses applicable to RE Carbonate revenue for the twelve months ended December 31, 2021 were $1.24 million, compared with nil for the year ended December 31, 2020. Cost and expenses applicable to V2O5 concentrate for the twelve months ended December 31, 2021 were $0.05 million. The Company did not make any concentrate sales of U3O8 and only collected a fee to receive mineralized material from clean-up of a third-party uranium mine for which the Company incurred de minimis costs.
In the year ended December 31, 2021, the Company incurred underutilized capacity production costs of $0.53 million, compared with nil for the year ended December 31, 2020. The underutilized capacity production costs are due to low throughput rates as the Mill ramps-up to commercial-scale production of RE Carbonate. To date, the Mill has focused on producing commercially salable RE Carbonate at low throughput rates and has been very pleased with the resulting product it is shipping to Silmet. The Mill expects to increase its throughput rates as its supplies of monazite sands increase. The Company is in advanced discussions with several sources of natural monazite sands, and once secured, we expect these additional supplies will result in sufficient throughput to reduce underutilized capacity production costs and allow the Company to realize its expected margins on a continuous basis.
Other Operating Costs and Expenses
Development, permitting and land holding
For the year ended December 31, 2021, the Company spent $10.75 million for development of the Company’s properties, primarily due to the development and ramping up of the expected RE Carbonate production program at the Mill, compared to $4.33 million for the year ended December 31, 2020 for the development of the Company’s properties.
While we expect the amounts relative to the items listed above have added future value to the Company, the Company expenses these amounts, in part due to the fact that the Company does not have Proven Mineral Reserves or Probable Mineral Reserves at any of the Company’s projects under S-K 1300 or NI 43-101, other than at the Sheep Mountain Project.
Standby costs
The Company’s La Sal Project was placed on standby in 2012 as a result of market conditions. In February 2014, the Company placed its Arizona 1 Project on standby. In the beginning of 2018, as well as the beginning of 2020, the Mill operated at lower levels of uranium recovery, including prolonged periods of standby. The Nichols Ranch Project was also placed on standby in early 2020. Costs related to the care and maintenance of the standby mines, along with standby costs incurred while the Mill was operating at low levels of uranium recovery or on standby, are expensed.
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For the year ended December 31, 2021, standby costs totaled $9.46 million compared with $4.02 million in the prior year. The increase is primarily related to a reduction in recovery activities at the Nichols Ranch Project in conjunction with expenses incurred while the Mill was operating at low levels of uranium recovery.
Accretion
Accretion related to the asset retirement obligation for the Company’s properties decreased for the year ended December 31, 2021 to $1.28 million compared with the prior year of $1.91 million, primarily due to the Company delaying the timing of estimated reclamation activities at some of its projects.
Selling, General, and Administrative
Selling, general and administrative expenses include costs associated with marketing uranium, corporate, general and administrative costs. Selling, general and administrative expenses consist primarily of payroll and related expenses for personnel, contract and professional services, share-based compensation expense and other overhead expenditures. Selling, general and administrative expenses totaled $15.30 million for the year ended December 31, 2021 compared to $14.38 million for the year ended December 31, 2020. For the year ended December 31, 2020, the Company incurred approximately $1.04 million in one-time management streamlining restructuring expenses.
Impairment of Inventories
For the years ended December 31, 2021 and 2020, the Company recognized nil and $1.64 million, respectively, in impairment charges related to inventory in order to value such inventory at the lower of cost and net realizable value. The impairment of inventories in 2020 was due to continued lower uranium prices versus our cost to produce at the Nichols Ranch Project.
Interest Expense and Other Income and Expenses
Gain on disposal of non-core assets
For the year ended December 31, 2021, gain on disposal of non-core assets totaled $35.73 million. On October 27, 2021, the Company and CUR jointly announced that the parties had closed on the sale of certain of Energy Fuels’ non-core conventional uranium projects located in Utah and Colorado, including the Daneros Mine, the Tony M Mine, the Rim Mine, the Calliham (Sage Plain) Project and seven DOE lease tracts. As further described in Note 8, the gain of $35.73 million was recognized as these non-core conventional uranium project assets had no carrying value at the Closing Date.
Interest Expense
Interest expense for the year ended December 31, 2021 was $0.05 million compared with $0.95 million in the prior year. The decrease is primarily related to the full redemption of the Convertible Debentures in 2020.
Other income and expense
For the year ended December 31, 2021, other income net of other expenses totaled $1.19 million. These amounts primarily consist of a $7.11 million mark-to-market gain on investments accounted for at fair value, DOE award of $1.90 million, other of $0.35 million, and interest income of $0.04 million, offset by a mark-to-market loss on the increase in fair value of warrant liabilities of $8.08 million and a loss on foreign exchange of $0.13 million.
For the year ended December 31, 2020, other expenses net of other income totaled $2.29 million. These amounts primarily consist of a mark-to-market loss on the increase in fair value of warrant liabilities of $5.44 million, offset by a $1.84 million mark-to-market gain on investments accounted for at fair value, a gain on foreign exchange of $0.77 million, a mark-to-market gain on the change in the fair value of the Convertible Debentures of $0.16 million, interest income of $0.15 million, and other of $0.23 million.
RESULTS OF OPERATIONS
Year ended December 31, 2020 compared to year ended December 31, 2019
A comparison of our financial results for the year ended December 31, 2020 and for the year ended December 31, 2019 can be found in the "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations" section in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed on March 22, 2021.
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LIQUIDITY AND CAPITAL RESOURCES
Funding of major cash requirements
The Company’s primary short-term and long-term cash requirements are to fund working capital needs and operating expenses (including the Company’s contractual lease, decommissioning, and other obligations as described in “Contractual Obligations” below), fund capital expenditures, and fund potential future growth opportunities through ongoing initiatives such as the Company’s REE program and TAT radioisotope initiative and through major business and property acquisitions.
The Company expects to be able to fund its working capital and operating expenses, capital expenditures, and currently planned growth initiatives over the next 12 months through available cash balances and product inventory sales, if needed. However, the Company may continue to increase its working capital position in the short-term through issuances of Common Shares in appropriate circumstances. Over the past nine years, the Company has funded major business and property acquisitions with capital provided by issuances of its Common Shares. In 2012, the Company acquired Titan Uranium Inc. and the U.S. Mining Division of Denison Mines Corp., in 2013 acquired Strathmore Minerals Corp., in 2015 acquired Uranerz, and in 2016 acquired Mesteña, each in exchange for newly issued Common Shares.
The Company intends to continue to acquire assets utilizing Common Shares when possible under attractive terms.
The Company is actively focused on its forward-looking liquidity needs, especially in light of the current depressed uranium markets, though recent market trends are promising. If current uranium prices persist for any extended period of time, or the Company’s REE and TAT radioisotope initiatives are not successful, the Company will likely be required to raise capital or take other measures to fund its long-term ongoing operations. Significant development activities, such as the development of an REE separation facility at the Mill, would require significant capital expenditures in future years that would require the Company to arrange for financing in advance of planned expenditures. We expect to continue to augment our current financial resources with external financing as our long-term business needs require. We cannot provide any assurance that we will pursue any of these transactions or that we will be successful in completing them on acceptable terms or at all.
Shares issued for cash
On November 5, 2018, the Company filed a prospectus supplement to its then-in-place U.S. shelf registration statement on Form S-3, qualifying for distribution up to $24.50 million in aggregate Common Shares by way of an “at-the-market” offering (the “ATM”). Then, on the same date, the Company filed a new U.S. shelf registration statement on Form S-3, which thereafter became effective on December 26, 2018, whereby the Company could sell any combination of the “Securities” as defined thereunder in one or more offerings up to an initial aggregate offering amount of $150.00 million, to take over when the existing Form S-3 was depleted or expired. On May 5, 2019, the existing prospectus supplement expired and was replaced on May 7, 2019 by a new prospectus supplement, qualifying for distribution up to $24.50 million in aggregate Common Shares under the ATM, pursuant to the new U.S. shelf registration statement. On each of December 31, 2019 and December 31, 2020, the Company filed prospectus supplements to its U.S. shelf registration statement, qualifying for distribution up to $30.00 million and $35.00 million, respectively, in additional Common Shares under the ATM. On April 9, 2021, the Company filed a prospectus supplement to its U.S. shelf registration statement, qualifying for distribution up to $33.50 million in additional Common Shares under the ATM. The Company then filed a U.S. shelf registration statement that went effective on March 18, 2021, whereby the Company may sell any combination of the “Securities” as defined thereunder in one or more offerings having an aggregate offering price of up to $300.00 million. On June 7, 2021, the Company filed a prospectus supplement to its U.S. shelf registration statement, qualifying for distribution up to $50.00 million in additional Common Shares under the ATM. Most recently, on January 3, 2022, the Company filed with the SEC a prospectus supplement to its U.S. shelf registration statement, qualifying for distribution up to $50.00 million in additional Common Shares under the ATM. Sales made pursuant to the above summarized U.S. shelf registration statements and prospectus supplements are made on the NYSE American at then-prevailing market prices, or any other existing trading market of the Common Shares in the United States.
On February 20, 2020, the Company closed a bought deal public offering of Common Shares made pursuant to an underwriting agreement dated February 13, 2020 between the Company and a syndicate of underwriters led by Cantor Fitzgerald & Co. as lead underwriter and sole book-runner, and H.C. Wainwright & Co., LLC, Eight Capital, Haywood Securities Inc. and Roth Capital Partners, LLC (the “Offering”). Pursuant to the Offering, the Company issued an aggregate of 11,300,000 common shares at a price of $1.47 per share for gross proceeds of $16.61 million. The Company received net proceeds, after commissions and fees, of $15.14 million from the Offering (see “Note 12 to the Financial Statements: Capital Stock”).
Working capital at December 31, 2021 and future requirements for funds
At December 31, 2021, the Company had working capital of $143.19 million, including $112.52 million in cash, $0.49 million of marketable securities, approximately 691,000 pounds of uranium finished goods inventory and approximately 1,650,000
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pounds of vanadium finished goods inventory. The Company believes it has sufficient cash and resources to carry out its business plan for at least the next twelve months.
The Company manages liquidity risk through the management of its working capital and its capital structure.
Cash and cash flows
Year ended December 31, 2021
Cash, cash equivalents and restricted cash were $132.82 million at December 31, 2021, compared to $40.99 million at December 31, 2020. The increase of $91.84 million was due primarily to cash provided by financing activities of $117.94 million, cash provided by investing activities of $3.19 million, and the impact of foreign exchange rate fluctuations on cash held in foreign currencies of $0.01 million, partially offset by cash used in operating activities of $29.29 million.
Net cash used in operating activities of $29.29 million is comprised of the net income of $1.45 million for the period adjusted for non-cash items and for changes in working capital items. Significant items not involving cash were $3.19 million of depreciation and amortization of property, plant and equipment, share-based compensation expense of $2.16 million, a $8.08 million change in warrant liabilities, accretion of ARO of $1.28 million and unrealized foreign exchange loss of $0.13 million, offset by gain on disposal of non-core assets of $35.73 million, other non-cash expenses of $6.89 million and a revision of asset retirement obligations of $0.37 million. Other items include an increase in inventories of $3.22 million, an increase in trade and other receivables of $1.25 million, and an increase in prepaid expenses and other assets of $0.26 million, partially offset by an increase in accounts payable and accrued liabilities of $2.14 million.
Net cash provided by investing activities was $3.19 million comprised of $2.55 million cash received from maturities of marketable securities and $2.00 million cash received from disposal of non-core assets, partially offset by $1.37 million cash used for the purchase of property, plant and equipment.
Net cash provided by financing activities totaled $117.94 million consisting of $106.21 million net proceeds from the issuance of shares under the Company's ATM facility, cash received from exercise of warrants of $9.84 million, cash received from exercise of stock options of $2.38 million, and $0.31 million cash received from non-controlling interest, partially offset by $0.54 million cash paid to fund employee income tax withholding due upon vesting of restricted stock units and $0.26 million cash paid to settle and fund employee income tax withholding due upon exercise of stock appreciation rights.
Year ended December 31, 2020
Cash, cash equivalents and restricted cash were $40.99 million at December 31, 2020, compared to $32.89 million at December 31, 2019. The increase of $8.09 million was due primarily to cash provided by financing activities of $36.58 million, cash provided by investing activities of $3.58 million, offset by cash used in operating activities of $32.18 million and loss on foreign exchange on cash held in foreign currencies of $0.11 million.
Net cash used in operating activities of $32.18 million is comprised of the net loss of $27.87 million for the period adjusted for non-cash items and for changes in working capital items. Significant items not involving cash were $2.70 million of depreciation and amortization of property, plant and equipment, $1.64 million impairment on inventory, share-based compensation expense of $2.60 million, a $5.44 million change in warrant liabilities, ARO accretion of $1.91 million, offset by a revision of ARO of $7.85 million, unrealized foreign exchange gain of $1.05 million, other non-cash expenses of $0.71 million and a $0.16 million change in value of the Convertible Debentures. Other items include an increase in inventories of $6.10 million and a decrease in accounts payable and accrued liabilities of $3.08 million, partially offset by a decrease in trade and other receivables of $0.19 million and a decrease in prepaid expenses and other assets of $0.15 million.
Net cash provided by investing activities was $3.58 million comprised of $4.21 million cash received from maturities of marketable securities partially offset by $0.63 million cash used for the purchase of mineral properties and property, plant and equipment.
Net cash provided by financing activities totaled $36.58 million consisting of $52.39 million net proceeds from the issuance of Common Shares from a public offering and the issuance of shares under the Company's ATM facility, $0.49 million cash received from exercise of stock options, and $0.13 million cash received from non-controlling interest, partially offset by $16.02 million to repay loans and borrowings and $0.42 million cash paid to fund employee income tax withholding due upon vesting of restricted stock units.
Year ended December 31, 2019
Cash, cash equivalents and restricted cash were $32.89 million at December 31, 2019, compared to $34.29 million at December 31, 2018. The decrease of $1.40 million was due primarily to cash provided by financing activities of $20.36 million, cash
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provided by investing activities of $22.58 million, offset by cash used in operating activities of $44.38 million and loss on foreign exchange on cash held in foreign currencies of $0.04 million.
Net cash used in operating activities of $44.38 million is comprised of the net loss of $38.09 million for the period adjusted for non-cash items and for changes in working capital items. Significant items not involving cash were $1.21 million of depreciation and amortization of property, plant and equipment, $14.35 million impairment on inventory, share-based compensation expense of $3.77 million, accretion of ARO of $1.93 million, other non-cash expenses of $2.31 million, unrealized foreign exchange loss of $0.08 million, a decrease in prepaid expenses and other assets of $0.01 million, offset by an increase in inventories of $18.53 million, an increase in trade and other receivables of $0.06 million, a decrease in accounts payable and accrued liabilities of $3.20 million, $3.73 million change in warrant liabilities, $0.29 million change in value of the Convertible Debentures, non-cash standby costs of $1.42 million and changes in deferred revenue of $2.72 million.
Net cash provided by investing activities was $22.58 million related to cash received from the sale and maturities of marketable securities.
Net cash provided by financing activities totaled $20.36 million consisting of $19.68 million proceeds from the issuance of stock using the Company’s ATM offering, $0.80 million in proceeds from notes payable and $0.15 million cash received from exercise of stock options, partially offset by $0.32 million to repay loans and borrowings.
Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2021.
Payments Due by Period - $000
Less than 1 More than
Total year 1 - 3 years 3 - 5 years 5 years
Operating lease obligations $ 497 $ 350 $ 147 $ — $ —
The Company entered into commitments with federal and state agencies and private individuals to lease surface and mineral rights. These leases are primarily renewable annually and are expected to total $1.75 million for the year ended December 31, 2022. The Company has entered into a three-year agreement to purchase natural monazite sands from a third party for its REE program. The Company’s obligation under that agreement ranges from $0.5 million to $1.6 million per year depending on the quantities of monazite delivered by the third-party.
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
The preparation of these consolidated financial statements in accordance with U.S. GAAP requires the use of certain critical accounting estimates and judgments that affect the amounts reported. It also requires management to exercise judgment in applying the Company’s accounting policies. These judgments and estimates are based on management’s best knowledge of the relevant facts and circumstances taking into account previous experience. Although the Company regularly reviews the estimates and judgments made that affect these financial statements, actual results may be materially different.
Significant estimates made by management include:
a. Development Stage
While the Company has established the existence of multiple Mineral Resources and extracts and processes saleable uranium from these operations, the Company has only established Proven Mineral Reserves or Probable Mineral Reserves, as defined under SEC S-K 1300, at its Sheep Mountain Project. As a result, the Company is a “Development Stage Issuer” as defined by S-K 1300, as it is engaged in the preparation of Mineral Reserves for extraction on at least one material property.
While in the development stage with its material properties having only Mineral Resources, the Company continues to expense most amounts that would normally be capitalized and subsequently depreciated or depleted over the life of Mineral Reserve-based mining operations. Items such as the construction of wellfields and related header houses, additions to recovery facilities and advancement of properties are expensed in the period incurred. As a result, the Company’s consolidated financial statements may not be directly comparable to the financial statements of mining companies in the development stage having multiple Mineral Reserves or in the production stage.
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b. Resource and reserve estimates utilized
The Company utilizes estimates of its Mineral Resources and Mineral Reserves based on information compiled by appropriately qualified persons. The information relating to the geological data on the size, depth and shape of the deposits requires complex geological judgments to interpret the data. The estimation of future cash flows related to Mineral Resources and Mineral Reserves is based upon factors such as estimates of future uranium prices, future construction and operating costs along with geological assumptions and judgments made in estimating the size and grade of the resource. Changes in the Mineral Resource and Mineral Reserve estimates may impact the carrying value of mining and recovery assets, goodwill, reclamation and remediation obligations and depreciation and impairment. The Company filed joint S-K 1300/NI 43-101 reports for the following properties in March 2022 to replace the previous NI 43-101 reports: Sheep Mountain, Nichols Ranch, Alta Mesa, Pinyon Plain, Roca Honda, Bullfrog and La Sal. This resulted in the following material adjustments to the Mineral Reserve and Mineral Resource estimates compared to the estimates set out in the Company’s Form 10-K for the year ended December 31, 2020:
•Nichols Ranch: the Measured Mineral Resources decreased from 784,000 pounds of U3O8 to 41,000 pounds of U3O8; the Indicated Mineral Resources increased from 5,501,000 pounds of U3O8 to 6,142,000 pounds of U3O8; the Inferred Mineral Resources remained essentially unchanged; the total Mineral Resources remained essentially unchanged at approximately 7,359,000 pounds of U3O8; and the average grade of the Mineral Resources decreased from 0.112% U3O8 to 0.105% U3O8;
•Roca Honda: the Measured Mineral Resources remained unchanged at 1,984,000 pounds of U3O8; the Indicated Mineral Resources increased from 12,580,00 pounds of U3O8 to 15,368,000 pounds of U3O8; the Inferred Mineral Resources increased from 11,206,000 pounds of U3O8 to 13,842,000 pounds of U3O8; the total Mineral Resources increased from 25,770,000 pounds of U3O8 to 31,464,000 pounds of U3O8; and the average grade of the Mineral Resources decreased slightly from 0.476% U3O8 to 0.471% U3O8;
•Bullfrog: the Measured Mineral Resources remained unchanged at 0.0 pounds of U3O8; the Indicated Mineral Resources increased from 4,670,000 pounds of U3O8 to 9,100,000 pounds of U3O8; the Inferred Mineral Resources decreased from 5,330,000 pounds of U3O8 to 2,010,000 pounds of U3O8; the total Mineral Resources increased from 10,000,000 pounds of U3O8 to 11,110,000 pounds of U3O8; and the average grade of the Mineral Resources decreased from 0.34% U3O8 to 0.28% U3O8;
•La Sal: the Measured Mineral Resources (uranium) decreased from 3,732,000 pounds of U3O8 to 0.0 pounds of U3O8; the Indicated Mineral Resources (uranium) decreased from 367,000 pounds of U3O8 to 0.0 pounds of U3O8; the Inferred Mineral Resources (uranium) increased from 362,000 pounds of U3O8 to 4,281,000 pounds of U3O8; the total uranium Mineral Resources decreased slightly from 4,461,000 pounds of U3O8 to 4,281,000 pounds of U3O8; and the average grade of the uranium Mineral Resources increased from 0.17% U3O8 to 0.26% U3O8;
•La Sal: the Measured Mineral Resources (vanadium) decreased from 19,596,000 pounds of V2O5 to 0.0 pounds of V2O5; the Indicated Mineral Resources (vanadium) decreased from 1,930,000 pounds of V2O5 to 0.0 pounds of V2O5; the Inferred Mineral Resources (vanadium) increased from 1,902,000 pounds of V2O5 to 17,746,000 pounds of V2O5; the total vanadium Mineral Resources decreased from 23,428,000 pounds of V2O5 to 17,746,000 pounds of V2O5; and the average grade of the vanadium Mineral Resources increased from 0.94% V2O5 to 1.08% V2O5;
•The Mineral Resources attributed to the properties sold to CUR: the Tony M Mine, Daneros Mine and Rim Mine, (see Part I, Item 1, “Development of the Business: Major Transactions over the Past Five Years”), were included in the Company’s Mineral Resource estimates for 2020 but are not included in the Company’s Mineral Resource estimates for 2021.
Mineral Resources reported for non-material properties in 2020 were not covered by the joint S-K 1300/NI-43-101 reports and were therefore not reported in 2021.
The 2022 Mineral Resources reported for Nichols Ranch include the Nichols Ranch Property, the Jane Dough Property, the Hank Property and the North Rolling Pin Property. Previous Mineral Resources (2021 and prior) reported for Nichols Ranch did not include the North Rolling Pin property.
There was no material change to the Mineral Resources/Mineral Reserves associated with Sheep Mountain, or to the Mineral Resources at Alta Mesa or Pinyon Plain.
c. Depreciation of mining and recovery assets acquired
For mining and recovery assets actively extracting and recovering uranium we depreciate the acquisition costs of the mining and recovery assets on a straight-line basis over our estimated lives of the mining and recovery assets. The process of estimating the useful life of the mining and recovery assets requires significant judgment in evaluating and assessing available geological, geophysical, engineering and economic data, projected rates of extraction and recovery, estimated commodity price forecasts and the timing of future expenditures, all of which are, by their very nature, subject to interpretation and uncertainty.
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Changes in these estimates may materially impact the carrying value of the Company’s mining and recovery assets and the recorded amount of depreciation.
d. Impairment testing of mining and recovery assets
The Company undertakes a review of the carrying values of its mining and recovery assets whenever events or changes in circumstances indicate that their carrying values may exceed their estimated net recoverable amounts determined by reference to estimated future operating results and net cash flows. An impairment loss is recognized when the carrying value of a mining or recovery asset is not recoverable based on this analysis. In undertaking this review, the management of the Company is required to make significant estimates of, among other things, future production and sale volumes, forecasted commodity prices, future operating and capital costs and reclamation costs to the end of the mining asset’s life. These estimates are subject to various risks and uncertainties, which may ultimately have an impact on the expected recoverability of the carrying values of mining and recovery assets.
e. Asset retirement obligations
Asset retirement obligations are recorded as a liability when an asset that will require reclamation and remediation is initially acquired. For disturbances created on a property owned that will require future reclamation and remediation the Company records asset retirement obligations for such disturbance when occurred. The Company has accrued its best estimate of its share of the cost to decommission its mining and milling properties in accordance with existing laws, contracts and other policies. The estimate of future costs involves a number of estimates relating to timing, type of costs, mine closure plans, and review of potential methods and technical advancements. Furthermore, due to uncertainties concerning environmental remediation, the ultimate cost of the Company’s decommissioning liability could differ from amounts provided. The estimate of the Company’s obligation is subject to change due to amendments to applicable laws and regulations and as new information concerning the Company’s operations becomes available. The Company is not able to determine the impact on its financial position, if any, of environmental laws and regulations that may be enacted in the future. Additionally, the expected cash flows in the future are discounted at the Company’s estimated cost of capital based on the periods the Company expects to complete the reclamation and remediation activities. Differences in the expected periods of reclamation or in the discount rates used could have a material difference in the actual settlement of the obligations compared with the amounts provided.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to risks associated with commodity prices, interest rates and credit. Commodity price risk is defined as the potential loss that we may incur as a result of changes in the market value of uranium, vanadium, and REEs. Interest rate risk results from our debt and equity instruments that we issue to provide financing and liquidity for our business. Credit risk arises from the extension of credit throughout all aspects of our business. Industry-wide risks can also affect our general ability to finance exploration, and development of exploitable resources; such effects are not predictable or quantifiable. Market risk is the risk to the Company of adverse financial impact due to change in the fair value or future cash flows of financial instruments as a result of fluctuations in interest rates and foreign currency exchange rates.
Commodity Price Risk
Our profitability is directly related to the market price of uranium, vanadium and REEs recovered. We may, from time to time, undertake commodity and currency hedging programs, with the intention of maintaining adequate cash flows and profitability to contribute to the long-term viability of the business. We anticipate selling forward in the ordinary course of business if, and when, we have sufficient assets and recovery to support forward sale arrangements, and forward sale arrangements are available on suitable terms. There are, however, risks associated with forward sale programs. If we do not have sufficient recovered product to meet our forward sale commitments, we may have to buy or borrow (for later delivery back from recovered product) sufficient product in the spot market to deliver under the forward sales contracts, possibly at higher prices than provided for in the forward sales contracts, or potentially default on such deliveries. In addition, under forward contracts, we may be forced to sell at prices that are lower than the prices that may be available on the spot market when such deliveries are completed. Although we may employ various pricing mechanisms within our sales contracts to manage our exposure to price fluctuations, there can be no assurance that such mechanisms will be successful. There can also be no assurance that we will be able to enter into term contracts for future sales of uranium, vanadium or RE Carbonate at prices or in quantities that would allow us to successfully manage our exposure to price fluctuations.
All the Company’s existing long-term contracts expired following the Company’s 2018 deliveries, and all uranium sales after 2018 will be required to be made at spot prices until the Company enters into new long-term contracts at satisfactory prices in the future. Future revenue will be affected by both spot and long-term U3O8 price fluctuations which are beyond our control, including: the demand for nuclear power; political and economic conditions; governmental legislation in uranium producing
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and consuming countries; and production levels and costs of production of other producing companies. The Company continuously monitors the market to determine its level of extraction and recovery of uranium in the future.
Interest Rate Risk
The Company is exposed to interest rate risk on its cash equivalents, deposits, and restricted cash. The Company does not use derivatives to manage interest rate risk. Our interest income is earned in United States dollars and is not subject to currency risk.
Currency Risk
The foreign exchange risk relates to the risk that the value of financial commitments, recognized assets or liabilities will fluctuate due to changes in foreign currency rates. The Company does not use any derivative instruments to reduce its exposure to fluctuations in foreign currency exchange rates. As the U.S. Dollar is the functional currency of our U.S. operations, the currency risk has been reduced. We maintain a nominal balance in Canadian dollars, resulting in a low currency risk relative to our cash balances.
The following table summarizes, in United States dollar equivalents, the Company’s major foreign currency (Cdn$) exposures as of December 31, 2021 ($000):
Cash and cash equivalents $ 737
Accounts payable and accrued liabilities 356
The table below summarizes a sensitivity analysis for significant unsettled currency risk exposure with respect to our financial instruments as of December 31, 2021 with all other variables held constant. It shows how net income would have been affected by changes in the relevant risk variables that were reasonably possible at that date ($000).
Strengthening net earnings +1% change in US dollar / Cdn$ $ 14
Weakening net earnings -1% change in US dollar / Cdn$ $ (14)
Credit Risk
Credit risk relates to cash and cash equivalents, trade, and other receivables that arise from the possibility that any counterparty to an instrument fails to perform. The Company primarily transacts with highly rated counterparties and a limit on contingent exposure has been established for any counterparty based on that counterparty’s credit rating. As of December 31, 2021, the Company’s maximum exposure to credit risk was the carrying value of cash and cash equivalents and trade and note receivables.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ENERGY FUELS INC.
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021
Contents
Financial Statements:
Notes to the Consolidated Financial Statements 159
149
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Energy Fuels Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Energy Fuels, Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive income (loss), changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 15, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of credit adjusted risk free interest rate and inflation rate
As discussed in Note 10 to the consolidated financial statements, the Company recorded an asset retirement obligation (ARO) liability of $13.6 million as of December 31, 2021. The ARO includes estimates of future costs to decommission its mines and mill. The estimate of future costs involves estimates relating to timing, planned decommissioning activities, the credit adjusted risk free interest rate and the inflation rate.
We identified the evaluation of the credit adjusted risk free interest rate and inflation rate as a critical audit matter. Valuation professionals with specialized skills and knowledge were required to evaluate the
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Company’s determination of the credit adjusted risk free interest rate and inflation rate as the ARO liability was sensitive to minor changes in these assumptions.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s ARO process, including controls over the Company’s determination of the credit adjusted risk free interest rate and inflation rate. We tested the determination of the credit adjusted risk free rate and inflation rate used to develop the ARO liability by inquiring of management and reviewing management’s source data and documentation to determine the credit adjusted risk free interest rate and inflation rate. We involved valuation professionals with specialized skills and knowledge who assisted in:
•comparing the Company’s determination of the credit adjusted risk free interest rate to a range of credit adjusted risk free interest rates independently developed using publicly available market data
•comparing the Company’s determination of the inflation rate to published market data on inflation.
/s/ KPMG LLP
We have served as the Company’s auditor since 2017.
Denver, Colorado
March 15, 2022
151
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Energy Fuels Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Energy Fuels Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive income (loss), changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated March 15, 2022 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Denver, Colorado
March 15, 2022
152
ENERGY FUELS INC.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Expressed in thousands of U.S. dollars, except per share amounts)
Years ended December 31,
Revenues
Rare Earth concentrates $ 1,385 $ — $ —
Vanadium concentrates 74 — 2,237
Uranium concentrates — — 66
Alternate Feed Materials processing and other 1,725 1,658 3,562
Costs and expenses applicable to revenues
Costs and expenses applicable to Rare Earth concentrates 1,235 — —
Costs and expenses applicable to Vanadium concentrates 48 — 1,805
Costs and expenses applicable to Uranium concentrates — — 63
Costs and expenses applicable to Alternate Feed Materials and other — — 2,079
Total costs and expenses applicable to revenues 1,814 — 3,947
Other operating costs
Gain on disposal of non-core assets (Note 8) 35,733 — —
Items that may be reclassified in the future to profit and loss
Foreign currency translation adjustment (365) (681) (854)
Net income (loss) attributable to:
Non-controlling interests (93) (96) (116)
Comprehensive income (loss) attributable to:
Non-controlling interests (93) (96) (116)
Basic net income (loss) per common share $ 0.01 $ (0.23) $ (0.40)
Diluted net income (loss) per common share $ 0.01 $ (0.23) $ (0.40)
See accompanying notes to the consolidated financial statements.
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ENERGY FUELS INC.
Consolidated Balance Sheets
(Expressed in thousands of U.S. dollars, except share amounts)
ASSETS
Current assets
Prepaid expenses and other assets 1,568 1,313
Operating lease right of use asset 408 662
Investments accounted for at fair value 38,538 779
LIABILITIES & EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 5,764 $ 3,321
Current portion of operating lease liability 324 289
Current portion of warrant liabilities — 8,573
Current portion of asset retirement obligation 27 131
Operating lease liability 145 469
Equity
Accumulated other comprehensive income 1,943 2,308
Commitments and contingencies (Note 18)
See accompanying notes to the consolidated financial statements.
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ENERGY FUELS INC.
Consolidated Statements of Changes in Equity
(Expressed in thousands of U.S. dollars, except share amounts)
Shares Amount
Other comprehensive loss — — — (854) (854) — (854)
Shares issued for the vesting of restricted stock units 850,150 — — — — — —
Shares issued for exercise of warrants 1,450 5 — — 5 — 5
Contributions attributable to non-controlling interest — — — — — 46 46
Other comprehensive loss — — — (681) (681) — (681)
Shares issued for the vesting of restricted stock units 490,453 — — — — — —
Shares issued for exercise of warrants 200 1 — — 1 — 1
Contributions attributable to non-controlling interest — — — — — 133 133
Other comprehensive loss — — — (365) (365) — (365)
Shares issued for the vesting of restricted stock units 478,781 — — — — — —
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Shares issued for exercise of stock appreciation rights 5,643 — — — — — —
Contributions attributable to non-controlling interest — — — — — 311 311
See accompanying notes to the consolidated financial statements.
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ENERGY FUELS INC.
Consolidated Statements of Cash Flows
(Expressed in thousands of U.S. dollars)
Years ended December 31,
OPERATING ACTIVITIES
Items not involving cash:
Gain on disposal of non-core assets (35,733) — —
Change in value of Convertible Debentures — (156) (291)
Unrealized foreign exchange (gain) loss 129 (1,045) 78
Revision and settlement of asset retirement obligation (369) (7,845) (1,421)
Changes in assets and liabilities
(Increase) decrease in trade and other receivables (1,249) 192 (63)
(Increase) decrease in prepaid expenses and other assets (257) 149 12
Changes in deferred revenue — — (2,724)
INVESTING ACTIVITIES
Purchase of property, plant and equipment (1,368) (627) —
Disposal of non-core assets 2,000 — —
FINANCING ACTIVITIES
Proceeds from notes payable — — 801
Cash received from exercise of stock options 2,375 491 146
Cash received from exercise of warrants 9,840 — 5
Repayment of loans and borrowings — (16,015) (317)
Cash received from non-controlling interest 311 133 46
Effect of exchange rate fluctuations on cash held in foreign currencies 5 107 43
Net change in cash, cash equivalents and restricted cash 91,837 8,094 (1,401)
Non-cash investing and financing transactions:
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Issuance of common shares to settle liabilities — — 847
Issuance of common shares for consulting services 242 188 208
Supplemental disclosure of cash flow information:
Net cash paid during the period for:
Warrant liability transferred to equity upon exercise — — 2
See accompanying notes to the consolidated financial statements.
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ENERGY FUELS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 2021
(Tabular amounts expressed in thousands of U.S. Dollars except share and per share amounts)
1. THE COMPANY AND DESCRIPTION OF BUSINESS
Energy Fuels Inc. was incorporated under the laws of the Province of Alberta and was continued under the Business Corporations Act (Ontario).
The Company is engaged in uranium extraction, recovery and sales of uranium from mineral properties and the recycling of uranium bearing materials generated by third parties. As a part of these activities the Company also acquires, explores, evaluates and, if warranted, permits uranium properties. The Company’s final uranium product, U3O8, is sold to customers for further processing into fuel for nuclear reactors. The Company also produces vanadium, along with uranium at its White Mesa Mill, from certain of its Colorado Plateau properties as market conditions warrant and at times from solutions in its Mill tailings impoundment system. The Mill is also currently ramping up to commercial production of RE Carbonate from various uranium- and REE-bearing ores acquired from 3rd parties, and is additionally evaluating the potential to recover radioisotopes from its existing process streams for use in targeted alpha therapeutics to treat cancer.
The Company is a “development stage issuer” as defined by S-K 1300, as it is engaged in the preparation of Mineral Reserves for the extraction on at least one material property.
Energy Fuels is engaged in conventional and ISR uranium extraction and recovery, along with the exploration, permitting and evaluation of uranium properties in the United States.
Mining activities
Mining activities consist of the Mill, conventional mining projects and two ISR mining projects (complete with two ISR recovery facilities on standby and two wellfields). The conventional projects are located at the Colorado Plateau, Bullfrog, Arizona Strip, and Roca Honda Projects, all of which are in the vicinity of the Mill, in addition to the Sheep Mountain Project located in Wyoming. ISR projects include the Nichols Ranch Project (which includes the Jane Dough Property and the Hank Satellite Plant) located in Wyoming and the Alta Mesa ISR Project (the “Alta Mesa Project”) located in Texas, both of which are on standby.
At December 31, 2021, other than evaluation work and infrastructure improvements and development at the Company’s Pinyon Plain Project, the conventional mining projects in the vicinity of the Mill and Sheep Mountain are on standby, and are being evaluated for continued mining activities and/or are in the process of being permitted. The Mill has completed its most recent vanadium campaign, continues to process third-party uranium-bearing mineralized materials from mining and recycling activities, such as the Mill’s alternate feed program, and continues to expand its U.S.-based REE initiatives and develop its cancer therapeutics initiatives.
2. BASIS OF PRESENTATION
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and are presented in thousands of U.S. dollars (“USD”), except for share and per share amounts. Certain footnote disclosures, where indicated, have share prices that are presented in Canadian dollars (“Cdn$”).
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The Company’s consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of the Company's consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. The more significant areas requiring the use of management estimates and assumptions relate to expectations of the future price of uranium and estimates of recoverable mineral resources that are the basis for future cash flow estimates utilized in assessing fair value for business combinations and
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impairment calculations; the determination of whether an acquisition represents a business combination or an asset acquisition; the use of management estimates and assumptions related to environmental, reclamation and closure obligations; marketable securities and derivative instruments; and share-based compensation expense. Actual results may differ significantly from these estimates.
Basis of consolidation
These consolidated financial statements include the accounts of the Company together with subsidiaries controlled by the Company. Intercompany transactions, balances and unrealized gains on transactions between the Company and its subsidiaries are eliminated. The functional currency of the Company’s operations is the USD.
Extracting and recovery activities while in the development stage
The Company extracts or recovers mineralized uranium from mining activities, mill tailings pond solutions, and Alternate Feed Materials, resulting in saleable uranium concentrates from its Mill and, when operating, its Nichols Ranch and Alta Mesa ISR Projects. While the Company has established the existence of multiple Mineral Resources and extracts and processes saleable uranium from these operations, the Company has only established proven or probable Mineral Reserves, as defined under SEC S-K 1300, at its Sheep Mountain Project.
While now in a development stage, the Company continues to expense most amounts that would normally be capitalized and subsequently depreciated or depleted over the life of Mineral Reserve-based mining operations on its material properties having only Mineral Resources. Items such as the construction of wellfields and related header houses, additions to recovery facilities and advancement of properties are expensed in the period incurred. As a result, the Company’s consolidated financial statements may not be directly comparable to the financial statements of mining companies in the development stage having multiple Mineral Reserves or in the production stage.
The Mill, and certain conventional mining projects in the vicinity of the Mill, and the Nichols Ranch Project (collectively the “Extracting and Recovery Operations”) were acquired in two unrelated business combinations. These Extracting and Recovery Operations were recorded at fair value on the date of the respective acquisition and included estimated values which included valuing these assets utilizing the Company’s estimate of future market prices of uranium and expected recoveries of uranium. The values determined included estimated cash flows associated with value beyond proven and probable reserves to develop, extract and recover the estimated saleable uranium concentrates from these operations.
The fair value of the Extracting and Recovery Operations recorded on the acquisition date is depreciated on a straight-line basis over the estimated useful life of the components of the operation since the Extracting and Recovery Operations do not have proven or probable reserves. Accordingly, all expenditures incurred subsequent to the acquisition dates relating to the preparation of properties for mineral extraction, expansion of or additions to the Extracting and Recovery Operations are expensed as incurred. This includes expenditures relating to activities such as preparing properties for mineral extraction, construction of mine wellfields, header houses and disposal wells, and additions to the recovery facilities are expensed as incurred as no proven or probable reserves have been established for these uranium projects.
Impairment of assets
The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Mineral properties are monitored for impairment based on factors such as mineral prices, government regulation and taxation, the Company's continued right to explore the area, exploration reports, assays, technical reports, drill results and its continued plans to fund exploration programs on the property.
At each reporting date, the Company reviews its assets to determine whether there is any indication of impairment. If any such indication exists, the asset is tested for impairment. Impairment losses are recognized in profit or loss.
Recoverability is measured by comparing the undiscounted future net cash flows to the net book value. When the net book value exceeds future net undiscounted cash flows, the fair value is compared to the net book value and an impairment loss may be measured and recorded based on the excess of the net book value over fair value. Fair value for operating mines is determined using a combined approach, which uses a discounted cash flow model for the existing operations and non-operating properties with available cash flow models and a market approach for the fair value assessment of non-operating and exploration properties where no cash flow model is available. Future cash flows are estimated based on quantities of recoverable mineralized material, expected uranium prices (considering current and historical prices, trends and estimates), production levels, operating costs, capital requirements and reclamation costs, all based on life-of-mine plans. In estimating future cash flows, assets are grouped at the lowest level, for which there are identifiable cash flows that are largely independent of future cash flows from other asset groups. The Company's estimates of future cash flows are based on numerous assumptions, and it is possible that actual future cash flows will be significantly different than the estimates, as actual future
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quantities of recoverable minerals, uranium prices, production levels, costs and capital are each subject to significant risks and uncertainties.
Cash and cash equivalents
Cash and cash equivalents consist of all cash balances and highly liquid investments with an original maturity of three months or less. Because of the short maturity of these investments, the carrying amounts approximate their fair value. Restricted cash is excluded from cash and cash equivalents and is included in other current or long-term assets, depending on the nature of the restriction. See Note 10 for further discussion of restricted cash.
Marketable securities
Marketable debt securities consist of excess cash invested in U.S. government notes, U.S. government agencies and tradeable certificates of deposits. We have classified and accounted for our marketable debt securities as available-for-sale. After consideration of our risk versus reward objectives, as well as our liquidity requirements, we may sell these debt securities prior to their stated maturities. As we view these securities as available to support current operations, we classify highly liquid securities with maturities beyond 12 months as current assets under the caption marketable securities on the Consolidated Balance Sheet. Subsequent to initial recognition, they are measured at fair value and changes therein, are recognized as a component of other (loss) income in the Consolidated Statements of Operations and Comprehensive Income (Loss).
Marketable equity securities consist of investments in publicly traded equity securities. We have classified and accounted for our marketable equity securities as available for sale. Subsequent to initial recognition, they are measured at fair value and changes therein are recognized as a component of other (loss) income in the Consolidated Statements of Operations and Comprehensive Income (Loss).
Accounts Receivables
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company evaluates its estimate of expected credit losses based on historical experience and current and forecasted future economic conditions for each portfolio of customers. As of December 31, 2021 and 2020, the Company did not have an allowance for expected credit losses for trade accounts receivable.
Investments at fair value
The Company accounts for investments over which the Company exerts significant influence, but not control, over the financial and operating policies through the fair value option of ASC Topic 825 – Financial Instruments. The Company elects the fair value option based on practical expedience, variances in reporting timelines, and cost-benefit considerations. The cost of such investments is measured at the fair value of the assets given up, shares issued, or liabilities assumed at the date of acquisition plus costs directly attributable to the acquisition. Subsequent to initial recognition, they are measured at fair value. The fair value of the investee’s Common Shares is measured based on its closing market price. The Company uses the Black-Scholes option pricing model to estimate the fair value of its investment in warrants with the following assumptions: (i) the investee’s closing market price on the valuation date, (ii) the risk-free interest rate computed based on the U.S. Treasury yield, (iii) an expected term equal to the remaining contractual term, (iv) a dividend yield of zero, and (v) the expected stock price volatility calculated based on the historical volatility of the Common Shares of the investee. Changes in the fair value of these investments are recognized in Other income (loss) in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss). At December 31, 2021 and 2020, investments at fair value included the Company's 14.8% and 16.5% investment in Virginia Energy Resources Inc. (“Virginia Energy”), respectively, and at December 31, 2021, also included the Company’s 19.1% investment in CUR.
Inventories
Expenditures related to the extraction and recovery of uranium concentrates and depreciation of the acquisition cost of the Extracting and Recovery Operations are inventoried as stockpiles and in-process and concentrate inventories.
Stockpiles are comprised of uranium or uranium/vanadium bearing materials that have been extracted from properties and are available for further processing. Extraction costs are added to the stockpile as incurred and removed from the stockpile based upon the average cost per ton of material extracted. The current portion of material in stockpiles represents the amount expected to be processed in the next twelve months.
In-process and concentrate inventories include the cost of the material processed from the stockpile, as well as production costs incurred to extract uranium-bearing fluids from the wellfields, and all costs to recover the uranium into concentrates or process through the Mill. Finished uranium concentrate inventories also include costs of any finished product purchased from the
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market. Recovery costs typically include labor, chemical reagents and directly attributable mill and plant overhead expenditures.
Materials and other supplies held for use in the recovery of uranium and vanadium concentrates are added to the costs of inventories when consumed in the uranium extraction process.
Inventories are valued at the lower of average cost or net realizable value.
Property, plant and equipment
a. Recognition and measurement
Property, plant and equipment are measured at cost less accumulated depreciation, and any accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, when it is replaced, and the cost of the replacement asset is expensed.
b. Depreciation and amortization
Depreciation and amortization are calculated on a straight-line basis to their estimated residual value over an estimated useful life which ranges from 3 to 15 years depending upon the asset type. When assets are retired or sold, the resulting gains or losses are reflected in current earnings as a component of other income or expense. Residual values, method of depreciation and useful lives of the assets are reviewed at least annually and adjusted if appropriate.
Where straight-line depreciation is utilized, the range of useful lives for various asset classes is generally as follows:
Buildings 12 - 15 years
Storage tanks 15 years
Shop tools and equipment 3 - 5 years
Mining equipment 5 years
Office equipment 4 - 5 years
Furniture and fixtures 5 - 7 years
Light trucks and utility vehicles 5 years
The amortization method, residual values, and useful lives of property, plant and equipment are reviewed annually, and any change in estimate is applied prospectively.
Non-operating assets
Non-operating assets consist of mineral properties and rights, along with data and analyses related to the properties, which are in various stages of evaluation and permitting. Costs to acquire the non-operating assets are capitalized at cost or fair value if such assets were a part of a business combination.
Mining activities for non-operating assets involve the search for minerals, the determination of technical feasibility and the assessment of commercial viability of an identified resource. Expenditures incurred in relation to such mining activities include costs which are directly attributable to researching and analyzing existing exploration data; conducting geological studies, exploratory drilling and sampling; examining and testing extraction and treatment methods; and completing pre-feasibility and feasibility studies. Such expenditures are expensed as incurred.
Mineral properties, that are not held for production, and any related surface access to the minerals generally require periodic payments and/or certain expenditures related to the property in order for the Company to retain its interest in the mineral property (collectively, “Holding Costs”). The Company expenses all Holding Costs in the period they are incurred.
Stand-by properties
Stand-by properties are mineral properties that have extracted mineral resources in the past but are currently non-operating or properties which could extract mineral resources in the future. Expenditures related to these properties are primarily related to maintaining the assets and permits in a condition that will allow re-start of the operations or development given appropriate commodity prices. All costs related to stand-by assets are expensed as incurred.
The Mill operates on a campaign basis. When the Mill is not recovering material, all related costs are expensed as incurred.
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Leases
The Company accounts for leases under ASU 2016-02 which requires leases to be recognized as assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. The Company recognizes in the balance sheet a liability to make lease payments (the lease liability) and the right-of-use asset representing the right to the underlying asset for the lease term. For leases with a term of twelve months or less, the Company has made an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. See Note 15 for further discussion.
Asset retirement obligations
The Company’s asset retirement obligations (“ARO”) relate to expected mine, wellfield, plant and mill reclamation and closure activities, as well as costs associated with reclamation of exploration drilling. The Company’s activities are subject to numerous governmental laws and regulations. Estimates of future reclamation liabilities for ARO are recognized in the period when such liabilities are incurred. These estimates are updated on a periodic basis and are subject to changing laws, regulatory requirements, changing technology and other factors which will be recognized when appropriate. Liabilities related to site restoration include long-term treatment and monitoring costs and incorporate total expected costs net of recoveries. Expenditures incurred to dismantle facilities, restore and monitor closed resource properties are charged against the related ARO.
As the Company has no proven or probable reserves, such costs, discounted to their present value, are expensed as soon as the obligation to incur such costs arises. The present value of AROs is measured by discounting the expected cash flows using a discount factor that reflects the credit-adjusted risk-free rate of interest, while taking into account an inflation rate. The decommissioning liability is accreted to full value over time through periodic accretion charges recorded to operations as accretion expense. The Company adjusts the estimate of the ARO for changes in the amount or timing of underlying future cash outflows. The impact of these adjustments to the ARO amounts are expensed as incurred.
Loans and borrowings
The Company's Convertible Debentures, all of which were redeemed in 2020, are recognized at fair value through the fair value option based on the closing price on the TSX and changes are recognized in earnings as a component of other income (expense). The Company’s interest-bearing loans and borrowings are measured at amortized cost using the effective interest method.
Warrant liabilities
The Company issued several tranches of warrants for various equity transactions in 2016 all of which were either settled or expired in 2021 and thus no longer outstanding as of December 31, 2021. The Company accounts for its warrants issued in accordance with the U.S. GAAP accounting guidance under FASB ASC Topic 815 Derivative and Hedging (“ASC 815”) which requires instruments within its scope to be recorded on the balance sheet as either an asset or liability measured at its fair value, with changes in fair value recognized in earnings. In accordance with ASC 815, the Company has classified the warrants as liabilities. The warrants are subject to re-measurement at each balance sheet date, with any change in fair value recognized as a component of other income (expense), net in the Consolidated Statements of Operations and Comprehensive Income (Loss). The Company estimates the fair value of these warrants using market prices, if available, or the Black-Scholes option pricing model. The Black-Scholes option pricing model is based on the estimated market value of the underlying common stock at the measurement date, the remaining contractual term of the warrant, risk-free interest rates and expected dividends on, and expected volatility of the price of the underlying common stock.
Revenue
a. Sale of goods
Revenue from the sale of mineral concentrates is recognized when it is probable that the economic benefits will flow to the Company and delivery has occurred, title has transferred, the sales price and costs incurred with respect to the transaction can be measured reliably, and collectability is reasonably assured. For uranium concentrates, revenue is typically recognized when delivery is evidenced by book transfer at the applicable uranium storage facility. For vanadium concentrates, revenue is typically recognized when delivery is evidenced by book transfer at the applicable vanadium storage facility. For rare earth concentrates, revenue is typically recognized when delivery of the mixed RE Carbonate material has arrived at the applicable separations facility.
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b. Rendering of services
Revenue from the delivery of mineralized material received from the clean-up of a third-party uranium mine or for other Alternate Feed Materials is typically recognized upon delivery to the White Mesa Mill. Revenue from toll milling services is recognized as material is processed in accordance with the specifics of the applicable toll milling agreement. Revenue and unbilled accounts receivable are recorded as related costs are incurred using billing formulas included in the applicable toll milling agreement. Deferred revenues represent proceeds received from processing of toll materials where the Company has not delivered the material to the customer.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.
Share-based compensation
The Company records share-based compensation awards exchanged for employee services at fair value on the date of the grant and expenses the awards in the Consolidated Statements of Operations and Comprehensive Income (Loss) over the requisite employee service period. The fair value of stock options is determined using the Black-Scholes valuation model. The fair value of RSUs is based on the Energy Fuels’ stock price on the date of grant. The fair value of SARs with performance conditions is based on a Monte Carlo simulation performed by a third-party valuation firm. Share-based compensation expense related to awards with only service conditions having a graded vesting schedule is recorded on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards, while expense for all other awards are recognized on a straight-line basis. The Company’s estimates may be impacted by certain variables including, but not limited to, stock price volatility, employee stock option exercise behaviors, additional stock option grants, estimates of forfeitures, the Company's performance, and related tax impacts.
Foreign currency
Transactions in foreign currencies are translated to the respective functional currency of the Company’s subsidiaries and joint ventures at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rate as of the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated to the functional currency at the exchange rate when the fair value was determined. Foreign currency differences are generally recognized in profit or loss. Non-monetary items that are measured based on historical cost in a foreign currency are not translated.
The assets and liabilities of entities whose functional currency is not the U.S. dollar are translated into the U.S. dollar at the exchange rate as of the reporting date. The income and expenses of such entities are translated into the U.S. dollar using average exchange rates for the reporting period. Exchange differences on foreign currency translations are recorded in other comprehensive income (loss). The Company’s functional currency is the U.S. dollar.
Income taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recorded based on differences between the financial statement carrying values of existing assets and liabilities and their respective income tax bases (temporary differences), and losses carried forward. Deferred income tax assets and liabilities are measured using the enacted tax rates which will be in effect when the temporary differences are likely to reverse. The effect on deferred income tax assets and liabilities of a change in tax rates is included in operations in the period in which the change is enacted.
The Company records a valuation allowance to reduce deferred income tax assets to the amount that is believed more likely than not to be realized. When the Company concludes that all or part of the deferred income tax assets are not realizable in the future, the Company makes an adjustment to the valuation allowance that is charged to income tax expense in the period such determination is made.
Net income (loss) per share
The Company presents basic and diluted income (loss) per share data for its Common Shares, calculated by dividing the income (loss) attributable to common shareholders of the Company by the weighted average number of Common Shares outstanding during the period. Diluted income (loss) per share is determined by adjusting the income (loss) attributable to common shareholders and the weighted average number of Common Shares outstanding for the effects of all potential dilutive instruments.
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Recently Adopted Accounting Pronouncements
Non-employee Share-Based Payment
In June 2018, the FASB issued ASU 2018-07, which more closely aligns the accounting for non-employee share-based payment transactions to the guidance for awards to employees except for specific guidance on certain inputs to an option-pricing model and the attribution of cost. The Company adopted this standard effective January 1, 2019 and adoption did not have a significant impact on our net earnings.
Fair Value Measurement
In August 2018, the FASB issued ASU 2018-13, which amended the fair value measurement guidance by removing and modifying certain disclosure requirements, while also adding new disclosure requirements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty would be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments would be applied retrospectively to all periods presented upon their effective date. The Company adopted this pronouncement effective January 1, 2020.
Income Taxes - Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12, “Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740),” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 will be effective for interim and annual periods beginning after December 15, 2020 (January 1, 2021 for the Company). Early adoption is permitted. The Company has evaluated the impact the of the adoption of ASU 2019-12 and it does not have an impact on its consolidated financial statements, and may not have an impact until such a time that the Company incurs income tax expenses.
Financial Instruments - Credit Losses
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326).” The standard replaces the incurred loss impairment methodology under current U.S. GAAP with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. The standard requires a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The new standard is effective for non-public companies, and public business entities that meet the definition of a smaller reporting company as defined by the SEC, for interim and annual periods beginning after December 15, 2022. On December 31, 2021, the Company became a large accelerated filer, as defined by the SEC, and, as a result, adopted this guidance effective January 1, 2021. The adoption of the standard did not have a material impact on the Company’s consolidated financial statements.
4. MARKETABLE SECURITIES
The following tables summarize our marketable securities by significant investment categories as of December 31, 2021:
Cost Basis Gross Unrealized Losses Gross Unrealized Gains Fair Value
Marketable equity securities $ 756 $ (262) $ — $ 494
The following tables summarize our marketable securities by significant investment categories as of December 31, 2020:
Cost Basis Gross Unrealized Losses Gross Unrealized Gains Fair Value
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5. RECEIVABLES
During the year ended December 31, 2014, the Company received two notes with a combined principal totaling $1.05 million due in 2018 in connection with the sale of certain assets previously recorded as held for sale. The note with principal totaling $0.50 million was collected during the year ended December 31, 2018. Alternatively, the note with a principal payment of $0.55 million due November 7, 2018 was not paid and the Company notified the issuing party (“Default Party”) of its default on November 9, 2018. The Company has an allowance for credit losses of $0.22 million as of December 31, 2021 (2020 - $0.22 million) against the collectability of this note. The promissory note is secured by all issued and outstanding stock and all of the assets sold to the default party.
The Company has $1.75 million in Other receivables as of December 31, 2021 with $1.68 million due from CUR pursuant to the terms of the asset purchase agreement related to the sale of certain non-core conventional uranium projects and resulting deferred cash payments, and pursuant to the terms of the ongoing operating agreement with CUR. Refer to Notes 7 and 8 for further detail related to the Company's transactions with CUR.
6. INVENTORIES
Inventory of ore in stockpiles 351 241
Raw materials and consumables 4,170 2,912
Inventories - by duration
Long term - raw materials and consumables 1,368 1,346
(1)For the year ended December 31, 2021, the Company recorded an impairment loss of nil in the Consolidated Statement of Operations and Comprehensive Income (Loss) related to concentrates and work in progress inventories (December 31, 2020 - $1.64 million).
7. INVESTMENTS ACCOUNTED FOR AT FAIR VALUE
Investments accounted for at fair value includes the Company’s 14.8% investment in Virginia Energy which was $6.31 million and $0.78 million at December 31, 2021 and 2020, respectively. The Company recognized a gain of $5.59 million related to this investment in Other income (loss) in the Consolidated Statement of Operations and Comprehensive Income (Loss) for the year ended December 31, 2021.
On October 27, 2021, the Company obtained a 19.9% ownership interest in CUR as further described in Note 8. The investment provides the Company the ability to have significant influence, but not control, over CUR’s operations. The Company elected the fair value option to account for its investment in CUR Common Shares and warrants. Absent this election, the Company would have been required to account for the investment under the equity method. As of December 31, 2021, the fair value of the Company’s investment in CUR is $32.23 million. The Company recognized a gain of $0.72 million related to this investment in Other income (loss) in the Consolidated Statement of Operations and Comprehensive Income (Loss) for the year ended December 31, 2021. At December 31, 2021, the Company held a 19.1% ownership interest in CUR.
Pursuant to Rule 4-08(g) of Regulation S-X, the Company is required to disclose summarized financial information of these investees if any of the investment test, asset test, or income test as set forth in that rule equals or exceeds the 10% level,
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individually or in the aggregate. As of December 31, 2021, the investment test was met at the 10% significance level for CUR. The summarized financial information for CUR is presented below on a one-quarter lag, which precedes the date of the Company’s investment. CUR prepares its financial statements in accordance with International Financial Reporting Standards (“IFRS”) and uses Cdn$ as its reporting currency. As such, the Company has made certain adjustments to CUR’s summarized financial information to address differences between IFRS and GAAP that materially impact the summarized financial information and to convert such information to USD.
Non-current assets $ 11,455
Current liabilities $ 3,119
Non-current liabilities $ 27
Nine months ended September 30, 2021
Pursuant to Rule 3-09 of Regulation S-X, the Company is required to file separate audited financial statements of these investees if either the investment test or income test as set forth in that rule equals or exceeds the 20% level individually. As of December 31, 2021, the income test was met at the 20% significance level for Virginia Energy. The Company will amend this Annual Report on Form 10-K to include the separate audited financial statements of Virginia Energy as an exhibit when they become available. Summarized financial information for Virginia Energy is presented below on a one-quarter lag. Virginia Energy prepares its financial statements in accordance with IFRS. The Company determined that no adjustments to Virginia Energy’s summarized financial information were necessary to address differences between IFRS and GAAP that materially impact the summarized financial information.
Current liabilities $ 278 $ 537
Non-current liabilities $ 2 $ 2
Twelve months ended September 30,
8. PROPERTY, PLANT AND EQUIPMENT AND MINERAL PROPERTIES
The following is a summary of property, plant and equipment:
Property, plant and equipment
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The net book value for the Nichols Ranch Project includes the value beyond proven and probable Mineral Reserves ascribed to the processing plant, the Nichols Ranch wellfields and the Jane Dough project upon acquisition.
For the year ended December 31, 2021, the Company recorded nil (December 31, 2020 - $0.51 million) of depreciation expense related to Nichols Ranch that was included in the capitalized costs to inventory on the Consolidated Balance Sheet.
The following is a summary of mineral properties:
Mineral properties
Disposal of certain properties
On July 15, 2021, the Company and CUR jointly announced the signing of a definitive asset purchase agreement (the “Agreement”) for CUR to acquire a portfolio of the Company's non-core conventional uranium projects located in Utah and Colorado, including the Daneros mine, the Tony M mine, the Rim mine, the Sage Plain project, and several U.S. Department of Energy leases (the “Sale”).
On October 27, 2021 (“Closing Date”), the parties closed the Sale in accordance with the terms of the Agreement, as a result of which the aforementioned properties and leases were transferred to CUR in exchange for the following consideration:
•$2,000,000 in cash on the Closing Date;
•the issuance of 11,860,101 Common Shares of CUR, constituting 19.9% of the outstanding CUR Common Shares immediately after the Closing Date, at a price per share of CDN$2.95 equal to the closing price of the CUR Common Shares on the TSX Venture Exchange (“TSXV”) on the last trading day immediately prior to issuance;
•an additional CDN$3,000,000 in cash payable on or before the 18-month anniversary of the Closing Date (“Second Payment”);
•an additional CDN$3,000,000 in cash payable on or before the 36-month anniversary of the Closing Date (“Third Payment” and together with the Second Payment, the “Deferred Cash Payments”); and
•the commitment to make production payments on a per-project basis totaling CDN$5,000,000 as set forth pursuant to individual production payment agreements executed on the Closing Date.
As part of the Agreement, the Company has entered into a mine operating agreement pursuant to which it will act, through its indirect wholly owned subsidiary Energy Fuels Resources (USA) Inc., as Operator to the Sale projects in accordance with a program and budget determined annually, in exchange for which the Company will receive reimbursement for all direct costs in addition to an overhead allocation and management fee. In addition, the Company has entered into a toll milling agreement pursuant to which it will process all ore mined from the properties at the Mill, in exchange for which the Company will receive reimbursement of direct costs in addition to a milling fee. Pursuant to an investor rights agreement, for so long as the Company’s equity ownership in CUR remains at or above 10%, it will be entitled to equity participation rights to maintain its pro-rata equity ownership in the Company and to appoint one nominee to the CUR Board of Directors. The Company’s CEO was appointed to the CUR Board of Directors at the Closing Date.
These non-core conventional uranium project assets had no carrying value at the Closing Date. The Company recognized a gain on the disposal of $35.73 million at the Closing Date and subsequently derecognized asset retirement obligations of $0.27 million prior to December 31, 2021 upon being legally released from being the primary obligor under the liabilities. For a period of three years, if CUR issues Common Shares or other securities convertible into Common Shares in a private placement or prospectus offering, the Company has the right to accelerate a portion of the Deferred Cash Payments, in cash or securities, up to a maximum amount equal to the product of (i) the gross proceeds of the financing multiplied by (ii) the Company’s then current cumulative percentage ownership of CUR common stock on a non-diluted basis prior to the completion of the financing (the “Acceleration Right”). On November 22, 2021, CUR completed such a financing under which the Company elected its Acceleration Right and received 1,875,085 Common Shares of CUR and 937,542 warrants to purchase Common Shares of
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CUR which are exercisable for a period of two years from issuance at a price of Cdn$4.00. The receipt of these Common Shares and warrants satisfied the Second Payment in full and satisfied Cdn$1.97 million of the Third Payment.
9. IMPAIRMENTS
Impairment of property, plant and equipment, mineral properties and mineral properties held for sale
The Company conducts a review of potential triggering events for all its mineral properties on a quarterly basis. When events or changes in circumstances indicate that the related carrying amounts may not be recoverable, the Company carries out a review and evaluation of its long-lived assets in accordance with its accounting policy. No impairment of property, plant and equipment, mineral properties and mineral properties held for sale recorded in the years ended December 31, 2021, 2020 and 2019.
10. ASSET RETIREMENT OBLIGATIONS AND RESTRICTED CASH
The following table summarizes the Company’s asset retirement obligations:
Asset retirement obligation, beginning of period $ 13,038 $ 18,972
Disposal of non-core obligations (269) —
Settlements (131) —
Asset retirement obligation, end of period $ 13,687 $ 13,038
Asset retirement obligation:
Asset retirement obligation, end of period $ 13,687 $ 13,038
The asset retirement obligations of the Company are subject to legal and regulatory requirements. Estimates of the costs of reclamation are reviewed periodically by the Company and the applicable regulatory authorities. The above provision represents the Company’s estimate of the present value of future reclamation costs, discounted using credit adjusted risk-free rates ranging from 9.50% to 11.67% and inflation rates ranging from 2.00% to 2.41%. The total undiscounted decommissioning liability at December 31, 2021 is $41.34 million (2020 - $41.95 million).
The downward revision of estimate of $0.24 million for the year ended December 31, 2021 includes net changes in estimated costs, timing and discount rates of future reclamation activities. These revisions were recognized in Development, permitting, and land holding, and Standby costs on the Consolidated Statement of Operations and Comprehensive Income (Loss). The Company derecognized asset retirement obligations of $0.27 million prior to December 31, 2021 upon being legally released from being the primary obligor under the liabilities and this disposal was recognized in Gain on sale of non-core assets on the Consolidated Statement of Operations and Comprehensive Income (Loss).
The downward revision of estimate of $7.85 million for the year ended December 31, 2020 includes net changes in the estimated costs, timing and discount rates of future reclamation activities. These revisions were recognized in Development, permitting, and land holding and Standby costs on the Consolidated Statement of Operations and Comprehensive Income (Loss).
The following table summarizes the Company’s restricted cash:
Restricted cash, beginning of period $ 20,817 $ 20,081
Additional collateral posted 48 768
Refunds of collateral (560) (32)
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The Company has cash, cash equivalents and fixed income securities as collateral for various bonds posted in favor of the applicable state regulatory agencies in Arizona, Colorado, New Mexico, Texas, Utah and Wyoming, and the U.S. Bureau of Land Management and U.S. Forest Service for estimated reclamation costs associated with the White Mesa Mill, Nichols Ranch, Alta Mesa and other mining properties. Cash equivalents are short-term highly liquid investments with original maturities of three months or less. The restricted cash will be released when the Company has reclaimed a mineral property or restructured the surety and collateral arrangements. See Note 18 for a discussion of the Company’s surety bond commitments.
11. LOANS AND BORROWINGS
On July 24, 2012, the Company completed a bought deal public offering of 22,000 floating-rate convertible unsecured subordinated debentures originally maturing June 30, 2017 (the “ConvertibleDebentures”) at a price of Cdn$1,000 per Convertible Debenture for gross proceeds of Cdn$21.55 million (the “Offering”). The Convertible Debentures are convertible into Common Shares at the option of the holder. Interest is paid in cash and in addition, unless an event of default has occurred and is continuing, the Company may elect, from time to time, subject to applicable regulatory approval, to satisfy its obligation to pay interest on the Convertible Debentures, on the date it is payable under the indenture: (i) in cash; (ii) by delivering sufficient Common Shares to the debenture trustee, for sale, to satisfy the interest obligations in accordance with the indenture in which event holders of the Convertible Debentures will be entitled to receive a cash payment equal to the proceeds of the sale of such Common Shares; or (iii) any combination of (i) and (ii).
On August 4, 2016, the Company, by a vote of the debenture holders, extended the maturity date of the Convertible Debentures from June 30, 2017 to December 31, 2020, and reduced the conversion price of the Convertible Debentures from Cdn$15.00 to Cdn$4.15 per Common Share of the Company. In addition, a redemption provision was added that enabled the Company, upon giving not less than 30 days’ notice to debenture holders, to redeem the Convertible Debentures for cash, in whole or in part at any time after June 30, 2019 but prior to maturity, at a price of 101% of the aggregate principal amount redeemed, plus accrued and unpaid interest (less any tax required by law to be deducted) on such Convertible Debentures up to but excluding the redemption date. In addition, certain other amendments were made to the indenture, as required by the U.S. Trust Indenture Act of 1939, as amended, and with respect to the addition of a U.S. Trustee in compliance therewith, as well as to remove provisions of the indenture that no longer apply, such as U.S. securities law restrictions.
On July 14, 2020, the Company redeemed Cdn$10.43 million principal amount of the Cdn$20.86 million Convertible Debentures. The Convertible Debentures were redeemed on that date for an amount equal to 101% of the aggregate principal amount plus accrued and unpaid interest thereon, up to but excluding July 14, 2020 for approximately $7.78 million. On October 6, 2020, the Company redeemed the remaining Cdn$10.43 million principal amount of the Cdn$10.43 million Convertible Debentures then outstanding for approximately $7.82 million. The Convertible Debentures were redeemed on that date for an amount equal to 101% of the aggregate principal amount, plus accrued and unpaid interest thereon, up to but excluding October 6, 2020. As a result of the final redemption, no Convertible Debentures remain outstanding and the Convertible Debentures have ceased to be listed on the TSX.
The Company currently has no other remaining short- or long-term debt.
The Convertible Debentures were measured at fair value based on the closing price on the TSX (a Level 1 measurement), and changes were recognized in earnings. For the year ended December 31, 2020, the Company recorded a gain on revaluation of Convertible Debentures of $0.16 million).
12. CAPITAL STOCK
Authorized capital stock
The Company is authorized to issue an unlimited number of Common Shares without par value, unlimited Preferred Shares issuable in series, and unlimited Series A Preferred Shares. The Series A Preferred Shares issuable are non-redeemable, non-callable, non-voting and with no right to dividends. The Preferred Shares issuable in series will have the rights, privileges, restrictions and conditions assigned to the particular series upon the Board of Directors approving their issuance.
Issued capital stock
The significant transactions relating to capital stock issued during 2021, 2020, and 2019 are:
a)On February 20, 2020, the Company completed a bought deal public offering of 11,300,000 Common Shares at a price of $1.47 per share. The Company received net proceeds, after commissions and fees, of $15.14 million.
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b)In the year ended December 31, 2021, the Company issued 16,627,512 Common Shares under the Company’s ATM offering for net proceeds of $106.21 million. In the year ended December 31, 2020, the Company issued 21,361,784 Common Shares under the Company’s ATM offering for net proceeds of $37.25 million. In the year ended December 31, 2019, the Company issued 8,043,365 Common Shares under the Company’s ATM for net proceeds of $19.68 million.
Share Purchase Warrants
The following table summarizes the Company’s share purchase warrants denominated in U.S. dollars. These warrants are accounted for as derivative liabilities, as the functional currency of the entity issuing the warrants, Energy Fuels Inc., is Cdn$.
(1)The warrants issued in September 2016 are classified as Level 1 under the fair value hierarchy (Note 19). Each warrant was exercisable until September 20, 2021 and entitled the holder thereof to acquire one common share upon exercise at an exercise price of $2.45 per common share. These warrants are accounted for as a derivative liability, as the functional currency of the entity issuing the warrant is Cdn$.
On March 14, 2019, 2,328,925 warrants issued in March 2016 expired un-exercised.
On September 20, 2021, 149,807 warrants issued in September 2016 expired un-exercised.
13. BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE
The following is a reconciliation of weighted average Common Shares outstanding for the years ended December 31, 2021, 2020, 2019, respectively:
Years ended December 31,
Effect of shares issued to settle liabilities — — 141,525
Basic and diluted income (loss) per common share
The calculation of basic and diluted income (loss) per share after adjustment for the effects of all potential dilutive Common Shares, calculated as follows:
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Years ended December 31,
Basic net income (loss) per common share $ 0.01 $ (0.23) $ (0.40)
Diluted net income (loss) per common share $ 0.01 $ (0.23) $ (0.40)
For the three years ended December 31, 2021, 2020 and 2019, 0.06 million, 6.87 million and 6.97 million stock options, restricted stock units, and warrants, respectively, and the potential conversion of the Convertible Debentures have been excluded from the calculation of diluted net income (loss) per common share as their effect would have been anti-dilutive. In addition, the Company excluded stock appreciation rights of 1.67 million, 1.72 million, and 2.17 million for the three years ended December 31, 2021, 2020, and 2019, respectively as they are contingently issuable based on specified market prices of the Company’s stock which were not achieved as of the end of each period.
14. SHARE-BASED PAYMENTS
The Company, under the 2021 Amended and Restated Omnibus Equity Incentive Compensation Plan (the “Compensation Plan”), maintains an equity incentive plan for directors, executives, eligible employees and consultants. Equity incentive awards include employee stock options, RSUs and SARs. The Company issues new shares of common stock to satisfy exercises and vesting under its equity incentive awards. At December 31, 2021, a total of 15,626,220 Common Shares were authorized for equity incentive plan awards.
Employee Stock Options
The Company, under the Compensation Plan, may grant stock options to directors, executives, employees and consultants to purchase Common Shares of the Company. The exercise price of the stock options is set as the higher of the Company’s closing share price on the day before the grant date and the five-day VWAP ending on the day before the grant date. Stock options granted under the Compensation Plan generally vest over a period of two years or more and are generally exercisable over a period of five years from the grant date, such period not to exceed 10 years. The value of each option award is estimated at the grant date using the Black-Scholes Option Valuation Model.
The fair value of the stock options granted under the Compensation Plan for the years ended December 31, 2021, 2020 and 2019 was estimated at the date of grant, using the Black-Scholes Option Valuation Model, with the following weighted average assumptions:
Years ended December 31,
Expected life (in years) 5.0 years 4.6 years 5.0 years
Expected dividend yield 0 % 0 % 0 %
Weighted average grant date fair value $ 2.06 $ 0.82 $ 1.54
* Expected volatility is measured based on the Company’s historical share price volatility over a period equivalent to the expected life of the stock options.
The summary of the Company’s stock options at December 31, 2021, 2020 and 2019, respectively, and the changes for the fiscal periods ending on those dates, are presented below:
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In the year ended December 31, 2021, the Company issued 775,814 shares upon exercise of stock options at an average exercise price of $2.95 with an intrinsic value of $2.88 million. The Company received cash proceeds related to stock option exercises of $2.38 million during the year ended December 31, 2021.
In the year ended December 31, 2020, the Company issued 302,707 shares upon exercise of stock options at an average exercise price of $1.97 with an intrinsic value of $0.42 million. The Company received cash proceeds related to stock option exercises of $0.49 million during the year ended December 31, 2020.
In the year ended December 31, 2019, the Company issued 54,805 shares upon exercise of stock options at an average exercise price of $2.27 with an intrinsic value of $0.05 million. The Company received cash proceeds related to stock option exercises of $0.15 million during the year ended December 31, 2019.
The summary of the Company’s non-vested stock options at December 31, 2021, 2020 and 2019, respectively, and the changes for the fiscal periods ending on those dates, are presented below:
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Number of Shares Weighted Average Grant Date Fair Value
Restricted Stock Units
The Company grants RSUs to directors, executives and eligible employees. Awards for executives and eligible employees are determined as a target percentage of base salary and generally vest over three years. Prior to vesting, holders of RSUs generally do not have voting rights. The RSUs are subject to forfeiture risk and other restrictions. Upon vesting, the employee is entitled to receive one share of the Company’s common stock for each RSU at no additional payment. During the year ended December 31, 2021, the Company’s Board of Directors issued 0.44 million RSUs under the Compensation Plan (2020 – 0.74 million, 2019 - 0.73 million).
The summary of the Company’s non-vested RSUs at December 31, 2021, 2020 and 2019, respectively, and the changes for the fiscal periods ending on those dates, are presented below:
Number of Shares Weighted Average Grant Date Fair Value
Forfeited — —
The total intrinsic value and fair value of RSUs that vested and were settled for equity in the year ended December 31, 2021 was $2.67 million (2020 - $1.21 million, 2019 - $2.51 million).
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Stock Appreciation Rights
During the year ended December 31, 2019, the Company’s Board of Directors issued 2.20 million SARs under the Compensation Plan (2021 and 2020 - nil) with a fair value of $1.25 per SAR. These SARs are intended to provide additional long-term performance-based equity incentives for the Company’s senior management. The SARs are performance based because they only vest upon the achievement of performance goals designed to significantly increase shareholder value.
Each SAR granted entitles the holder to receive, upon a valid exercise, payment from the Company in cash or Common Shares (at the sole discretion of the Company) in an amount representing the difference between the fair market value (“FMV”) of the Company’s Common Shares on the date of exercise and $2.92 (the closing market price or “Grant Price” at the time of grant). Fair Market Value as used herein means the closing price of the Shares on the TSX or the NYSE American on the trading day immediately prior to the date of exercise. The term of the SARs grant is five years, with SARs vesting only upon the achievement of the following performance goals: as to one-third of the SARs granted, automatically upon the 90-calendar-day volume weighted average price (“VWAP”) of the Company’s Common Shares on the NYSE American equaling or exceeding $5.00 for any continuous 90-calendar-day period; as to an additional one-third of the SARs granted, automatically upon the 90-calendar-day VWAP of the Company’s Common Shares on the NYSE American equaling or exceeding $7.00 for any continuous 90-calendar-day period; and as to the final one-third of the SARs granted, automatically upon the 90-calendar-day VWAP of the Company’s Common Shares on the NYSE American equaling or exceeding $10.00 for any continuous 90-calendar-day period. Further, notwithstanding the foregoing vesting schedule, no SARs were able to be exercised by the holder for an initial period of one year from the Date of Grant; the date first exercisable being January 22, 2020. The first two tranches of these vesting performance goals were met during the year ended December 31, 2021.
The summary of the Company’s SARs at December 31, 2021, 2020 and 2019, respectively, and the changes for the fiscal periods ending on those dates, are presented below:
Outstanding, December 31, 2018 — $ —
Exercised — —
Expired — —
Granted — —
Exercised — —
Expired — —
Granted — —
Forfeited — —
Expired — —