Description
Uranium Resources, Inc. 10% Owner Fund V L.P. Resource Capital bought 34,330,474 shares on 5-09-2012 at $0.73
BUSINESS OVERVIEW
Our Strategy
URI's vision is to be a leading U.S. uranium producer and developer. To that end, we are focused on developing our assets in New Mexico, consolidating uranium properties to gain production economies while also expanding assets in Texas in order to capitalize on our two processing facilities in South Texas. Key operational elements of the strategic plan for our Texas properties include (1) positioning the Company to return to production in Texas should the price of uranium return to a level sufficient to generate positive cash flow; (2) advance phase II of the Los Finados exploration project and determine the value of continuing through Phase III while enhancing the Company's exploration capabilities; (3) continue to maintain our restoration activities in South Texas in accordance with the Company's existing agreements and regulatory requirements and (4) analyze any synergistic opportunities and potential asset monetization prospects in Texas. In New Mexico, our strategic plan calls for continuing to advance our uranium consolidation activities, as well as maintain our discussions with entities that would benefit from the production of the uranium. In addition, we will continue our communication efforts with the local communities, State and local governments and the Navajo Nation to address legacy issues while continuing education efforts on the safety of today's uranium mining practices with the objective of bridging the gap that currently exists between uranium mining entities and others with stakeholder interests in the State.
Subsequent Events: Signing of Definitive Agreement for Acquisition of Neutron Energy Inc. and Financing Agreement
Throughout 2011, the Company was actively pursuing its strategy of consolidating resources in the New Mexico uranium district. In March 2012, we announced the execution of a merger agreement to acquire 100% of the equity capital (the "Transaction") of Neutron Energy, Inc. ("Neutron"). As part of the Transaction, Resource Capital Fund V L.P. ("RCF") has agreed to purchase $20 million of the Company's common stock to retire the majority of Neutron's outstanding debt owed to RMB Australia Holdings Limited ("RMB"). The remainder of Neutron debt owed to RMB will be converted into URI common stock, resulting in URI acquiring Neutron on a debt-free basis. The Transaction, which has been unanimously approved by the Boards of Directors of both URI and Neutron, is subject to shareholder approval of each company and is expected to close in the third quarter of 2012.
URI has also entered into an investment agreement with RCF pursuant to which RCF will provide $10 million in funding to URI through the purchase of 10.3 million of the Company's common stock. This $10 million capital infusion was completed on March 9, 2012. A total of 37 million URI common shares will be issued for total consideration $38.1 million based on URI's closing stock on February 24, 2012 of $1.03. Upon closing of the merger, URI, at its option, can receive an additional $5 million in RCF financing.
Neutron is a private uranium exploration and development company with significant assets located in the Grants Mineral Belt of New Mexico, including the Cebolleta and Juan Tafoya projects that cover 10,814 acres. The Cebolleta property contains 6.68 million tons of mineralized material at a grade of 0.176% U 3 O 8 and 4.5 million tons of mineralized material at a grade of 0.09% U 3 O 8 , while the Juan Tafoya property contains 3.81 million tons of mineralized material at a grade of 0.149% U 3 O 8 and 0.39 million tons of mineralized material at a grade of 0.112% U 3 O 8 . These properties are located on private lands and are planned to be mined using conventional techniques. Neutron also holds a suite of properties that neighbor certain URI properties west of Mt. Taylor, in the Ambrosia Lake region, that contain 3.2 million tons of mineralized material at a grade of 0.148% U 3 O 8 . Most of the mineralized material at the Ambrosia Lake projects is planned to be mined using conventional techniques, while there may be small isolated pockets which can be mined by ISR techniques. Neutron also has uranium assets in South Dakota and Wyoming.
The total of the New Mexico uranium holdings for the two companies combined is over 206,600 acres.
New Mexico Assets
URI holds a NRC source materials license to build and operate an ISR uranium processing facility on company-owned property at Crownpoint, New Mexico. The license allows for ISR mining at the Churchrock and Crownpoint projects that together hold nearly 34 million pounds U 3 O 8 of in-place mineralized uranium material. The license allows for the production of up to 1 million pounds per year from Churchrock until a successful commercial demonstration of restoration is made; after which the quantity of production can be increased and mining on other properties can begin. Total production under the license is limited to 3 million pounds U 3 O 8 per year. The Company completed a technical report on its Churchrock Section 8 project which was subjected to a peer review by an independent engineering firm in order to validate the economic determinations and engineering plans. The feasibility study completed by the engineering firm is currently under review by the Company. The Company's ability to begin plant construction and wellfield development in New Mexico in 2012 with production following in 2013 is subject to the receipt of necessary approvals for access to the property (See Item 2. Properties—New Mexico—Churchrock/Mancos" ), availability of financing and activation of our permits and licenses. These plans include initiating infrastructure construction and core and definition drilling at our Churchrock Section 8 property in the second quarter of 2012. Current plans are to initially transport uranium loaded resin to either our Kingsville Dome or Rosita processing facility which is expected to accelerate the process to get to production, as the Crownpoint processing facility is constructed.
Overall in New Mexico, the Company owns 183,000 acres of mineral holdings that contain approximately 101.4 million pounds U 3 O 8 of in-place mineralized uranium material that has been verified by an independent engineering firm. A substantial amount of our acreage remains unexplored or currently has insufficient data to estimate in-place mineralized materials. These properties were acquired during the 1980s and 1990s along with a vast database of exploration logs and drill results that were developed by Conoco, Homestake Mining, Mobil Oil, Kerr-McGee, Phillips Petroleum, United Nuclear and Westinghouse Electric Corporation. Three of our properties were in various stages of being developed as conventional underground mines in the early 1980s with a total designed capacity to produce approximately 4.5 million pounds U 3 O 8 per year. We also possess a 16.5% royalty interest on a partial section of the Mount Taylor Mine owned by Rio Grande Resources, a division of General Atomics.
Since 2007, we have digitized approximately 18,800 drill logs in order to secure the data and allow for easier analysis of drill hole information. These logs total nearly 23 million feet of hole drilled in the 1970s and 1980s with an estimated drilling and logging replacement cost of $700 million.
The Company plans to develop its uranium assets in New Mexico using the most economic and efficient method for each project and will be subject to improvements in uranium prices. These mining methods may include the use of ISR, old stope leaching, and conventional mining and milling techniques.
Texas Production History and Current Status
The Company developed and produced over 560,000 pounds U 3 O 8 from the Longoria and Benavides projects in the early 1980s. These properties were fully restored between 1986 and 1991. From 1988 through 1999, we produced approximately 6.1 million pounds U 3 O 8 from two South Texas projects: 3.5 million pounds from the Kingsville Dome project and 2.6 million pounds U 3 O 8 from the Rosita project. In 1999, we shut-down production at both projects due to depressed uranium prices. We had no revenue from uranium sales between 2000 and the fourth quarter of 2004, and therefore had to rely on equity infusions to fund operations and maintain our critical employees and assets.
After uranium prices rose significantly in 2004, we placed our South Texas Vasquez property into production during the fourth quarter of that year. In April 2006, Kingsville Dome returned to production followed by a startup of Rosita in June 2008. From 2004 to the end of 2009, these three projects produced a total of 1.4 million pounds of U 3 O 8 .
The Vasquez project was mined out in 2008 and is now in restoration. Rosita production was shut-in in October 2008 due to depressed pricing and technical challenges in the first new wellfield that made mining uneconomical. The decline in uranium prices throughout 2008 also led to a decision in October 2008 to defer new wellfield development at Rosita and Kingsville Dome. Production continued in two existing wellfields at Kingsville Dome and was completed in July 2009. The Company has not had any operating mines in Texas since that time, and is currently evaluating the factors for resuming production at our South Texas projects.
The Company's strategy with regard to restarting production in South Texas is to insure that production, once resumed, is sustainable in the 300,000 to 500,000 pound range per year. The Company believes its existing South Texas reserve base from its existing production areas at Kingsville Dome and Rosita and the reserves identified at its Rosita South and adjacent Rosita production acreage will enable it to produce at that level for up to two years. The Company is in the process of finalizing the necessary permits for its Rosita South and adjacent Rosita acreage and expects the required permits will be granted. Production could begin within 6-12 months after a decision to restart is made and will be dependent upon sustainable realized uranium prices stabilizing at profitable levels.
Longer-term, the Company plans to expand its resources through acquisition of additional South Texas properties and through exploration activities. The first phase of the exploration component of this plan was initiated with the Company signing a three-year exploration agreement covering 53,524 acres in Kenedy County, Texas. The exploration agreement includes an option to lease the acreage for uranium production.
2011 Events
In May 2011, URI entered into a joint venture agreement with Cameco Resources ("Cameco") for a three-phase, three-year exploration program on the Los Finados property in Kenedy County, Texas. The first phase of the drilling program began on June 21 and was completed by November 30 at a cost of approximately $1 million. A total of 19 holes totaling 24,560 feet were drilled in the initial phase. Phase I exploratory work used a widely spaced drilling program covering a grid designed to test the potential for uranium mineralization over the 53,524 acre area.
In May 2011, the Company received notice from the New Mexico Environment Department ("NMED") that its discharge plan (New Mexico's terminology for an Underground Injection Control Permit under the federal Safe Drinking Water Act), was in timely renewal and that the NMED would proceed in conducting a technical review of its renewal application. NMED's confirmation that the discharge plan is in timely renewal allowed the Company to remain on track for the timing of its production plans in New Mexico.
In October 2011, the Company received notification that the Nuclear Regulatory Commission ("NRC") reactivated our Source Materials License to conduct in-situ recovery (ISR) uranium mining in McKinley County, New Mexico. The license, which was originally issued in 1998 to Hydro Resources, Inc., URI's wholly-owned subsidiary, has been in timely renewal status since 2003. The reactivation effectively enables the use of the license by the Company for the production of uranium as defined in the license. With this notice the Company has undertaken to renew the license for a standard 10-year term. During the renewal process, the active license may be utilized according to its present terms and conditions, which allows for the production of up to 1 million pounds per year from Churchrock Section 8 until a successful commercial demonstration of restoration is made, after which mining on other properties can begin and the quantity of production can be increased to 3 million pounds per year.
In November 2011, the Company and Cameco announced its intent to move forward with Phase II exploration program on Los Finados Project. The second phase of drilling began in December 2011 and is expected to be completed by the end of November 2012. URI has committed an additional $1.5 million in exploration activities during the twelve-month period ended November 30, 2012, in order to maintain the option to lease the property. Under Phase II of the agreement with URI, Cameco will fund $1.0 million toward those exploration activities and will earn an additional 10% interest in Los Finados, raising its interest in the project to 50%. Cameco may elect to fund the entire $1.5 million by moving into Phase III of the program.
Throughout 2011, the Company's focus in New Mexico has been on the completion of its feasibility study to determine the options available to advance its Churchrock/Crownpoint project. The feasibility study and its proposed options will determine the best mining method of the Company's various projects in New Mexico as well as the size, design and capabilities of its Churchrock/Crownpoint ISR wellfield and processing facilities. Construction and production will be dependent upon having the necessary financial resources in place, the speed of construction activities, the availability of capital equipment and a recovery in uranium prices. The Company completed a technical report on its Churchrock Section 8 project which was subjected to a peer review by an independent engineering firm in order to validate the economic determinations and engineering plans. The feasibility study completed by the engineering firm is currently under review by the Company.
Uranium Reserves/Mineralized Material
In accordance with the Securities and Exchange Commission's (the "SEC") Guideline on Non-Reserve Mineralized Material, and as shown in the following table, we estimate 101.4 million pounds of in-place mineralized uranium material on our New Mexico properties as of December 31, 2011. The estimate for each New Mexico property is based on studies and geologic reports prepared by prior owners, along with studies and reports prepared by geologists engaged by the Company. The estimates presented below were reviewed and affirmed by Behre Dolbear & Company (USA) an independent private engineering firm in their report dated February 26, 2008. Since the date of the report, the Company has maintained its ownership position of these properties, the properties have not been subject to any production activities and the estimates remain unchanged.
CEO BACKGROUND
Paul K. Willmott has served as a director since August 1994. On August 6, 2007, Mr. Willmott became Executive Chairman of the Board. Mr. Willmott previously served as President from February 1995 to October 2006 and from July 1995 to August 2007 as Chairman of the Board and Chief Executive Officer. Mr. Willmott served as our Chief Financial Officer from April 12, 1995 to September 25, 1995. Mr. Willmott retired from Union Carbide Corporation, where he was involved for 25 years in the finance and operation of Union Carbide's world-wide mining and metals business. Most recently, Mr. Willmott was President of UMETCO Minerals Corporation, a wholly owned subsidiary of Union Carbide, from 1987 to 1991, where he was responsible for Union Carbide's uranium and vanadium businesses. From January 1993 until February 1995, Mr. Willmott was engaged by the Concord Mining Unit as a senior vice president where he was primarily involved in the acquisition of UMETCO Minerals Corporation's uranium and vanadium operating assets. Mr. Willmott graduated from Michigan Technological University with a Bachelor of Science degree in Mining in 1964 and a Bachelor of Science Degree in Engineering Administration in 1967. He has been an active member of the American Institute of Mining Engineers, the Canadian Institute of Mining Engineers and a number of state professional organizations.
As a result of his involvement in various executive-level positions with the Company over the last 17 years, including his tenure as President, Chief Executive Officer, Chief Financial Officer and his current role as Executive Chairman, Mr. Willmott is able to provide valuable insights regarding the management and strategy of the Company. In addition, Mr. Willmott's 25 years with Union Carbide provide him with extensive knowledge of the mining industry, including the unique issues surrounding the mining of uranium.
Donald C. Ewigleben has served as President, Chief Executive Officer and Chief Operating Officer and director since September 3, 2009. Prior to joining the Company, Mr. Ewigleben was President and Chief Executive Officer of AngloGold Ashanti North America Inc. in Denver, Colorado and also served as the Executive Officer—Sustainability & Legal Affairs for AngloGold Ashanti in the Americas. Mr. Ewigleben served as the Executive Officer—Law, Safety, Health & Environment for AngloGold Ashanti Ltd. in Johannesburg, South Africa in 2006 and 2007. Prior to becoming the CEO of AngloGold in 2004, Mr. Ewigleben served as President and CAO (2003) and as Vice President and General Counsel (2000). Before joining AngloGold in 2000, he was the Vice President—Environmental and Public Affairs for Echo Bay Mines. Prior to AngloGold and Echo Bay, Mr. Ewigleben served in various capacities for AMAX Gold and AMAX Coal Industries. He began his career as a governmental affairs representative for AMAX in Washington, DC and multiple state legislatures. Later, his legal practice encompassed administrative law in the areas of environmental and health & safety. He has been responsible for the development of several award-winning environmental programs and has directed the permitting for many successful operations in the United States, Canada, Mexico, Russia, New Zealand, and the Philippines. Mr. Ewigleben has served on the Board of Directors for the National Mining Association, the Gold Institute, the Mining Association of Canada, numerous state and provincial coal and hard-rock mining associations and as a trustee of the Northwest Mining Association, the Eastern Mineral Law Foundation and the Rocky Mountain Mineral Law Foundation. Mr. Ewigleben was elected as a Director and Chairman of the Board of International Tower Hill Mines ("ITH") in November 2011. ITH is a junior gold mining development company which holds the Livengood property near Fairbanks, Alaska. A graduate of the Indiana University School of Law, he also holds Bachelor of Science degrees in American history, political science and music from Ball State University. Mr. Ewigleben is a member of the American Bar Association and is admitted to the practice of law in Colorado and Indiana.
Mr. Ewigleben's qualifications for election to the Company's Board of Directors include his current experience and leadership as the Company's President and Chief Executive Officer. He also has extensive management experience as a result of his prior employment in executive management roles at other companies within the mining industry, which enables him to provide valuable counsel to the Company on issues of strategic planning and corporate governance. Mr. Ewigleben also brings to the Company a deep understanding of the health and safety issues involved in the mining of uranium.
Terence J. Cryan has served as a director since October 2006. Mr. Cryan has over twenty-five years of experience in international business as an investment banker in the United States and Europe. In 2001, Mr. Cryan co-founded and presently serves as the Managing Director of Concert Energy Partners, an investment banking and private equity firm based in New York City. Prior to that, Mr. Cryan was a Senior Managing Director in the Investment Banking Division at Bear Stearns. Earlier in his career, Mr. Cryan was a Managing Director, Energy and Natural Resources Group Head and member of the Investment Banking Operating Committee at Paine Webber. Mr. Cryan joined Paine Webber following its acquisition of Kidder, Peabody in 1994. From 2007 to 2010, Mr. Cryan also served as President and CEO of Medical Acoustics LLC. Mr. Cryan has also been an adjunct professor at the Metropolitan College of New York Graduate School of Business and is a frequent lecturer at finance and energy and natural resources industry gatherings. Mr. Cryan holds a Master of Science degree in Economics from the London School of Economics and a B.A. from Tufts University. Mr. Cryan has served on the board of directors of Global Power Equipment Corp. Inc. since February 2008, has served on the board of directors of Gryphon Gold Corporation since August 2009 and was on the board of directors of The Providence Service Corporation from May 2009 to May 2011.
Mr. Cryan's extensive financial industry experience and educational background in economics provide him with a wealth of knowledge in dealing with financial, accounting and regulatory matters and make him particularly well suited to serve on the Company's audit committee. His prior professional experience also permits Mr. Cryan to provide valuable advice to the Company with respect to potential capital raising, merger and acquisition transactions.
Marvin K. Kaiser has served as a director since July 12, 2007. He is Chairman of the Audit Committee. Since 2006, Mr. Kaiser has owned Whippoorwill Consulting LLC, a consulting practice specializing in the natural resource industry. In February 2006, Mr. Kaiser retired from The Doe Run Company, a privately held natural resources company and the largest integrated lead producer in the Western Hemisphere, where he served as Executive Vice President and Chief Administrative Officer. Prior to his thirteen years with Doe Run, Mr. Kaiser held the positions of Chief Financial Officer for Amax Gold, Olympic Mining Corporation and Ranchers Exploration at various times over a 24-year period. Mr. Kaiser graduated from Southern Illinois University with a Bachelor of Science degree in Accounting in 1963. He is a Certified Public Accountant and is experienced in all aspects of corporate finance and management. Mr. Kaiser served on the Board of Directors of New West Gold Corporation in 2006 and 2007, Constellation Copper Corporation in 2007 and 2008, El Capitan Precious Metals Inc. in 2007 though 2009 and currently serves on the Board of Directors for Brigus Gold Corp. (formerly named Apollo Gold Corporation) since 2006. Mr. Kaiser has also served on the Board of Directors of Gryphon Gold Corporation since 2008 and was appointed their Chairman in February 2012.
Mr. Kaiser's qualifications for election to the Company's Board of Directors include over 40 years in the mining and exploration industries. In addition, Mr. Kaiser's background in accounting and his prior experience serving on the audit committees of other public companies make him a valuable adviser to the Company on financial and accounting issues and uniquely qualify him to serve as the Company's audit committee expert.
John H. Pfahl is a nominee for director. He is an Associate at RCF Management L.L.C. ("RCF"), where he has worked since June 2008. RCF is an investment advisor whose clients are primarily a series of private equity funds with mandates to make investments exclusively in the mining sector across a diversified range of mineral commodities and geographic regions. During his time with RCF, Mr. Pfahl has conducted technical and commercial due diligence, negotiated financing terms and managed and participated in active investments in a large number of mining companies with projects ranging from late stage exploration through production and across a broad spectrum of commodities (including numerous uranium projects). Mr. Pfahl was a graduate student and performed research at the Colorado School of Mines ("CSM") from August, 2007 through December, 2008. Prior to his time at CSM, Mr. Pfahl spent five years as a consultant in the environmental sector, including with Newfields Boulder LLC from April, 2004 through August, 2007, He holds a Bachelor of Science degree in Engineering and a Master of Engineering (Master of Mines) degree from the Colorado School of Mines.
Mr. Pfahl's broad based expertise, from both a technical and commercial perspective, gained from his time at RCF, provides valuable insights in due diligence, capital markets and mergers and acquisitions to the Company. In addition, his past experience in working with environmental liabilities and reclamation activities provides additional insight into the Company's environmental responsibilities.
MANAGEMENT DISCUSSION FROM LATEST 10K
Financial Condition and Results of Operations
Comparison of Twelve Months Ended December 31, 2011, 2010 and 2009
Production and production costs. Our uranium production was zero in both 2011 and 2010 and totaled 59,000 pounds in 2009. In 2006 and 2007 we saw a decline in Vasquez production and the start-up of production from our Kingsville Dome project. The Vasquez project was mined out in 2008 and existing wellfields at Kingsville Dome completed production in the second quarter of 2009.
Production at our Rosita project was suspended in October 2008 because of high cost of production combined with lower uranium prices. Although technically challenging, we believe the reserves from Rosita can be produced economically with higher uranium prices.
We completed production at the Vasquez project in the fourth quarter of 2008 and we shut-in production at the Kingsville Dome project in the second quarter of 2009. The Vasquez project is now being restored. At the Kingsville Dome and Rosita projects, we shut-in production to conserve the in-place reserve base in response to a drop in uranium market prices. We do not intend to resume production at these sites until there is a significant recovery of uranium prices.
The non-cash compensation expense recorded for the years ended December 31, 2011, 2010 and 2009 resulted from the recognition of expense related to the fair value of the Company's stock option and restricted common stock grants. The value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the input of subjective assumptions, including the expected term of the option award and stock price volatility. The expected term of options granted was derived from historical data on our employee exercise and post-vesting employment termination experience. The expected volatility was based on the historical volatility of our stock.
The increases in salary and payroll burden in 2010 resulted primarily from a change in executive level personnel in late 2009, the reinstatement of the non-cash portion of executive level salaries in the 2 nd half of 2010, the payment of performance related bonuses in 2010 and a 50% increase in medical premium costs for the 2010 plan year.
The Company's legal, accounting and public company expenses increased by $1.1 million in 2011 compared with 2010. The increase resulted primarily from costs incurred in connection with acquisition activity for the Neutron Energy, Inc. transaction and legal fees related to the Kleberg County litigation. The Company's legal, accounting and public company expenses increased by $308,000 in 2010 compared with 2009. These increases resulted from legal fees related to the Saenz lawsuit, the recording of our regulatory fees as G&A costs in 2010 because of our no longer being in active uranium production during the year, increased Board of Director fees related to the addition of a Board member in January 2010 and an increase in the number of meetings held during the year and higher accounting fees related to services performed for the audit of the Company's 401k plan.
In September, 2010, we recorded $1.375 million in settlement of the lawsuit titled, Saenz v. URI Inc. The payment of $1.375 million in cash included amounts for prior royalties that the plaintiffs had previously rejected. The payment was made in February 2011, upon the execution of amendments to the leases and to documentation of other aspects of the settlement and dismissal of the suit.
Insurance costs increased in 2011 primarily because of an increase in general liability and umbrella insurance premiums realted to an under lying increase in the Company's payroll (the basis for the premium determination) and a $4 million increase in coverage to comply with the insurance requirements of the Los Finados project. Insurance costs increased in 2010 primarily because of an increase in director's and officer's liability premiums in 2010 compared to 2009.
Consulting and professional service expenses in 2011 increased by $417,000 compared to 2010. This increase resulted primarily from costs incurred in connection with the preparation of the Churchrock Section 8 feasibility study. Consulting and professional service expenses in 2010 were lower than 2009 by $155,000. This reduction resulted primarily because fees incurred in 2009 for New Mexico legacy and site and property characterization activities were not repeated in 2010.
Reduced office related costs in 2010 resulted from executive search fees and employee allowances paid in 2009 that were not incurred in 2010.
Net Income (Loss). For the year ended December 31, 2011, we had a net loss of $11.2 million compared to net losses of $10.4 million and $10.1 million in 2010 and 2009, respectively. On a diluted per share basis, losses were ($0.12) in 2011, ($0.14) in 2010 and ($0.18) in 2009. These losses in 2011, 2010 and 2009 include an impairment provision for the Kingsville Dome, Vasquez and Rosita projects of $1,460,000, $961,000 and $3.5 million, respectively and exploration charges of $2,000, $62,000 and $1.6 million, respectively.
Cash Flow. As of December 31, 2011, we had a cash balance of approximately $2.9 million compared with approximately $15.4 million and $6.1 million at December 31, 2010 and 2009, respectively.
In 2011, we had a negative cash flow from operations of $10.4 million, resulting primarily from our lack of revenues during the year and the cessation of uranium production in 2009.
During 2011, we used $2.4 million in investing activities, including increases to collateralize our financial surety obligation during the year of $2.0 million and $322,000 of capital additions made during the year at our South Texas and New Mexico projects.
During 2011, a total of 476,644 shares of common stock were sold resulting in net proceeds of approximately $469,000 pursuant to the Company's ATM Sales Agreement. The Company incurred approximately $144,000 in legal, accounting and other fees in connection with its shelf registration statement and the ATM Sales Agreement.
In 2010, we had a negative cash flow from operations of $7.4 million, resulting primarily from our cessation of uranium production in 2009 and the related lack of uranium sales during the year. In 2009, we had a negative cash flow from operations of $5.0 million, resulting primarily from low uranium production and related sales volumes.
In 2010, we raised net proceeds of approximately $19.1 million through the sale of 35,365,330 shares of common stock. In the June/July period we issued 27,142,830 shares of common stock at $0.42 per share and in November 8,222,500 shares of common stock at $1.16 per share in underwritten public offerings.
During 2010, we used $2.4 million in investing activities, which includes $1.2 million of capital additions for the acquisition of exploration property in South Texas. Additionally, we increased the collateral required for our financial surety obligation by $551,000 during the year. The deferral of wellfield development activities resulted in our capital expenditures used in investing activities being reduced by approximately $10.2 million to $820,000 in 2009.
Liquidity—Cash Sources and Uses for 2012
As of December 31, 2011, the Company had $2.9 million in cash and our cash balance at February 29, 2012 was approximately $2.0 million. The Company is not currently conducting uranium production activities and has no uranium inventory. The Company is not projecting any sales revenue and related cash inflows for 2012.
The Company raised $10 million on March 9, 2012 in a private placement of common stock with Resource Capital Fund V L.P. ("RCF"). In connection with the transaction we sold 10,259,567 shares of common stock at a price of $0.9747 per share. The capital raise was conducted as a part of an acquisition bid for all of the outstanding shares of Neutron Energy, Inc. See (Note 12—"Subsequent Event") for a description of this financing and additional funding commitments made by RCF to the Company.
On October 28, 2011, the Company entered into an At-The-Market Sales Agreement with BTIG, LLC, allowing it to sell from time to time, its common shares having an aggregate offering price of up to $15.0 million, through an "at-the-market" equity offering program ("ATM Sales Agreement"). The Company raised additional capital in November and December 2011 and in January 2012 through the sale of common stock of common stock under this program. During 2011, a total of 476,644 shares of common stock were sold which resulted in net proceeds of approximately $469,000 pursuant to the ATM Sales Agreement. In January 2012, a total of 1,815,073 shares of common stock were sold which raised net proceeds of approximately $1,519,000. The Company incurred approximately $144,000 in legal, accounting and other fees in connection with its shelf registration statement and the ATM Sales Agreement. The Company has a total of $12.9 million available for future sales under the ATM Sales Agreement.
The Company expects that its existing cash, the funding commitments from RCF and funding available under the ATM Sales Agreement will provide it the necessary liquidity moving forward into 2013.
Off Balance Sheet Arrangements
The Company has obtained financial surety relating to certain of its future restoration and reclamation obligations as required by the State of Texas regulatory agencies. The Company has bank Letters of Credit (the "L/Cs") and performance bonds issued for the benefit of the Company to satisfy such regulatory requirements. The L/Cs were issued by Bank of America and the performance bonds have been issued by United States Fidelity and Guaranty Company ("USF&G"). L/Cs for $5,858,000, $5,858,000 and $5,761,000 at December 31, 2011, 2010 and 2009, respectively such L/Cs are collateralized in their entirety by certificates of deposit.
Performance bonds totaling $2,834,000 were issued for the benefit of the Company at December 31, 2011, 2010 and 2009. USF&G has required that the Company deposit funds collateralizing a portion of the bonds. The amount of collateral exceeded the amount of the bonding issued by USF&G by approximately $60,000 at December 31, 2011. The amount of bonding issued by USF&G exceeded the amount of collateral by $2.5 million at December 31, 2010 and 2009, respectively. In the event that USF&G is required to perform under its bonds or the bonds are called by the state agencies, the Company would be obligated to pay any expenditure in excess of the collateral.
Critical Accounting Policies
Our significant accounting policies are described in Note 2 to the consolidated financial statements on page F-8 of this Form 10-K. We believe our most critical accounting policies involve those requiring the use of significant estimates and assumptions in determining values or projecting future costs.
Specifically regarding our uranium properties, significant estimates were utilized in determining the carrying value of these assets. These assets have been recorded at their estimated net realizable value for impairment purposes, which is less than our cost. The actual value realized from these assets may vary significantly from these estimates based upon market conditions, financing availability and other factors.
Regarding our reserve for future restoration and reclamation costs, significant estimates were utilized in determining the future costs to complete the groundwater restoration and surface reclamation at our mine sites. The actual cost to conduct these activities may vary significantly from these estimates.
Such estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
Financial Condition and Results of Operations
Comparison of Three and Six Months Ended June 30, 2012 and 2011
Cost of Uranium Sales. While we had no uranium production in the first half of 2012 or 2011, we have maintained stand-by, maintenance and restoration activities at our South Texas projects and as a result have incurred operating costs, which in the first half of 2012 were $2,227,000 compared with $1,462,000 in the same period of 2011. Total cost of uranium sales includes operating expenses, depreciation and depletion expenses, amortization of our restoration and reclamation cost estimates, impairment of uranium properties and exploration costs incurred.
The costs for the first half of 2012 resulted from shut-in costs at our Kingsville Dome, Rosita and Vasquez projects and costs incurred in connection with the Kingsville Dome pond recovery project. The costs for the first half of 2011 resulted from shut-in costs at our Kingsville Dome, Rosita and Vasquez projects and from exploration costs incurred in the first half of 2011 in connection with pre-evaluation costs associated with the exploration program planned for the Los Finados project in Kenedy County, Texas.
Impairment of Uranium Properties. During the first half of 2012 and 2011, we determined the carrying value of our uranium assets were impaired and recorded an impairment provision of approximately $752,000 and $588,000 in 2012 and 2011, respectively.
Accretion and Amortization of Future Restoration Costs. Accretion and amortization of future restoration costs in the first half of 2012 and 2011 were $47,000 and $69,000, respectively.
General and Administrative Charges. We incurred general and administrative charges including corporate depreciation of $5.3 million and $4.3 million, respectively in the six months ended June 30, 2012 and 2011.
Liquidity—Cash Sources and Uses for 2012
As of June 30, 2012, the Company had $2.8 million in cash and our cash balance at August 3, 2012 was approximately $2.0 million. The Company is not currently conducting uranium production activities and has no uranium inventory. The Company is not projecting any sales revenue and related cash inflows for 2012.
The Company raised $10 million on March 9, 2012 in a private placement with Resource Capital Fund V L.P. (“RCF”). In that transaction we sold 10,259,567 shares of common stock at a price of $0.9747 per share. The capital raise was conducted as a part of an acquisition bid for all of the outstanding shares of Neutron Energy, Inc. See (Note 10—“Merger and Financing Agreement with Neutron Energy”) for a description of this financing and the additional funding commitment from RCF.
On October 28, 2011, the Company entered into an At-The-Market Sales Agreement with BTIG, LLC, allowing it to sell from time to time, its common shares having an aggregate offering price of up to $15.0 million, through an “at-the-market” equity offering program (“ATM Sales Agreement”). The Company will pay BTIG a commission equal to 3.0% of the gross proceeds from the sale of any shares pursuant to the ATM Sales Agreement. Pursuant to a fee sharing agreement, BTIG will pay a portion of the commissions it receives from the Company in connection with the ATM Sales Agreement to Reedland Capital Partners, an Institutional Division of Financial West Group. In January 2012, a total of 1,815,073 shares of common stock were sold under this program which raised net proceeds of approximately $1,491,000. In July 2012, the Company sold an additional 2.66 million shares under the ATM program raising net proceeds of $1.455 million. At August 3, 2012 the Company had a total of $11.4 million in share value available for future sales under the ATM Sales Agreement.
The financial statements of the Company have been prepared on the basis of accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company expects that its existing cash, the additional funding commitment from RCF and funding available under the ATM Sales Agreement will provide it the necessary liquidity for the next twelve months. In order to make use of its ATM Sales Agreement prior to the closing of the merger with Neutron Energy, Inc. (“NEI”), the Company will require the consent of NEI, RCF and RMB Australia Holdings Limited. The Company also expects that it will need to secure approximately $50 million in additional capital for the development of its Churchrock uranium project in New Mexico in advance of beginning development activities on the project. There can be no assurance that we will be able to raise sufficient funds under the ATM program or the funds necessary to allow the Company to move forward with its future development plans in New Mexico.
Cameco Exploration Agreement
The exploration rights to the Los Finados project were acquired in December 2010. Evaluation of the uranium mineralization of this property began in the second quarter of 2011 and may continue for up to three years. The lease option agreement included a $1 million fee paid at signing. The lease option includes a three phase exploration program which requires a minimum exploration obligation of one hundred exploration wells or $1.0 million investment in the first year, an additional two hundred exploration wells or $1.5 million investment in the second year and, in the third year, an additional two hundred exploration wells or $2.0 million investment. The timing for the Company’s decision to continue exploration under phase three of the program is November 30, 2012. Investment or drilling in excess of the minimum requirement in any year counts toward the following year’s requirements.
In May 2011, the Company entered into a joint venture agreement with Cameco Resources (“Cameco”) for a three-phase, three-year exploration program on the Los Finados property in Kenedy County, Texas. The first phase of the drilling program began on June 21, 2011 and was completed by November 30, 2011 at a cost of approximately $1 million. A total of 19 holes totaling 24,560 feet were drilled in the initial phase. Under this agreement Cameco will fund the majority of the exploration costs and can earn up to a 70% interest in the project in consideration for their investment. Upon execution of the exploration agreement, CTI paid the Company $300,000.
In November 2011, the Company and Cameco announced their intent to move forward with Phase II of the exploration program on the Los Finados Project. The second phase of drilling began in December 2011 and is expected to be completed by the end of November 2012. URI has committed an additional $1.5 million in exploration activities during the twelve-month period ended November 30, 2012, in order to maintain the option to lease the property. Under Phase II of the agreement with URI, Cameco will fund $1.0 million toward those exploration activities and will earn an additional 10% interest in Los Finados, raising its interest in the project to 50%. Cameco may elect to fund the entire $1.5 million by moving into Phase III of the program. At June 30, 2012, the Company has incurred and billed approximately $941,000 in costs to Cameco under Phase II of the agreement.
At the conclusion of the exploration program, the parties may enter into an operating joint venture to develop and produce any discovered uranium resources and reserves. The uranium would be processed at URI’s Kingsville Dome or Rosita processing facility, with Cameco’s share of production being processed under a toll processing agreement with URI.
Contingent Liabilities—Off Balance Sheet Arrangements
The Company has obtained financial surety relating to certain of its future restoration and reclamation obligations as required by the State of Texas regulatory agencies. The Company has bank Letters of Credit (the “L/C’s) and performance bonds issued for the benefit of the Company to satisfy such regulatory requirements. The L/C’s were issued by Bank of America and the performance bonds have been issued by United States Fidelity and Guaranty Company (“USF&G”). L/C’s for $5,858,000 were issued at June 30, 2012 and December 31, 2011, respectively, such L/C’s are collateralized in their entirety by certificates of deposit.
Performance bonds totaling $2,834,000 were issued for the benefit of the Company at June 30, 2012 and December 31, 2011. USF&G has required that the Company deposit funds collateralizing a portion of the bonds. The amount of the collateral exceeds the amount of bonding issued by USF&G by $89,000 at June 30, 2012 and $60,000 at December 31, 2011. In the event that USF&G is required to perform under its bonds or the bonds are called by the state agencies, the Company would be obligated to pay any expenditure in excess of the collateral.
Critical Accounting Policies
Our significant accounting policies are described in Note 2 to the consolidated financial statements included in the Company’s 2011 Annual Report on Form 10-K. We believe our most critical accounting policies involve those requiring the use of significant estimates and assumptions in determining values or projecting future costs.
Specifically regarding our uranium properties, significant estimates were utilized in determining the carrying value of these assets. These assets have been recorded at their estimated net realizable value for impairment purposes on a discounted cash flow analysis, which is less than our cost. The actual value realized from these assets may vary significantly from these estimates based upon market conditions, financing availability and other factors.
Regarding our reserve for future restoration and reclamation costs, significant estimates were utilized in determining the future costs to complete the groundwater restoration and surface reclamation at our mine sites. The actual cost to conduct these activities may vary significantly from these estimates.
Such estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.
CONF CALL
Deborah Pawlowski - Investor Relations
Thank you, Claudia, and good morning, everyone. We certainly appreciate your time today and your interest in Uranium Resources.
On the call with me, I have Don Ewigleben, President and CEO; Tom Ehrlich, Chief Financial Officer; Rick Van Horn, Senior Vice President of Operations and Development; and Mark Pelizza, Senior Vice President of Environment, Safety and Public Affairs. Don will go over the results of the quarter and our focus -- what our focus and strategic initiatives of the company’s as we move forward, and he will then follow with a Q&A opportunity.
If you don’t have the release that went out after the market closed yesterday, it can be found on our website at www.uraniumresources.com.
As you are aware, we may make some forward-looking statements during the formal presentation and Q&A portion of this teleconference. Those statements apply to future events, which are subject to risks and uncertainties, as well as other factors that could cause the actual results to differ materially from where we are today.
These factors are outlined in the news release, as well as in documents filed by the company with the Securities and Exchange Commission. You can find those on our website where we regularly post information about the company, as well as on the SEC's website at sec.gov. So please review our forward-looking statements in conjunction with these precautionary factors.
With that, I’d like to turn the call over to Don to begin the discussion. Don?
Don Ewigleben - President and CEO
Thank you, Debby. And thanks to those of you who have joined this morning. We do appreciate it. I’d like to start today with five major areas of our business that I’m going to update and I’ll come back in detail on each of them.
First, a short-term uncertainty that remains in this marketplace. We think in a long-term, we will still come back, we will see strong market fundamentals uranium space.
Secondly, our recently announced agreement with Navajo Nation is a significant step forward towards the development of our assets in New Mexico and I wanted detail what that means to us.
Third, the Neutron acquisition, which is about to close will position us as one of the top U.S. uranium development companies and while it's always important to, say, how big you are, or we could care less how many overall pounds in the ground. It's about getting to production with quality pounds and I’m going to talk about that in detail.
Four, we are confident that the $50 million that we need to build Churchrock and Crownpoint will be met. I’ll give you some indication why we are so confident.
Fifth, we are progressing our Texas projects as planned. We want to return to production in Texas as well. So I’ll detail some of those thoughts.
Let me start with a macro side and look at what we now know to be a difficult soft market.
The present market fundamentals with regarding uranium are not strong. Uranium spot price recently dropped below $50 and this week is been hovering around $49 and changed.
The soft market is sort of typical for this time of the year, so it wasn’t unexpected. Part of the reason is still the Department of Energy. Their uranium sales are between 5 million and 6 million pounds per year or approximately 10% of the annual U.S. reactor consumption was expected. A recent secretarial determination that could increase sales to about 15% of annual U.S. reactor consumption wasn't as expected.
We must temper those numbers with the belief that there is still not enough excess supply to balance what will happen in the coming years. With regard to the Russian HEU expiration and long-term demands international, with regard to what happened at the DOE. Let me just say that the Mining Associations, Uranium Associations are working with the Department of Energy to get back to a balanced approach.
Long-term fundamentals still remain very strong. There is an increasing demand. Let just look what happened recently. Japan restarted the Oi reactors 3 and 4, and we expect this will pave the way for more restarts in Japan.
China started the new reactor in the first quarter of this year and they have seven more planned in 2012 or into 2013. Reactors are expected to come online in other high growth countries such as South Korea, Russia, Argentina and India.
Of equal importance there are four reactors under construction in Georgia and South Carolina. Although, all that’s going on and increasing the long-term demand there is a decreasing supply.
We’ve talk frequently about the Russian HEU agreement expiring in 2013. I could remove as much as 24 million pounds annually of the supply for U.S. utilities. There are questions regarding many, many of the new development projects as some are being delayed, some are being canceled.
So all the projections that previously were there regarding future production are now coming into question. That's why we still believe in the long-term fundamentals for a decreasing supply and increasing demand.
We expect this supply and demand imbalance to drive uranium prices up. We are preparing to capitalize on this imbalance by being in production in New Mexico in 2014 and hopefully similarly in production in Texas about the same time. And I’ll talk a little bit more about that when I get to those particular projects.
Let me move to the Access Agreement that we have just reached with the Navajo Nation. On July 31st, our subsidiary HRI and the Navajo Nation reached this agreement on temporary access for a Churchrock Section 8 project via Section’s 9 and 17. I cannot stress the significance of this achievement enough.
It is essentially, the first time an agreement has been made with the Navajo Nation for uranium producer in a very, long, long time. It settles in the alleged trespass issue and provides access for regulatory requirements and permit activities on our Section 8, utilizing their Section’s 9 and 17. But it’s just the first step towards a comprehensive agreement with the Navajo Nation that we intend to reach.
We are working on costs and timelines for the remediation work that we've described, as well as the overall subject matter of the agreements, a permanent right away to support our Churchrock/Crownpoint development project.
Let me just pause and say, why, why did we do this? You know that in years past, we had a considerable amount of time spent, management efforts and certainly dollars in litigation.
And fortunately for us, that provided a strong answer to the question of jurisdiction on Section 8. We have it, and well permits therefore were valid. But we need to be working in the State of New Mexico in concert with the Navajo Nation.
Most of our employees will be Navajo and for all of the surrounding areas in that vicinity of our Churchrock Section 8 property, we will have as our neighbor the Navajo Nation. Our ethics policy, our public affairs strategy, our community affairs desire is to work in a transparent open way with that community and community is the Navajo Nation.
Unfortunately, they've had years and years of problems that occurred back in the 50s and 60s with frankly, the U.S. government is one of the reasons. But many small companies that didn't clean up after themselves but we intend to fix some of it. That's where we started with the Section 17 clean up.
And we knew that we would be doing it at some point in time. We’ve simply concluded that we can conduct that restoration activity to a point that allows us to stay on schedule for construction and operation of our project.
And since we were going to be doing it at some point in time, we are going to do it upfront as a show of good faith to the Navajo Nation, that we can operate our properties in an environmentally sound way and protect our employees, as I've said, many of which will be Navajo in a safe manner.
With regard to other parts of New Mexico, regarding the whole Churchrock/Crownpoint project on Section 8, we will be building a facility that will process 6.5 million pounds of in-place non-reserve mineralized material.
The necessary UIC permit and NRC license are both in timely renewal, which means they are valid. But we are in a process of having both renewed to ensure that we have derisk this project to the maximum extent possible, since the discussions with the Navajo Nation.
The NRC license addresses 27.4 million pounds of what we expect to be an eventual mine life of up to 15 years. We have a third-party prepared feasibility study and it is determined that Section 8 is an economically viable project.
The capital requirements are expected to be about $50 million. We got great confidence in our ability to secure the necessary funds for this project by virtue of conversations that we've had with certain shareholders. We are fully prepared to support our return to production.
We will start the first wellfield and transport material to our existing permitted processing facilities in Texas and then we will expand the seven total wellfields with staggered production in the Section 8 area.
And while our NRC license allows for production of up to 1 million pounds per year, the sooner we operate, close and restore that initial wellfield to the appropriate standard, the sooner we can move to a 3 million pound per year production rate under the NRC license.
To do so, we will have to bring on more wellfields than the seven that are planned for Section 8. But this is a significant license parameter. It allows for us to produce 3 million pounds per year, once we’ve proved commercial restoration of that first wellfield. When you think about the fact that this entire country produced only slightly more than 4 million pounds last year, 3 million pound production rate is pretty significant.
Now, peak production, we’ll have approximately 60 to 65 employees working on the ground in New Mexico, and an additional 35 in Texas supporting the project processing, along with some other independent contractors. Most importantly, we expect that many of our employees in Mexico will be members of the Navajo Nation.
We continue to refine the feasibility study for this project. While, we were not on the TSX, we seek to have a 43-101 compliant feasibility study that we can use for multiple purposes.
Although, we have planned to release more details about the feasibility study by now, we've allowed the qualified person who is working on this study more time. So we can ensure that it is the best possible document it can be. This requires some additional confirmation drilling and other analyses. We want to ensure that we can use this 43101 compliant feasibility study for multiple purposes.
Now, we’re prepared to begin construction on the completion and approval by our board of the feasibility study in the fourth quarter, but it may be moved to the first quarter of 2013 for several reasons. One, we’re still in discussions with the royalty holders and we want to provide for increased rate of return, if possible.
Yes, it’s liable, in fact it’s a strongly viable project, but we want to make it even more strong. And the way to do that is to buy down or buyout those existing royalties. They know it and we know it.
So, we've been in discussions for sometime on that topic. We want to ensure that we’ve completed all of the discussions with the Navajo Nation on all matters. So, there's no questions left for the future about their concerns. We want to be able to address them. And we expect mark conditions to improve for financing in the coming months. So we have slowed the progress, what we intended to do with regard to third quarter financing activity.
If any of these settings should cause us to move to the start of the construction to the first quarter of 2013, it would mean that we might not have any production from Section 8 in 2013 as we had planned.
However, any production in 2013 would have been minimal at best, since we would be ramping up to full production rate in 2014, in either case. So, we’ve basically still talking about the same project, the same amount of production on a similar timeframe, but because we want to make sure that we're doing it right and we want to make sure that we are financing this project appropriately in the right market conditions, it maybe that we don’t start construction until the first part of 2014, excuse me, 2013 and therefore production in 2014.
Now, I’d like turn to the pending transaction that we’ve previously announced about Neutron Energy. The Neutron acquisition is progressing quite well. As we've announced before, there will be special shareholders meeting this month. For the Neutron shareholders, it will be on August 23rd and for the URI shareholder, it will be on August 29th.
We expect to close this transaction on or about August 31 of this month. The total transaction costs have been in the range that we expected despite the fact that it's taken a bit longer to get to closing than we thought. The legal proxy, S-4, accounting and other similar cost to July have totaled a little over a $1 million.
The funding of Neutron administrative budget, the development costs that they've had and final asset purchases have totaled about $3.4 million. As we’ve work through the many regulatory and legal activities to get to a closing, I’ve said it’s going to be August 31.
We've had more time to ensure that this was an appropriate acquisition for URI. What we found is that synergistic aspects of the two company’s holdings, along with the optionality that this acquisition provides for us will give us mid-term and long-term uranium asset located in New Mexico to follow in our pipeline, after the Church Rock project is in production. Over 52 million pounds of in-place, non-reserve, mineralized uranium material are being acquired.
The acquisition of the previous mill site provides true optionality, since it can handle the conventional asset east of Mount Taylor. The transaction also gives us 206,000 acres of Uranium Holdings in New Mexico for further exploration and upside potential. The Ambrosia Lake project held by Neutron will be an excellent addition to the eventual Roca Honda complex that we envisioned, of course, that’s west of Mount Taylor.
As a result, URI will rank as one of the largest uranium development companies in the world. While we already had more uranium pounds in the ground in the U.S. than any other company, this acquisition allows us to proceed on a faster pace to producing conventional assets, when the uranium price recovers. There lies the main reason for the consolidation of that district.
Knowing that mill sites are far more costly than processing sites at an ISR property. We need to have economy of scale and that will cause us to be able to have the appropriate economy of scale by moving more material and in case of any RI, their projects were further developed that our projects west of Mount Taylor.
So, this provides our pipeline with short-term from Church Rock and those ISR amenable assets to the west with mid-term to long-term assets east of Mount Taylor and then our eventual long-term assets in the Roca Honda complex area west of Mount Taylor.
Return to Texas for just a moment. Los Finados joint venture with Cameco was continuing. It’s one of the most successful joint venture is I participated in and over 30 years of mining and I’m quite pleased with our partner in this particular project.
Phase II is scheduled to complete in November of this year, and under Phase II we will -- we have already done 32 holes and an average depth of about 1170 feet. And we plan an additional 15 holes. About 1.5 million has been committed to complete Phase II, 1 million of that coming from Cameco, 0.5 million of that coming from URI.
We are about two thirds the way through the present budget and expect to stay on budget and on schedule for the Phase II activities.
Cameco has already earned about 40% interest at this point, but it will have 50% of the project at completion of Phase II. And as we’ve previously announced, if Phase III goes forward and they come complete their funding of Phase III, they will ultimately have a 70% interest in the project and we will have a 30% interest in the project.
The decision on Phase III will be made by November 30th of this year. We also have activity going on that we mentioned before in Texas about a pond project. We have several ponds with our existing permitted processing facilities that needed refurbishment.
After processing over 8 million pounds in that area, we need to be able to now be prepared for return to production that will be coming from other areas and therefore we needed those ponds improved. That objective then is to be in a position to return to production from any source that we can process in that facility -- actually facilities, there is two of them.
It costs us $2.9 million. All that capital has been invested. It’s about $300,000 in monthly operating cost to maintain this project. And we believe it will generate 40,000 to 50,000 pounds of uranium as we clean up these ponds and process that material.
We also have maintained our restoration schedule on our other Texas projects moving towards closure on all of our well fields.
Now, I’m going to stop for a second and I’m going to turn it over to our Chief Financial Officer, Tom Ehrlich, who will discuss our liquidity position. Then I'll come back for discussions on question-and-answer. Tom?
Tom Ehrlich - Chief Financial Officer
Sure, Don. Thank you. In terms of our liquidity position, our cash at the end of the quarter ended June 30, 2012 was about $2.8 million. That’s comparable to where we were at the end of 2011, which was again just under $3 million.
During the six months of activity, we had -- we used $5.1 million of cash in operations and about $6.4 million of cash investing activities. That breaks down to Q1 and Q2 for operations of about $2.5 million for each of those quarters and for investing activities, we spend about $2 million in the first quarter -- I'm sorry, first quarter of 2012 and about $4.5 million in the second quarter.
The increased spending related to our investing activities were primarily related to the increase in the funding of the administrative and development budgets for Neutron. It was $1.1 million in the first quarter and $2.2 million in the second quarter and our increase in additions to property, plant, equipment was just under million dollars in the first quarter and just over $2.2 million in the second quarter. So largest of that being activities related to Section 8 projects in terms of engineering studies and in areas related to permitting on land.
During the six months, we raised about $11.4 million in investing activities. That was as a result of the cash infusion from RCF of $10 million in March and we had sales under our ATM program in January of about $1.4 million. We did not raise any capital during the second quarter of this year from either of those activities.
Following the end of the quarter, we did venture back into the ATM market. And we raised the just under 2 million, sorry, just under $1.5 million of net proceeds related to ATM sales with BTIG with sales of about 2.66 million shares during the quarter.
We believe with the cash on hand, the availability of the $5 million that RCF has committed to us, in connection with the closing of the Neutron transaction and the available funding under the ATM sales, which is about $11.4 million worth of share value, that will have sufficient funding to see us through at least for the next 12 months. Don?
Don Ewigleben - President and CEO
Thanks Tom. It’s time now to turn to questions and supporting the questions will be the officers and the company that have been mentioned before. But I’ll certainly feel the questions and turn to the executives as we go forward. I'll ask the moderator to assist us in the questioning.
|
|
Fund Letters
