-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Tof1Skb5oOE38LyLqlI5Q0h1WUyO9cx/Ec6ZPxd4wDwApZBSAtSzbRR0+BPpIG6a 5nGcLEn3Pj+FfG31Pv+UKA== 0000950134-00-003373.txt : 20000417 0000950134-00-003373.hdr.sgml : 20000417 ACCESSION NUMBER: 0000950134-00-003373 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: URANIUM RESOURCES INC /DE/ CENTRAL INDEX KEY: 0000839470 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-METALS, MINERALS (NO PETROLEUM) [5050] IRS NUMBER: 752212772 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-17171 FILM NUMBER: 601193 BUSINESS ADDRESS: STREET 1: 12750 MERIT DRIVE STREET 2: SUITE 1210 CITY: DALLAS STATE: TX ZIP: 75251 BUSINESS PHONE: 9723877777 MAIL ADDRESS: STREET 1: 12750 MERIT DRIVE STREET 2: SUITE 1210 CITY: DALLAS STATE: TX ZIP: 75251 10-K 1 FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 1999 1 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee required] For the fiscal year ended December 31, 1999 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 [No fee required] For the transition period from __________ to __________ Commission file number 0-17171 URANIUM RESOURCES, INC. (Exact name of Registrant as specified in its Charter) DELAWARE 75-2212772 (State of Incorporation) (I.R.S. Employer Identification No.) 12750 MERIT DRIVE, SUITE 720, DALLAS, TEXAS 75251 (Address of principal executive offices, including zip code) (972) 387-7777 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $.001 par value per share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the Common Stock of the Registrant held by nonaffiliates at April 12, 2000 was approximately $717,833. Number of shares of Common Stock outstanding as of April 12, 2000: 14,520,366 shares. Documents Incorporated by Reference: None ================================================================================ 2 URANIUM RESOURCES, INC. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 TABLE OF CONTENTS PART I..................................................................................................1 ITEM 1. BUSINESS.....................................................................................1 Going Concern/Uncertain Future Operations..........................................................1 The Company........................................................................................2 Marketing Strategy/Uranium Sales Contracts......................................................3 Reserves........................................................................................3 The ISL Mining Process..........................................................................3 Environmental Considerations and Permitting; Water Rights.......................................5 The Uranium Industry...............................................................................7 General.........................................................................................7 Market Price Formation..........................................................................8 Sources of Supply...............................................................................8 Required Primary Production.....................................................................9 Uranium Prices..................................................................................9 Competition....................................................................................10 ITEM 2. PROPERTIES..................................................................................10 South Texas Producing Properties...............................................................10 South Texas Development Properties.............................................................12 New Mexico Development Properties..............................................................12 Santa Fe Properties............................................................................16 Reclaimed Properties...........................................................................16 Reclamation and Restoration Costs and Bonding Requirements.....................................17 ITEM 3. LEGAL PROCEEDINGS...........................................................................17 Longoria.......................................................................................17 ProBank........................................................................................17 Benton Bankruptcy..............................................................................18 Indian Lands Jurisdictional Dispute............................................................18 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........................................18 PART II................................................................................................27 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......................27 Market Information.............................................................................27 Holders........................................................................................27 Dividends......................................................................................27 ITEM 6. SELECTED FINANCIAL DATA.....................................................................28 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......30 Forward Looking Statements.....................................................................30 Capital Resources and Liquidity................................................................30 Writedown of Uranium Properties................................................................33 Environmental Aspects..........................................................................34 Results of Operations..........................................................................34 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................37 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................................38 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........38 PART III...............................................................................................39 ITEMS 10, 11, 12 AND 13.............................................................................39
i 3 PART IV................................................................................................39 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K............................39 SIGNATURES....................................................................................40 Index to Consolidated Financial Statements, Financial Statements and Supplemental Data F-1 to F-23 Index to Exhibits E-1 to E-3
ii 4 URANIUM RESOURCES, INC. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 PART I The "Company" or "Registrant" is used in this report to refer to Uranium Resources, Inc. and its consolidated subsidiaries. Items 1 and 2 contain "forward-looking statements" and are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements include, without limitation, statements relating to management's expectations regarding the Company's resource base, timing of receipt of mining permits, production capacity of mining operations planned for properties in South Texas and New Mexico and planned dates for commencement of production at such properties, business strategies and other plans and objectives of the Company's management for future operations and activities and other such matters. The words "believes," "plans," "intends," "strategy," "projects," "targets," or "anticipates" and similar expressions identify forward-looking statements. The Company does not undertake to update, revise or correct any of the forward-looking information. Readers are cautioned that such forward-looking statements should be read in conjunction with the Company's disclosures under the heading: "Cautionary Statement for the Purposes of the `Safe Harbor' Provisions of the Private Securities Litigation Reform Act of 1995" beginning on page 19. Certain terms used in this Form 10-K are defined in the "Glossary of Certain Terms" appearing at the end of Part I hereto. ITEM 1. BUSINESS GOING CONCERN/UNCERTAIN FUTURE OPERATIONS Uranium Resources, Inc., a Delaware corporation (the "Company"), ceased production activities in 1999 at both of its two producing properties because of depressed uranium prices. In 1999 and the first quarter of 2000 the Company monetized all of its remaining long-term uranium sales contracts and sold certain of its property and equipment to maintain a positive cash position. The Company has exhausted all of its available sources of cash to support continuing operations and will be unable to continue in business beyond June 2000 unless it can secure a cash infusion. If the Company is unable to secure a cash infusion prior to June, it will consider all of its possible alternatives, including a possible filing in bankruptcy. The Company's near-term potential illiquidity has necessitated a reevaluation of the Company's method of valuing its uranium properties for accounting purposes. The Company has previously valued its uranium properties on a held for production basis, i.e., assuming that each property would be ultimately placed into production. Because of the Company's potential illiquidity, the Company has determined that it should value these properties on a held for sale basis. On a held for sale basis the Company has determined that the discounted cash flow method is the most reasonable method for valuing the properties, because of a lack of any data on sales of comparable properties or any other method that is reasonably available. The Company projected the future cash flows assuming a sale price for uranium of $9.00 per pound (current spot price is $9.10) and has discounted those cash flows at 20% per annum. If such valuation resulted in a zero or negative number, the Company wrote off all intangible costs and carried tangible costs at salvage value, which was assumed to be 5% of original cost. This valuation method reduced the carrying value of the Company's uranium properties by $38.4 million from ($40.5 million to $2.1 million) with a corresponding charge against earnings, resulting in a deficit shareholders' equity of $6.4 million at December 31, 1999. 1 5 The Company's independent public accountants have advised the Company that they will be unable to perform an audit of the Company's financial statements for year-end 1999 unless the valuation of the Company's uranium properties is supported by an appraisal from an independent third party. The Company lacks the funds to retain an independent third party to perform that valuation. As a result, the Company's financial statements for the year ended December 31, 1999 included in this Annual Report on Form 10-K are unaudited. THE COMPANY The Company was formed in 1977 to acquire, explore and develop properties for the mining of uranium in the United States using the in situ leach ("ISL") mining process. The Company is recognized as a leader in the field of ISL mining. In the ISL process, groundwater fortified with oxidizing agents is pumped into the ore body causing the uranium contained in the ore to dissolve. The resulting solution is pumped to the surface where it is further processed to a dried form of uranium which is shipped to conversion facilities for sale to the Company's customers. The ISL process is generally a more cost effective and environmentally benign mining method than conventional mining techniques. In March 1988, the Company commenced production from its Kingsville Dome property in South Texas and produced a total of approximately 1.5 million pounds of uranium from that property prior to September 1990 when it was shut-in because of low uranium prices. Production was reestablished in March 1996 and an additional 2.0 million pounds of uranium were produced through 1999. In the first quarter of 1999 the Company placed production at Kingsville Dome on stand-by but continued to maintain nominal production through July 1999. Total production for the year was 61,000 pounds. Additional uranium resources exist at Kingsville Dome, but additional capital investment will be required in order to begin development of these resources. In October 1990, the Company commenced production from its Rosita property in South Texas and produced a total of approximately 1.1 million pounds of uranium from that property prior to March 1992 when it was shut-in because of low uranium prices. Production was reestablished in June 1995 and an additional 1.5 million pounds of uranium have been produced through 1999. In the first quarter of 1999 the Company placed production at Rosita on stand-by but continued to maintain nominal production through July 1999. Total production for the year was 48,000 pounds. The Rosita property is essentially at the end of its productive capacity, although some minor resources still remain that could be produced. The weakness of the uranium market saw spot prices that ranged from $9.60 to $10.85 in 1999. The continued weak market for uranium prices during the year, which primarily resulted from the actions of aggressive sellers, including the disposition of former U.S. Government stockpiles have continued to depress uranium prices. The current spot market price of $9.10 remains below the level needed by the Company to obtain the necessary financing to allow development of new production areas at its Kingsville Dome and Vasquez sites. The Company has implemented cost reduction initiatives to reduce expenditures throughout the Company. These included a 62% reduction in the Company's workforce, the closure of its regional offices in Albuquerque, New Mexico and an overall reduction in general and administrative expenses of over 31% from 1998 levels. These cost cutting moves coupled with the Company's ability to monetize the value of its long-term sales contracts and certain of its property and equipment during 1999 allowed it to remain liquid during the year. 2 6 The ability of the Company to continue to maintain a positive cash position will require an infusion of capital that is currently unavailable to it. Absent such capital inflows the Company will experience a negative cash position by June 2000 which will prevent it from continuing in business. The Company will continue to pursue alternatives as long as possible to allow it to achieve positive liquidity through 2000 and beyond. The Company continues to hold its Vasquez development project in South Texas and has three development projects in two districts in New Mexico, the Churchrock district and the Crownpoint district. Commencement of production at these properties will be dependent on a rebound in uranium prices to profitable levels, the availability of sales contracts and the availability of capital. As of April 10, 2000, the Company had 20 employees, including its professional staff consisting of 3 geologists, 5 engineers and two certified public accountants. To support its operations the Company maintains field offices at the Kingsville Dome site, the Rosita site and in Crownpoint, New Mexico. MARKETING STRATEGY/URANIUM SALES CONTRACTS Long-term contracts have historically been the primary source of revenue to the Company. At the beginning of 1999 the Company had four long-term contracts for deliveries over the next two, three and four years of approximately $26.9 million in revenues. During 1999, the Company assigned its delivery rights for 2000 through 2002 under one of these contracts for $1,290,000 and also accelerated the scheduled deliveries under another contract into the fourth quarter of 1999, effectively bringing forward $1,069,000 of cash originally scheduled for the fourth quarter of 2000. These transactions coupled with transactions made in the first quarter of 2000 have monetized the Company's long-term sales contracts and exhausted the Company's sales contract portfolio. Currently, the Company does not have any remaining scheduled uranium deliveries under contract for the balance of 2000 or beyond. In 1999 and 1998, the Company had sales to four and three customers, respectively, that amounted to more than 10% of total sales. These customers represented 31%, 29%, 25% and 15% of sales in 1999 and 27%, 18% and 14% of sales in 1998. RESERVES The Company has previously reported the proven and probable reserve base for each of its producing and development projects in Texas and New Mexico assuming that each of these projects would be placed into production at a future date. The reserves utilized recovery factors and certain cut-off grades based upon uranium sales prices of $16 per pound. In December 1999 the Company wrote down the carrying value of its uranium properties based upon a change in its methodology for valuing those assets. As a result of this writedown the Company has reclassified its significant uranium holdings from reserves to resources consistent with the Securities and Exchange Commission definitions. See "Glossary". THE ISL MINING PROCESS The ISL mining process, a form of solution mining, differs dramatically from conventional mining techniques. The ISL technique avoids the movement and milling of significant quantities of rock and ore as well as mill tailings waste associated with more traditional mining methods and generally results in a more cost-effective and more environmentally benign extraction operation in comparison to conventional uranium mining. Historically, the majority of U.S. uranium production resulted from either open pit surface mines or underground shaft operations. These conventional mining methods are, in many cases, capital and labor intensive and are not cost competitive with the majority of non-U.S. conventional producers. 3 7 The ISL process was first tested for the production of uranium in the mid-1960's and was first applied to a commercial-scale project in 1975 in South Texas. The ISL process had become well established in the South Texas uranium district by the late 1970's, where it was employed in connection with approximately twenty commercial projects, including two operated by the Company. In the ISL process, groundwater fortified with oxygen and other solubilizing agents is pumped into a permeable ore body causing the uranium contained in the ore to dissolve. The resulting solution is pumped to the surface where the uranium is removed from the solution and processed to a dried form of uranium which is shipped to conversion facilities for sale to the Company's customers. An ISL project involves several major components: ORE BODY EVALUATION Ore bodies which are currently being mined by the ISL process are associated with groundwater saturated permeable sandstone formations typically located between 100 and 2,000 feet below the surface. The uranium ore is deposited in a roll front configuration where the groundwater passing through the sandstone passes from a natural oxidizing environment to a naturally occurring reducing environment. This change causes the dissolved uranium in the groundwater to become insoluble, and it then attaches to the grains of the sandstone. Some important factors in evaluating an ore body for the ISL process are permeability, the thickness of the ore zone, depth, size, grade of ore, shape of the ore body, nature of uranium mineralization, host rock mineralogy, and the hydrology. These factors are important in determining the design of the wellfield, the type and flow of the leaching solution, and the nature of the surface ISL facilities. WELLFIELD DESIGN The wellfield is the mechanism by which the leaching solution, or lixiviant, is circulated through the ore body. The wellfield consists of a series of injection, production (extraction) and monitoring wells drilled in specified patterns. These patterns will vary primarily with the configuration of the ore and the hydrologic characteristics of each deposit. Determining the wellfield pattern is crucial to minimizing costs and maximizing efficiencies of production. Injection and production wells vary in diameter from four to six inches. Generally, these wells are drilled down to the bottom of the ore zone (through which the lixiviant must be circulated to achieve production). Injection and production wells are cased with polyvinyl chloride ("PVC") or fiberglass casings which are cemented in place from the bottom of the ore zone to the surface. The wells are then completed into the ore zone. LIXIVIANT CHEMISTRY The lixiviant, consisting of native groundwater fortified with an oxidant and an anionic complexing agent, is introduced via the injection wells to the ore bearing aquifer. The oxidant (gaseous oxygen) changes the uranium valence state making the uranium soluble in the lixiviant. The lixiviant (sodium bicarbonate) complexes the original uranium to a soluble ion, uranyl dicarbonate, which dissolves the uranium. The dissolved uranium then flows to the surface with the lixiviant fluid which is circulated through the ore body until economic recovery is achieved. URANIUM RECOVERY PROCESS The uranium recovery process consists of a lixiviant circuit, an elution/precipitation circuit and a drying and packaging process. The lixiviant circuit flows from the ore body, where the uranium is dissolved. The lixiviant stream is then circulated to an ion exchange column on the surface where uranium is extracted from the lixiviant by absorption onto the resin beads of the ion exchange columns. The lixiviant is then refortified and reinjected into the ore body. When the ion exchange column's resin beads 4 8 are loaded with uranium, the loaded uranium is removed and placed into the elution circuit where the uranium is flushed with a salt water solution which precipitates the uranium from the beads. This leaves the uranium in a slurry, which is then dried and packaged for shipment as uranium powder. The Company has historically utilized a central plant for the ion exchange portion of the production process. In order to increase operating efficiency and reduce future capital expenditures, the Company began the design and development of wellfield-specific remote ion exchange methodology. Instead of piping the solutions over large distances through large diameter pipe lines and mixing the waters of several wellfields together, each wellfield will be mined using a dedicated satellite ion exchange facility. This will allow for ion exchange to take place at the wellfield instead of at the central plant. Nominal design for the remote ion exchange facilities flow will be in the range of 1,200 gpm, about 25% of the design flow of the central plant at the Kingsville Dome project. Each of these units will consist of several ion-exchange columns and a resin transfer facility. When fully loaded with uranium, the resin will be transferred to a trailer and the resin trucked to the central plant for elution. After stripping the uranium from the resin, the resin will be transferred into the trailer and transported back to the satellite plant at the wellfield. These satellite facilities will allow each wellfield to be mined using its own native groundwater only, thus eliminating the problems associated with progressive buildup of dissolved solids in the groundwaters and thereby enhancing mining efficiencies and uranium recoveries. WELLFIELD RESTORATION At the conclusion of mining, the mine site is decommissioned and decontaminated and the wellfield is restored and reclaimed. Wellfield restoration involves returning the aquifer to a condition consistent with its pre-mining use and removing evidences of surface disturbance. The restoration of the wellfield can be accomplished by flushing the ore zone for a time with native ground water and/or using reverse osmosis to remove ions, minerals and salts to provide clean water for reinjection to flush the ore zone. Decommissioning and decontamination of the mine site entails decontamination, dismantling and removal for disposal or reuse of the structures, equipment and materials used at the site during the mining and restoration activities. ENVIRONMENTAL CONSIDERATIONS AND PERMITTING; WATER RIGHTS The production of uranium is subject to extensive regulations, including federal and state (and potentially tribal) environmental regulations, that have a material effect on the economics of the Company's operations and the timing of project development. The Company's primary regulatory costs have been related to obtaining and complying with the regulatory licenses and permits that must be obtained from federal and state agencies prior to the commencement of uranium mining activities. Environmental considerations include the prevention of groundwater contamination by vertical or horizontal escape of leaching solution (through proper design and operation of the wellfield and the use of monitoring wells to detect any potential excursions from the mining area) and the treatment and disposal of liquid and/or solid discrete surface waste or by-product materials (so-called "11e. (2) by-product material" under federal law). The majority of by-product material that is generated is liquid and generally is disposed of by a combination of reverse osmosis, brine concentration and evaporation or, after treatment, by surface deposition or discharge or through underground injection wells. Any such disposal must be approved by the governing authority having jurisdiction over that aspect of the Company's activities. Once mining is completed, the Company is required to reclaim the surface areas and restore underground water quality to the level of quality mandated by applicable regulations or license requirements. A small amount of solid discrete surface waste materials generated by the ISL process is disposed of by delivery to a licensed by-product material disposal site or to a licensed conventional uranium mill tailings pile. While 5 9 such sites may not be readily available in the future, the Company believes that any increase in the cost of such disposal will continue to be insignificant relative to total costs of production and will not be a material portion of restoration/reclamation costs. In both Texas and New Mexico there are two primary regulatory authorizations required prior to operations: a radioactive material license and underground injection control ("UIC") permits which relate both to the injection of water for production purposes and to the disposal of by-product material through underground injection wells. Uranium mining is subject to regulation by the U.S. Nuclear Regulatory Commission ("NRC") under the federal Atomic Energy Act ("AEA"); however, the AEA also allows for states with regulatory programs deemed satisfactory by the NRC to take primary responsibility for licensing and regulating certain activities, such as uranium recovery operations. When a state seeks this responsibility, it enters into an agreement with the NRC whereby the NRC agrees to recede from the exercise of most of its counterpart jurisdiction, leaving the matters to be administered by the state. Texas has entered into such an agreement; however, New Mexico is not a party to such an agreement. The federal Safe Drinking Water Act ("SDWA") creates a nationwide regulatory program protecting groundwater which is administered by the U.S. Environmental Protection Agency ("EPA"). To avoid the burden of dual federal and state (or Indian tribal) regulation, the SDWA allows for the permits issued by the UIC regulatory programs of states and Indian tribes determined eligible for treatment as states to suffice in place of a UIC permit required under the SDWA. A state whose UIC program has been determined sufficient for this purpose is said to have been granted "primary enforcement responsibility" or "primacy," and a UIC permit from a state with primacy suffices in lieu of an EPA-issued permit, provided the EPA grants, upon request by the permitting state, an "aquifer exemption" or "temporary aquifer designation" modifying the permitting state's UIC program to recognize the temporary placement of mining fluids into the intended mining zone within the horizontal confines of the proposed mining area. Although the EPA's consent to aquifer exemptions or temporary aquifer designations for certain mineral deposits is often issued almost automatically, the EPA may delay or decline to process the state's application if the EPA questions the state's jurisdiction over the mine site. Both Texas and New Mexico have been granted "primacy" for their UIC programs, and the Navajo Nation has been determined eligible for treatment as a state but is not due to submit its program for EPA approval for several years. Until such time as the Navajo Nation has been granted "primacy," ISL uranium mining activities within Navajo Nation jurisdiction will require a UIC permit from the EPA. Despite some procedural differences, the substantive requirements of the Texas, New Mexico and EPA UIC programs are very similar. In addition to its radioactive materials licenses and UIC permit, the Company is also required to obtain from appropriate governmental authorities a number of other permits or exemptions, such as for waste water discharge, land application of treated waste water, or for air emissions. The current environmental regulatory program for the ISL industry is well established. Many ISL mines have gone full cycle through the permit-operating-restoration cycle without any significant environmental impact. However, the public anti-nuclear lobby can make environmental permitting difficult and permit timing less than predictable. In Texas, the radioactive materials license required for ISL uranium mining is granted by the Texas Department of Health ("TDH") and the UIC permits are granted by the Texas Natural Resource Conservation Commission ("TNRCC"). The TNRCC also regulates air quality and surface deposition or discharge of treated wastewater associated with the ISL mining process. In order for a licensee to receive final release from further radioactive materials license obligations after all of its mining and post-mining clean-up has been completed, approval must be issued by the TDH along with concurrence from the NRC. In New Mexico, radioactive materials' licensing is handled directly by the NRC, rather than by the State of New Mexico. Furthermore, depending upon whether a site located within New Mexico falls under state or Navajo Nation jurisdiction, the permitting of the UIC aspects of ISL mining may be conducted by either the New Mexico Environmental Department ("NMED") or the EPA or possibly both in case of 6 10 jurisdictional conflict. The jurisdictional issue when raised as to any development property, could result in litigation between the state and the EPA, with the possibility of delays in the issuance of affected UIC permits. The Company is currently a party to such litigation with respect to certain of its New Mexico properties. See "Litigation". Water is essential to the ISL process. It is readily available in South Texas for the Company's operations and obtaining water rights is not required because water is subject to capture. In New Mexico the use of water rights is administered through the New Mexico State Engineer subject to Indian tribal jurisdictional claims. The State Engineer carefully and strictly regulates obtaining new water rights, and the transfer or change in use of existing water rights. The State Engineer may also grant an application for a "temporary water right" which will not establish a vested right but may provide a sufficient quantity of water to fulfill the applicant's needs. The State Engineer exercises jurisdiction over underground water basins with "reasonably ascertainable boundaries." Accordingly, new appropriations or changes in purpose or place of use or points of diversion of existing water rights, such as those in the San Juan and Gallup Basins where the Company's properties are located, must be obtained by permit from the State Engineer. Applications are required to be published and are subject to hearing if protested. There are three criteria for decision, that the application: (1) not impair existing water rights, (2) not be contrary to the conservation of water within New Mexico, and (3) not be detrimental to the public welfare. Applications may be approved subject to conditions that govern exercise of the water rights. Appeals from decisions of the State Engineer are to the district court of the county in which the work or point of desired appropriation is situated and from there to the New Mexico Court of Appeals. Finally, jurisdiction over water rights may become an issue in New Mexico when an Indian nation, such as the Navajo Nation, objects to the State Engineer's authority to grant or transfer a water right or to award a temporary water right, claiming tribal jurisdiction over Indian country. This issue could result in litigation between the Indian nation and the state which may delay action on water right applications, and, depending on who prevails as to any particular property, could result in a requirement to make applications to the appropriate Indian nation and continuing jurisdiction by the Indian nation over use of the water. All of the foregoing issues arise to a greater or lesser extent in connection with the Company's New Mexico properties. There can be no assurance that additional regulatory permits or licenses in Texas or New Mexico, or the applications for water rights in New Mexico, required for any project of the Company will be approved by the necessary governing authority in the form contemplated by management, or in any other form, or within the time periods necessary to commence timely production. Additionally, regulations and permit requirements are subject to revisions and changes that may materially affect the Company's operations. Any delay or failure in obtaining such permits or water rights could materially and adversely affect the business and operations of the Company. In addition to the costs and responsibilities associated with obtaining and maintaining permits, and the regulation of production activities, the Company is subject to those environmental laws and regulations applicable to the ownership and operation of real property in general, including but not limited to the potential responsibility for the activities of prior owners and operators. THE URANIUM INDUSTRY GENERAL The only significant commercial use for uranium is to fuel nuclear power plants for the generation of electricity. During 1999, 436 nuclear power plants were operating in the world. It is estimated that these plants consumed 156 million pounds of uranium during the year. 7 11 MARKET PRICE FORMATION At December 31, 1999 the spot price was $9.60 per pound U(3)O(8) (the form in which the Company sells its production) compared to $8.75 at December 31, 1998. Utility spot market contract activity for U(3)O(8) increased significantly from the dramatically low levels experienced in 1998. While this increase in activity was expected to fuel a recovery in spot prices, this result did not materialize. A large portion of the increase resulted from purchases by producers and non-U.S. utilities, typically groups that are not significant buyers in this market. The demand increases last year appear to have been filled by suppliers willing to provide very aggressive pricing including enrichment entities who became a larger supplier in the market. This group which has not been traditionally a significant source of spot market supply was believed to account for one quarter or more of the uranium spot volume last year. The combination of non-traditional buyers and sellers in 1999 prevented the large increase in spot demand from having the expected positive result of firming spot market prices. SOURCES OF SUPPLY Traditional Supply Sources Based on reports by the Ux Consulting Company, LLC ("Ux") and the Uranium Institute ("UI"), worldwide production of uranium U(3)O(8) for 1999 is estimated to be approximately 82 million pounds, down from 89 million pounds in 1998. This production accounted for approximately 50% of the year's utility requirements. Production for 2000 is expected at between 87-88 million pounds and will result in production meeting only 52% of the estimated consumption by utilities during 2000 of approximately 168 million pounds. Production from existing mines is projected by Ux to decline during the next few years as lower cost resources are exhausted. Accordingly, new production is expected to replace that from existing mines in the year 2005 with total production projected by Ux to be only 102-103 million pounds in 2005. This represents approximately 59% of consumption as projected by the UI for 2005 of approximately 175 million pounds. Consumption has outstripped production in each year since 1985 with the shortfalls filled by drawdowns of inventories amassed prior to that time. Non-Traditional Supply Sources As excess inventory is reduced, the availability of non-traditional supplies will play an increasingly important role in establishing market equilibrium. These supplies consist of Government stockpiles, Russian and U.S. highly enriched uranium ("HEU"), inventory of the United States Enrichment Corporation ("USEC"), tails re-enrichment, and savings achieved through the reprocessing of spent fuel. Ux has projected that the following categories represent those sources of non-traditional supplies that could be available to the market place through 2005: Russian HEU: In 1993, the U.S. and Russia entered into an Agreement to convert highly enriched uranium ("HEU") derived from dismantling Russian nuclear weapons into fuel suitable for use in commercial reactors. At a maximum conversion rate of 30 metric tons HEU per annum approximately 24 million pounds of U(3)O(8) would be available in each year of which approximately 6.7 million pounds per year will be used internally by Russia. U.S. HEU: Sales are subject to a determination to be made by the Secretary of Energy, as required under the USEC Privatization Act, that such sales will have no adverse impact on the domestic mining industry or the U.S./Russia HEU Agreement. 8 12 USEC Inventory: In July 1998, USEC consummated its privatization with a public offering of stock. In its prospectus USEC disclosed that it had inventory of approximately 75 million pounds U(3)O(8) equivalent of which approximately 46-52 million pounds would be available to sell through 2005. This inventory represents amounts of uranium transferred to it by the DOE. Additional inventory may be realized through USEC's ability to underfeed its enrichment plants through the same period. Reprocessing: It is expected that reprocessing of spent fuel will save 5-7 million pounds of demand in each year through 2005. This activity is primarily focused in Europe and Japan. Tails Re-enrichment: This is a new activity primarily pursued by Russia in order to utilize their excess enrichment capacity. The Company estimates that this activity could yield approximately 6.0 million pounds U(3)O(8) per annum through 2005. The potential disposition of Government inventories is the most significant non-traditional supply factor effecting the market. On March 24, 1999 an agreement between Tenex, the commercial arm of the Russian Federations' Ministry of Atomic Energy, and three Western commercial entities was executed that will provide more certainty regarding the disposition of Russian HEU derived uranium. In an effort to support this transaction and the continuation of the U.S./Russia HEU Agreement, DOE budgeted $325 million to pay for approximately 28 million pounds of HEU derived uranium delivered to the U.S. during 1997-1998. As part of this agreement, DOE will hold this purchased uranium, and its own remaining inventory (approximately 30 million pounds) off the market for a ten year period beginning in 1999. REQUIRED PRIMARY PRODUCTION New production will be needed to fill the gap between utility demand and the estimated supply sources. This production, however, will not be forthcoming at current market prices. Further, any change in the availability of non-traditional supplies or the emergence of additional non-traditional sources could impact the need for new production. URANIUM PRICES Spot prices reflect the price at which uranium may be purchased for delivery within one year. Historically, spot prices have been more volatile than long-term contract prices, increasing from $6.00 per pound in 1973 to $43.00 per pound in 1978, then declining to a low of $7.25 per pound in October 1991. The spot price per pound as of March 31, 2000 was $9.20. 9 13 The following graph shows spot prices per pound from 1978 to March 31, 2000, as reported by Trade Tech. AVERAGE ANNUAL SPOT PRICE PER POUND OF URANIUM [GRAPH]
1978 1980 1982 1984 1986 1988 Price per Pound $43 $34 $20 $18 $15 $15 1990 1992 1994 1996 1998 2000 Price per Pound $10 $9 $10 $15 $10 $10
- ----------------------- All prices beginning in 1993 represent U(3)O(8) deliveries available to U.S. utilities. COMPETITION The Company markets uranium to utilities in direct competition with supplies available from various sources worldwide. The Company competes primarily on the basis of price. ITEM 2. PROPERTIES SOUTH TEXAS PRODUCING PROPERTIES The Company has two properties located in South Texas, Rosita and Kingsville Dome. These properties have had recent production, one of which (Kingsville Dome) would be capable of resuming production given improved market conditions and available funding. The following is a description of these properties. KINGSVILLE DOME The Property. The Kingsville Dome property consists of mineral leases from private landowners (and a small portion owned in fee) on 3,068 gross (3,043 net) acres located in central Kleberg County, Texas. The leases provide for royalties based upon uranium sales. The leases have expiration dates ranging from 2000 to 2007. With a few minor exceptions, all the leases contain shut-in royalty clauses which permit the Company to extend the leases not held by production by payment of a royalty. Production History. Initial production commenced in May 1988. In May 1989, due to the continuing decline in the spot price of uranium, the Company deferred development of the next wellfield, and the plant was shut-in in September 1990. Total production from May 1988 through September 1990 was approximately 1.5 million pounds. 10 14 Wellfield development activities resumed in December 1995, and production commenced in March 1996. Production at Kingsville Dome was approximately 2.0 million pounds from recommencement of production in March 1996 through July 1999 with 61,000 pounds produced in 1999. The Company shut-in and placed on stand-by production at the Kingsville Dome site in the first quarter of 1999 because of depressed uranium market conditions. Nominal production from this site continued until July 1999 when the incremental production costs at this facility exceeded the cost of purchasing uranium in the marketplace. Further Development Potential. Further exploration and development activities are not currently planned and are not anticipated until uranium market conditions firm. The Company believes that there is a significant quantity of uranium resource remaining at the Kingsville Dome site that would be mined if market conditions were favorable and sufficient funding for delineation and development were available. The Company spent approximately $137,000 in capital expenditures in 1999 and does not project to make significant expenditures in 2000. Permitting Status. Radioactive material licensing and UIC permit hearings for currently producing areas have been completed, and the necessary permits were issued. In the first quarter of 2000 the District Court of Travis County Texas ruled that the decision of the TNRCC to grant the Company's PAA#3 without granting a hearing to certain intervenors in the case would require further review by the TNRCC. The District Court remanded the issue back to the TNRCC for further action which has the effect of placing the Company's PAA#3 on hold from future production pending a decision by the TNRCC. The Company anticipates a favorable outcome in this matter. With regard to future production areas certain minor amendments to the license and permit for further production within the permit area will be required as development proceeds. The term of the license and UIC permit is effectively open-ended. Restoration and Reclamation. Restoration of groundwater was conducted during 1999 and is expected to continue in 2000. ROSITA The Property. The Rosita property consists of mineral leases on 3,359 gross and net acres located in northeastern Duval County, Texas. All the leases, except minor leases, are held by production. The leases provide for royalties based upon uranium sales. Production History. The Company began initial production at Rosita in October 1990. Total production from Rosita for the eighteen months through March 31, 1992 was approximately 1.1 million pounds. In March 1992, due to depressed uranium prices, the Company shut-in production. Wellfield development activities resumed at Rosita in March 1995 and production recommenced in June 1995. From that date through July 1999 approximately 1.6 million pounds were produced with 48,000 pounds produced in 1999. The Company shut-in and placed on stand-by production at the Rosita site in the first quarter of 1999 because of depressed uranium market conditions. Nominal production from this site continued until July 1999 when the incremental production costs at this facility exceeded the cost of purchasing uranium in the marketplace. Further Development Potential. The Company estimates that there are approximately 261,000 recoverable pounds of uranium remaining to be produced from the Rosita project. The timing of production from this property will be dependent upon future uranium prices, the availability of sales contracts and the availability of capital. The Company spent approximately $77,000 for development activities, permitting and land holding costs in 1999. Significant expenditures for these activities are not expected in 2000. 11 15 Permitting Status. Radioactive materials licensing and UIC permit hearings for currently producing areas have been completed, and the necessary permits have been issued. Some minor amendments for further production within the permit area will be required as development proceeds. The term of the license and UIC permit is effectively open-ended. Restoration and Reclamation. The Company conducted groundwater restoration in 1999 and expects to continue these activities in 2000. SOUTH TEXAS DEVELOPMENT PROPERTIES VASQUEZ The Property. The property consists of two mineral leases on 842 gross and net acres located in southwestern Duval County, Texas. The secondary lease term for this property expired in February 2000. URI tendered payment under the shut-in royalty clause of the lease and also holds its rights to the property through continuous development clauses in the lease. The lessor returned the Company's shut-in royalty payments without disclosing their reasons for rejecting the Company's payment. The Company believes that it will continue to hold its rights to the property under either the shut-in royalty or the continuing development clauses of the lease. The leases provide for royalties based on uranium sales. Reserves. The Company estimates that the property contained approximately 2.8 million pounds of recoverable reserves at December 31, 1999. Development Plan. The timing of production will be dependent on a number of factors. Prior to the commencement of production at Vasquez the Company will require new capital inflows of approximately $2.5 million for construction, development and financial surety needs. Permitting Status. All of the required permits for this property have been received from the TNRCC and the TDH. NEW MEXICO DEVELOPMENT PROPERTIES GENERAL The Company has various interests in properties located in the Churchrock and Crownpoint districts in New Mexico. As to these properties, the Company holds both patented and unpatented mining claims, mineral leases and some surface leases from private parties, the Navajo Nation and Navajo allottees. In addition, in March 1997, the Company acquired from Santa Fe certain uranium mineral interests and exploration rights for uranium on significant acreage in New Mexico, a small portion of which falls within the Churchrock district. In keeping with its overall corporate strategy, the Company's development plan for its New Mexico properties will proceed incrementally, subject to timely permitting, the availability of water rights, the availability of sales contracts and the availability of capital. The Company plans to develop the Churchrock district first and the Crownpoint district next. 12 16 REGULATORY FRAMEWORK NRC License. In New Mexico, uranium production requires a radioactive materials license issued by the NRC. The Company has applied for one NRC license covering all properties located in both the Churchrock and Crownpoint districts (except the Mancos property) and has included the properties in both districts (except the Mancos leases) under one Final Environmental Impact Statement ("FEIS"), which is a prerequisite for the NRC license. The NRC finalized and completed the publication of the FEIS in the first quarter of 1997. The NRC issued an operating license in January 1998 that would allow operations to begin in the Churchrock district. In mid-1998, the NRC determined that certain Churchrock and Crownpoint residents who requested a hearing were qualified as to standing. Under the source materials licensing procedures of the NRC, a hearing covering the license was conducted during 1999. The administrative law judge has ruled on all of the contentions and upheld the license. Subsequently, the ruling by the administrative law judge was appealed to the full NRC. Although all the decisions to date have been favorable to the Company, there can be no assurance that the license will be maintained in its current form allowing the Company to proceed with its planned operations, or that the NRC process will be concluded on a timely basis. UIC Permit. NMED has jurisdiction under the New Mexico Water Quality Act to regulate UIC activities within the State of New Mexico, and the New Mexico UIC program has received "primary enforcement responsibility" from the EPA under the federal SDWA. However, by the terms of regulations issued by the EPA and the primacy determination made for the State of New Mexico, New Mexico's UIC primacy does not extend to New Mexico's exercise of UIC regulation or permitting over facilities located on "Indian lands," a term whose geographic reach the EPA has defined as coextensive with that of "Indian country". Because even a permit issued by a state holding UIC primacy cannot suffice in lieu of a federal UIC permit issued under the SDWA unless the EPA issued a corresponding aquifer exemption or temporary aquifer designation, the EPA's opinion that a site lies within Indian country virtually compels a state UIC applicant to secure an EPA UIC permit for UIC activities to be conducted on such a site. In addition to the EPA's assertions, the Navajo Nation claims regulatory jurisdiction over a significant portion of the Company's New Mexico development properties. These claims subject the development of those properties within the area claimed as "Indian country" to further uncertainties, including a potential for delays in UIC permitting. For certain properties not permitted by the EPA at the time a Navajo regulatory program is promulgated and accepted by the EPA for a determination of primacy, the Company would then apply to the Navajo EPA for its UIC permits. Although a Navajo UIC program may adopt unique application, permitting, and enforcement procedures, it would, nonetheless, be required to impose virtually the same substantive requirements that the Company is prepared to satisfy under existing New Mexico and EPA UIC programs. This dispute over UIC jurisdiction is currently focused on a portion of the Churchrock and Crownpoint properties. Despite this current jurisdictional dispute among the EPA, the State of New Mexico, and the Navajo Nation, the Company maintains good relations with the State of New Mexico, the Navajo Nation, and the EPA. However, there can be no assurance that the jurisdictional dispute will not have a material adverse effect on the Company's development plans in New Mexico. Water Rights. For general information on water rights in New Mexico, see "Business-Environmental Considerations and Permitting; Water Rights." CHURCHROCK DISTRICT The Property. The Churchrock properties encompass 2,225 gross and net acres and include mineral leases, patented mining claims and unpatented mining claims. The properties are located in McKinley County, New Mexico, and consist of three parcels, known as Section 8, Section 17 and Mancos. None of these parcels lies within the area generally recognized as constituting the Navajo Reservation. The 13 17 Company owns the mineral estate in fee for both Sections 17 and the Mancos properties. The surface estate on Section 17 is owned by the U.S. Government and held in trust for the Navajo Nation. The Company owns patented and unpatented mining claims on Section 8. Resources. The Company estimates that as of December 31, 1999, Section 8 contained approximately 4.2 million pounds of recoverable uranium resources. Section 17 contained approximately 5.5 million pounds of recoverable resources and the Mancos property contained approximately 2.7 million pounds of recoverable resources. Development Plan. It is anticipated that the first property to be developed will be Churchrock. Costs related to permitting activities and land holding costs were approximately $666,000 in 1999. The Company does not anticipate significant spending for permitting and land holding costs in 2000. The Company anticipates having to demonstrate financial surety in connection with production activities. Water Rights. The Company originally acquired mineral leases on Sections 8 and 17 from United Nuclear Corporation ("UNC") and, in connection therewith, acquired certain rights to use water from UNC. An application to use one of these rights was the subject of extensive administrative proceedings and litigation with the New Mexico State Engineer and the Navajo Nation over the nature and extent of UNC's water rights. The State Engineer approved HRI's water rights application in October 1999 and granted it sufficient water rights for the life of the Churchrock mine. Permitting Status. On June 21, 1989 the EPA issued its aquifer exemption covering that portion of the Churchrock site known as Section 8, and on November 1, 1989, NMED issued its permit, covering UIC activities on Section 8. On October 7, 1994, NMED issued an amended permit covering UIC activities on both Section 8 and Section 17. The permit for Section 17 was contested by the Navajo Nation which claimed UIC regulatory jurisdiction over the site, based on the fact that the surface estate is owned by the Navajo Nation. The EPA, acting as an advocate for the Navajo Nation, has asserted the Navajo Nation's claim and has refused to amend its previously issued aquifer exemption covering Section 8 to add the portion of the Churchrock facility on Section 17. The Navajo Nation has asserted jurisdiction over Section 8 as being a "dependent Indian community". The EPA has informed the Company that the regulatory jurisdiction of the property is considered to be in "dispute" and would require an EPA-issued permit prior to the commencement of mining. The Company does not plan to pursue permits for Mancos at this time. In June 1996, the Company filed with the NMED two applications to renew the permit in two distinct parts, one covering the Section 8 portion and the other the Section 17 portion of Churchrock. This was to assure that the Company maintained a "clear" UIC authorization on the Section 8 portion of the site. The surface estate on Section 8 is not owned by the Navajo Nation or Navajo allottees. Because the renewal application was timely filed, the permit covering the Section 8 property has remained continuously in effect pending final determination on the renewal application by the NMED. The Navajo Nation has asserted jurisdiction over the UIC for Section 8, claiming that the land lies within a "dependent Indian community." While the EPA has not yet taken a final position on this issue, they have determined that a dispute does exist between the NMED and the Navajo tribe. As a result of this dispute, the EPA has indicated that an EPA permit will be required on this property. The State of New Mexico and the Company appealed the action of the EPA to the United States Court of Appeals for the Tenth Circuit. The Tenth Circuit in January 2000, determined that EPA had jurisdiction and remanded the matter back to EPA for further evaluation. The Company cannot predict the impact of this decision and there can be no assurance that EPA will reissue a UIC permit in its current form or on a timely basis. This situation could potentially delay or obstruct development of Section 8. 14 18 CROWNPOINT DISTRICT The Property. The Crownpoint properties are located in the San Juan Basin, 22 miles northeast of the Company's Churchrock deposits and 35 miles northeast of Gallup, New Mexico, adjacent to the town of Crownpoint. The Properties consist of 1,578 gross and net acres, as follows: (a) 162 gross and net acres on Section 24. The Company has 100% of the mineral estate on this acreage pursuant to a combination of a 40% fee interest, a mineral lease on the other 60% of the mineral estate unpatented mining claims. This acreage is subject to an obligation of the Company to pay a production payment on the first 50,000 pounds of uranium produced and an override based on uranium sales; (b) 959 gross and net acres on Sections 19 and 29 pursuant to a lease from private mineral owners (expiring August 2007) which provides for royalties and an override based on uranium sales; and (c) 457 gross and net acres of unpatented mining claims in Sections 9, 24 and 25. Resources. With respect to all the Crownpoint acreage, the Company estimates as of December 31, 1999, the property contained approximately 25.3 million pounds of recoverable resources. Development Plan. The New Mexico properties will be developed according to the license conditions issued by the NRC. Under the license, the first operating property will be Churchrock followed by Crownpoint. Costs relating to permitting activities and land holding costs for Crownpoint were $874,000 in 1999, and are not expected to be significant in 2000. Water Rights. With respect to Crownpoint, the Company has acquired three applications for appropriations of water which give the Company the first three "positions in line" on the hearings list for the San Juan Basin. Certain aspects of all three applications were protested and are subject to hearings. Water rights relating to Unit 1 may likely involve the claim of the jurisdiction of the Navajo Nation, and this jurisdictional issue might also be present for other parts of Crownpoint. The Company plans to proceed with water rights for Crownpoint at a future date. Permitting Status. The NRC license is part of the overall development plan for both the Churchrock and Crownpoint districts discussed above. The Company has recently submitted a revised UIC permit application for Section 24. There can be no assurance that the UIC permit will be granted. The surface estate on Section 19 and 29 is owned by the U.S. Government and held in trust for the Navajo Nation and may be subject to the same jurisdictional dispute as for Section 17 in Churchrock. Unit I Property. In addition to the foregoing, at December 31 1999 the Company had 1,440 gross and net acres of mineral leases on nine separate parcels (hereinafter referred to as "Unit 1") from Navajo allottees who are the beneficial owners of the surface and mineral rights. The leases have been and are subject to approval by the Bureau of Indian Affairs (the "BIA"). Such approval had not been received at December 31, 1999 and as a result, the Company reviewed each of the nine agreements to determine those that have been executed by all the necessary parties to finalize each agreement. Three of the agreements have received the required signatures from the allottees to complete the leases. The remaining six require additional efforts to complete the leasing process. As a result of this review, the Company has requested that the BIA return those funds that have been held in escrow related to those six leases that require further completion. This request was made and the Company received funds totaling approximately $440,000 in the first quarter of 2000 related to these leases. 15 19 SANTA FE PROPERTIES GENERAL In March 1997 the Company acquired from Santa Fe certain uranium mineral interests and exploration rights for uranium in New Mexico. The Properties. The properties consist of: (a) 37,000 acres as to which the Company has acquired a fee interest in the entire mineral estate, excluding coal ("Category I Properties"); (b) approximately 140,000 acres as to which the Company has acquired the fee interest in uranium (the "Category II Properties"); and (c) approximately 346,000 acres as to which the Company has acquired the exclusive right to explore for uranium and other minerals excluding coal (the "Category III Properties"). The Company is obligated to spend on exploration $200,000 per year for the ten-year period starting in March 1997 and $400,000 per year for the seven-year period starting in March 2007. This expenditure can be made on any of the Category II or Category III properties. The license is for 17 years, expiring in March 2014. In the event that the sale price of uranium shall exceed $25 per pound for any twelve-month period URI has committed to spend on exploration (or pay to Santa Fe) during the following 5 years an aggregate of $5 million; and in the event that the sale price of uranium shall exceed $30 per pound for any twelve-month period URI has committed to spend on exploration (or pay to Santa Fe) during the following 5 years an aggregate of $10 million. With respect to Category II and Category III properties, at such time as URI shall apply for a mining permit with respect to any such properties Santa Fe has the right to put the remaining mineral interests owned by it (excluding coal) to the Company at a price of $200 per acre for any acreage in any section which is covered by the mining application. The acreage price shall be increased by the same percentage as the percentage increase in the price of uranium on the date of such application over $15.80 per pound. URI has the option to purchase at any time the entire mineral estates (excluding coal) on such properties on the same terms. Resources. The Company estimates that the Category I Properties contain 9.6 million pounds of recoverable resources. Development Plan. The planned development strategy is to integrate qualified properties from the Santa Fe lands into the production plans for Churchrock and Crownpoint. Exploration Potential. There is significant exploration potential for the Santa Fe properties. Numerous ore grade holes drilled on the properties demonstrates this potential; however, because the deposits are not delineated, development costs are uncertain. RECLAIMED PROPERTIES The Company has completed production and groundwater restoration on its Benavides and Longoria projects in South Texas. The Company completed the final stages of surface reclamation on these projects and received full and final release for these sites in 1999. The Company acquired the Section 17 leases in the New Mexico Churchrock district from United Nuclear Corporation ("UNC"). UNC had conducted underground mining for uranium on Section 17 and had reclaimed these properties. In connection with the acquisition, the Company assumed any liability of UNC for any remaining remediation work that might be required. NMED has not determined what, if any, 16 20 additional remediation will be required under the New Mexico Mining Act. If more remediation work is required, the Company believes it will not involve material expenditures. RECLAMATION AND RESTORATION COSTS AND BONDING REQUIREMENTS Upon completion of production from a wellfield, the Company is obligated under state and federal law to restore the aquifer to a condition consistent with its pre-mining use. This involves restoration of the aquifer, plugging and abandoning the injection and production wells and reclaiming the surface. With respect to operations at Kingsville Dome and Rosita the TNRCC and TDH requires the Company to provide financial surety to cover the costs of such restoration and reclamation. The surety bond requirement at December 31, 1999 was approximately $6.2 million. The Company fulfills this requirement through the issuance of surety bonds from the United States Fidelity and Guaranty Company ("USF&G") and has deposited as collateral for such bonds cash of approximately $3.6 million. The Company is obligated to fund the cash collateral account with an additional $0.50 for each pound of uranium production until the account accumulates an additional $1.0 million. The Company estimates that its future reclamation liabilities with respect to current operations at December 31, 1999 approximates $5.1 million, which has been charged to earnings. These financial surety obligations are reviewed and revised annually by the TNRCC and TDH. The Company anticipates that it will be required to provide financial surety of approximately $1.0 million as a condition to receipt of the requisite permits for the mining of the Vasquez project. In New Mexico surety bonding will be required prior to development of the properties. The Company anticipates that it will be required to provide financial surety as a condition to receipt of the requisite permits for the Churchrock project. The amount of the surety bond will be subject to annual review and revision by the NRC and State of New Mexico. ITEM 3. LEGAL PROCEEDINGS LONGORIA On August 28, 1995, Manuel T. Longoria, as owner of the ranch containing the site of the Company's Longoria mine near Bruni in Duval County, Texas, brought suit against the Company in state district court in Duval County, Texas asserting claims said to have arisen at various times over the last 18 years. In the action styled Longoria v. Uranium Resources, Inc., et al., Longoria sought remediation of the Longoria property and for unspecified actual and punitive damages. The suit was settled in 1999 for an immaterial amount. All reclamation has been completed and the Company received final release of its obligations from the TDH in 1999. PROBANK On July 12, 1995, the Company filed a lawsuit in the federal district court in Colorado against Professional Bank, a Colorado chartered bank ("ProBank"). In the action styled Uranium Resources, Inc. v. Professional Bank, the Company alleged that ProBank transferred $1,080,000, without the Company's authorization, from the Company's account at ProBank to the accounts maintained at ProBank of various entities and an individual affiliated with Oren L. Benton. The Company recovered $300,000 of the total in 1995 and recovered $575,000 from ProBank in June 1997 in settlement of the action against ProBank. 17 21 BENTON BANKRUPTCY During 1994, the Company encountered liquidity problems that resulted in the Company entering into certain transactions with companies controlled by Mr. Benton (the "Benton Companies"). On February 23, 1995, Benton and various of the Benton Companies filed for protection under Chapter 11 of the Federal Bankruptcy Code (the "Benton Bankruptcy"). On February 19, 1998, David J. Beckman, as Liquidating Trustee for the CSI Liquidating Trust and the NTC Liquidating Trust filed a complaint seeking recovery of a November 7, 1994 payment of $1,400,000 and $203,050 in cash advances made to the Company during a period from December 1994 to February 1995. The Liquidating Trustee asserted that the payments and advances were avoidable as preferential and/or fraudulent transfers. On July 26, 1999, the parties entered into a settlement agreement and are currently attempting to finalize the details of the settlement. Settlement negotiations between the parties are presently ongoing. The Company does not believe any such settlement or other outcome from this matter will have a material adverse impact on the operating results or financial position of the Company. The Company has asserted certain claims against Benton and the Benton Companies in the bankruptcy proceedings. This matter was settled in 1999 by the issuance of a note by Benton to the Company. In conjunction with that settlement, the Company received the first of four scheduled installment payments. The next two scheduled payments were not paid when due and are currently outstanding. OTHER The Company is subject to periodic inspection by certain regulatory agencies for the purpose of determining compliance by the Company with the conditions of its licenses. In the ordinary course of business, minor violations may occur, however, these are not expected to cause material expenditures. INDIAN LANDS JURISDICTIONAL DISPUTE See "Churchrock District-Permitting Status" for a discussion of permitting jurisdiction over certain of the Company's mineral properties in New Mexico. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 18 22 -------------------------------------------------- CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The Company is including the following cautionary statement to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statement made by, or on behalf of, the Company. The factors identified in this cautionary statement are important factors (but not necessarily all of the important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company. Where any such forward-looking statement includes a statement of the assumptions or bases underlying such forward-looking statement, the Company cautions that, while it believes such assumptions or bases to be reasonable and makes them in good faith, assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be material, depending upon the circumstances. Where, in any forward-looking statement, the Company, or its management, expresses an expectation or belief as to the future results, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result, or be achieved or accomplished. Taking into account the foregoing, the following are identified as important risk factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company: POSSIBLE BANKRUPTCY/COMPANY LIQUIDITY As a result of the depressed spot prices in the uranium marketplace, the Company shut-in and placed on stand-by its two South Texas facilities in the first quarter of 1999. Nominal production from these sites continued to July 1999 until their incremental production costs exceeded the cost of purchasing uranium in the marketplace. The Company continues to maintain certain activities at these locations including its ongoing groundwater restoration efforts. The Company has implemented additional steps in 1999 to preserve cash by reducing expenses and maximizing the cash flow from its existing sales contracts. The Company has consolidated certain of its administrative locations and reduced its workforce. These measures were initiated in the fourth quarter of 1998 and continued in 1999. The successful implementation of these strategies allowed the Company to maintain a positive liquidity position through 1999. These cost cutting moves coupled with the Company's ability to monetize the value of its long-term sales contracts during 1999 allowed it to remain liquid during the year. The ability of the Company to continue to maintain a positive cash position will require an infusion of capital that is currently unavailable to it. Absent these capital inflows the Company will experience a negative cash position by June 2000 which will prevent it from continuing in business. The Company will continue to pursue alternatives as long as possible to allow it to achieve positive liquidity through 2000 and beyond. If the Company is unable to secure a cash infusion prior to June, it will consider all of its possible alternatives, including a possible filing in bankruptcy. Even if the market price of uranium increases and the demand for new production increases, there can be no assurance that the Company can survive long enough to participate in these changes or that it will have access to the capital necessary to bring new production on line. CONTINUING SIGNIFICANT CAPITAL REQUIREMENTS An ISL mining operation requires a substantial amount of capital prior to the commencement of, and in connection with, production of uranium, including costs related to acquiring the rights to mine uranium, securing regulatory permits and licenses, exploration and definitional drilling to determine the underground configuration of the ore body, designing and constructing the uranium processing plant, 19 23 drilling and developing in order to establish the infrastructure for the production wells for each wellfield and complying with financial surety requirements established by various regulatory agencies regarding the future restoration and reclamation activities for each property. The Company does not expect to be able to fund its 2000 capital requirements from existing sources cash flow from operations or existing working capital financing arrangements. The Company's ability to survive will be dependent upon it securing additional sources of funding for operational and capital needs. There can be no assurance that the Company will secure such capital to fund these its cash requirements in 2000. POTENTIAL ADVERSE EFFECT OF FEDERAL AND STATE REGULATIONS The development and production of uranium is subject to extensive governmental regulations that materially affect the economics of the Company's operations and the timing of project development. To produce uranium, the Company must secure and maintain multiple permits, obtain adequate water rights and comply with extensive federal, state and potential tribal regulations for environmental protection, including regulations relating to air and water quality, the prevention of groundwater contamination, the reclamation and restoration of wellfield aquifers and the treatment, transportation and disposal of liquid and/or byproduct material and solid wastes generated by the Company's uranium mining and processing activities. To date, the Company's operations have not been materially and adversely affected by the inability to obtain or maintain required permits or water rights, or by any groundwater contamination or the disposal of waste or byproduct material. However, should the Company be unable to obtain or maintain permits or water rights for development of its properties or otherwise fail to adequately handle future environmental issues, the Company's operations could be materially and adversely affected by expenditures or delays in the Company's ability to initiate or continue production at its properties. The Company must obtain all necessary permits from the appropriate governmental agency before it can commence production at any of its development properties. The Company's future production is highly dependent on its ability to bring these development properties into production. Applications for permitting of certain of these properties have been filed. There can be no assurances that all the necessary permits will be obtained or that such permits will be obtained in a timely manner. Any significant delays in obtaining the necessary permits could have a material adverse effect upon the Company and its developmental plans for these properties. The Company has expended significant resources, both financial and managerial, to comply with environmental protection laws, regulations and permitting requirements and anticipates that it will be required to continue to do so in the future. Although the Company believes its producing properties comply in all material respects with all relevant permits, licenses and regulations pertaining to worker health and safety as well as those pertaining to the environment, the historical trend toward stricter environmental regulation may continue. The uranium industry is subject to not only the worker health and safety and environmental risks associated with all mining businesses, but also to additional risks uniquely associated with uranium mining and processing. The possibility of more stringent regulations exists in the areas of worker health and safety, the disposal of wastes and byproduct material, the decommissioning, decontamination and reclamation of mining, milling, refining and conversion sites, and other environmental matters, each of which could have a material adverse effect on the costs or the viability of a particular project. The Company is required to provide financial surety to state environmental agencies for plugging wells, groundwater restoration and site decommissioning, decontamination and reclamation. The Company estimates that its current restoration, decommissioning, decontamination and reclamation costs are approximately $5.2 million, which amount the Company has accrued as a liability on its financial statements. The Company satisfied its financial surety requirements imposed by environmental regulators with surety bonds totaling approximately $6.2 million at December 31, 1999, $3.6 million of which is collateralized by the Company with cash. The Company anticipates that its future financial surety 20 24 requirements will increase significantly when future development and production occurs at its sites in Texas and New Mexico. The amount of the financial surety for each producing property is subject to annual review and revision by regulators. There can be no assurance that the Company will have sufficient capital to meet these future financial surety obligations. URANIUM RESOURCE ESTIMATES Uranium resource estimates are necessarily imprecise and depend to some extent on statistical inferences drawn from limited drilling, which may prove unreliable; and there can be no assurance that the indicated level of recoveries will be realized. Should the Company encounter mineralization or formations at any of its mines or projects different from those predicted by drilling, sampling and similar examinations, uranium resource estimates may have to be adjusted and mining plans may have to be altered in a way that could adversely affect the Company's operations. Moreover, short-term operating factors relating to the uranium resources, such as the need for sequential development of ore bodies and the processing of new or different uranium grades, may adversely affect the Company's profitability in any particular accounting period. NEED TO REPLACE RESERVES When in production, the Company's producing uranium mines are, in general, characterized by a series of individual wellfields that produce at differing declining production rates. Each wellfield's production decline rate depends on ore reserve characteristics, and, in the case of the Company, varies from a steep decline rate of six months, to a relatively slow production decline rate of eighteen months. The Company's future uranium reserve production, and therefore cash flow and income, are highly dependent upon the Company's level of success in exploiting its current resources and acquiring or developing additional reserves. Reserves at the Company's producing sites were depleted in 1999, although there is the potential for developing additional wellfields at Kingsville Dome. There can be no assurance that the Company's development properties will be placed into production or that the Company will be able to continue to find and develop or acquire additional reserves. COMPETITION There is global competition in the uranium industry for mineral properties, capital, customers and the employment and retention or qualified personnel. In the production and marketing of uranium concentrates there are approximately 15 major uranium-producing entities, some of which are government controlled and all of which are significantly larger and better capitalized than the Company. The Company competes with larger producers in Canada, Australia and Africa, as well as with other United States ISL producers of uranium and other producers that recover uranium as a by-product of other mineral recovery processes. The Company also expects to compete with uranium recovered from the de-enrichment of highly enriched uranium obtained from the dismantlement of U.S. and Russian nuclear weapons and sold in the market by the United States Enrichment Corporation and/or the United States Department of Energy, as well as from imports to the United States of uranium from the CIS. The amount of uranium produced by competitors or imported into the United States may have a material impact on uranium prices. URANIUM PRICE VOLATILITY The Company's existence is dependent on the price of uranium, which is determined primarily by global supply and demand and by the relationship of that price to the Company's costs of production. Historically, uranium prices have been subject to fluctuation, and the price of uranium has been and will continue to be affected by numerous factors beyond the Company's control, including the demand for nuclear power, political and economic conditions, and governmental legislation in uranium producing and consuming countries and production levels and costs of production of other producing companies. Certain 21 25 of the Company's current long and medium-term contracts have pricing mechanisms related to spot market prices. In recent years, prior to 1996, imports of uranium, including imports of uranium from the CIS, have resulted in significant downward pressure on uranium prices. The spot market price for uranium has demonstrated a large range since January 1995. Prices have risen from $9.65 per pound as of January 31, 1995 to a high of $16.50 per pound as of May 31, 1996. The spot price as of December 31, 1999 and March 31, 2000 was $9.60 and $9.20 per pound, respectively. URANIUM CONTRACT PORTFOLIO Long-term contracts have historically been the primary source of revenue to the Company. At the beginning of 1999 the Company had four long-term contracts for deliveries over the next two, three and four years of approximately $26.9 million in revenues. During 1999, the Company assigned its delivery rights for 2000 through 2002 under one of these contracts and also accelerated the scheduled deliveries under another contract into the fourth quarter of 1999. These transactions coupled with additional transactions made in the first quarter of 2000 converting the value of the Company's long-term sales contracts into cash have had the effect of exhausting its sales contract portfolio. Currently, the Company does not have any remaining scheduled uranium deliveries under contract for the balance of 2000 or beyond. The Company must secure new profitable uranium sales contracts as the basis for its continued existence. Demonstrated profitability under such new contracts will form the basis for the Company to be able to secure the requisite financing/equity infusion to resume production at its mine sites. The profitability under such new contracts will depend on a number of factors including the cost of producing uranium at the Company's mining properties, the Company's ability to produce uranium to meet its sales commitments and the spot market price of uranium. LIMITED MARKET; DEPENDENCE ON A FEW CUSTOMERS The Company's primary source of revenue is derived from its sale of uranium to U.S. nuclear power plants. Uranium's only current commercial use is as fuel for nuclear power reactors. Accordingly, the Company's past and potential customers are electric utilities that operate nuclear power plants. The United States is the world's largest producer of nuclear-generated electricity. There can be no assurance that the Company can continue to compete successfully for such customers. Historically, a significant portion of the Company's contracted sales of uranium has been from a small number of customers. This trend is expected to continue if the Company is able to secure new sales contracts. The inability to secure these new customers or the loss of any of these customers or curtailment of purchases by such customers would have a significant materially adverse effect on the Company, including its inability to remain in business. COMPETITION FROM ALTERNATIVE ENERGY SOURCES AND PUBLIC ACCEPTANCE OF NUCLEAR ENERGY Nuclear energy competes with other sources of energy, including oil and gas, coal and hydro-electricity. These alternative energy sources are to some extent interchangeable with nuclear energy, particularly over the longer term. Lower prices of oil, gas, coal and hydro-electricity for an extended period of time, as well as the possibility of developing in the future other low cost sources for energy, have made and could continue to make nuclear power a less attractive fuel source for the generation of electricity, thus resulting in lower demand for uranium. Furthermore, the growth of the uranium and nuclear power industry beyond or maintenance at its current level will depend upon continued and increased acceptance of nuclear technology as a means of generating electricity. Because of unique political, technological and environmental factors that affect the nuclear industry, the industry is subject to public opinion risks which have and could continue to have an adverse impact on the demand for nuclear power and increase the regulation of the nuclear power industry. 22 26 POTENTIAL ADVERSE IMPACT OF LOSS OF KEY PERSONNEL Certain of the Company's employees have significant experience in the uranium ISL mining industry. The number of individuals with ISL experience is small. The continuation of the Company is dependent upon the efforts of these key individuals, and the loss of any one or more of such persons' services could have a material adverse effect on the Company's business operations and prospects. MINING RISKS AND INSURANCE The business of uranium mining generally is subject to a number of risks and hazards, including environmental hazards, industrial accidents, flooding, interruptions due to weather conditions and other acts of nature. Such risks could result in damage to or destruction of the Company's wellfield infrastructure and production facilities, as well as to adjacent properties, personal injury, environmental damage and processing and production delays, causing the Company monetary losses and possible legal liability. While the Company maintains, and intends to continue to maintain, liability, property damage and other insurance consistent with industry practice, no assurance can be given that such insurance will continue to be available, be available at economically acceptable premiums or be adequate to cover any resulting liability. 23 27 GLOSSARY OF CERTAIN TERMS claim...................... A claim is a tract of land, the right to mine of which is held under the federal General Mining Law of 1872 and applicable local laws. concentrates............... A product from a uranium mining and milling facility, which is commonly referred to as uranium concentrate or U3O8. conversion................. A process whereby uranium concentrates are converted into forms suitable for use as fuel in commercial nuclear reactors. cut-off grade.............. Cut-off grade is determined by the following formula parameters: estimates over the relevant period of mining costs, ore treatment costs, general and administrative costs, refining costs, royalty expenses, process and refining recovery rates and uranium prices. gross acres................ Total acres under which the Company has mineral rights and can mine for uranium. Indian country............. A term derived from jurisdictional determinations in criminal law enforcement proceedings under 18 U.S.C.ss. 1151 and understood to encompass territory situated within Indian reservations, land owned by Indian allottees and land within a dependent Indian community. lixiviant.................. When used in connection with uranium in situ leach mining, a solution that is pumped into a permeable uranium ore body to dissolve uranium in order that a uranium solution can be pumped from production wells. net acres.................. Actual acres under lease which may differ from gross acres when fractional mineral interests are not leased. ore........................ Naturally occurring material from which a mineral or minerals of economic value can be extracted at a reasonable profit. over feeding............... Operating enrichment plants in a manner that reduces plant operating costs but increases the amount of uranium required to produce a given quantity of enriched uranium. probable reserves.......... Reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation.
24 28 proven reserves............ Reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well-established. reclamation................ Reclamation involves the returning of the surface area of the mining and wellfield operating areas to a condition similar to pre-mining. recoverable reserves....... Reserves that are either proven or probable, are physically minable, and can be profitably recovered under conditions specified at the time of the appraisal, based on a positive feasibility study. The calculation of minable reserves is adjusted for potential mining recovery and dilution. reserve.................... That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. restoration................ Restoration involves returning an aquifer to a condition consistent with its pre-mining use and removing evidences of surface disturbance. The restoration of the wellfield can be accomplished by flushing the ore zone with native ground water and/or using reverse osmosis to remove ions to provide clean water for reinjection to flush the ore zone. resources.................. A resource is a concentration of naturally occurring minerals in such a form that economic extraction is potentially feasible. roll front................. The configuration of sedimentary uranium ore bodies as they appear within the host sand. A term that depicts an elongate uranium ore mass that is "C" shaped. spot price................. The price at which uranium may be purchased for delivery within one year. surety obligations......... A bond, letter of credit, or financial guarantee posted by a party in favor of a beneficiary to ensure the performance of its or another party's obligations, e.g., reclamation bonds, workers' compensation bond, or guarantees of debt instruments. tailings................... Waste material from a mineral processing mill after the metals and minerals of a commercial nature have been extracted; or that portion of the ore which remains after the valuable minerals have been extracted. Trade Tech................. A Denver-based publisher of information for the nuclear fuel industry; the successor to the information services business of Nuexco.
25 29 uranium or uranium concentrates............... U3O8, or triuranium octoxide. U3O8....................... Triuranium octoxide equivalent contained in uranium concentrates, referred to as uranium concentrate. waste...................... Barren rock in a mine, or mineralized material that is too low in grade to be mined and milled at a profit.
26 30 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION Prior to March 24, 1999 the Company's Common Stock was traded on Nasdaq under the trading symbol URIX. On March 23, 1999, the Company's common stock was delisted from the Nasdaq National Market. Effective March 24, 1999, the Company's common stock began being quoted on the OTC Bulletin Board. The following table sets forth the high and low sales prices for the Common Stock as reported on the applicable markets for the periods indicated:
Common Stock -------------- Fiscal Quarter Ending High Low --------------------- ----- ----- December 31, 1999 13/64 7/64 September 30, 1999 9/32 5/32 June 30, 1999 27/64 5/32 March 31, 1999 1/2 1/8 December 31, 1998 25/32 5/32 September 30, 1998 2-3/8 7/32 June 30, 1998 3 2 March 31, 1998 4-3/8 2-1/8
The high and low sales prices for the common stock for the period January 1, 2000 through March 22, 2000, was $0.4375 and $0.125, respectively. HOLDERS As of March 31, 2000, the Company had 14,520,366 shares of Common Stock outstanding held of record by 127 persons. DIVIDENDS The Company did not declare or pay any cash or other dividends on its Common Stock during the years ending December 31, 1999, 1998 or 1997. The Company does not anticipate paying dividends for the foreseeable future. 27 31 ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31, --------------------------------------------------------- 1999 1998 1997 1996 1995 (unaudited) ----------- -------- -------- -------- -------- (In thousands, except per share and per pound amounts) CONSOLIDATED STATEMENTS OF OPERATIONS DATA Uranium sales: Produced uranium $ 2,281 $ 10,984 $ 14,737 $ 17,827 $ 7,195 Purchased uranium 4,974 12,363 15,003 6,437 14,634 Other uranium revenues 1,290 -- -- -- -- Cost of uranium sales (8,514) (21,286) (29,269) (20,122) (17,235) -------- -------- -------- -------- -------- Earnings from operations before writedown of uranium properties 31 2,061 471 4,142 4,594 Writedown of uranium properties (38,545) (23,112) -- -- (163) -------- -------- -------- -------- -------- Earnings (loss) from operations before corporate expenses (38,514) (21,051) 471 4,142 4,431 Corporate expenses (2,061) (2,730) (2,937) (3,055) (3,496) -------- -------- -------- -------- -------- Earnings (loss) from operations (40,485) (23,781) (2,466) 1,087 935 Interest and other, net 381 56 868 (328) (324) Loss on termination of joint venture and transfer to stockholders -- -- -- -- (1,781) -------- -------- -------- -------- -------- Earnings (loss) before income taxes (40,104) (23,725) (1,598) 759 (1,170) Federal income tax (benefit) (264) (4,745) (273) -- (234) -------- -------- -------- -------- -------- Net earnings (loss) $(39,840) $(18,980) $ (1,325) $ 759 $ (936) ======== ======== ======== ======== ======== Earnings (loss) per common share: Basic $ (3.27) $ (1.57) $ (0.11) $ 0.09 $ (0.12) ======== ======== ======== ======== ======== Diluted $ (3.27) $ (1.57) $ (0.11) $ 0.08 $ (0.12) ======== ======== ======== ======== ======== Weighted average common stock and equivalents outstanding: Basic 12,178 12,053 11,760 8,789 8,098 Diluted 12,178 12,053 11,760 10,031 8,098 CONSOLIDATED OPERATING AND OTHER DATA Cash provided by (used in) operations $ (578) $ 8,201 $ 4,931 $ 9,294 $ 5,301 Pounds of uranium produced 109 623 871 1,360 612 Pounds of uranium purchased 414 865 1,275 488 660 Pounds of uranium delivered 570 1,586 2,240 1,656 1,633 Capital expenditures $ 1,630 $ 6,168 $ 14,901 $ 14,607 $ 3,583 Average sales price per pound(a) $ 12.72 $ 15.13 $ 13.71 $ 16.35 $ 15.64 Average cost of produced pounds sold (b) $ (c) $ 16.58 $ 15.61 $ 11.34 $ 10.28 Average cost of purchased pounds sold $ 10.35 $ 10.12 $ 10.40 $ 10.21 $ 9.41 Cash cost per produced pound(b) $ (c) $ 13.17 $ 12.17 $ 8.51 $ 7.11 Average cost per produced pound(b) $ (c) $ 17.11 $ 15.85 $ 12.12 $ 10.09 Average cost per purchased pound $ 10.35 $ 10.12 $ 10.40 $ 10.21 $ 9.52
- ------------ (a) Excludes sales of the Russian component of deliveries made under the matched sales amendment. The economic benefit of such sales is treated as "pass-through" sales. (b) Average cost per produced pound consists of all operating costs, depletion, depreciation and accrued restoration and reclamation costs. (c) The Company ceased uranium production operations in the first quarter of 1999 when its South Texas projects were placed on stand-by. Costs while on stand-by are expensed to operating expenses as they are incurred. A nominal amount of production has occurred while the projects have been on stand-by, the inventory resulting from such incidental production was valued at the current spot market cost when produced. 28 32
Year Ended December 31, ----------------------------------------------------------- 1999 1998 1997 1996 1995 (unaudited) ----------- ---------- ---------- ---------- ---------- (In thousands) CONSOLIDATED BALANCE SHEET DATA Cash and cash equivalents $ 494 $ 3,714 $ 2,325 $ 16,934 $ 4,716 Working capital 586 2,631 5,999 15,269 4,710 Uranium properties (net) 2,852 39,472 61,303 42,444 37,200 Total assets 8,425 49,696 74,864 68,794 48,085 Total debt (1) 6,952 7,882 8,419 12,577 7,487 Total liabilities 14,139 16,363 22,959 23,497 18,214 Total shareholders' equity (deficit) (5,714) 33,333 51,905 45,297 29,872
(1) Includes current portion of long-term debt and notes payable. 29 33 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS This Item 7 contains "forward-looking statements" which are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements include, without limitation, statements relating to liquidity, financing of operations, continued volatility of uranium prices and other such matters. The words "believes," "expects," "projects," "targets," or "estimates" and similar expressions identify forward-looking statements. The Company does not undertake to update, revise or correct any of the forward-looking information. Readers are cautioned that such forward-looking statements should be read in conjunction with the Company's disclosures under the heading: "Cautionary Statement for the Purposes of the 'Safe Harbor' Provisions of the Private Securities Litigation Reform Act of 1995" beginning on page 19. CAPITAL RESOURCES AND LIQUIDITY Operating Cash Flows At December 31, 1999, the Company's cash and cash equivalents were $494,000 compared to $3,714,000 at year end 1998. Cash and cash equivalents in 1998 increased by $1,388,000 from 1997 year end levels. The Company's uranium operations generated negative cash flow of $470,000 for the year ended December 31, 1999, in comparison to positive cash flow from operations in 1998 and 1997 of $8,201,000 and $4,931,000, respectively. The Company's net working capital at December 31, 1999 and 1998 was $586,000 and $2,631,000, respectively. As a result of depressed spot prices in the uranium marketplace, the Company shut-in and placed on stand-by its two South Texas facilities in the first quarter of 1999. Nominal production from these sites continued through July 1999 until their incremental production costs exceeded the cost of purchasing uranium in the marketplace. The Company continues to maintain certain activities at these locations including its ongoing groundwater restoration efforts. The Company also implemented steps in 1999 to preserve cash by reducing expenses and maximizing the cash flow from its existing sales contracts. The Company consolidated certain of its administrative locations, and significantly reduced its workforce. The implementation of these measures were initiated in the fourth quarter of 1998 and continued in 1999. The implementation of these strategies allowed the Company to maintain positive liquidity through 1999. The ability of the Company to continue to maintain a positive cash position in 2000 will require an infusion of capital that is currently unavailable to it. Absent these capital inflows the Company will experience a negative cash position by June 2000 which will prevent it from continuing in business. The company will continue to pursue alternatives as long as possible to allow it to achieve positive liquidity through 2000 and beyond. In March 1998, the Company entered into an agreement to extend the maturity date of its $6,000,000 secured convertible note from May 31, 1998 to May 31, 2000. As a result of this two year extension, the Company reclassified this obligation as a long-term obligation which had a positive impact of $6,000,000 to its net working capital at December 31, 1997. In February 2000, the note along with accrued interest of $334,438 was converted into 2,111,478 shares of the Company's Common Stock. This conversion eliminated all obligations under the note. During January 1995, when companies controlled by Oren L. Benton (the "Benton Companies") held effective control of the common stock of the Company, the Company transferred $1 million to the Benton Companies in connection with a planned joint venture to process uranium at a Benton Companies 30 34 mill. Shortly thereafter, an additional $1,080,000 was transferred to or for the benefit of Mr. Benton or certain Benton Companies without the authorization of the Company's Board of Directors. In February 1995, Mr. Benton and certain of the Benton Companies filed for bankruptcy. The Company has recovered $875,000 related to the unauthorized transfer ($300,000 in 1995 and $575,000 in 1997); however, the remaining $1.2 million will not be recovered. A loss for these transactions of $1.78 million was recorded in 1995 and the recovery of the $575,000 resulted in an increase to other income in 1997. Investing Cash Flows The Company resumed development activities at its Rosita site during the second quarter of 1995 and uranium production began in June 1995. During 1998 and 1999, $244,000 and $77,000 in capital expenditures were incurred at Rosita, respectively. Capital expenditures to be incurred for 2000 at Rosita are expected to be minimal. Significant development activities at the Company's Kingsville Dome facility began in December 1995 and resulted in commencement of production at this site in March 1996. Capital expenditures at Kingsville Dome during 1998 and 1999 totaled $2,999,000 and $137,000, respectively and are expected to be minimal in 2000. The Company will require additional sources of funding in 2000 to fund its operating activities including those at the Kingsville Dome and Rosita. In June 1996, the Company acquired the rights to a significant uranium deposit in South Texas known as the Alta Mesa project. The Company spent $4,000,000 to acquire the uranium rights to the property which contains significant resources. The primary term of the lease was to expire in December 1999 and required either minimum production from the property or a payment of approximately $530,000. In December 1998, the Company attempted to renegotiate the lease. The renegotiation was not successful and in January 1999 the Company relinquished its rights to this property which resulted in a pre-tax write-off of approximately $5.0 million in the fourth quarter of 1998. Capital expenditures related primarily to permitting activities and land holding costs totaled approximately $515,000 and $103,000, respectively in 1997 and 1998. The initial capital costs to acquire the rights to the Alta Mesa property were obtained through a one-year note from the Lindner Dividend Fund. This $4.0 million note was repaid in January 1997 from the proceeds from the Company's equity placement completed in December 1996. Capital expenditures at the Company's Churchrock, Crownpoint and Vasquez projects for permitting and land holding costs totaled approximately $2,800,000 and $1,598,000 in 1998 and 1999, respectively and are not expected to be significant in 2000. Capital requirements for 2000 and beyond for these projects will require additional inflows of capital not currently available to the Company. These future sources of debt and/or equity financing will be necessary for the Company to remain operating. Cash used for other investing activities for 1998 and 1999 totaled $345,000 and $2,000, respectively and was for the purchase of certificates of deposit to collateralize bonds for the Company's producing and development properties. These certificates of deposit are not readily available to the Company. See Note 1 - "Restricted Cash" of the Notes to Consolidated Financial Statements. Financing Cash Flows In July 1999, the Company extended its revolving credit facility through July 2000. The maximum amount available under the facility is $3.0 million. Borrowings under this agreement are secured by the Company's uranium inventory and/or by receivables from its uranium sales contracts. Principal and interest payments under the loan are due monthly, with interest on the loan accruing at the prime rate plus 1%. Principal advances, outstanding, under the facility totaled $575,000 at December 31, 1999 such amount was repaid in the first quarter of 2000. At March 31, 2000, the Company had monetized all of its uranium sales contracts and sold all its uranium inventories. Without these underlying assets, the Company is unable to draw on the credit facility and cannot utilize it as a source of working capital. 31 35 In June 1996, the Company received $4.0 million in proceeds from the one-year note entered into with the Lindner Dividend Fund, noted previously. The terms of the note provided for the payment of both the principal and accrued interest by June 1997 with interest on the note accruing at a rate of 6.5% per annum. The principal and accrued interest on this note was paid in January 1997. In December 1996, the Company completed an equity placement in which 2,000,000 shares of the Company's common stock were sold in a public offering. Net proceeds to the Company totaled over $14,000,000 with $4,900,000 of the proceeds used in January 1997 to repay the $4.0 million note from the Lindner Dividend Fund and to pay certain other long-term obligations. The balance of the proceeds was used for working capital purposes and to fund development activities at the Company's projects. The Company was obligated to pay a production payment royalty of $1.00 per pound on the first three million pounds of uranium produced and sold from either Kingsville Dome or Rosita. The Company has cumulatively produced in excess of three million pounds of uranium from these properties and made the final payment of approximately $730,000 on this obligation in January 1997. In 1997 the Company generated $133,000 from the issuance of 40,000 shares of common stock associated with the exercise of certain stock warrants. Other Non-Cash Transactions In 1999, the company issued approximately 288,000 shares of common stock to certain officers and directors in satisfaction of $108,000 of compensation deferred by these individuals under the Uranium Resources, Inc. 1999 Deferred Compensation Plan. In March 1997, the Company acquired from Santa Fe Pacific Gold Corporation ("Santa Fe") certain mineral interests covering approximately 500,000 acres in northwestern New Mexico in exchange for 1.2 million shares of the Company's common stock and a commitment for certain exploration expenditures. Approximately one-third of the acreage comprises uranium mineral rights and the remaining acreage comprises exploration rights with rights to purchase and develop any uranium mineral interests found. DEPENDENCE ON URANIUM PRICES The Company's operations are dependent on the price of uranium relative to the Company's cost of production. Historically, uranium prices have demonstrated significant volatility and have been and will continue to be affected by factors outside of the Company's control. IMPACT OF URANIUM PRICE DECLINES The USEC privatization and the potential disposition of their uranium inventory has had a detrimental effect on the uranium markets. The continued sale of USEC inventory and the ultimate disposition of highly enriched Russian uranium and U.S. Government uranium stockpiles will continue to depress uranium prices or inhibit prices from rising to higher levels over the next several years. The prospect of potentially depressed uranium prices for continued periods has and will continue to adversely impact the Company's ability to secure additional long-term sales contracts at prices that exceed the Company's overall costs. The market price of uranium has fallen to levels that are currently below the Company's cost of uranium production. The outlook for uranium prices through the end of 2000 indicates that a price rebound to levels which would enable the Company to obtain the necessary financing to allow development of new production areas in South Texas during this period is unlikely. In order for the Company to maximize the cash flow from its uranium sales contracts, the Company has assigned its rights to make future deliveries, accelerated deliveries scheduled for 2000 and negotiated a buy-out of its future deliveries related to all of its uranium sales contracts. These transactions have completely exhausted the Company's portfolio of sales contracts and positioned it without any source of revenue and cash flow in 2000 and beyond. 32 36 The production operations in South Texas at the Kingsville Dome and Rosita facilities were shut-in and placed on stand-by in the first quarter of 1999. Nominal production from these sites continued through July 1999 until their incremental production costs exceeded the cost of purchasing uranium in the marketplace. The timing of the resumption of full-scale production from these sites will be dependent upon future uranium prices, the availability of sales contracts and the availability of capital. While on stand-by, the Company will continue to maintain certain activities at these locations including its ongoing restoration efforts. In connection with the shut-in of production, the Company made additional cost reductions at all levels. These cost savings included the consolidation of certain administrative locations, personnel reductions in both its operating and its general and administrative workforce and reductions in compensation for the Company's executive management. The Company continues to evaluate its core uranium assets in Texas and New Mexico in order to optimize the value of these assets to the Company. Possible alternatives for these uranium assets may include the sale or joint venturing of certain of these projects or the termination of the Company's rights for those properties whose holding costs are determined to be in excess of their expected value. WRITEDOWN OF URANIUM PROPERTIES PROPERTY WRITEDOWN IN 1999 In 1999 and the first quarter of 2000, the Company monetized all of its remaining long-term uranium sales contracts and sold certain of its property and equipment to maintain a positive cash position. The Company has exhausted all of its available sources of cash to support continuing operations and will be unable to continue in business beyond June 2000 unless it can secure a cash infusion. The Company's near-term potential illiquidity has necessitated a reevaluation of the Company's method of valuing its uranium properties for accounting purposes. The Company has previously valued its uranium properties based upon the methodology that assumed that each property would be ultimately placed into production. The Company has determined that it can no longer utilize this valuation method and has determined the value of these assets are more reasonably estimated by valuing them on a held for sale basis. The change in valuation methodology for Company's uranium assets used significant estimates regarding the value of these properties based upon their sales value in the current uranium market. In this process the Company examined the value each of its uranium properties on a property-by-property basis. Such review has included an examination of each of the specific components comprising each individual property to determine its fair market value should the Company dispose of the assets. The cost basis for both of the Company's uranium production properties are comprised of both tangible physical assets and intangible assets that have been capitalized as part of the mineral rights acquisition, permitting, licensing, exploration and development process. The cost basis for the Company's development properties are comprised primarily of those intangible costs noted above. In evaluating the fair value of the Company's production properties management has determined that the fair value of these properties is best represented by the salvage value of the tangible physical assets associated with each site. All intangible costs associated with the production properties were written off as a part of this determination. The valuation for the Company's development properties was performed by determining those projects whose cost structure would be able to maintain a positive cash flow if operated in the current uranium market and those which require higher uranium prices to operate profitable. It was determined that the Company's South Texas Vasquez property could operate with a positive cash flow in the current 33 37 market and all other development properties including all New Mexico projects require higher prices. The valuation for all development properties other than Vasquez have been valued at the salvage value of their tangible physical assets. The Vasquez project was valued based upon the estimated discounted cash flows from the project. The resulting writedown of the Company's uranium properties resulted in a pre-tax charge against earnings of approximately $38.4 million. After the property writedown, the Company's uranium properties had a net carrying value of approximately $2.1 million at December 31, 1999. Significant estimates were utilized in determining the carrying value of the Company's uranium properties. The actual value received from the disposition of these assets may vary significantly from these estimates based upon market conditions, financing availability and other factors. PROPERTY WRITEDOWN IN 1998 In view of the continuing weakness in uranium prices in 1998, the Company reviewed the carrying values of its uranium properties and determined that a writedown was required at September 30, 1998 with respect to its existing producing properties of approximately $18,000,000. The writedown was recorded as a non-cash charge against earnings in the third quarter of 1998. The writedown in the carrying value of the Kingsville Dome and Rosita properties totaled $12,300,000 and $5,600,000, respectively. The net carrying value of these properties at December 31, 1998 (after giving effect to the writedown) was approximately $6,106,000 for Kingsville Dome and $900,000 for Rosita. The review utilized a number of estimates and assumptions, including current and projected uranium prices (which assumed higher prices in the future) and the timing and costs of future production activities. The estimates also assumed that the Company would be able to operate each of its production sites in the future at production rates that are higher than the Company's production rate for 1998 and as a result operate at costs that are significantly below those experienced for 1998. ALTA MESA In June 1996, the Company acquired the Alta Mesa property in South Texas for $4 million. In 1998, the Company determined that this project would not be pursued toward development and the Company terminated the lease agreement and wrote off the net carrying value of the property in 1998 of $5,021,000. ENVIRONMENTAL ASPECTS The Company utilizes ISL solution mining technology as its only mining method. Unlike conventional uranium mining companies, the Company's mining technology does not create "tailings". Nevertheless, the Company is highly regulated. Its primary environmental costs to date have been related to obtaining and complying with environmental mining permits and, once mining is completed, the reclamation and restoration of the surface areas and underground water quality to a condition consistent with applicable requirements. Accruals for the estimated future cost of such activities are made on a per-pound basis as part of production costs. See the Consolidated Statements of Operations for the applicable provisions for such future costs. See also Note 1 - "Restoration and Reclamation Costs" of Notes to Consolidated Financial Statements. RESULTS OF OPERATIONS Revenues, earnings from operations and net income for the Company can fluctuate significantly on a quarter to quarter basis during the year because of the timing of deliveries requested by its utility customers. The Company's customers have generally elected, where possible, to take delivery of the bulk of the annual deliveries under their long-term sales contracts later in each year. Accordingly, operating 34 38 results for any quarter or year-to-date period are not necessarily comparable and may not be indicative of the results which may be expected for future quarters or for the entire year. Years Ended December 31, 1999, 1998 and 1997 The following is a summary of the key operational and financial statistics related to the Results of Operations:
1999 1998 1997 ------ ------- ------- (In thousands, except per pound data) Uranium sales revenue(a) $7,255 $23,347 $29,741 Other uranium revenues $1,290 -- -- Total pounds delivered 570 1,586 2,240 Average sales price/pound(b) $12.72 $ 15.13 $ 13.71 Pounds produced 109 623 871 Pounds purchased 414 865 1,275 Average production cost of produced pounds (c) $ 17.11 $ 15.85 Average cost of purchased pounds $10.35 $ 10.12 $ 10.40 Average cost of produced pounds sold (c) $ 16.58 $ 15.61 Average cost of purchased pounds sold $10.35 $ 10.12 $ 10.40
(a) 1998 and 1997 uranium sales revenues include approximately $1.5 million and $2.8 million, respectively, from the sale of Russian uranium which is sold under the matched sales Amendment. (b) Average sales price does not include the sales of Russian material sold as a "pass through" sale under the matched sales Amendment. (c) The Company ceased uranium production operations in the first quarter of 1999 when its South Texas projects were placed on stand-by. Costs while on stand-by are expensed to operating expenses as they are incurred. A nominal amount of production has occurred while the projects have been on stand-by, the inventory resulting from such incidental production has been valued at the current spot market cost. 35 39 Revenue from uranium sales in 1999 decreased by $16,092,000 from 1998 amounts. This decrease resulted primarily from lower uranium deliveries this year (570,000 pounds) compared to 1998 (1,586,000 pounds). Deliveries were comprised of produced pounds and uranium sold into existing contracts. 1998 deliveries included 717,000 pounds of purchased Russian uranium whose economic benefit is essentially treated as a "pass through" sale (this includes the delivery of Russian origin uranium under the Company's matched sales contracts). While such sales have a positive impact on revenues, they have no impact on earnings from operations or net income. The deliveries of the Company's produced pounds and non-pass through purchased pounds in 1997 was approximately 1,555,000 pounds compared to 1,496,000 in 1998. The average sales price for such sales in 1997 was $14.68 per pound compared to $15.13 in 1998. The average sales price for total uranium deliveries (including Russian origin uranium) in 1998 and 1997 was $14.73 per pound and $13.28 per pound, respectively. Details of the cost of uranium sales were as follows:
1999 1998 1997 ---------- ---------- ---------- (In thousands) Cost of purchased uranium $ 4,285 $ 8,745 $ 13,258 Royalties 146 580 834 Operating expenses 2,913 5,347 6,564 Provision for restoration and reclamation costs 235 692 1,032 Depreciation and depletion of uranium properties 935 5,923 7,581 Writedown of uranium properties 38,455 23,112 -- ---------- ---------- ---------- Total cost of uranium sales $ 46,969 $ 44,399 $ 29,269 ========== ========== ==========
The Company ceased uranium production operations in the first quarter of 1999 when its Kingsville Dome and Rosita facilities were placed on stand-by. Nominal production of 109,000 pounds were produced from these sites and were valued at the then current spot market cost. The timing of the resumption of full-scale production from these sites will be dependent upon certain factors (see Item 1. Business "Going Concern/Uncertain Future Operations"). Combined production for 1998 from Kingsville Dome and Rosita was 623,000 pounds which approximated the Company's "produced pound" delivery requirements under its 1998 uranium sales contracts. 1998 per pound costs of uranium production was an average cost of $17.11 per pound from the two facilities. This increase in unit costs resulted from the fixed costs of operations remaining at levels which were not absorbed as efficiently by the fewer pounds that were produced during the year. In 1997, a number of organizational and operating changes, including plant design modifications, were implemented to address specific production inefficiencies. The main operating changes related to the water quality of the mine areas under wellfield at each site. Certain redesign of the plants and wellfield patterns were performed to mitigate the effects of continuously recycled ground water utilized in the production process by minimizing the amount of mine water that previously was used in multiple wellfields. The average cost of uranium purchases made in 1999 was $10.35 per pound compared to $10.12 in 1998 and $10.40 in 1997. Total deliveries in 1999 were 570,000 pounds of which 414,000 were purchased pounds and 156,000 were produced pounds. Total deliveries in 1998 were 1,586,000 pounds of which 865,000 were purchased pounds and 721,000 were produced pounds (average cost of $16.58 per pound). Deliveries in 1997 consisted of 1,275,400 purchased pounds, at an average cost per pound of $10.40, and 965,000 produced pounds at $15.61 per pound. 36 40 Operating expenses totaled $2,913,000 in 1999 compared to $5,347,000 ($7.41 per pound) in 1998 and $6,564,000 ($6.80 per pound) in 1997. Total operating expenses and depreciation and depletion include standby costs for the Kingsville Dome and Rosita facilities when these facilities are not in production and a lower of cost or market adjustment. These costs have been recorded as direct charges to operations. Standby costs for 1999 were 1,383,000 and a lower of cost or market adjustment of $423,000. The provision for restoration and reclamation in 1999 of $235,000 consists of $147,000 ($0.94 per pound) for production sold and $88,000 for restoration related to a previous production site. The provision for restoration and reclamation in 1998 of $692,000 consists primarily of costs from produced pounds sold during the year ($0.95 per pound). Restoration and reclamation in 1997 was $910,000 ($0.95 per pound) for production sold in 1997 and $120,000 for costs associated with reclamation activities related to the Benavides project (a previous mining location). The depreciation and depletion provision in 1999 was $935,000 and consisted of $653,000 ($4.18 per pound) for produced uranium sold and $282,000 for depreciation while on stand-by. Comparable costs for 1998 were $5,923,000 (average rate of $8.21 per pound) and $7,580,000 in 1997 (an average rate of $7.86 per pound). Royalties in 1999 were $146,000 compared to $579,000 in 1998 and $834,000 in 1997. The decrease in 1999 and 1998 is directly attributable to the lower production from Rosita and Kingsville Dome and the corresponding reduction in sales of produced uranium compared to each prior year. Corporate expenses consisting of general and administrative ("G&A") expenses decreased to $2,036,000 in 1999 from $2,672,000 in 1998 and $2,914,000 in 1997. The reduction in 1999 and 1998 from 1997 costs reflected primarily from lower overall compensation levels and cost reductions that were implemented in 1998 and continued throughout 1999. Interest and other income increased to $608,000 in 1999 compared to 1998. This change in 1999 included a gain from the sale of equipment ($269,000) and the settlement of claims against Benton and the Benton Companies in the bankruptcy proceedings ($100,000). Interest and other income in 1998 totaled $208,000, down from 1997 levels. The 1997 total included amounts primarily from the settlement in June 1997 of the Company's lawsuit against the Professional Bank of Denver, Colorado ($575,000) and an increase in interest income for that year. The higher interest income resulted from higher average available cash and investment balances that were generated from the Company's equity placement in December 1996. YEAR 2000 READINESS The Company currently utilizes computer software in the management of its operations and in accounting for its operating results that could be affected by the date change in the year 2000 (the "Y2K issue"). All critical information technology software and systems utilized by the Company has been purchased from and are supported by third party vendors. Prior to the end of 1999 the Company conducted a review of the potential impact of the year 2000 on such systems, and concluded that it would not encounter significant operational or financial costs related to compliance with this issue. The Company did not incur any adverse impact related to the changeover to the year 2000. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK URANIUM PRICE VOLATILITY The Company is subject to market risk related to the market price of uranium. The Company's cash flow has historically been dependent on the price of uranium, which is determined primarily by global supply and demand, relative to the Company's costs of production. Historically, uranium prices have been subject to fluctuation, and the price of uranium has been and will continue to be affected by numerous factors beyond the Company's control, including the demand for nuclear power, political and economic 37 41 conditions, and governmental legislation in uranium producing and consuming countries and production levels and costs of production of other producing companies. The spot market price for uranium has demonstrated a large range since January 1995. Prices have risen from $9.65 per pound as of January 31, 1995 to a high of $16.50 per pound as of May 31, 1996. The spot price as of March 31, 2000 was $9.20 per pound. URANIUM SALES CONTRACT PORTFOLIO Long-term contracts have historically been the primary source of revenue to the Company. At the beginning of 1999 the Company had four long-term contracts for deliveries over the next two, three and four years of approximately $26.9 million in revenues. During 1999, the Company assigned its delivery rights for 2000 through 2002 under one of these contracts and also accelerated the scheduled deliveries under another contract into the fourth quarter of 1999. These transactions coupled with additional transactions made in the first quarter of 2000 converting the value of the Company's long-term sales contracts into cash have had the effect of exhausting its sales contract portfolio. Currently, the Company does not have any remaining uranium sales contracts for the balance of 2000 or beyond. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information called for by Item 8 appears on pages F-1 through F-23 of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 38 42 PART III ITEMS 10, 11, 12 AND 13 In accordance with General Instruction G(3), Items 10, 11, 12, and 13 are hereby incorporated by reference from sections of the Company's definitive proxy statement entitled "Election of Directors", "Executive Compensation", "Security Ownership of Principal Stockholders and Management", and "Certain Transactions with Related parties". Such definitive proxy statement is expected to be filed with the Securities and Exchange Commission not later than 120 days after December 31, 1999. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Financial Statements. See the Index to Consolidated Financial Statements on page F-1 for a listing of those financial statements filed as part of this Annual Report. (a)(2) Financial Statement Schedules. See the Index to Consolidated Financial Statements on page F-1 for a listing of those financial statements filed as part of this Annual Report. (a)(3) Exhibits. See the Index to Exhibits on page E-1 for a listing of the exhibits that are filed as part of this Annual Report. (b) Reports on Form 8-K. None. 39 43 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: April 14, 2000 URANIUM RESOURCES, INC. By: /s/ Paul K. Willmott ---------------------------------- Paul K. Willmott, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Date --------- ---- /s/ Paul K. Willmott April 14, 2000 ----------------------------------------------------- Paul K. Willmott, Director, President and Chief Executive Officer /s/ Thomas H. Ehrlich April 14, 2000 ----------------------------------------------------- Thomas H. Ehrlich, Vice President - Finance and Chief Financial Officer (Principal Financial and Accounting Officer) /s/ Leland O. Erdahl April 14, 2000 ----------------------------------------------------- Leland O. Erdahl, Director /s/ George R. Ireland April 14, 2000 ----------------------------------------------------- George R. Ireland, Director
40 44 URANIUM RESOURCES, INC. AND CONSOLIDATED SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Public Accountants for the Years Ended December 31, 1998 and 1997..................F-2 Consolidated Balance Sheets (unaudited as to December 31, 1999)..........................................F-3 Consolidated Statements of Operations (unaudited as to Year Ended December 31, 1999).....................F-5 Consolidated Statements of Common Shareholders' Equity (unaudited as to Year Ended December 31, 1999)....F-6 Consolidated Statements of Cash Flows (unaudited as to Year Ended December 31, 1999).....................F-7 Notes to Consolidated Financial Statements (unaudited as to December 31, 1999)...........................F-8
The Company's independent public accountants have advised the Company that they will be unable to perform an audit of the Company's financial statements for year-end 1999 unless the valuation of the Company's uranium properties is supported by an appraisal from an independent third party. The Company lacks the funds to retain an independent third party to perform that valuation. As a result, the Company's financial statements for the year ended December 31, 1999 included in this Annual Report on Form 10-K are unaudited. The additional financial data referred to below should be read in conjunction with these financial statements. Schedules not included with this additional financial data have been omitted because they are not applicable, or the required information is shown in the financial statements or notes thereto. The individual financial statements of the subsidiaries of the Company have been omitted because all such subsidiaries are included in the consolidated financial statements being filed. ADDITIONAL FINANCIAL DATA Financial statement schedules for the years ended December 31, 1999, 1998 and 1997 II - Valuation and Qualifying Accounts and Reserves..............F-23 The accounts of the Company are maintained in United States dollars. All dollar amounts in the financial statements are stated in United States dollars except where indicated. F-1 45 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of Uranium Resources, Inc.: We have audited the accompanying consolidated balance sheets of Uranium Resources, Inc. (a Delaware Corporation) and subsidiaries as of December 31, 1998, and the related consolidated statements of operations, shareholders' equity, and cash flows for the two years ended December 31, 1998 and 1997. These consolidated financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Uranium Resources, Inc. and subsidiaries as of December 31, 1998, and the results of its operations and its cash flows for the years ended December 31, 1998 and 1997, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has incurred operating losses in 1998 and 1997 due largely to a significant decline in the market price of uranium. Further, the Company has limited capital resources available to support its ongoing operations until such time, if ever, the Company is able to resume full-scale operations. These factors among others discussed in Note 2, raised substantial doubt concerning the ability of the Company to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. Our audits were made for the purpose of forming an opinion on the basic financial statements for 1998 and 1997 taken as a whole. The schedule listed in the index of financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The schedule as it relates to 1998 and 1997 has been subjected to the auditing procedures applied in the audits of the basic financial statements referred to above and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Dallas, Texas February 26, 1999 F-2 46 URANIUM RESOURCES, INC. CONSOLIDATED BALANCE SHEETS ASSETS
December 31, ---------------------------- 1999 1998 ------------ ------------ (unaudited) Current assets: Cash and cash equivalents $ 493,567 $ 3,713,566 Short-term investment: Certificate of deposit, restricted -- 582,623 Receivables, net 1,155,198 1,482,806 Uranium inventory 112,901 956,590 Materials and supplies inventory 70,319 92,495 Prepaid and other current assets 45,913 244,301 ------------ ------------ Total current assets 1,877,898 7,072,381 ------------ ------------ Property, plant and equipment, at cost: Uranium properties 99,400,677 98,073,350 Other property, plant and equipment 383,229 538,974 Less-accumulated depreciation and depletion (97,578,333) (59,059,968) ------------ ------------ Net property, plant and equipment 2,205,573 39,552,356 Long-term investment: Certificate of deposit, restricted 3,651,758 3,066,703 Other assets 4,299 4,299 ------------ ------------ $ 7,739,528 $ 49,695,739 ============ ============
The accompanying notes to financial statements are an integral part of these consolidated statements. F-3 47 URANIUM RESOURCES, INC. CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, ---------------------------- 1999 1998 ------------ ------------ (unaudited) Current liabilities: Accounts payable $ 396,836 $ 1,829,255 Notes payable 575,000 1,685,000 Accrued interest payable 2,336 113,778 Current portion of long-term debt 5,000 8,000 Royalties payable 64,922 132,626 Current portion of restoration reserve 83,000 324,000 Other accrued liabilities 164,646 348,337 ------------ ------------ Total current liabilities 1,291,740 4,440,996 ------------ ------------ Other long-term liabilities and deferred credits 6,474,680 5,469,394 Long-term debt, less current portion 6,372,208 6,189,007 Deferred federal income taxes -- 263,810 Shareholders' equity: Common stock, $.001 par value, shares authorized: 25,000,000; shares issued and outstanding (net of treasury shares): 1999 - 12,341,290 1998 - 12,053,027 12,494 12,205 Paid-in capital 40,737,736 40,629,923 Retained earnings (loss) (47,139,912) (7,300,178) Less: Treasury stock (152,500 shares), at cost (9,418) (9,418) ------------ ------------ Total shareholders' equity (6,399,100) 33,332,532 ------------ ------------ $ 7,739,528 $ 49,695,739 ============ ============
The accompanying notes to financial statements are an integral part of these consolidated statements. F-4 48 URANIUM RESOURCES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, -------------------------------------------- 1999 1998 1997 ------------ ------------ ------------ Revenues: (unaudited) Uranium sales - Produced uranium $ 2,281,335 $ 10,984,040 $ 14,737,579 Purchased uranium 4,973,741 12,363,274 15,002,838 ------------ ------------ ------------ Uranium sales 7,255,076 23,347,314 29,740,417 Other uranium revenues 1,289,600 -- -- ------------ ------------ ------------ Total revenue 8,544,676 23,347,314 29,740,417 Costs and expenses: Cost of uranium sales - Direct cost of purchased uranium 4,285,100 8,745,246 13,257,989 Royalties 145,690 579,439 833,534 Operating expenses 2,913,444 5,347,145 6,564,363 Provision for restoration and reclamation costs 234,537 692,317 1,032,587 Depreciation and depletion 935,056 5,922,508 7,580,809 Writedown of uranium properties and other uranium assets 38,454,955 23,111,956 -- ------------ ------------ ------------ Total cost of uranium sales 46,968,782 44,398,611 29,269,282 ------------ ------------ ------------ Earnings (loss) from operations before corporate expenses (38,424,106) (21,051,297) 471,135 Corporate expenses - General and administrative 2,036,150 2,672,319 2,913,776 Depreciation 24,711 57,150 22,956 ------------ ------------ ------------ Total corporate expenses 2,060,861 2,729,469 2,936,732 ------------ ------------ ------------ Loss from operations (40,484,967) (23,780,766) (2,465,597) Other income (expense): Interest expense, net of capitalized interest (226,841) (152,009) (168,789) Interest and other income, net 608,264 207,954 1,036,290 ------------ ------------ ------------ Loss before federal income taxes (40,103,544) (23,724,821) (1,598,096) Federal income tax provision (benefit): Current -- -- 44,775 Deferred (263,810) (4,745,000) (318,000) ------------ ------------ ------------ Net loss $(39,839,734) $(18,979,821) $ (1,324,871) ============ ============ ============ Net loss per common share: Basic $ (3.27) $ (1.57) $ (0.11) ============ ============ ============ Diluted $ (3.27) $ (1.57) $ (0.11) ============ ============ ============
The accompanying notes to finanacial statements are an integral part of these consolidated statements. F-5 49 URANIUM RESOURCES, INC. CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
Common Stock ------------------------- Paid-In Retained Treasury Shares Amount Capital Earnings Stock ------------ ------------ ------------ ------------ ------------ Balances, December 31, 1996 10,813,027 $ 10,966 $ 32,290,630 $ 13,004,514 $ (9,418) Net loss -- -- -- (1,324,871) -- Common stock issuance for employee stock option plans 25,500 25 74,944 -- -- Common stock issuance for stock warrants 14,500 14 57,985 -- -- Common stock issuance for property 1,200,000 1,200 7,798,800 -- -- ------------ ------------ ------------ ------------ ------------ Balances, December 31, 1997 12,053,027 $ 12,205 $ 40,222,359 $ 11,679,643 $ (9,418) Net loss -- -- -- (18,979,821) -- Re-valuation of common stock warrants -- -- 407,564 -- -- ------------ ------------ ------------ ------------ ------------ Balances, December 31, 1998 12,053,027 $ 12,205 $ 40,629,923 $ (7,300,178) $ (9,418) Net loss (unaudited) -- -- -- (39,839,734) -- Common stock issuance for deferred compensation (unaudited) 288,263 289 107,813 -- -- ------------ ------------ ------------ ------------ ------------ Balances, December 31, 1999 (unaudited) 12,341,290 $ 12,494 $ 40,737,736 $(47,139,912) $ (9,418) ============ ============ ============ ============ ============
The accompanying notes to financial statements are an integral part of these consolidated statements. F-6 50 URANIUM RESOURCES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, -------------------------------------------- 1999 1998 1997 ------------ ------------ ------------ (unaudited) Cash flows from operations: Net loss $(39,839,734) $(18,979,821) $ (1,324,871) Reconciliation of net income to cash provided by operations- Provision for restoration and reclamation costs 234,537 692,317 1,032,587 Depreciation and depletion 959,767 5,979,658 7,603,765 Writedown of uranium properties and other assets 38,454,955 23,111,956 -- Credit for deferred income taxes (263,810) (4,745,000) (318,000) Decrease in restoration and reclamation accrual (344,187) (69,357) (317,270) Other non-cash items, net 1,321,820 688,458 205,169 ------------ ------------ ------------ Cash flow provided by operations, before changes in operating working capital items 523,348 6,678,211 6,881,380 Effect of changes in operating working capital items- (Increase) decrease in receivables 327,608 3,024,284 (2,677,551) Decrease in inventories 624,839 247,334 496,100 Increase in prepaid and other current assets (150,078) (398,040) (446,910) Increase (decrease) in payables and accrued liabilities (1,795,256) (1,350,414) 677,795 ------------ ------------ ------------ Net cash provided by (used in) operations (469,539) 8,201,375 4,930,814 Investing activities: Increase in investments (2,432) (345,131) (524,355) Additions (reductions) to property, plant and equipment - Kingsville Dome (137,208) (2,998,871) (8,998,305) Rosita (77,307) (244,290) (2,450,105) Vasquez (58,607) (439,929) (384,192) Alta Mesa (36,679) (103,399) (514,503) Churchrock (665,717) (1,044,948) (1,013,257) Crownpoint (873,767) (876,474) (1,152,783) Other property 219,168 (460,115) (387,379) Increase in other assets -- (27,240) (25,487) ------------ ------------ ------------ Net cash used in investing activities (1,632,549) (6,540,397) (15,450,366) Financing activities: Proceeds from borrowings 2,875,000 8,135,000 3,500,000 Payments and refinancings of principal (3,992,911) (8,407,570) (7,722,535) Issuance of common stock and warrants, net -- -- 132,969 ------------ ------------ ------------ Net cash used in financing activities (1,117,911) (272,570) (4,089,566) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents (3,219,999) 1,388,408 (14,609,118) Cash and cash equivalents, beginning of period 3,713,566 2,325,158 16,934,276 ------------ ------------ ------------ Cash and cash equivalents, end of period $ 493,567 $ 3,713,566 $ 2,325,158 ============ ============ ============
The accompanying notes to financial statements are an integral part of these consolidated statements. F-7 51 URANIUM RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (unaudited as to December 31, 1999) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION AND DESCRIPTION OF COMPANY The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and include the accounts of Uranium Resources, Inc. ("URI") and its wholly owned subsidiaries (collectively "the Company"). All significant intercompany transactions have been eliminated in consolidation. URI was formed in 1977 and domesticated in Delaware in 1987. The Company is primarily engaged in the business of acquiring, exploring, developing and mining uranium properties, using the in situ leach ("ISL") or solution mining process. The primary customers of the Company are major utilities who utilize nuclear power to generate electricity. The Company continuously evaluates the creditworthiness of its customers. The Company has been, in the past, involved in a number of significant ISL uranium mining joint venture arrangements and has also provided consulting, plant design and construction expertise to other companies. At present the Company owns both producing and development properties in South Texas and development properties in New Mexico. The Company's Rosita and Kingsville Dome uranium production facilities in South Texas resumed operations in June 1995 and March 1996, respectively, and were both shut-in and placed on stand-by in the first quarter of 1999. INVENTORIES Uranium inventory consists of uranium concentrates (U3O8) located at the Company's Rosita and Kingsville Dome sites and also at converters awaiting delivery to customers. All uranium inventories are valued at the lower of cost (first-in, first-out) or market. The cost of produced uranium includes all operating production costs, and provisions for depreciation, depletion and future restoration obligations. Materials and supplies inventory is valued at the lower of average cost or market. BORROWED URANIUM Uranium is occasionally borrowed from other parties to facilitate deliveries under sales contracts. Repayment of the loan is normally made from production or from purchased uranium. The liability for borrowed uranium is recorded at the latest spot market price (estimated replacement cost) and the cost is adjusted to the actual amount when the borrowed material is repaid. PROPERTY, PLANT AND EQUIPMENT Uranium Properties Capitalization of Development Costs - All acquisition, exploration and development costs (including financing, salary and related overhead costs) incurred in connection with the various uranium properties are capitalized. Gains or losses are recognized upon the sale of individual property interests. All costs incurred in connection with unsuccessful acquisition and exploration efforts and abandoned properties are charged to expense when known. All properties with significant acquisition or incurred costs are evaluated for their realizability on a property-by-property basis. Any impairment of such costs is recognized by providing a valuation allowance (see Note 3 - "Uranium Properties - 1998 Property Abandonment" and "Uranium Properties - Uranium Property Realizability"). Total exploration and evaluation costs capitalized in 1999, 1998 and 1997 were $161,000, $327,000, and $120,000, respectively. F-8 52 URANIUM RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (unaudited as to December 31, 1999) Depreciation and Depletion - In general, depletion of uranium mineral interests and related development costs is computed on a property-by-property basis using the units-of-production method based on the proved and probable recoverable uranium reserves as estimated periodically by the Company's geologists and engineers. Depreciation and depletion is provided on the investment costs, net of salvage value, of the various uranium properties' production plants and related equipment using the estimated production life of the uranium reserves. Other ancillary plant equipment and vehicles are depreciated using a straight line method based upon the estimated useful lives of the assets. Other Property Other property consists of corporate office equipment, furniture and fixtures and transportation equipment. Depreciation on other property is computed based upon the estimated useful lives of the assets. Repairs and maintenance costs are expensed as incurred. Gain or loss on disposal of such assets is recorded as other income or expense as such assets are disposed. Capitalization of Interest The Company capitalizes interest cost with respect to properties undergoing exploration or development activities that are not subject to depreciation or depletion. The average interest rate on outstanding borrowings during the period is used in calculating the amount of interest to be capitalized. Interest capitalized in the twelve months ended December 31, 1999, 1998 and 1997 amounted to $620,000, $704,000, and $378,000, respectively. Total interest costs in these periods were $847,000, $856,000, and $547,000, respectively. RESTORATION AND RECLAMATION COSTS Various federal and state mining laws and regulations require the Company to reclaim the surface areas and restore underground water quality to the pre-existing mine area average quality. Accruals for the estimated future cost of restoration and reclamation are made on a per-pound basis as part of production costs, or when it is determined by an engineering study that an adjustment to the accrual is required. REVENUE RECOGNITION FOR CERTAIN URANIUM SALES The Company recognizes revenue from the sale of uranium under which substantially all of its obligations related to the delivery have been completed. Under certain uranium sales contracts which contain origin-specific delivery requirements, the revenue from the portion of a sale which requires the satisfaction of future obligations is recorded as unearned revenue until these commitments are satisfied. Commitments that are expected to be completed within one year are classified as current; all others are recorded as long-term deferred credits. EARNINGS PER SHARE Effective with the year ended December 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 128 ("FAS 128"), "Earnings per Share", which sets standards for the calculation and presentations of earnings per share. FAS 128 supercedes APB Opinion No. 15, Earnings per Share. Net earnings (loss) per common share - basic has been calculated based on the weighted average shares outstanding during the year and net earnings (loss) per common share - diluted has been calculated assuming the exercise or conversion of all dilutive securities on January 1 of each year presented or as of the date of issuance if later. F-9 53 URANIUM RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (unaudited as to December 31, 1999) The weighted average number of shares used to calculate basic earnings per share were 12,178,000, 12,053,000, and 11,760,000 in 1999, 1998 and 1997, respectively. The weighted average number of shares used to calculate diluted earnings per share were 12,178,000, 12,053,000, and 11,760,000 in 1999, 1998 and 1997, respectively. The potential common stock that was excluded from the calculation of diluted earnings per share were 2,319,690, 2,405,021, and 2,413,977 in 1999, 1998 and 1997, respectively. UNAMORTIZED DEBT ISSUANCE COSTS Debt discount and related expenses arising from the issuance of debt securities are amortized by the effective interest method. CONSOLIDATED STATEMENTS OF CASH FLOWS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Additional disclosures of cash flow information follow:
Twelve Months Ended December 31, 1999 1998 1997 --------------- --------------- ----------------- Cash paid during the period for: Interest $351,000 $567,000 $687,000
The change in inventories in the Consolidated Statements of Cash Flows during 1999, 1998 and 1997 excludes the changes in uranium inventories for non-cash capitalized restoration and depreciation and depletion provisions. Such decreases totaled ($241,000), ($1,088,000), and ($816,000), respectively. An additional non-cash transaction occurred in 1999 and 1997 and such transactions are summarized as follows: In 1999, the Company issued approximately 288,000 shares of common stock to certain officers and directors in satisfaction of compensation deferred by those individuals. $108,000 In March 1997, 1,200,000 common shares were issued to Santa Fe Pacific Gold in exchange for certain uranium mineral interests and exploration rights covering approximately 523,000 acres in New Mexico. $7,800,000 RESTRICTED CASH At December 31, 1999, 1998 and 1997, the Company had pledged a certificate of deposit of $3,652,000, $3,649,000, and $3,304,000, respectively, in order to collateralize surety bonds required for future restoration and reclamation obligations related to the Company's South Texas production and development properties. These funds are not readily available to the Company and are not included in cash equivalents. F-10 54 URANIUM RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (unaudited as to December 31, 1999) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions. Such estimates and assumptions may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RISKS AND UNCERTAINTIES Historically, the market for uranium has experienced significant price fluctuations. Prices are significantly impacted by global supply and demand which is affected by the demand for nuclear power, political and economic conditions, governmental legislation in uranium producing and consuming countries, and production levels and costs of production of other producing companies. Increases or decreases in prices received could have a significant impact on the Company's future results of operations. 2. FUTURE OPERATIONS The financial statements of the Company have been prepared on the basis of accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Due to a continued period of depressed prices for uranium compared to the Company's cost to produce uranium, the Company has generated operating losses in each of the last three years. Such price declines have reduced the market price of uranium to levels that are currently below the Company's cost to produce uranium and below levels needed by the Company to obtain the necessary financing to allow development of new production areas at its South Texas sites. These factors raise substantial doubt concerning the ability of the Company to continue operating as a going concern. During the fourth quarter of 1998 the Company began implementation of the shut-in and placement of its Kingsville Dome and Rosita production facilities on stand-by in response these market conditions. Each production site was shut-in in the first quarter of 1999 but the Company maintained nominal production through July 1999 when the incremental production cost of operating exceeded the cost of purchasing uranium to satisfy the Company's 1999 delivery requirements. The ability of the Company to continue to maintain a positive cash position will require an infusion of capital that is currently unavailable to it. Absent new sources of capital inflows, the Company will experience a negative cash position by June 2000 which will prevent it from continuing in business. The Company will continue to pursue alternatives as long as possible to allow it to achieve positive liquidity through 2000 and beyond. Further, the Company will also require additional capital resources to fund the cost to resume production and to fund development of its undeveloped properties. There is no assurance the Company will be successful in raising such capital or that uranium prices will recover to levels which would enable the Company to operate profitably. If the Company is unsuccessful in these efforts the Company will cease to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon a recovery of uranium prices, its ability to restart its uranium production facilities and successfully produce uranium at economically feasible levels and its ability to successfully raise capital to support ongoing operations and future development efforts. F-11 55 URANIUM RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (unaudited as to December 31, 1999) 3. URANIUM PROPERTIES PROPERTY REALIZABILITY The Company's near-term potential illiquidity has necessitated a reevaluation of the Company's method of valuing its uranium properties for accounting purposes as of December 31, 1999. Prior to the fourth quarter of 1999, the Company had previously valued its uranium properties on a held for production basis, i.e., assuming that each property would be ultimately placed into production. Because of the Company's potential illiquidity, the Company has determined that it should value these properties on a held for sale basis. On a held for sale basis the Company has determined that the discounted cash flow method is the most reasonable method for valuing the properties, because of a lack of any data on sales of comparable properties or any other method that is reasonably available. The Company projected the future cash flows assuming a sale price for uranium of $9.00 per pound (current spot price is $9.10) and has discounted those cash flows at 20% per annum. If such valuation resulted in a zero or negative number, the Company wrote off all intangible costs and carried tangible costs at salvage value, which was assumed to be 5% of original cost. This valuation method reduced the carrying value of the Company's uranium properties by $38.4 million from ($40.5 million to $2.1 million) with a corresponding charge against earnings, resulting in a deficit shareholders' equity of $6.4 million at December 31, 1999. Significant estimates were utilized in determining the carrying value of the Company's uranium properties. The actual value received from the disposition of the assets may vary significantly from these estimates based upon market conditions, financing availability and other factors. KINGSVILLE DOME PROPERTY In 1981, the Company acquired an exploration property in South Texas, known as Kingsville Dome, from Exxon Corporation. After significant production in 1988-1990, the property was put on a standby basis because of low uranium spot prices and production ceased in September 1990. Wellfield development activities began in December 1995 at Kingsville Dome which lead to the resumption of production at the property in March 1996. Production in 1997 totaled 640,000 pounds at an average cost of approximately $15.47 per pound. Production in 1998 totaled 445,000 pounds at an average cost of approximately $16.93 per pound. The Company ceased uranium production operations in the first quarter of 1999 and the property was placed on standby. Production in 1999 totaled 61,000 pounds, the inventory resulting from such incidental production has been valued at the current spot market cost. Cost of uranium sales in 1999 in the Consolidated Statements of Operations includes $1,088,000 of costs incurred to maintain the facility while Kingsville Dome was on standby and not in production. At December 31, 1999, the Company believes that the property contains a significant amount of undeveloped uranium resource. The Company has changed its methodology in estimating the valuation of its uranium properties at December 31, 1999. This change in valuation methods resulted in significant writedowns in the carrying value of its uranium properties and resulted in a writedown of approximately $5.2 million for the Kingsville Dome property. The net carrying value of the property was approximately $500,000 at December 31, 1999. F-12 56 URANIUM RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (unaudited as to December 31, 1999) ROSITA PROPERTY In late 1985, the Company acquired several lease holdings in a uranium prospect ("Rosita") in South Texas. Construction and development activities began in the first quarter of 1990 and were completed in September 1990 with production commencing immediately thereafter. The property was originally put on a standby basis and production ceased in March 1992. Wellfield development activity began in early 1995 at Rosita which lead to the resumption of production at the property in June 1995. Total production for the year ended December 31, 1997 was approximately 230,000 pounds at a cost of approximately $16.92 per pound. Production in 1998 totaled 178,000 pounds at an average cost of approximately $17.55 per pound. The Company ceased uranium production operations in the first quarter of 1999 and the property was placed on standby. Production in 1999 totaled 48,000 pounds, the inventory resulting from such incidental production has been valued at the current spot market cost. Cost of uranium sales in 1999 in the Consolidated Statements of Operations includes $527,000 of costs incurred to maintain the facility while Rosita was on standby and not in production. The Company has changed its methodology in estimating the valuation of its uranium properties at December 31, 1999. This change in valuation methods resulted in significant writedowns in the carrying value of its uranium properties and resulted in a writedown of approximately $544,000 for the Rosita property. The net carrying value of the property at December 31, 1999 was approximately $230,000. ALTA MESA PROPERTY In June 1996, the Company acquired the Alta Mesa property consisting of 4,575 acres of leases in South Texas for a cash payment of $4 million of which $1 million was recoverable against one-half of future royalties. In December 1998, the Company terminated the lease agreement and wrote off the net carrying value of $5,021,000. Total cost expensed in 1999 relating to the property totaled $37,000. CHURCHROCK PROPERTIES In December 1986, the Company acquired properties in the Churchrock region of New Mexico containing approximately 6,951,000 pounds of estimated recoverable uranium resources. In September 1991, an additional 200 acres of leases were obtained in exchange for a future production royalty payment which, based upon the expected selling price of the uranium production, may vary between 5% and 10%. Preliminary analysis of the drilling data of these 200 acres indicates approximately 5,488,000 pounds of estimated recoverable uranium resources. Permitting activities are currently ongoing on both of these properties. The net carrying value of these properties were written down to zero at December 31, 1999. Such writedown resulted in a pre-tax charge against earnings of approximately $9,624,000. CROWNPOINT PROPERTY In August 1988, the Company acquired the Crownpoint property, consisting of 163 acres of leases and related equipment and buildings for cash payments of $550,000, amounts payable in future years of $950,000 and a sliding scale overriding royalty on future production. The present value of the future payable amount, $407,054 at December 31, 1996, is recorded as a purchase money obligation. Additionally, also in 1988, the Company staked 321 acres of claims in the same area. In August 1993, F-13 57 URANIUM RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (unaudited as to December 31, 1999) the Company acquired approximately 959 acres of leases adjoining the Crownpoint properties. Initial interpretation of the drilling data for all the properties acquired in 1988 and 1993 indicate total estimated recoverable uranium resources of approximately 25,323,000 pounds. The net carrying value of these properties were written down to approximately $565,000 at December 31, 1999. Such writedown resulted in a pre-tax charge against earnings of approximately $9,919,000. SANTA FE PROPERTIES In March 1997 the Company acquired from Santa Fe certain uranium mineral interests and exploration rights for uranium in New Mexico. The major components of the transaction include the following detail. The Properties. The properties consist of: (a) 37,000 acres as to which the Company has acquired a fee interest in the entire mineral estate, excluding coal ("Category I Properties"); (b) approximately 140,000 acres as to which the Company has acquired the fee interest in uranium (the "Category II Properties"); and (c) approximately 346,000 acres as to which the Company has acquired the exclusive right to explore for uranium (the "Category III Properties"). The Company is obligated to spend on exploration $200,000 per year for the ten year period starting in March 1997 and $400,000 per year for the seven year period starting in March 2007. This expenditure can be made on any of the Category II or Category III properties. The net carrying value of the property was written down to zero at December 31, 1999. Such writedown resulted in a pre-tax charge against operations of approximately $11,547,000. 1998 PROPERTY IMPAIRMENT AND ABANDONMENT In view of the continuing weakness in uranium prices in 1998, the Company reviewed the carrying values of its uranium properties and determined that a writedown was required at September 30, 1998 with respect to its existing producing properties of approximately $18,000,000. The writedown was recorded as a non-cash charge against earnings in the third quarter of 1998. The writedown in the carrying value of the Kingsville Dome and Rosita properties totaled $12,300,000 and $5,600,000, respectively. The net carrying value of these properties at December 31, 1998 (after giving effect to the writedown) was approximately $6,106,000 for Kingsville Dome and $900,000 for Rosita. The review utilized a number of estimates and assumptions, including current and projected uranium prices (which assumed higher prices in the future) and the timing and costs of future production activities. The estimates also assumed that the Company would be able to operate each of its production sites in the future at production rates that are higher than the Company's production rate for 1998 and as a result operate at costs that are significantly below those experienced for 1998. In 1998, the Company determined that the Alta Mesa property and certain evaluation projects in South Texas would not be pursued toward development and acquisition. The costs related to these projects were expensed in 1998 resulting in a pre-tax charge of approximately $5,240,000. 4. CONTRACT COMMITMENTS SALES CONTRACTS Long-term contracts have historically been the primary source of revenue to the Company. At the beginning of 1999 the Company had four long-term contracts for deliveries over the next two, three and four years of approximately $26.9 million in revenues. During 1999, the Company assigned its delivery rights for 2000 through 2002 under one of these contracts and also accelerated the scheduled deliveries under another contract into the fourth quarter of 1999. These transactions coupled with additional transactions made in the first quarter of 2000 converted the value of the Company's long-term sales contracts and exhausted its sales contract portfolio. Currently, the Company does not have any remaining scheduled uranium deliveries under contract for the balance of 2000 or beyond. The Company must secure new profitable uranium sales contracts in order for it to continue in existence. Demonstrated profitability under such new contracts will form the basis for the Company to be able to secure the requisite financing/equity infusion to resume production at its mine sites. The profitability under such new contracts will depend on a number of factors including the cost of producing uranium at the Company's mining properties, the Company's ability to produce uranium to meet its sales commitments and the spot market price of uranium. F-14 58 URANIUM RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (unaudited as to December 31, 1999) All uranium sales revenues for the twelve months ended December 31, 1999 were from sales to four customers, all of which represented more than 10% of total uranium revenues. Sales to these three customers totaled $2,229,000, $2,106,000, $1,800,000 and $1,119,000 in 1999. In June 1999 the Company assigned its rights to deliver uranium for the years 2000 through 2002 (the final three years) under a uranium sales contract. In exchange for the assignment, the Company received 124,000 pounds of uranium inventory in July 1999. The transaction was valued at $10.40 per pound for the uranium inventory received (the spot market price of uranium) and resulted in increased revenue, earnings from operations and income before income taxes of $1,290,000 in 1999. All revenues for the twelve months ended December 31, 1998 were from sales to six customers, three of which represented more than 10% of total revenues. Sales to these three customers totaled $10,831,000, $4,085,000 and $3,375,000 in 1998. All revenues for the twelve months ended December 31, 1997 were from sales to nine customers, four of which represented more than 10% of total revenues. Sales to these four customers totaled $5,500,000, $4,650,000, $4,445,000 and $3,851,000 in 1997. 5. SHORT-TERM DEBT NATIONSBANK CREDIT AGREEMENT In May 1996 the Company entered into a $3.0 million revolving-credit facility with NationsBank, N.A. ("Nations"). In July 1997 the facility was renewed and expanded to $5.0 million for a two-year term. The facility was renewed again for $3.0 million in July 1999 for a one-year term. This facility is secured by the Company's uranium inventory and/or its receivables from its uranium sales contracts with interest on the loan accruing at the prime rate plus 1%. Principal and interest payments under the facility are due monthly. As of December 31, 1999, $575,000 was outstanding under this facility. LINDNER SHORT-TERM NOTE In June 1996 the Company entered into an agreement with Lindner Dividend Fund for a $4.0 million note to acquire the Alta Mesa property. The terms of the note provide for the payment of both the principal and accrued interest by June 1997. Interest on the note accrued at a rate of 6.5% per annum. The entire principal amount plus accrued interest was repaid in January 1997. 6. LONG-TERM DEBT LINDNER NOTE On May 25, 1995 the Company entered into an agreement with Lindner Investments and Lindner Dividend Fund, (the "Lender") two mutual funds managed by Ryback & Associates, for a $6 million secured convertible note with the Company (the "Lindner Note"). The Lindner Note was initially issued for a term of three years and bore interest at an annual rate of 6.5% and was convertible at any time during the three-year term into 1.5 million shares of the Company's common stock at an initial conversion price of $4.00 per share. The Lender also received a three-year warrant to purchase 1.5 million shares of the Company's common stock at an initial price of $4.00 per share. In 1995, the Lender exercised 500,000 shares of warrants under the agreement for an infusion of $2.0 million to the Company. Certain other financial advisors associated with the transaction were granted warrants and options to purchase up to 150,000 shares at an initial exercise price of $4.00 per share. As of December 31, 1999, these certain other financial advisors have exercised 62,500 shares of warrants under the agreement and 37,500 shares of warrants have expired. F-15 59 URANIUM RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (unaudited as to December 31, 1999) In March 1998, the Company entered into an agreement with the Lender to extend the maturity date of the Lindner Note to May 31, 2000. The note was convertible at any time during this term into 2.0 million shares of the Company's common stock at a conversion price of $3.00 per share. In connection with this transaction the Company allocated $408,000 for the value of the warrants resulting in an effective rate of 10% on the refinanced note. As of December 31, 1999, $329,000 has been amortized. In February 2000, the entire $6,000,000 plus accrued interest of $334,000 were converted into 2,111,478 shares of the Company's common stock. PURCHASE MONEY OBLIGATION In 1987, the Company acquired certain long-term sales contract delivery rights in exchange for cash plus an assignment of a $3,000,000 future production payment, at $1.00 per pound of production sold from the Kingsville Dome and Rosita projects, starting in 1988. The production payment was recorded as a purchase money obligation at an original calculated present value of $2,379,839. The balance of the production payment of $730,074 was repaid in January 1997. SUMMARY OF LONG-TERM DEBT
At December 31, ------------------------------- 1999 1998 -------------- -------------- Long-term debt of the Company consists of: Lindner Note $ 5,921,632 $ 5,733,520 Crownpoint property (Note 3) 450,000 450,000 Other 5,576 13,487 -------------- -------------- 6,377,208 6,197,007 Less - Current portion 5,000 8,000 -------------- -------------- Total long-term debt $ 6,372,208 $ 6,189,007 ============== ==============
Maturities of long-term debt are as follows:
For the Twelve Months Ended: For the Twelve Months Ended: - ----------------------------------- ------------------------------------------ December 31, 2000 $ 5,000 December 31, 2003 -- December 31, 2001 1,000 December 31, 2004 and beyond $ 450,000 December 31, 2002 --
The above table excludes the $5,921,632 of long-term debt from the Lindner Note. Such debt was converted to common stock in February 2000. 7. RELATED-PARTY TRANSACTIONS During January 1995, a control group of companies based in Denver, Colorado (the "Benton Companies") held effective control of the common stock of the Company, the Company transferred $1.0 million to the Benton Companies in connection with a planned joint venture to process uranium at a Benton Companies' mill. The specific Benton Companies, which were to be part of the planned joint venture, did not receive the transferred funds. In February 1995, the Benton Companies filed for bankruptcy (the "Benton Bankruptcy"). Because of the bankruptcy, the realizability of the Company's $1.0 million investment is doubtful. Shortly thereafter, the then Chairman and CFO of the Company, who were also F-16 60 URANIUM RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (unaudited as to December 31, 1999) officers of the Benton Companies, transferred $1.08 million out of the Company without the authorization of the Company's Board of Directors. The Company recovered $300,000 in June 1995 and $575,000 in mid-1997 from the $1.08 million transfer, but $1.2 million of the initial $2.08 million has not been recovered. The Company recorded losses totaling $1.78 million for these transactions in 1995. The $575,000 recovered in 1997 was recorded to other income in the second quarter of that year. In connection with the Benton Bankruptcy, the bankrupt estates have commenced an action against the Company in the United States Bankruptcy Court for the District of Colorado. The action seeks to recover approximately $1,600,000 from various transactions entered into with the Benton Companies. Settlement negotiations regarding this matter were ongoing at December 31, 1999. The Company does not believe any such settlement or other outcome from this matter will have a material adverse impact on the operating results or financial position of the Company. The Company has asserted certain claims against Benton and the Benton Companies in the bankruptcy proceedings. This matter was settled in 1999 by the issuance of a note by Benton to the Company. In conjunction with that settlement, the Company received the first of four scheduled installment payments. The next two scheduled payments were not paid when due and are currently outstanding. The Company is pursuing its rights under the note to correct this situation. 8. SHAREHOLDERS' EQUITY COMMON STOCK Common Stock Issued in 1997 In March 1997, the Company issued 1,200,000 shares of common stock to Santa Fe Pacific Gold Corporation in exchange for certain uranium mineral interests in New Mexico. The value of the common stock for the transaction was $6.50 per share and resulted in an increase to shareholders equity of $7.8 million. Issuance of Treasury Shares On May 25, 1995, the Company issued 35,000 shares of the Company's common stock which were held as treasury shares to financial advisors in connection with the Lindner Note as discussed in Note 5. Common Stock Issued in 1999 In 1999, the Company issued 288,263 shares of common stock to certain officers and directors of the Company in connection with the Uranium Resources, Inc. 1999 Deferred Compensation Plan (the "Plan"). The Plan was approved by a vote of the shareholders at the June 18, 1999 Annual Meeting. WARRANTS Lindner Warrants In connection with the May 1995 Lindner Note as discussed in Note 6, the Company issued a three-year warrant to purchase 1,500,000 shares of the Company's common stock at an initial conversion price of $4.00 per share. The warrants were initially exercisable at any time through May 1998. In 1995, 500,000 warrants were exercised. In addition, the Lindner Note was convertible at any time during the F-17 61 URANIUM RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (unaudited as to December 31, 1999) three year term into 1,500,000 shares of the Company's common stock at an initial conversion price of $4.00 per share, none of which have been converted at December 31, 1999. In March 1998, the Company extended the maturity date of the Lindner Note and revised the terms of the warrants and the convertible securities. See Note 6 - Long-Term Debt "Lindner Note" for further discussion. Financial Advisors' Warrants/Options On May 25, 1995, the Company issued a three-year warrant to purchase 100,000 shares of the Company's common stock at an initial conversion price of $4.00 per share to certain financial advisors associated with the Lindner Note transaction. The warrants were convertible at any time through May 1998 and 62,500 warrants were exercised. In addition, the Company granted options to purchase 50,000 shares at an initial conversion price of $4.00 per share. The options were immediately exercisable and expired unexercised on March 6, 2000. STOCK OPTIONS Directors Stock Options On May 25, 1995, the Company granted options to certain directors of URI, to purchase 200,000 shares of the Company's common stock at an exercise price of $4.50 per share. All such options are immediately exercisable and were originally scheduled to expire May 24, 1998 or 30 days after the holder ceases to be a director of the Company or one year after such holder's death, whichever occurs first. In November 1997, the term of these options was revised for three years and the exercise price was increased to $4.75 per share. None of these options have been exercised as of December 31, 1999 and 100,000 of these options remain outstanding. On August 16, 1995, the Company granted options to a director of URI, to purchase 100,000 shares of the Company's common stock at an exercise price of $8.38 per share which was the fair market value of a share of common stock on August 16, 1995. Such options are immediately exercisable and were originally scheduled to expire May 24, 1998, 30 days after the holder ceases to be a director of the Company or one year after his death, whichever occurs first. In November 1997, the term of these options was revised for three years and the exercise price was increased to $8.63 per share. None of these options have been exercised as of December 31, 1999. Other Stock Options On July 31, 1995, the Company granted options to a former officer of the Company to purchase 50,000 shares of the Company's common stock at an exercise price of $4.75 per share which was the fair market value of a share of common stock on that date. All of these options were exercised in 1996. Market for Common Stock Prior to March 24, 1999, the Company's Common Stock was traded on Nasdaq but was delisted for noncompliance with the minimum bid price requirements of Nasdaq. Effective March 24, 1999, the Company's Common Stock began being quoted on the OTC Bulletin Board. F-18 62 URANIUM RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (unaudited as to December 31, 1999) 9. STOCK-BASED COMPENSATION PLANS The Company has three stock option plans, the Employees' Stock Option Plan, the Stock Incentive Plan and the Directors' Stock Option Plan. The Company accounts for these plans under APB Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for these plans been determined consistent with FASB Statement No. 123 ("FAS 123"), the Company's net earnings (loss) and earnings (loss) per share ("EPS") for the year ended December 31, 1999, 1998 and 1997 would have been reduced to the following pro forma amounts:
1999 1998 1997 ---- ---- ---- Net Earnings (Loss): As reported $ (39,839,734) $(18,979,821) $(1,324,871) Pro forma $ (40,545,062) $(19,684,005) $(2,983,028) Basic EPS: As reported $ (3.27) $ (1.57) $ (0.11) Pro forma $ (3.33) $ (1.63) $ (0.25) Diluted EPS: As reported $ (3.27) $ (1.57) $ (0.11) Pro forma $ (3.33) $ (1.63) $ (0.25)
The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1999, 1998 and 1997, respectively: expected volatility of 88%, 68% and 70% and risk-free interest rates of 6.0%, 5.6% and 6.4%. An expected life of 5.7, 5.2 and 5.0 years was used for options granted to the employees and directors, respectively. The FAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, and accordingly the resulting pro forma compensation cost may not be representative of that to be expected in future years. The Directors' Stock Option Plan provides for the grant of 20,000 stock options to each of the non-employee directors along with additional annual grants of stock options upon re-election as directors at the Company's annual meeting. Currently there are 69,000 stock options outstanding under the Directors' Stock Option Plan. Also, on January 15, 1992, the Board of Directors approved the grant of 577,248 stock options under the Employees' Stock Option Plan. All of the previously outstanding options were canceled upon the effectiveness of the new options. On August 10, 1994, the Board of Directors increased the available options under the Employees' Stock Option Plan and the Directors' Stock Option Plan to 850,000 options and 150,000 options, respectively. On October 11, 1995, the Board of Directors elected to discontinue grants under the Employees' Stock Option Plan with the adoption of a stock incentive plan covering key employees. The Stock Incentive Plan provides for the grant of a maximum of 750,000 stock options. These options may be qualified or nonqualified. On June 5, 1998, the Company's stockholders elected to increase the available options under the Stock Incentive Plan to 1,250,000 options. As of December 31, 1999, there are 582,590 options outstanding under the Stock Incentive Plan. Additional details about the options granted under the stock option plans are as follows: F-19 63 URANIUM RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (unaudited as to December 31, 1999)
------------------------------------------------------------- At December 31, 1999 ------------------------------------------------------------- Options Exercise Options Available Options Options Options Date of Grant Price Granted for Exercise Exercised Canceled Outstanding - --------------------------------- ---------- ---------- ------------ ------------ ----------- ------------- January 15, 1992 $ 2.94 617,248 99,437 327,625 190,186 99,437 May 22, 1992 $ 3.00 2,000 -- 1,000 1,000 -- - --------------------------------- ---------- ---------- ------------ ------------ ----------- ------------- Balances at December 31, 1992 619,248 99,437 328,625 191,186 99,437 - --------------------------------- ---------- ---------- ------------ ------------ ----------- ------------- February 26, 1993 $ 2.50 10,000 -- 2,500 7,500 -- May 27, 1993 $ 3.50 2,000 -- 500 1,500 -- - --------------------------------- ---------- ---------- ------------ ------------ ----------- ------------- Balances at December 31, 1993 631,248 99,437 331,625 200,186 99,437 - --------------------------------- ---------- ---------- ------------ ------------ ----------- ------------- July 11, 1994 $ 4.38 20,000 20,000 -- -- 20,000 August 10, 1994 $ 4.25 140,000 19,000 1,000 120,000 19,000 December 15, 1994 $ 5.88 3,000 2,000 -- 1,000 2,000 - --------------------------------- ---------- ---------- ------------ ------------ ----------- ------------- Balances at December 31, 1994 794,248 140,437 332,625 321,186 140,437 - --------------------------------- ---------- ---------- ------------ ------------ ----------- ------------- February 24, 1995 $ 4.13 210,000 100,000 -- 110,000 100,000 April 12, 1995 $ 3.88 10,000 10,000 -- -- 10,000 May 26, 1995 $ 3.75 40,000 20,000 -- 20,000 20,000 August 16, 1995 $ 8.38 100,000 100,000 -- -- 100,000 August 31, 1995 $ 6.88 127,508 107,584 -- 19,924 107,584 October 11, 1995 $ 6.94 35,000 35,000 -- -- 35,000 December 19, 1995 $ 5.50 3,000 2,000 -- 1,000 2,000 - --------------------------------- ---------- ---------- ------------ ------------ ----------- ------------- Balances at December 31, 1995 1,319,756 515,021 332,625 472,110 515,021 - --------------------------------- ---------- ---------- ------------ ------------ ----------- ------------- February 22, 1996 $ 9.75 178,810 102,168 -- 42,600 136,210 May 29, 1996 $ 17.00 3,000 1,500 -- 1,000 2,000 May 30, 1996 $ 16.13 75,000 56,250 -- -- 75,000 July 22, 1996 $ 11.13 50,000 -- -- 50,000 -- - --------------------------------- ---------- ---------- ------------ ------------ ----------- ------------- Balances at December 31, 1996 1,626,566 674,939 332,625 565,710 728,231 - --------------------------------- ---------- ---------- ------------ ------------ ----------- ------------- February 10, 1997 $ 7.125 182,405 65,696 -- 51,025 131,380 April 1, 1997 $ 5.50 55,000 27,500 -- -- 55,000 May 1, 1997 $ 5.00 3,000 1,000 -- 1,000 2,000 - --------------------------------- ---------- ---------- ------------ ------------ ----------- ------------- Balances at December 31, 1997 1,866,971 769,135 332,625 617,735 916,611 - --------------------------------- ---------- ---------- ------------ ------------ ----------- ------------- February 23, 1998 $ 2.9375 172,000 37,500 -- 22,000 150,000 June 5, 1998 $ 2.50 3,000 500 -- 1,000 2,000 - --------------------------------- ---------- ---------- ------------ ------------ ----------- ------------- Balances at December 31, 1998 2,041,971 807,135 332,625 640,735 1,068,611 - --------------------------------- ---------- ---------- ------------ ------------ ----------- ------------- June 18, 1999 $ 2.50 2,000 -- -- -- 2,000 - --------------------------------- ---------- ---------- ------------ ------------ ----------- ------------- Balances at December 31, 1999 2,043,971 807,135 332,625 640,735 1,070,611 ================================= ========== ========== ============ ============ =========== =============
The exercise price for the options granted under the stock option plans has been the approximate market price of the common stock on the date granted. The terms of the options provide that no options may be exercised for one year after grant, and then for ratable exercise over the subsequent four-year period, with a total exercisable period of ten years. The exercise price for the options granted under the Stock Incentive Plan has been the approximate market price of the common stock on the date granted. The terms of the options are determined by the Board of Directors upon grant; however, no options may be exercised after a period of ten years. F-20 64 URANIUM RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (unaudited as to December 31, 1999) 10. FEDERAL INCOME TAXES The deferred federal income tax liability consists of the following:
December 31, ---------------------------- 1999 1998 ------------ ------------ Property development costs - net of amortization $(10,897,000) $ 545,000 Property acquisition costs -- 2,652,000 Accelerated depreciation 108,000 229,000 Restoration reserves (1,780,000) (1,817,000) Net operating loss and percentage depletion carryforwards (14,000) (7,015,000) Valuation allowance and other - net 12,583,000 5,670,000 ------------ ------------ Total deferred income tax liability $ 0 $ 264,000 ============ ============
Major items causing the Company's tax provision to differ from the federal statutory rate of 34% were:
For the Twelve Months Ended December 31, -------------------------------------------------------------------------------------- 1999 1998 1997 ---------------------------- ----------------------- ------------------------- % of % of % of Pretax Pretax Pretax Amount Income Amount Income Amount Income ------------ ------------ ------------ ------- ------------- -------- Pretax loss $(40,103,544) $(23,724,821) $ (1,598,096) ------------ ------------ ------------ ------- ------------- -------- Pretax loss times statutory tax rate (13,635,000) (34%) (8,066,000) (34%) (543,000) (34.0%) Increases in taxes resulting from: Percentage depletion 13,635,000 34% 8,066,000 34% 543,000 34.0% Alternative minimum tax (263,810) (0.7%) (4,745,000) 0.0% (273,225) 0.0% ------------ ------------ ------------ ------- ------------ -------- Income tax benefit $ (263,810) (0.7%) $ (4,745,000) (20%) $ (273,225) (17.1%) ============ ============ ============ ======= ============ ========
The Company's net operating loss carryforwards generated in 1999 and in prior years have generally been valued, net of valuation allowance, at Alternative Minimum Tax ("AMT") rates imposed by the 1986 Tax Reform Act ("the 86 ACT"). It is assumed that these deferred tax assets will be realized at such rates. At December 31, 1999, approximately $43,784,000 of percentage depletion (available for regular tax purposes) had not been utilized to shelter book income and is available to carry forward to future accounting periods. The Company received refunds of $3,348 and $42,000 from prior year's federal income payments in 1999 and 1998, respectively, and paid $45,000 in federal income taxes in 1997. The Company also has available for regular federal income tax purposes at December 31, 1999 estimated net operating loss carryforwards of approximately $31,375,000 which expire primarily in 2004 through 2020, if not previously utilized. At December 31, 1999, the Company had investment tax credit carryforwards of approximately $1,000, after adjusting for the reductions required by the 86 ACT, which expire for regular tax purposes in 2000. F-21 65 URANIUM RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (unaudited as to December 31, 1999) 11. OTHER LONG-TERM LIABILITIES AND DEFERRED CREDITS Other long-term liabilities and deferred credits on the balance sheet consisted of:
December 31, ----------------------- 1999 1998 ---------- ---------- Reserve for future restoration and reclamation costs, net of current portion of $83,000 and $324,000 in 1999 and 1998 (Note 1) $5,054,497 $4,968,382 Long-term accounts and interest payable 811,943 -- Royalties payable 500,000 500,000 Deferred compensation 108,240 -- Unearned revenue from Russian matched sales (Note 1) -- 1,012 ---------- ---------- $6,474,680 $4,969,394 ========== ==========
12. COMMITMENTS AND CONTINGENCIES The Company's mining operations are subject to federal and state regulations for the protection of the environment, including water quality. These laws are constantly changing and generally becoming more restrictive. The ongoing costs of complying with such regulations have not been significant to the Company's annual operating costs. Future mine closure and reclamation costs are provided for as each pound of uranium is produced on a unit-of-production basis. The Company reviews its reclamation obligations each year and determines the appropriate unit charge. The Company also evaluates the status of current environmental laws and their potential impact on their accrual for costs. The Company believes its operations are in compliance with current environmental regulations. The Company is from time to time involved in various legal proceedings of a character normally incident to its business. Management does not believe that adverse decisions in any pending or threatened proceedings will have a material adverse effect on the Company's financial condition or results of operations. 13. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments," requires disclosure about the fair value of financial instruments. The Company is unable to assess the fair value of its debt instrument at December 31, 1999 due to the Company's financial position and its inability to secure comparable financing. F-22 66 SCHEDULE II URANIUM RESOURCES, INC. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Additions ------------------------- Balance at Charged to Charged to Beginning Costs and Other Balance at End Description of Period Expenses Accounts Deductions(a) of Period - ----------------------------- ---------- ---------- ------------ ------------ -------------- Year ended December 31, 1999: Accrued restoration costs.. $5,292,382 $ 234,537 $ 44,961(b) $ 344,461 $5,137,497(c) Year ended December 31, 1998: Accrued restoration costs... $4,762,108 $ 692,317 $ 92,687(b) $ 69,356 $5,292,382(c) Year ended December 31, 1997: Accrued restoration costs... $4,136,495 $1,032,587 $ 89,703(b) $ 317,271 $4,762,108(c)
- -------------------------------- (a) Deductions represent costs incurred in the restoration process. (b) Increase (decrease) resulted primarily from the change in the amounts of restoration provision included in ending uranium inventory. (c) Amounts recorded as current liabilities at December 31, 1999, 1998 and 1997 are 83,000, $324,000, and $511,000, respectively. F-23 67 EXHIBIT INDEX
EXHIBIT SEQUENTIALLY NUMBER DESCRIPTION NUMBERED PAGE 3.1* Restated Certificate of Incorporation of the Company, as amended (filed with the Company's Annual Report on Form 10-K dated March 27, 1997). 3.2* Restated Bylaws of the Company (filed with the Company's Form S-3 Registration No. 333-17875 on December 16, 1996). 4.1* Registration Rights Agreement dated March 25, 1997 between the Company and Santa Fe Pacific Gold Corporation (filed with the Company's Annual Report on Form 10-K dated March 27, 1997). 10.1* Amended and Restated Directors Stock Option Plan (filed with the Company's Form S-8 Registration No. 333-00349 on January 22, 1996). 10.2* Amended and Restated Employee's Stock Option Plan (filed with the Company's Form S-8 Registration No. 333-00403 on January 22, 1996). 10.3* 1995 Stock Incentive Plan (filed with the Company's Form S-8 Registration No. 333-00405 on January 22, 1996). 10.4* Non-Qualified Stock Option Agreement dated August 16, 1995, between the Company and Leland O. Erdahl (filed with the Company's Annual Report on Form 10-K dated March 27, 1996). 10.5* Non-Qualified Stock Option Agreement dated May 25, 1995, between the Company and George R. Ireland (filed with the Company's Annual Report on Form 10-K dated March 27, 1996). 10.6* Non-Qualified Stock Option Agreement dated May 25, 1995, between the Company and James B. Tompkins (filed with the Company's Annual Report on Form 10-K dated March 27, 1996). 10.7* Stock Option Agreement dated March 6, 1995 between the Company and James P. Congleton, as amended on May 25, 1995 (filed with the Company's Annual Report on Form 10-K dated March 27, 1996). 10.8* Warrant to Purchase Common Stock dated May 25, 1995, between the Company and Grant Bettingen, Inc. (filed with the Company's Annual Report on Form 10-K dated March 27, 1996). 10.9* Non-Qualified Stock Option Agreement dated July 31, 1995, between the Company and Wallace M. Mays (filed with the Company's Form S-8 Registration Statement No. 33-64481 on November 21, 1995). 10.10* Contract for the Purchase of Natural Uranium Concentrates (U3O8) dated April 5, 1994 between Uranium Resources, Inc., URI, Inc. and Pacific Gas & Electric Company (filed with the Company's Annual Report on Form 10-K for the year ended December 31, 1994).(1) 10.11* Agreement for the Sale of Uranium Concentrates dated as of August 23, 1990 between OES Fuel, Incorporated, Uranium Resources, Inc. and URI, Inc. (filed with Post-Effective Amendment No. 3 to the Company's Form S-1 Registration Statement as filed with the Securities and Exchange Commission on December 7, 1990).(1)
E-1 68
EXHIBIT SEQUENTIALLY NUMBER DESCRIPTION NUMBERED PAGE 10.12* Summary of Supplemental Health Care Plan (filed with Amendment No. 1 to the Company's Form S-1 Registration Statement (File No. 33-32754) as filed with the Securities and Exchange Commission on February 20, 1990). 10.13* Note and Warrant Purchase Agreement entered into May 25, 1995 by and among Lindner Investments, Lindner Dividend Fund and the Company (filed with the Company's Current Report on Form 8-K dated May 25, 1995). 10.14* Loan Agreement entered into June 18, 1996 by and between Lindner Dividend Fund and the Company (filed with the Company's Annual Report on Form 10-K dated March 27, 1997). 10.15* Uranium Concentrates Sales Agreement dated August 21, 1996 by and between the Company and Commonwealth Edison Company (filed with the Company's Quarterly Report on Form 10-Q/A-2 for the quarter ended September 30, 1996).(1) 10.16* Agreement of Santa Fe Pacific Gold Corporation as Uranco, Inc. Shareholder with the Company and Guarantee of the Company dated as of March 25, 1997 (filed with the Company's Annual Report on Form 10-K dated March 27, 1997).(1) 10.17* Stock Exchange Agreement and Plan of Reorganization dated as of March 25, 1997 (filed with the Company's Annual Report on Form 10-K dated March 27, 1997). 10.18* License to Explore and Option to Purchase dated March 21, 1997 between Santa Fe Pacific Gold Corporation and Uranco, Inc. (filed with the Company's Annual Report on Form 10-K dated March 27, 1997).(1) 10.19* Amendment #1 to Nonqualified Stock Option Agreement dated November 17, 1997 between the Company and Leland O. Erdahl (filed with the Company's Annual Report on Form 10-K dated March 27, 1998) . 10.20* Amendment #1 to Nonqualified Stock Option Agreement dated November 17, 1997 between the Company and George R. Ireland (filed with the Company's Annual Report on Form 10-K dated March 27, 1998). 10.21* Amendment #1 to Nonqualified Stock Option Agreement dated November 17, 1997 between the Company and James B. Tompkins (filed with the Company's Annual Report on Form 10-K dated March 27, 1998). 10.22* Compensation Agreement dated June 2, 1997 between the Company and Paul K. Willmott (filed with the Company's Annual Report on Form 10-K dated March 27, 1998). 10.23* Compensation Agreement dated June 2, 1997 between the Company and Richard F. Clement, Jr. (filed with the Company's Annual Report on Form 10-K dated March 27, 1998). 10.24* Compensation Agreement dated June 2, 1997 between the Company and Joe H. Card (filed with the Company's Annual Report on Form 10-K dated March 27, 1998). 10.25* Compensation Agreement dated June 2, 1997 between the Company and Richard A. Van Horn (filed with the Company's Annual Report on Form 10-K dated March 27, 1998).
E-2 69
EXHIBIT SEQUENTIALLY NUMBER DESCRIPTION NUMBERED PAGE 10.26* Compensation Agreement dated June 2, 1997 between the Company and Thomas H. Ehrlich (filed with the Company's Annual Report on Form 10-K dated March 27, 1998). 10.27* Compensation Agreement dated June 2, 1997 between the Company and Mark S. Pelizza (filed with the Company's Annual Report on Form 10-K dated March 27, 1998). 10.28* Note and Warrant Exchange Agreement dated March 23, 1998 between the Company and Lindner Investments (filed with the Company's Annual Report on Form 10-K dated March 27, 1998). 10.29* 6.5% Secured Convertible Note for $1,500,000 dated March 23, 1998 between the Company and Lindner Investments (filed with the Company's Annual Report on Form 10-K dated March 27, 1998). 10.30* 6.5% Secured Convertible Note for $4,500,000 dated March 23, 1998 between the Company and Lindner Investments (filed with the Company's Annual Report on Form 10-K dated March 27, 1998). 10.31* Warrant to Purchase Common Stock for 625,000 shares dated March 23, 1998 between the Company and Lindner Investments (filed with the Company's Annual Report on Form 10-K dated March 27, 1998). 10.32* Warrant to Purchase Common Stock for 325,000 shares dated March 23, 1998 between the Company and Lindner Investments (filed with the Company's Annual Report on Form 10-K dated March 27, 1998). 10.33* Uranium Resources, Inc. 1999 Deferred Compensation Plan. 21.1* Subsidiaries of the Company (filed with the Company's Annual Report on Form 10-K dated March 27, 1998). 27.1 Financial Schedule.
- ---------------------- *Incorporated by reference pursuant to Rule 12b-32 under the Securities and Exchange Act of 1934, as amended. (1)Certain provisions have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. E-3 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1999 DEC-31-1999 493,567 0 1,155,198 0 183,220 1,877,898 99,783,906 (97,578,333) 7,739,528 1,291,740 6,372,208 0 0 12,494 (6,411,594) 7,739,528 7,255,076 7,255,076 46,968,782 49,029,643 0 0 226,841 (40,103,544) (263,810) (39,839,734) 0 0 0 (39,839,734) (3.27) (3.27)
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