ENERGY FUELS INC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-Q)

The following discussion and analysis should be read in conjunction with our
unaudited condensed consolidated financial statements for the three and
nine-month period ended September 30, 2021, and the related notes thereto, which
have been prepared in accordance with U.S. GAAP. Additionally, the following
discussion and analysis should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
audited consolidated financial statements included in Part II of our Annual
Report on Form 10-K for the year ended December 31, 2020. This Discussion and
Analysis contains forward-looking statements and forward-looking information
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. See section heading "Cautionary Statement Regarding
Forward-Looking Statements," above.
While the Company has uranium extraction and recovery activities and generates
revenue, it is considered to be in the Exploration Stage (as defined by SEC
Industry Guide 7), as it has no Proven or Probable Reserves within the meaning
of SEC Industry Guide 7. Under U.S. GAAP, for a property that has no Proven or
Probable Reserves, the Company capitalizes the cost of acquiring the property
(including mineral properties and rights), and expenses all costs related to the
property incurred subsequent to the acquisition of such property. Acquisition
costs of a property are depreciated over its estimated useful life for a revenue
generating property or expensed if the property is sold or abandoned.
Acquisition costs are subject to impairment if so indicated.
All dollar amounts stated herein are in U.S. dollars, except share and per share
amounts and currency exchange rates unless specified otherwise. References to
Cdn$ refer to Canadian currency, and $ to United States currency.
Overview
We responsibly produce several of the raw materials needed for clean energy and
advanced technologies, including uranium, rare earth elements and vanadium.
Our primary product is natural uranium concentrate ("U3O8"), also known as
yellowcake, which, when further processed, becomes the fuel for the generation
of clean nuclear energy. According to the Nuclear Energy Institute, nuclear
energy provides nearly 20% of the total electricity and 55% of the clean,
carbon-free electricity generated in the U.S. The Company generates revenues
from extracting and processing materials for the recovery of uranium for our own
account, as well as from toll processing materials for others.
Our uranium concentrate is produced from multiple sources:
•Conventional recovery operations at our White Mesa Mill (the "Mill"),
including:
•Processing ore from uranium mines; and
•Recycling of uranium-bearing materials that are not derived from conventional
ore ("Alternate Feed Materials"); and
•In-situ recovery ("ISR") operations.
The Company also has a long history of conventional vanadium recovery at the
Mill when vanadium prices support those activities. From late 2018 to early
2020, the Company completed a campaign to recover vanadium from solutions in the
tailings management system at the Mill ("Pond Return") from which it recovered
over 1.8 million pounds of high-purity vanadium pentoxide ("V2O5"). The Company
has also recovered uranium from Pond Return since 2015 and continues to evaluate
opportunities for copper recovery from our Pinyon Plain Project.
In 2020, the Company began evaluating the potential to recover rare earth
elements ("REEs") at the Mill. By October 2020, the Company had produced a mixed
REE carbonate, ready for separation, on a pilot scale from natural monazite
sands. In December 2020, the Company entered into a contract to acquire natural
monazite sands from a heavy mineral sands operation in Georgia, from which it
expects to recover uranium and produce a commercially salable mixed REE
carbonate containing approximately 71% total rare earth oxide ("TREO") on a dry
basis. In March 2021, the Company began ramping up commercial-scale production
of mixed REE carbonate from these natural monazite sands. In July 2021, the
Company announced the signing of a definitive supply agreement and began
commercial shipments of REE carbonate to a separation facility in Europe, which
is the next step in producing usable REE products. The Company is also in
discussions with other entities to acquire additional supplies of natural
monazite sands, and is working with U.S. government agencies and national
laboratories on various REE initiatives, including with the U.S. Department of
Energy ("DOE") to evaluate the potential to process other types of REE- and
uranium-bearing ores at the Mill produced from coal-based resources. The Company
is also
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evaluating the potential to perform REE separation and other downstream REE
activities, including metal-making and alloying, in the future at the Mill or
elsewhere in the U.S.
The Mill, located near Blanding, Utah, processes ore mined from the Four Corners
region of the United States, as well as Alternate Feed Materials that can
originate worldwide. We have the only operating uranium mill in the United
States, which is also the last operating facility left in the U.S. with the
ability to recover vanadium from primary ore sources. The Mill is licensed to
process an average of 2,000 tons of ore per day and to produce approximately 8.0
million pounds of U3O8 per year. The Mill has separate circuits to process
conventional uranium and vanadium ores, as well as Alternate Feed Materials and
REEs.
For the last several years, no mines have operated commercially in the vicinity
of the Mill due to low uranium prices. As a result, in recent years, Mill
activities have focused on processing Alternate Feed Materials for the recovery
of uranium under multiple toll processing arrangements, as well as Alternate
Feed Materials for our own account. Additionally, in recent years, the Mill has
recovered dissolved uranium and vanadium through its Pond Return Program from
the Mill's tailings management system that was not fully recovered during the
Mill's prior forty years of operations. During the nine months ended September
30, 2021, Mill activities focused primarily on processing REE monazite sands and
producing a mixed REE carbonate. The Company is actively pursuing additional
Alternate Feed Materials for processing at the Mill.
The Mill also continues to pursue additional sources of feed materials. For
example, a significant opportunity exists for the Company to potentially
participate in the clean-up of abandoned uranium mines in the Four Corners
Region of the U.S. The U.S. Justice Department and Environmental Protection
Agency announced settlements in various forms in excess of $1.5 billion to fund
certain cleanup activities on the Navajo Nation. Additional cleanup settlements
with other parties are also pending. Our Mill is within economic trucking
distance to and is uniquely positioned in this region to receive uranium-bearing
materials from these cleanups and recycle the contained U3O8, while, at the same
time, permanently disposing of the cleanup materials outside the boundaries of
the Navajo Nation in our licensed tailings management system. There are no other
facilities in the U.S capable of providing this service. In addition, as
previously announced, beginning in the second quarter of 2019 and continuing
through the third quarter of 2021, the Company has been receiving shipments of
material generated in the cleanup of a large, historically producing
conventional uranium mine located in northwest New Mexico. In addition to
generating revenue for the Company, this project demonstrates the ability of the
Mill to responsibly cleanup projects similar to those requiring cleanup on the
Navajo Nation.
The Company's ISR operations consist of our Nichols Ranch Project and Alta Mesa
Project, both of which are on standby at current uranium prices.
While we believe the current spot price of uranium does not support production
for the majority of global uranium producers, resulting in significant
productions cuts, we believe that prices will recover at some point in the
future, either as a result of improving market fundamentals or in response to
U.S. government action to support domestic uranium production. In anticipation
of potential price recoveries or other actions that could support increased U.S.
uranium mining, we continue to maintain and advance our resource portfolio. Once
prices recover or other supportive actions are taken, we stand ready to: resume
wellfield construction at our Nichols Ranch Project; resume wellfield
construction, perform plant upgrades, conduct exploration, and resume production
at our Alta Mesa facility; and mine and process resources from our Pinyon Plain
Project, La Sal Project and/or Whirlwind Project. We believe we can bring this
new production to the market within approximately six to eighteen months of a
positive production decision. Longer term, we expect to develop our large
conventional mines at Roca Honda, Henry Mountains, and/or Sheep Mountain.
COVID-19
The Company continues to respond to the effects of the global, novel coronavirus
("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 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.
Update on Rare Earth Element Initiative
In early March 2021, the Company began receiving shipments of natural monazite
sand ore from Chemours' Offerman Plant in Georgia. In late March 2021, the
Company began ramping up to commercial-scale production of a mixed REE
carbonate, along with uranium, through the processing of this ore.
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On July 7, 2021, the Company and Neo Performance Materials ("Neo") jointly
announced the signing of a definitive supply agreement and the successful
production of a first container of REE Carbonate by the Company at the Mill,
which was then en route to Neo's REE separations facility in Sillamäe, Estonia
("Silmet"). Under this agreement, the Company processes natural monazite sands
into an REE carbonate and ships a portion of that production to Silmet. Neo then
processes the REE carbonate into separated rare earth materials for use in rare
earth permanent magnets and other rare earth-based advanced materials. Silmet is
the only operational full-scale rare earth separations facility in Europe and
has been separating rare earths into commercial value-added products for more
than 50 years.
The Company is the first U.S. company in several years to produce a marketable
mixed REE concentrate ready for separation on a commercial scale.
Removal and recovery of the uranium and other radionuclides from rare earth ores
is a key aspect of the Company's value proposition, as many REE separation and
recovery facilities are not able to handle those radionuclides from a technical
or regulatory standpoint. The Mill has a 40-year history of responsibly
handling, processing and recycling uranium-bearing materials. Therefore, it has
the potential to unlock the value of monazite and provide a crucial link in a
commercially viable U.S. REE supply chain.
On April 21, 2021, the Company and Hyperion Metals announced the signing of a
non-binding Memorandum of Understanding for the potential future supply of
monazite from Hyperion's Titan heavy mineral sand project in Tennessee to the
Mill. The Company is actively seeking additional sources of monazite to supply
its emerging U.S. REE business.
On April 23, 2021, the Company announced that it had been awarded an additional
$1.75 million by the DOE to complete a feasibility study on the production of
REE products from natural coal-based resources, as well as from other materials,
such as the natural monazite ore the Company is currently processing at the Mill
and other REE-bearing ores. The Company's work on the DOE feasibility study is
expected to complement the Company's efforts to develop commercial REE
separation, metals, alloys, and other downstream REE capabilities at the Mill.
On April 27, 2021, the Company announced that it had engaged Carester SAS
("Carester") to prepare a scoping study for the development of a solvent
extraction REE separation circuit at the Mill. Based in Lyons, France, Carester
is one of the world's leading global consultants on REE supply chains with
expertise in designing, constructing, operating, and optimizing REE production
facilities globally. Carester has been engaged to support EFI's planned
development of REE separation capabilities at the Mill, utilizing its existing
equipment and infrastructure to the extent applicable, to create a continuous,
integrated and optimized rare earth production sequence. Carester's scoping work
includes 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.
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 targeted alpha
therapy ("TAT") cancer therapeutics and other applications. Under this strategic
alliance, the Company is evaluating the feasibility of recovering Th-232, and
potentially Ra-226, from its existing uranium and REE carbonate process streams
at the Mill and, together with RadTran, is evaluating the feasibility of
recovering Ra-228 from the Th-232 and Th-228 from the Ra-228 at the Mill using
RadTran technologies. Recovered Ra-228, Th-228 and, potentially, 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 recycle valuable isotopes from its existing process streams
that would otherwise be lost to disposal for use in treating cancer.
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 support the local economy and local priorities.
The Foundation will focus on supporting education, the environment,
health/wellness, and economic advancement in the City of Blanding, San Juan
County, the White Mesa Ute Community, the Navajo Nation and other area
communities.

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Proposed Establishment of a U.S. Uranium Reserve
On December 27, 2020, Congress passed the COVID-Relief and Omnibus Spending
Bill, which includes $75 million for the proposed establishment of a strategic
U.S. Uranium Reserve, and was signed into law by the president then serving.
This key funding opens the door for the U.S. government to purchase
domestically-produced uranium to guard against potential commercial and national
security risks presented by the country's near-total reliance on foreign imports
of uranium. The Company stands ready to benefit from this program through future
production from its mines and facilities and potentially sales out of its
existing uranium inventories. However, because the U.S. Uranium Reserve has yet
to be established at this time, the details of implementation of activities
pursuant to the new law have not yet been defined. The U.S. government is
currently in the process of evaluating how best to structure and operate the
program, and recently accepted comments from industry stakeholders (including
Energy Fuels) are currently under consideration. As a result, there can be no
certainty as to the outcome of the U.S. Uranium Reserve, including the process
for and details of its development, and any resulting support for the Company's
ongoing and planned activities or for any further evaluations of the Working
Group.
Uranium Market Update
According to monthly price data from TradeTech LLC ("TradeTech"), uranium spot
prices rose significantly during the third quarter of 2021 and exhibited
considerable volatility. The uranium spot price began the quarter at $32.40 per
pound on June 30, 2021 and rose 30% to $42.20 per pound on September 30, 2021.
The uranium spot price hit a high of $50.50 per pound on September 17, 2021 and
a low of $30.50 per pound on August 13, 2021. TradeTech price data indicates
that long-term U3O8 prices rose significantly during the quarter as well,
beginning the quarter at $35.00 per pound and ending the quarter at $45.00 per
pound. On October 22, 2021, TradeTech reported a spot price of $47.75 per pound
and a long-term price of $45.00 per pound.
There were a number of important developments that occurred during the quarter.
Most notably, in early September, uranium prices began to rise significantly due
in part to increased uranium purchasing primarily from traders, financial
entities and intermediaries and news that the Illinois Legislature was set to
pass a bill allowing Exelon's Byron and Dresden nuclear units to continue
operating (TradeTech, NMR, September 10, 2021). Sprott Asset Management, LP,
which had previously acquired Uranium Participation Corp., launched the Sprott
Physical Uranium Trust (the "Trust" or "SPUT") in July 2021, drawing significant
interest from both uranium buyers and sellers due to the possibility that the
Trust would become a significant buyer of uranium (TradeTech, NMR, July 23,
2021). In mid-August, the Trust announced the launch of an ATM program to issue
up to $300 million of units of the Trust for the purpose of acquiring and
holding physical uranium (TradeTech, NMR, August 20, 2021). In September, the
Trust announced that it had increased the size of its ATM program to $1.3
billion (TradeTech, NMR, September 10, 2021). TradeTech reported that the "price
increase was fueled by significant transaction volume," with the bulk of
purchasing being completed by financial entities (TradeTech, NMR, September 3,
2021).
"The launch of the Sprott Physical Uranium Trust (SPUT) in mid-August has been a
significant contributing factor in the price rise. Not only has SPUT accounted
for a significant portion of the material purchased since mid-August, but the
launch of the fund has attracted a number of new parties to the uranium market,
which when combined with steady purchases from producers and already existing
funds, has added further momentum to the price rise. While supplies have been
sufficient to meet the increase in spot demand, several of the purchases in
recent days do call for delivery later in the year or in early 2022. Supplies in
the near term are still available, however, sellers continue to exercise caution
about releasing all of their supply now, preferring instead to retain some
material for sale in anticipation of further price increases and to sell to
utilities that are expected to enter the market in the coming months."
(TradeTech, NMR, September 3, 2021)
By late September, the price of uranium fell, "as sellers exhibited increasing
anxiety about the lack of firm demand." (TradeTech, NMR, September 24, 2021). At
month-end, following a record 13.2 million pounds of U3O8 equivalent in August,
TradeTech reported that the "spot uranium market continues to see historic
records smashed with transaction volumes reaching a new high this month as 14.5
million pounds of U3O8 equivalent were transacted in the spot market - the
largest transaction volume recorded in a single month in the uranium spot market
since 1996." (TradeTech, NMR, September 30, 2021). Importantly, TradeTech
reports that buyers of uranium (including presumably utilities) are becoming
more willing to "accept higher priced term offers in order to lock in supply at
predictable prices in the mid- and long-term periods." (TradeTech NMR, September
30, 2021). On October 15, 2021, the uranium spot price rose by $8.60 per pound
(up 23% from $37.40 on October 8, 2021 to $46.00), representing the largest
week-over-week price increase in the history of TradeTech's weekly spot price
indicator after SPUT purchased nearly 2.1 million pounds of uranium during the
week. (TradeTech, NMR, October 15, 2021). On October 18, 2021, it was announced
that the largest uranium producer in the world, Kazakh state-owned Kazatomprom,
invested in a new uranium fund, along with the National Bank of Kazakhstan and
Genchi Global Ltd., to hold physical uranium as a long-term investment. The new
fund has an initial $50 million of financing, and expects to raise additional
capital of up to $500 million in the future.
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In addition, the Company believes that certain uranium supply and demand
fundamentals continue to point to higher sustained uranium prices in the future,
including significant production cuts in recent years and sharply reduced
production in 2020 due to COVID-19, along with significant increased demand from
utilities, financial entities (including SPUT), traders and producers. The
Company believes that financial entities purchasing uranium on the spot market
for long-term investment represent a fundamental shift in the uranium market by
increasing demand and removing readily available material from the market that
would otherwise serve as supply to utilities, traders, and others. In response,
the Company desires to enter into term contracts with utilities for the sale of
uranium at prices that support production. With less uranium available on the
spot market and the potential for significant future price volatility, the
Company is tracking the potential willingness of utilities to accept higher-term
offers. The Company also continues to believe that a large degree of uncertainty
exists in the market, primarily due to the size of mobile uranium inventories,
transportation issues, premature reactor shutdowns in the U.S., trade issues,
the life of a given uranium mine, conversion/enrichment shutdowns, the opaque
nature of inventories and secondary supplies, unfilled utility demand, and the
market activity of state-owned uranium and nuclear companies.
Therefore, the Company will continue to closely monitor uranium markets and seek
opportunities to enter into long-term sales contracts with utilities at prices
that sustain production, cover overhead costs, and provide a reasonable
rate-of-return to investors while also holding back some production to allow the
Company and its shareholders the ability to participate in further upside price
movements. The Company will also continue to evaluate the timing and method for
the disposition of its existing uranium inventories, including selling into the
spot market or as a part of one or more term contracts.
Vanadium Market Update
During the quarter, the mid-point price of vanadium in Europe was generally
flat, beginning the quarter at $8.75 per pound as of June 25, 2021 and ending
the quarter at $8.78 per pound as of September 24, 2021. The price of vanadium
reached a high of $9.88 per pound during the weeks of July 30, 2021 and August
6, 2021 and a low of $8.75 per pound at the beginning of the quarter. According
to Metal Bulletin, vanadium prices in Europe rose during the summer due to
widespread violence in South Africa, causing consumers to look for supply
alternatives ahead of any further disruption, as South Africa accounts for
approximately 44% of global vanadium pentoxide production. (Vanadium Snapshot:
South Africa civil unrest sparks supply concerns, leading to higher prices in
Europe, July 16, 2021). Prices weakened somewhat by mid-August due to expected
market weakness in China and profit-taking by traders (Metal Bulletin, Focus,
Vanadium close to price bottom but market worries over weakness in China,
September 20, 2021). As of October 29, 2021, the price of vanadium pentoxide was
$8.00 per pound.
Rare Earth Market Update
REEs are comprised of 15 chemical elements, plus scandium (Sc) and yttrium (Y).
REEs are used in a variety of clean energy and advanced technologies. According
to industry analyst Roskill, most demand for REE's is in the form of separated
REEs, "as most end-use applications require only one or two separated rare earth
compounds or products." (Roskill, Rare Earths, Outlook to 2030, 20 Edition). The
REE market is dominated by China and, according to 2018 data, China controlled
68% of global primary production, 100% of global secondary production and nearly
all production of the "heavy" REEs, including terbium and dysprosium (Adamas
Intelligence).
The main uses for REEs include: (i) battery alloys; (ii) catalysts; (iii)
ceramics, pigments and glazes; (iv) glass polishing powders and additives; (v)
metallurgy and alloys; (vi) permanent magnets; (vii) phosphors; and (viii)
others (Adamas Intelligence). By volume, REEs used for permanent magnets
(neodymium (Nd), praseodymium (Pr), dysprosium (Dy), and terbium (Tb)) and
catalysts (cerium (Ce) and lanthanum (La)) comprised 60% of total consumption
yet over 90% of the value consumed.
REEs are commercially transacted in a number of forms and purities. Therefore,
there is no single price for REEs collectively, but numerous prices for REE
oxides and compounds individually. The primary value that the Company expects to
generate in the short- to medium-term will come from NdPr, Ce, and La, as the
price the Company receives from the sale of its REE carbonate is tied to the
prices of those REE oxides. In addition, the Company expects to produce
separated REE oxides in the future. According to data from Asian Metal, NdPr
Oxide (Pr6O11 25%; Nd2O3 75%) mid-point prices in China rose approximately 22%
during the quarter from $93.00/kg to $113.80/kg. The current price for NdPr
Oxide is $123.30/kg. Mid-point Ce Oxide (99.9%) remained consistent during the
quarter at $2.35/kg. The current price for Ce Oxide is $2.35/kg. Mid-point La
Oxide (99.9%) prices fell slightly during the quarter from $1.47/kg to $1.45/kg.
The current price for La Oxide is $1.44/kg.
As demand for clean energy technologies, including electric vehicles, renewable
energy systems and batteries, along with other advanced technologies, increases
in the coming years, the Company expects demand and prices for REEs to increase.
Increases in supply sources for REEs are expected in conjunction with
anticipated rising REE prices.
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Operations Update and Outlook for Period Ending September 30, 2021
Overview
According to TradeTech price data, uranium prices have exhibited extreme
volatility in recent weeks, moving from $30.50 per pound on August 13, 2021 to
$50.50 per pound on September 17, 2021 (up 66%) to $37.40 per pound on October
8, 2021 (down 26%) to $46.00 per pound on October 15, 2021 (up 23%). The Company
continues to believe that uranium supply and demand fundamentals continue to
point to higher sustained uranium prices in the future. In addition, 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
long-term contracts with producers like Energy Fuels to ensure security of
supply and more certain pricing. However, the recent short-term uranium price
increases are not yet sufficient to justify commencing uranium production at the
Company's mines and ISR facilities. As a result, the Company expects to maintain
uranium recovery at reduced levels until such time when sustained increased
market prices are observed, 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 Company also holds significant uranium
inventories and is evaluating selling all or a portion of these inventories in
response to future upside price volatility.
The Company will also continue to seek new sources of revenue, including through
its emerging REE business, as well as new sources of Alternate Feed Materials
and new fee processing opportunities at 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 and continues its support of U.S. governmental
activities to assist the U.S. uranium mining industry, including the proposed
establishment of a U.S. Uranium Reserve.
Extraction and Recovery Activities Overview
During the nine months ended September 30, 2021, the Company did not recover any
significant quantities of U3O8. The Company expects to package insignificant
quantities of U3O8 in the year ending December 31, 2021, focusing instead on
ramping up and optimizing its mixed REE carbonate production, while also
enhancing its readiness to quickly resume uranium production at certain of its
facilities. All uranium recovered during 2021 is expected to be retained
in-circuit at the Mill and to not be packaged in 2021. The Company does not plan
to extract and/or recover any amounts of uranium of any significance from its
Nichols Ranch Project in 2021, 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 2021.
During 2021, the Company expects to recover approximately 400 to 600 tonnes of
mixed REE carbonate containing approximately 180 to 270 tonnes of TREO at the
Mill, subject to the receipt of sufficient quantities of natural monazite ore,
as it continues to ramp up its REE carbonate production. The Company expects to
produce no vanadium during 2021.
To date, the Company has strategically opted not to enter into any uranium sales
commitments. However, the Company believes that recent price increases and
volatility have increased the potential for the Company to make spot sales, and
the Company is actively seeking term sales contracts with utilities at pricing
that sustains production and covers corporate overhead. Therefore, existing
inventories may remain unchanged at approximately 691,000 pounds of U3O8 at
year-end or may be reduced in the event the Company sells some inventory on the
spot market in Q4-2021. 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 REE carbonate to Neo Performance Materials 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, 2021 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.

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Conventional Activities
Conventional Extraction and Recovery Activities
During the nine months ended September 30, 2021, the Mill did not recover any
material quantities of U3O8, focusing instead on developing its REE recovery
business. During the nine months ended September 30, 2021, the Mill produced
approximately 270 tonnes of REE concentrate, containing approximately 120 tonnes
of TREO. During 2021, the Company expects to produce insignificant quantities of
U3O8 in the year ending December 31, 2021 from the Mill. The uranium currently
being recovered through the processing of REE- and uranium-bearing natural
monazite ore is expected to remain in circuit during 2021 and be packaged after
year-end. The Company expects to recover approximately 400 to 600 tonnes of REE
carbonate containing approximately 180 to 270 tonnes of TREO at the Mill during
2021, subject to the receipt of sufficient quantities of natural monazite sands,
as it ramps up its REE carbonate production. These numbers are reduced from last
quarter's guidance of 700 to 1,100 tonnes of mixed REE carbonate and 350 to 550
tonnes of TREO. The reduced REE carbonate production is due to reduced supplies
of monazite sands currently available from the Company's supplier in Georgia,
which are now expected to be approximately 800 tonnes of monazite sands per
year, down from the previous expectation of approximately 2,500 tonnes per year.
The Company is in advanced discussions with several monazite suppliers,
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 or
at the Mill, the Company has approximately 252,000 pounds of U3O8 contained in
stockpiled alternate feed material and ore inventory at the Mill that can be
recovered relatively quickly in the future, as general market conditions may
warrant.
In addition, there remains an estimated 1.5-3 million pounds of solubilized
recoverable V2O5 inventory remaining in the tailings facility awaiting future
recovery, as market conditions may warrant.
The Mill has historically operated on a campaign basis whereby uranium and/or
vanadium recovery is scheduled as mill feed, cash needs, contractual
requirements and/or market conditions may warrant. The Company currently expects
that planned uranium production from Alternate Feed Materials, processing
natural monazite sand ore for the recovery of uranium and REEs, and receipt of
uranium-bearing materials from mine cleanup activities will keep the Mill in
operation through and beyond 2021. The Company is also actively pursuing
opportunities to process additional sources of natural monazite sand ore, new
and additional Alternate Feed Material sources, and new and additional low-grade
ore 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 2022.
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 nine months ended September 30, 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 available financing, along with
improvements in general market conditions, procurement of suitable sales
contracts and/or the establishment of a 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 mine. In addition, the Company
will continue to evaluate the Bullfrog Property at its Henry Mountains 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 entered into a definitive agreement to
sell the Tony M, Daneros, Rim and certain other non-core conventional uranium
assets to Consolidated Uranium Inc. (f/k/a International Consolidated Uranium,
Inc.), which closed on October 27, 2021.


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Uranium Sales
During the nine months ended September 30, 2021, the Company completed no sales
of uranium. The Company currently has no remaining contracts and, therefore, all
existing uranium inventory and future production is fully unhedged to future
uranium price changes. The Company is evaluating opportunities to sell a portion
of its existing uranium inventory into the spot market.
Vanadium Sales
During the nine months ended September 30, 2021, the Company completed no sales
of vanadium. The Company expects to sell 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 2019/2020 Pond Return Program 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 REE
carbonate in March 2021 and has shipped all of its REE carbonate produced
to-date to Neo's Silmet separation facility in Europe, where it is currently
being fed into their separation process. All REE carbonate produced at the Mill
in 2021 is expected to be sold to Neo for separation at its Silmet facility.
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 REE 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 REE 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
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 REE carbonate production and future, expected
production of separated REE oxides and other advanced REE materials at the Mill.
Continued Efforts to Minimize Costs
The Company will continue to seek ways to minimize the costs of maintaining its
critical properties in a state of readiness for potential improvements in market
conditions, and to evaluate on a periodic basis whether additional cost-cutting
measures may be warranted as a result of general market conditions, as they may
change over time.
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Results of Operations
The following table summarizes the results of operations for the three and nine
months ended September 30, 2021 and 2020 (in thousands of U.S. dollars):
                                                    Three months ended                     Nine months ended
                                                      September 30,                          September 30,
                                                 2021                2020               2021               2020
Revenues

Rare Earth concentrates                      $      269          $       -          $     269          $       -
Alternate feed materials processing and
other                                               446                486              1,255              1,274
Total revenues                                      715                486              1,524              1,274

Costs and expenses applicable to revenues

Costs and expenses applicable to Rare Earth
concentrates                                        278                  -                278                  -

Underutilized capacity production costs
applicable to Rare Earth concentrates               450                  -                450                  -
Total costs and expenses applicable to
revenues                                            728                  -                728                  -
Impairment of inventories                             -                138                  -              1,644
Gross margin (loss)                                 (13)               348                796               (370)

Other operating costs and expenses
Development, permitting and land holding          2,795              1,944              8,683              2,681
Standby costs                                     2,250              3,451              6,503              8,104
Accretion of asset retirement obligation            350                478              1,022              1,434
Total other operating costs and expenses          5,395              5,873             16,208             12,219

Selling, general and administration
Selling costs                                         -                  3                  -                 15
General and administration                        2,973              3,820             10,158             11,020
Total selling, general and administration         2,973              3,823             10,158             11,035

Total operating loss                             (8,381)            (9,348)           (25,570)           (23,624)
Interest expense                                    (13)              (218)               (43)              (913)
Other income (loss)                                 437                628             (4,045)             1,745
Net loss                                     $   (7,957)         $  (8,938)         $ (29,658)         $ (22,792)

Basic and diluted loss per share             $    (0.05)         $   (0.08)         $   (0.21)         $   (0.19)



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 has 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. 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 three months ended September 30, 2021 and 2020 totaled $0.72
million and $0.49 million, respectively, which was primarily related to fees for
ore received from a third-party uranium mine and rare earth carbonate sales.
Revenues for the nine months ended September 30, 2021 and 2020 totaled $1.52
million and $1.27 million, respectively, which was primarily related to fees for
ore received from a third-party uranium mine and rare earth carbonate sales.
                                       34
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Operating Expenses
Uranium and Vanadium recovered and costs and expenses applicable to revenue
In the three months ended September 30, 2021, the Company did not recover any
material amount of U3O8 from ISR recovery activities or from Alternate Feed
Materials at the Mill. In the three months ended September 30, 2020, the Company
recovered approximately 90 pounds of U3O8 from ISR recovery activities for the
Company's own account and approximately 86,200 pounds of U3O8 from Alternate
Feed Materials at White Mesa Mill.
Costs and expenses applicable to rare earth concentrate revenue for the three
and nine months ended September 30, 2021 were $0.28 million, compared with nil
for the three and nine months ended September 30, 2020. The Company did not make
any concentrate sales of U3O8 or V2O5 and only collected a fee to receive ore
from a third-party uranium mine for which the Company incurred de minimis costs.
In the three and nine months ended September 30, 2021, the Company incurred
underutilized capacity production costs of $0.45 million, compared with nil for
the three and nine months ended September 30, 2020. The underutilized capacity
production costs are due to low throughput rates as the Mill ramps-up to
commercial-scale production. 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 monazite suppliers to secure
additional supplies of 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.
In the nine months ended September 30, 2021, the Company did not recover any
material amount of U3O8 from ISR recovery activities or from Alternate Feed
Materials at the Mill. In the nine months ended September 30, 2020, the Company
recovered 6,200 pounds of U3O8 from ISR recovery activities for the Company's
own account and 67,000 pounds of V2O5 from Pond Return.
Other Operating Costs and Expenses
Development, permitting and land holding
For the three months ended September 30, 2021, the Company spent $2.80 million
for development of the Company's properties, primarily due to the development
and ramping up of the expected REE carbonate production program at the Mill,
compared to $1.94 million for the three months ended September 30, 2020 for the
development of the Company's properties.
For the nine months ended September 30, 2021, the Company spent $8.68 million
for development of the Company's properties, primarily due to the development
and ramping up of the expected REE carbonate production program at the Mill,
compared to $2.68 million for the nine months ended September 30, 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, we expense these amounts, as we do not have proven or
probable reserves at any of the Company's projects under SEC Industry Guide 7.
Standby costs
The Company's La Sal and Daneros Projects were 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.
For the three months ended September 30, 2021, standby costs totaled $2.25
million, compared with $3.45 million in the prior year. For the nine months
ended September 30, 2021, standby costs totaled $6.50 million, compared with
$8.10 million in the prior year. The decrease is primarily related to a
reduction in recovery activities at the Nichols Ranch Project.
Accretion
Accretion related to the asset retirement obligation for the Company's
properties was $0.35 million and $1.02 million, respectively, for the three and
nine months ended September 30, 2021, compared with $0.48 million and $1.43
million, respectively, for the three and nine months ended September 30, 2020.
This decrease is primarily due to the Company delaying the timing of estimated
reclamation activities at some of its projects.

                                       35
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Selling, general and administrative
Selling, general and administrative expenses include costs associated with
marketing uranium, corporate, general and administrative costs and intangible
asset amortization from favorable contracts. 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
$2.97 million and $10.16 million, respectively, for the three and nine months
ended September 30, 2021, compared to $3.82 million and $11.04 million,
respectively, for the three and nine months ended September 30, 2020.
Impairment of Inventories
For the three and nine months ended September 30, 2021, the Company recognized
no impairment charges related to inventory. For the three and nine months ended
September 30, 2020, the Company recognized $0.14 million and $1.64 million,
respectively, in inventory impairment. The impairment of inventories was due to
continued lower uranium prices versus our cost to produce at the Nichols Ranch
Project.
Interest Expense and Other Income and Expenses
Interest expense
Interest expense for the three months ended September 30, 2021 was $0.01
million, compared with $0.22 million for the three months ended September 30,
2020, respectively. Interest expense for the nine months ended September 30,
2021 was $0.04 million, compared with $0.91 million for the nine months ended
September 30, 2020, respectively. The decrease is primarily related to the full
redemption of the Convertible Debentures in 2020.
Other income and expense
For the three months ended September 30, 2021, other income and expense was
$0.44 million income, net. These amounts primarily consist of $1.29 million
mark-to-market gain on investments accounted for at fair value and other income
of $0.67 million, partially offset by a mark-to-market loss on the increase in
fair value of warrant liabilities of $1.00 million and a loss on foreign
exchange of $0.54 million.
For the three months ended September 30, 2020, other income and expense was
$0.63 million income, net. These amounts primarily consist of a mark-to-market
gain on the change in the fair value of the Convertible Debentures of $0.15
million, a mark-to-market gain on the decrease in fair value of warrant
liabilities of $0.31 million, a $0.26 million mark-to-market gain on investments
accounted for at fair value, offset by a loss on foreign exchange of $0.11
million.
For the nine months ended September 30, 2021, other income and expense was $4.05
million loss, net. These amounts primarily consist of a mark-to-market loss on
the increase in fair value of warrant liabilities of $8.05 million and a loss on
foreign exchange of $0.22 million, partially offset by a $2.32 million
mark-to-market gain on investments accounted for at fair value and other income
of $1.88 million.
For the nine months ended September 30, 2020, other income and expense was $1.75
million income, net. These amounts primarily consist of a gain on foreign
exchange of $0.88 million, a $0.39 million mark-to-market gain on investments
accounted for at fair value, a mark-to-market gain on the change in the fair
value of the Convertible Debentures of $0.15 million, a mark-to-market gain on
the decrease in fair value of warrant liabilities of $0.22 million, and interest
income of $0.12 million.
LIQUIDITY AND CAPITAL RESOURCES
Shares issued for cash
On November 5, 2018, the Company filed a prospectus supplement to its U.S.
registration statement, qualifying for distribution up to $24.50 million in
aggregate Common Shares under the ATM. Then, on the same date, the Company filed
a base shelf prospectus 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 $150.00 million. On May 5, 2019, the prospectus
supplement to its U.S. registration statement expired and was replaced on May 7,
2019 by a new prospectus supplement in the same amount, qualifying for
distribution up to $24.50 million in aggregate Common Shares under the ATM. On
December 31, 2019 and December 31, 2020, the Company filed prospectus
supplements to its U.S. registration statement, qualifying for distribution up
to $30.00 million and $35.0 million, respectively, in additional Common Shares
under the ATM. On April 8, 2021, the Company filed a prospectus supplement to
its U.S. registration statement, qualifying for distribution up to $33.50
million in additional Common Shares under the ATM. The Company filed a base
shelf prospectus 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.
                                       36
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From October 1, 2021 through October 28, 2021, the Company issued 1.07 million
Common Shares at a weighted average price of $8.44 for net proceeds of $8.85
million using the ATM.
Working capital at September 30, 2021 and future requirements for funds
At September 30, 2021, the Company had net working capital of $132.79 million,
including $100.24 million in cash, $0.54 million of marketable securities,
approximately 691,000 pounds of uranium finished goods inventory and
approximately 1,672,000 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 is actively focused on its forward-looking liquidity needs,
especially in light of the current depressed uranium markets, though recent
market trends are promising. The Company is evaluating its ongoing fixed cost
structure, as well as decisions related to project retention, advancement and
development. If current uranium prices persist for any extended period of time,
the Company will likely be required to raise capital or take other measures to
fund its ongoing operations. Significant development activities, if warranted,
will require that we arrange for financing in advance of planned expenditures.
In addition, 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.
The Company manages liquidity risk through the management of its working capital
and its capital structure.
Cash and cash flows
Nine months ended September 30, 2021
Cash, cash equivalents and restricted cash were $120.53 million at September 30,
2021, compared to $40.99 million at December 31, 2020. The increase of $79.55
million was due primarily to cash provided by financing activities of $99.99
million and cash provided by investing activities of $1.60 million, partially
offset by cash used in operating activities of $21.98 million and the impact of
foreign exchange rate fluctuations on cash held in foreign currencies of $0.06
million.
Net cash used in operating activities of $21.98 million is comprised of the net
loss of $29.66 million for the period adjusted for non-cash items and for
changes in working capital items. Significant items not involving cash
were $2.36 million of depreciation and amortization of property, plant and
equipment, share-based compensation expense of $1.70 million, a $8.05 million
change in warrant liabilities, accretion of asset retirement obligation of $1.02
million and unrealized foreign exchange loss of $0.44 million, offset by other
non-cash expenses of $3.02 million and a revision of asset retirement
obligations of $0.04 million. Other items include an increase in inventories of
$1.67 million, an increase in prepaid expenses and other assets of $0.68
million, a decrease in accounts payable and accrued liabilities of $0.43
million, and an increase in trade and other receivables of $0.06 million.
Net cash provided by investing activities was $1.60 million comprised of $2.55
million cash received from maturities of marketable securities partially offset
by $0.95 million cash used for the purchase of property, plant and equipment.
Net cash provided by financing activities totaled $99.99 million consisting of
$92.12 million net proceeds from the issuance of shares under the Company's ATM
facility, cash received from exercise of warrants of $6.63 million, cash
received from exercise of stock options of $1.72 million, and $0.23 million cash
received from non-controlling interest partially offset by $0.66 million cash
paid to fund employee income tax withholding due upon vesting of restricted
stock units and $0.05 million cash paid to settle and fund employee income tax
withholding due upon exercise of stock appreciation rights.
Nine months ended September 30, 2020
Cash, cash equivalents and restricted cash were $46.81 million at September 30,
2020, compared to $32.89 million at December 31, 2019. The increase of $13.92
million was due primarily to cash provided by financing activities of $36.06
million and cash provided by investing activities of $3.19 million, offset by
cash used in operating activities of $25.28 million and loss on foreign exchange
on cash held in foreign currencies of $0.05 million.
Net cash used in operating activities of $25.28 million is comprised of the net
loss of $22.79 million for the period adjusted for non-cash items and for
changes in working capital items. Significant items not involving cash
were $1.91 million of depreciation and amortization of property, plant and
equipment, $1.64 million impairment on inventory, share-based compensation
expense of $2.37 million, accretion of asset retirement obligation of $1.43
million, other non-cash expenses of $0.65 million, a decrease in trade and other
receivables of $0.29 million, offset by an increase in inventories of $5.75
million, a decrease in accounts payable and accrued liabilities of $3.36
million, an increase in prepaid expenses and other assets of $0.44 million, a
$0.22 million change in warrant liabilities, an unrealized foreign exchange gain
of $0.86 million, and a change in the value of Convertible Debentures of $0.15
million.
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Net cash provided by investing activities was $3.19 million comprised of $3.71
million cash received from maturities of marketable securities partially offset
by $0.52 million cash used for the purchase of mineral properties and property,
plant and equipment.
Net cash provided by financing activities totaled $36.06 million consisting of
$44.64 million net proceeds from the issuance of Common Shares from a public
offering and the issuance of shares under the Company's ATM facility, and $0.13
million cash received from non-controlling interest partially offset by $8.30
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.
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. Exploration Stage
SEC Industry Guide 7 defines a reserve as "that part of a mineral deposit which
could be economically and legally extracted or produced at the time of the
reserve determination." The classification of a reserve must be evidenced by a
bankable feasibility study using the latest three-year price average. While the
Company has established the existence of mineral resources and has successfully
extracted and recovered saleable uranium from certain of these resources, the
Company has not established proven or probable reserves, as defined under SEC
Industry Guide 7, for these operations or any of its uranium projects. As a
result, the Company is in the Exploration Stage as defined under Industry Guide
7. Furthermore, the Company has no plans to establish proven or probable
reserves for any of its uranium projects.
While in the Exploration Stage, among other things, the Company must expense all
amounts that would normally be capitalized and subsequently depreciated or
depleted over the life of the mining operation on properties that have proven or
probable reserves.
Items such as the construction of wellfields and related header houses,
additions to our recovery facilities and advancement of properties will all be
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 or production stages.
b. Resource estimates utilized
The Company utilizes estimates of its mineral resources 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 resources 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 estimates may impact the carrying value of
mining and recovery assets, goodwill, reclamation and remediation obligations
and depreciation and impairment.
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.
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, forecast 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 effect on the expected
recoverability of the carrying values of mining and recovery assets.
                                       38

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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.

Recently Adopted Accounting Pronouncements
Recently Issued Accounting Pronouncements Not Yet Adopted
Financial Instruments - Credit Losses
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit
Losses (Topic 326)." The new standard is effective for reporting periods
beginning after December 15, 2022 (January 1, 2023 for the Company) for Smaller
Reporting Companies. 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 Company is currently evaluating
the impact the adoption of ASU 2016-13 will have on its consolidated financial
statements.
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). The Company has evaluated the impact of the
adoption of ASU 2019-12 which does not currently have an impact on its
consolidated financial statements.

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