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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the transition period from to
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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.)
650 S. EDMONDS LANE, SUITE 108 LEWISVILLE, TEXAS 75067
(Address of principal executive offices, including zip code)
(972) 219-3330
(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 issuer was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes No X
--- ---
Indicate by check mark if there is 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/A or any amendment to this Form 10-K/A. [ ]
The aggregate market value of the Common Stock of the Issuer held by
non-affiliates at June 30, 2001 was approximately $6,595,000.
Number of shares of Common Stock outstanding as of June 30, 2001: 48,992,278
shares.
Documents Incorporated by Reference:
None
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URANIUM RESOURCES, INC.
ANNUAL REPORT ON FORM 10-K/A
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
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
Resources................................................................................................ 3
The ISL Mining Process................................................................................... 3
Environmental Considerations and Permitting; Water Rights................................................ 5
The Uranium Industry........................................................................................ 7
General.................................................................................................. 7
Market Price Formation................................................................................... 7
Sources of Supply........................................................................................ 7
Required Primary Production.............................................................................. 8
Uranium Prices........................................................................................... 9
Competition.............................................................................................. 9
ITEM 2. PROPERTIES............................................................................................ 9
South Texas Producing Properties......................................................................... 9
South Texas Development Properties...................................................................... 11
New Mexico Development Properties....................................................................... 11
Santa Fe Properties..................................................................................... 15
Reclaimed Properties.................................................................................... 15
Reclamation and Restoration Costs and Bonding Requirements.............................................. 16
ITEM 3. LEGAL PROCEEDINGS.................................................................................... 16
Benton Bankruptcy....................................................................................... 16
Other................................................................................................... 16
Indian Lands Jurisdictional Dispute..................................................................... 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................................................. 17
PART II......................................................................................................... 25
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................................ 25
Market Information...................................................................................... 25
Recent Sales of Unregistered Securities................................................................. 25
Holders................................................................................................. 26
Dividends............................................................................................... 26
ITEM 6. SELECTED FINANCIAL DATA.............................................................................. 27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION............................................ 29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................................... 37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................................................... 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE................. 37
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PART III........................................................................................................ 38
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT................................................................................................. 38
ITEM 11. EXECUTIVE COMPENSATION.............................................................................. 41
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................................... 46
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................... 48
PART IV......................................................................................................... 49
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K..................................... 49
SIGNATURES............................................................................................. 50
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URANIUM RESOURCES, INC.
ANNUAL REPORT ON FORM 10-K/A
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
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/A are defined in the "Glossary of
Certain Terms" appearing at the end of Part I hereto.
ITEM 1. BUSINESS
GOING CONCERN/UNCERTAIN FUTURE OPERATIONS
Because uranium prices were depressed to a level below the cost of
production, the Company ceased production activities in 1999 at both of its two
producing properties. 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
market price of uranium continues to be below the Company's cost to produce
uranium and the price needed to obtain the necessary financing to allow
development of new production areas at the Company's South Texas sites.
During 2000, the Company sought to raise funds to permit it to continue
operations until such time uranium prices increase to a level that will permit
the Company to resume mining operations. In August 2000 and April 2001 the
Company completed two private placements raising an aggregate of $2,835,000
through the issuance of 33,562,500 shares of common stock and warrants expiring
in August 2005 to purchase an additional 5,625,000 shares of Common Stock. As
adjusted for the April offering, the exercise price of the warrants is $0.14 per
share. The funds raised in the private placements are to be used to fund the
non-restoration overhead costs of the Company.
In addition, in October 2000 the Company finalized an agreement with
Texas regulatory authorities and the Company's bonding company that provided the
Company access to up to $2.2 million in additional funding. Approximately
$1,527,000 has been released to the Company through March 31, 2001 to perform
restoration at the Company's Kingsville Dome and Rosita mine sites in South
Texas. The term of the restoration agreement runs through the end of 2001.
The shares issued in the private placements represent approximately 69%
of the outstanding Common Stock of the Company. The completion of the private
placement resulted in a significant dilution of the current stockholders' equity
in the Company.
Assuming that the Company is able to continue funding its restoration
of the Kingsville Dome and Rosita mine sites through extensions to its agreement
with Texas regulatory authorities and the Company's
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bonding company, the Company estimates it will have the funds to remain
operating into approximately mid to late 2002. Additional funds will be required
for the Company to continue operating after that date. The Company's current
agreement with the Texas regulatory authorities and its bonding company extends
through 2001. The Company cannot guarantee that it will be able to extend such
agreement beyond 2001, or that any extension of the agreement that is negotiated
will contain the same terms and conditions as the current agreement.
The Company would require additional capital resources to fund the
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.
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 1999 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
1999 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 and $7.10 to $9.60 in 2000. The continued weak market
for uranium prices during 1999 and 2000, 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 spot market
price at April 9, 2001 of $8.25 and at June 25, 2001 of $8.90 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 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 June 25, 2001, the Company had 18 employees, including its
professional staff consisting of 1 geologist, four 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.
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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 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 2001 or beyond.
In 2000 and 1999, the Company had sales to one and four customers,
respectively, that amounted to more than 10% of total sales. These customers
represented 100% of sales in 2000 and 31%, 29%, 25% and 15% of sales in 1999.
RESOURCES
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. In December 1999 the Company wrote down the carrying value of its uranium
properties. 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.
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.
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An ISL project involves several major components:
ORE BODY EVALUATION
Ore bodies which are currently being mined by the ISL process are
associated with groundwater saturated permeable sandstone formations typically
located between 100 and 2,000 feet below the surface. The uranium ore is
deposited in a roll front configuration where the groundwater passing through
the sandstone passes from a natural oxidizing environment to a naturally
occurring reducing environment. This change causes the dissolved uranium in the
groundwater to become insoluble and it then attaches to the grains of the
sandstone. Some important factors in evaluating an ore body for the ISL process
are permeability, the thickness of the ore zone, depth, size, grade of ore,
shape of the ore body, nature of uranium mineralization, host rock mineralogy,
and the hydrology. These factors are important in determining the design of the
wellfield, the type and flow of the leaching solution, and the nature of the
surface ISL facilities.
WELLFIELD DESIGN
The wellfield is the mechanism by which the leaching solution, or
lixiviant, is circulated through the ore body. The wellfield consists of a
series of injection, production (extraction) and monitoring wells drilled in
specified patterns. These patterns will vary primarily with the configuration of
the ore and the hydrologic characteristics of each deposit. Determining the
wellfield pattern is crucial to minimizing costs and maximizing efficiencies of
production. Injection and production wells vary in diameter from four to six
inches. Generally, these wells are drilled down to the bottom of the ore zone
(through which the lixiviant must be circulated to achieve production).
Injection and production wells are cased with polyvinyl chloride ("PVC") or
fiberglass casings, which are cemented in place from the bottom of the ore zone
to the surface. The wells are then completed into the ore zone.
LIXIVIANT CHEMISTRY
The lixiviant, consisting of native groundwater fortified with an
oxidant and an anionic complexing agent, is introduced via the injection wells
to the ore bearing aquifer. The oxidant (gaseous oxygen) changes the uranium
valence state making the uranium soluble in the lixiviant. The lixiviant (sodium
bicarbonate) complexes the original uranium to a soluble ion, uranyl
dicarbonate, which dissolves the uranium. The dissolved uranium then flows to
the surface with the lixiviant fluid, which is circulated through the ore body
until economic recovery is achieved.
URANIUM RECOVERY PROCESS
The uranium recovery process consists of a lixiviant circuit, an
elution/precipitation circuit and a drying and packaging process. The lixiviant
circuit flows from the ore body, where the uranium is dissolved. The lixiviant
stream is then circulated to an ion exchange column on the surface where uranium
is extracted from the lixiviant by absorption onto the resin beads of the ion
exchange columns. The lixiviant is then refortified and reinjected into the ore
body. When the ion exchange column's resin beads are loaded with uranium, the
loaded uranium is removed and placed into the elution circuit where the uranium
is flushed with a salt-water solution, which precipitates the uranium from the
beads. This leaves the uranium in 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
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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 groundwater 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 escape of leaching solution (through proper design and
operation of the wellfield and the use of monitoring wells to detect any
potential excursions from the mining area) and the treatment and disposal of
liquid and/or solid discrete surface waste or by-product materials (so-called
"11e. (2) by-product material" under federal law). The majority of by-product
material that is generated is liquid and generally is disposed of by a
combination of reverse osmosis, brine concentration and evaporation or, after
treatment, by surface deposition or discharge or through underground injection
wells. Any such disposal must be approved by the governing authority having
jurisdiction over that aspect of the Company's activities. Once mining is
completed, the Company is required to reclaim the surface areas and restore
underground water quality to the level of quality mandated by applicable
regulations or license requirements. A small amount of solid discrete surface
waste materials generated by the ISL process is disposed of by delivery to a
licensed by-product material disposal site or to a licensed conventional uranium
mill tailings pile. While such sites may not be readily available in the future,
the Company believes that any increase in the cost of such disposal will
continue to be insignificant relative to total costs of production and will not
be a material portion of restoration/reclamation costs.
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.
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The federal Safe Drinking Water Act ("SDWA") creates a nationwide regulatory
program protecting groundwater which is administered by the U.S. Environmental
Protection Agency ("EPA"). To avoid the burden of dual federal and state (or
Indian tribal) regulation, the SDWA allows for the permits issued by the UIC
regulatory programs of states and Indian tribes determined eligible for
treatment as states to suffice in place of a UIC permit required under the SDWA.
A state whose UIC program has been determined sufficient for this purpose is
said to have been granted "primary enforcement responsibility" or "primacy," and
a UIC permit from a state with primacy suffices in lieu of an EPA-issued permit,
provided the EPA grants, upon request by the permitting state, an "aquifer
exemption" or "temporary aquifer designation" modifying the permitting state's
UIC program to recognize the temporary placement of mining fluids into the
intended mining zone within the horizontal confines of the proposed mining area.
Although the EPA's consent to aquifer exemptions or temporary aquifer
designations for certain mineral deposits is often issued almost automatically,
the EPA may delay or decline to process the state's application if the EPA
questions the state's jurisdiction over the mine site. Both Texas and New Mexico
have been granted "primacy" for their UIC programs, and the Navajo Nation has
been determined eligible for treatment as a state but is not due to submit its
program for EPA approval for several years. Until such time as the Navajo Nation
has been granted "primacy," ISL uranium mining activities within Navajo Nation
jurisdiction will require a UIC permit from the EPA. Despite some procedural
differences, the substantive requirements of the Texas, New Mexico and EPA UIC
programs are very similar.
In addition to its radioactive materials licenses and UIC permit, the
Company is also required to obtain from appropriate governmental authorities a
number of other permits or exemptions, such as for waste water discharge, land
application of treated waste water, or for air emissions.
The current environmental regulatory program for the ISL industry is
well established. Many ISL mines have gone full cycle through the
permit-operating-restoration cycle without any significant environmental impact.
However, the public anti-nuclear lobby can make environmental permitting
difficult and permit timing less than predictable.
In Texas, the radioactive materials license required for ISL uranium
mining is granted by the Texas Department of Health ("TDH") and the UIC permits
are granted by the Texas Natural Resource Conservation Commission ("TNRCC"). The
TNRCC also regulates air quality and surface deposition or discharge of treated
wastewater associated with the ISL mining process. In order for a licensee to
receive final release from further radioactive materials license obligations
after all of its mining and post-mining clean-up has been completed, approval
must be issued by the TDH along with concurrence from the NRC.
In New Mexico, radioactive materials' licensing is handled directly by
the NRC, rather than by the State of New Mexico. Furthermore, depending upon
whether a site located within New Mexico falls under state or Navajo Nation
jurisdiction, the permitting of the UIC aspects of ISL mining may be conducted
by either the New Mexico Environmental Department ("NMED") or the EPA or
possibly both in case of jurisdictional conflict. The jurisdictional issue when
raised as to any development property could result in litigation between the
state and the EPA, with the possibility of delays in the issuance of affected
UIC permits. The Company is currently a party to such litigation with respect to
certain of its New Mexico properties. See "Litigation".
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
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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 2000, 435 nuclear power
plants were operating in the world. It is estimated that these plants consumed
159 million pounds of uranium during 2000.
MARKET PRICE FORMATION
At December 31, 2000 the spot price was $7.10 per pound U3O8 (the form
in which the Company sells its production) compared to $9.60 at December 31,
1999. Utility spot market contract activity for uranium decreased by 10.3
million pounds and long-term contracting decreased by 14.3 million pounds in
2000 from 1999 levels. This lack of demand contributed to the softening of
uranium prices seen in the market in 2000. Through June 25, 2001 the spot price
of uranium has increased to $8.90 a 25% gain from year end 2000 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 (U3O8) for 2000 is
estimated to be approximately 91 million pounds, compared to 81 million pounds
in 1999. This production accounted for approximately 54% of the year's utility
requirements. Production for 2001 is estimated to be 90 million pounds, which
will result in production again meeting only 54% of the estimated 166 million
pounds to be consumed during 2001.
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 beginning in the year
2005 with a ramp-up of total production projected by Ux to be 102-103 million
pounds in 2006. This represents approximately 59% of consumption as projected by
the UI for 2006 of
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approximately 176 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.
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.
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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 was $7.10 at December 31, 2000 and $8.90 at June 25, 2001.
The following graph shows spot prices per pound from 1980 to June 25,
2001, as reported by Trade Tech.
[GRAPH]
- ---------
All prices beginning in 1993 represent U(3)O(8) deliveries available to U.S.
utilities.
COMPETITION
The Company markets uranium to utilities in direct competition with
supplies available from various sources worldwide. The Company competes
primarily on the basis of price.
ITEM 2. PROPERTIES
SOUTH TEXAS PRODUCING PROPERTIES
The Company 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 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.
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Production History. Initial production commenced in May 1988. In May
1989, due to the continuing decline in the spot price of uranium, the Company
deferred development of the next wellfield, and the plant was shut-in in
September 1990. Total production from May 1988 through September 1990 was
approximately 1.5 million pounds.
Wellfield development activities resumed in December 1995 and
production commenced in March 1996. Production at Kingsville Dome was
approximately 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 $105,000 in
capital expenditures in 2000 and does not project to make significant
expenditures in 2001.
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.
In October 2000 the Company finalized an agreement with Texas
regulatory authorities and the Company's bonding company, that provided the
Company access to up to $2.2 million in funding for restoration. Approximately
$1,527,000 has been released to the Company through March 31, 2001 to perform
restoration at the Company's Kingsville Dome and Rosita mine sites. The term of
the restoration agreement runs through the end of 2001. The Company incurred
approximately $415,000 in restoration costs at the Kingsville Dome site from
July to December 2000 under the restoration agreement.
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.
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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 $160,000 for
development activities, permitting and land holding costs in 2000. Significant
expenditures for these activities are not expected in 2001.
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 incurred approximately $410,000 in restoration costs at the
Rosita site from July to December 2000 under the restoration agreement with the
Texas regulatory agencies and the Company's bonding company.
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 in 2000 and
2001 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
for 2000 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 resources at December 31, 2000.
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
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allottees. In addition, in March 1997, the Company acquired from Santa Fe
certain uranium mineral interests and exploration rights for uranium on
significant acreage in New Mexico, a small portion of which falls within the
Churchrock district.
In keeping with its overall corporate strategy, the Company's
development plan for its New Mexico properties will proceed incrementally,
subject to timely permitting, the availability of water rights, the availability
of sales contracts and the availability of capital. The Company plans to develop
the Churchrock district first and the Crownpoint district next.
REGULATORY FRAMEWORK
NRC License. In New Mexico, uranium production requires a radioactive
materials license issued by the NRC. The Company has applied for one NRC license
covering all properties located in both the Churchrock and Crownpoint districts
(except the Mancos property) and has included the properties in both districts
(except the Mancos leases) under one Final Environmental Impact Statement
("FEIS"), which is a prerequisite for the NRC license.
The NRC 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. On January 31 the full Nuclear Regulatory Commission ruled on
the Churchrock License and concurred with the technical, substantive and legal
findings of the Atomic Safety Licensing Board Presiding Officer for the
Churchrock Section 8 site. The Commission also determined that the Company must
proceed with the hearing process for other New Mexico properties beyond
Churchrock Section 8. It is projected that the hearing process will resume in
early 2002. 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
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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 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, 2000, 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 $110,000 in 2000. The Company does not
anticipate significant spending for permitting and land holding costs in 2001.
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 who 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 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
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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.
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, 2000, 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 $200,000 in
2000, and are not expected to be significant in 2001.
Water Rights. With respect to Crownpoint and Unit I, 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 were subject to
hearings, however all protests were subsequently withdrawn. On January 4, 2001
the State Engineer remanded the three applications to the Water Rights Division
staff for further review and analysis. The Company has informed the Water Rights
Division staff that it intends to proceed with the three pending applications.
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.
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.
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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 Company intends to seek a waiver
of this requirement for 2001.
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, 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.
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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, 2000
was approximately $5.6 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 $2.8 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, 2000 approximates $4.4 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
BENTON BANKRUPTCY
During 1994, the Company engaged in certain transactions with companies
controlled by Mr. Oren L. Benton (the "Benton Companies"). In 1995, Benton and
various of the Benton Companies filed for protection under Chapter 11 of the
Federal Bankruptcy Code (the "Benton Bankruptcy"). In 1998 the Trustee sought
recovery of approximately $1.6 million of payments made by certain of the Benton
Companies to the Company, claiming that the payments and advances were avoidable
as preferential and/or fraudulent transfers. On July 17, 2000, the parties
entered into a settlement agreement whereby the Company issued a $135,000
Convertible Note due July 17, 2005, assigned its rights under a $65,000
Promissory Note from Benton and assigned certain claims against Union Bank of
Switzerland in settlement of the complaint. Interest on the Convertible Note is
due at maturity and the Note bears interest at rate of 6% per annum. The Company
may prepay the Note at any time and the holder of the Note may convert all
principal and accrued interest into shares of the Company's common stock at a
conversion price of $0.75 per share.
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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In March 2001 the Company's stockholders approved an amendment to the
Company's Restated Certificate of Incorporation to increase the authorized
shares of Common Stock, par value $0.001 per share (the "Common Stock"), from
35,000,000 to 100,000,000. Stockholders also approved an amendment to the
Company's 1995 Stock Incentive Plan (the "1995 Plan") to increase the number of
shares of the Company's Common Stock eligible for issuance under the 1995 Plan
from 1,250,000 shares to 4,000,000 shares.
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CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company is including the following cautionary statement to take
advantage of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995 for any forward-looking statement made by, or on behalf of,
the Company. The factors identified in this cautionary statement are important
factors (but not necessarily all of the important factors) that could cause
actual results to differ materially from those expressed in any forward-looking
statement made by, or on behalf of, the Company. Where any such forward-looking
statement includes a statement of the assumptions or bases underlying such
forward-looking statement, the Company cautions that, while it believes such
assumptions or bases to be reasonable and makes them in good faith, assumed
facts or bases almost always vary from actual results, and the differences
between assumed facts or bases and actual results can be material, depending
upon the circumstances. Where, in any forward-looking statement, the Company, or
its management, expresses an expectation or belief as to the future results,
such expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result, or be achieved or accomplished. Taking into
account the foregoing, the following are identified as important risk factors
that could cause actual results to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, the Company:
COMPANY LIQUIDITY
As a result of the 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 perform activities at these
locations related to its ongoing groundwater restoration efforts.
Between August 2000 and April 2001 the Company entered into a series of
equity transactions which raised $2.835 million in proceeds to the Company. In
October 2000 the Company finalized an agreement with Texas regulatory
authorities and the Company's bonding company, that provides the Company access
to up to $2.2 million in additional funding for restoration activities. The term
of the restoration agreement runs through the end of 2001.
Assuming that the Company is able to continue funding its restoration
of the Kingsville Dome and Rosita mine sites through extensions to restoration
agreement, the Company estimates that the cash generated from its most recent
equity infusion should provide it with the resources to remain operating into
approximately mid to late 2002. Additional funds will be required for the
Company to continue operating after that date. The Company cannot guarantee that
it will be able to extend such agreement beyond 2001, or that any extension of
the agreement that is negotiated will contain the same terms and conditions as
the current agreement.
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, drilling and developing in order to establish the
infrastructure for the production wells for each wellfield
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and complying with financial surety requirements established by various
regulatory agencies regarding the future restoration and reclamation activities
for each property.
The Company expects to be able to fund its 2001 capital requirements
from existing cash sources.
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
it's current restoration, decommissioning, decontamination and reclamation costs
are approximately $4.4 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 $5.6 million at December 31, 2000, $2.8 million of which
is collateralized by the Company with cash. The Company anticipates that its
future financial surety requirements will increase significantly when future
development and production occurs at its sites in Texas and New Mexico. The
amount of the financial surety for each producing property is subject to 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.
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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 wellfields 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 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,
2000 and June 25, 2001 was $7.10 and $8.90 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 2001 or beyond.
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The Company must secure new profitable uranium sales contracts as the
basis for its continued long-term 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.
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.
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GLOSSARY OF CERTAIN TERMS
claim...................... A claim is a tract of land, the right to mine
of which is held under the federal General
Mining Law of 1872 and applicable local laws.
concentrates............... A product from a uranium mining and milling
facility, which is commonly referred to as
uranium concentrate or U(3)O(8).
conversion................. A process whereby uranium concentrates are
converted into forms suitable for use as fuel
in commercial nuclear reactors.
cut-off grade.............. Cut-off grade is determined by the following
formula parameters: estimates over the
relevant period of mining costs, ore
treatment costs, general and administrative
costs, refining costs, royalty expenses,
process and refining recovery rates and
uranium prices.
gross acres................ Total acres under which the Company has
mineral rights and can mine for uranium.
Indian country............. A term derived from jurisdictional
determinations in criminal law enforcement
proceedings under 18 U.S.C. Section 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.
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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.
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uranium or uranium
concentrates............... U(3)O(8), 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.
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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. Beginning
with trading on October 16, 2000 the Company's trading symbol on the OTCBB was
changed to URIXE and its common stock traded on the OTCBB under this symbol
through November 13, 2000. On November 14, 2000 the Company became ineligible
for trading on the OTC Bulletin Board. The company's non-compliance resulted
from the filing of its Annual Report on Form 10-K for 1999 with unaudited
financial statements. Beginning with trading on November 14, 2000, the Company's
common stock has traded on the Pink Sheets.
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, 2000 1/8 2/64
September 30, 2000 9/64 5/64
June 30, 2000 3/16 3/32
March 31, 2000 14/32 7/64
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
The high and low closing prices for the common stock for the period
January 1, 2001 to June 30, 2001, was $0.26 and $0.04 respectively.
RECENT SALES OF UNREGISTERED SECURITIES
In August 2000, the Company raised $750,000 of equity by the issuance
of 7.5 million shares of Common Stock at $0.10 per share to a group of private
investors. The investors were also issued five-year warrants to purchase an
aggregate of 5,625,000 shares of Common Stock with an initial exercise price of
$0.20 per share. These exercise price of the warrants have been adjusted to
$0.14 per share in accordance to the terms of the warrant as a result of the
equity transaction completed in April 2001.
On January 31, 2001 the Company obtained a $250,000 loan by issuing
demand notes to private investors. Principal on the notes was due upon demand by
the noteholders, and interest was due and payable on the first day of every May,
August, November and February at the rate of 11% per annum. Holders of the notes
had the right, but not the obligation, to purchase Common Stock or other equity
securities offered by the Company in any subsequent private placements by paying
for such purchase by forgiving unpaid interest and/or principal due and unpaid
on the notes at $0.08 per share. The $250,000 in principal under the demand
notes was converted on April 11, 2001 into 3,125,000 shares of common stock of
the Company in connection with an equity transaction which raised an additional
$1.835 million capital. Interest on the demand notes of approximately $5,400 was
paid in cash at the closing of the equity transaction.
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In April 2001, the Company raised an additional $1,835,000 of equity by
the issuance of 26,062,500 million shares of Common Stock at $0.08 per share to
a group of private investors pursuant to a Common Stock Purchase Agreement.
Included in the issuance was the conversion of the $250,000 loan entered into on
January 30, 2001 with the holders of the demand notes. Under that Agreement the
Company will file a Registration Statement with the Securities and Exchange
Commission registering for resale the shares issued pursuant to the Stock
Purchase Agreement and the shares issued and issuable upon the exercise of
warrants issued in the August 2000 private placement within 60 days of the
closing date of the private placement.
HOLDERS
As of June 30, 2001, the Company had 48,992,278 shares of Common Stock
outstanding held of record by 156 persons.
DIVIDENDS
The Company did not declare or pay any cash or other dividends on its
Common Stock during the years ending December 31, 2000, 1999, or 1998. The
Company does not anticipate paying dividends for the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(In thousands, except per share and per pound amounts)
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA
Uranium sales:
Produced uranium $ 122 $ 2,281 $ 10,984 $ 14,737 $ 17,827
Purchased uranium 815 4,974 12,363 15,003 6,437
Other uranium revenues 145 1,290 -- -- --
Cost of uranium sales (1,757) (8,514) (21,286) (29,269) (20,122)
-------- -------- -------- -------- --------
Earnings (loss) from operations before
writedown of uranium properties (675) 31 2,061 471 4,142
Writedown of uranium properties (1,415) (38,455) (23,112) -- --
-------- -------- -------- -------- --------
Earnings (loss) from operations
before corporate expenses (2,090) (38,424) (21,051) 471 4,142
Corporate expenses (1,382) (2,061) (2,730) (2,937) (3,055)
-------- -------- -------- -------- --------
Earnings (loss) from operations (3,472) (40,485) (23,781) (2,466) 1,087
Interest and other, net 239 381 56 868 (328)
Earnings (loss) before income taxes (3,233) (40,104) (23,725) (1,598) 759
Federal income tax (benefit) -- (264) (4,745) (273) --
-------- -------- -------- -------- --------
Net earnings (loss) $ (3,233) $(39,840) $(18,980) $ (1,325) $ 759
======== ======== ======== ======== ========
Earnings (loss) per common share:
Basic $ (0.19) $ (3.27) $ (1.57) $ (0.11) $ 0.09
======== ======== ======== ======== ========
Diluted $ (0.19) $ (3.27) $ (1.57) $ (0.11) $ 0.08
======== ======== ======== ======== ========
Weighted average common stock
and equivalents outstanding:
Basic 17,335 12,178 12,053 11,760 8,789
Diluted 17,335 12,178 12,053 11,760 10,031
CONSOLIDATED OPERATING AND OTHER DATA
Cash provided by (used in) operations $ (1,220) $ (470) $ 8,201 $ 4,931 $ 9,294
Pounds of uranium produced -- 109 623 871 1,360
Pounds of uranium purchased 85 414 865 1,275 488
Pounds of uranium delivered 98 570 1,586 2,240 1,656
Capital expenditures $ 550 $ 1,630 $ 6,168 $ 14,901 $ 14,607
Average sales price per pound(a) $ 9.58 $ 12.72 $ 15.13 $ 13.71 $ 16.35
Average cost of produced pounds sold (b) $ -- $ (c) $ 16.58 $ 15.61 $ 11.34
Average cost of purchased pounds sold $ 9.41 $ 10.35 $ 10.12 $ 10.40 $ 10.21
Cash cost per produced pound(b) $ -- $ (c) $ 13.17 $ 12.17 $ 8.51
Average cost per produced pound(b) $ -- $ (c) $ 17.11 $ 15.85 $ 12.12
Average cost per purchased pound $ 9.41 $ 10.35 $ 10.12 $ 10.40 $ 10.21
(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.
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Year Ended December 31,
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(In thousands)
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents $ 212 $ 494 $ 3,714 $ 2,325 $ 16,934
Working capital (151) 586 2,631 5,999 15,269
Uranium properties (net) 736 2,167 39,472 61,303 42,444
Total assets 3,960 7,740 49,696 74,864 68,794
Total debt (1) 586 6,952 7,882 8,419 12,577
Total liabilities 6,080 14,139 16,363 22,959 23,497
Total shareholders' equity (deficit) (2,119) (6,399) 33,333 51,905 45,297
(1) Includes current portion of long-term debt and notes payable.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD LOOKING STATEMENTS
This Item 6 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 18.
CAPITAL RESOURCES AND LIQUIDITY
Operating Cash Flows
At December 31, 2000, the Company's cash and cash equivalents were
$213,000 compared to $494,000 at year end 1999. The Company's uranium operations
generated negative cash flow of $1,220,000 for the year ended December 31, 2000,
in comparison to negative cash flow from operations of $470,000 in 1999 and
positive cash flow from operations of $8,201,000 in 1998. The Company's net
working capital at December 31, 2000 and 1999 was ($161,000) and $586,000
respectively.
Because uranium prices were depressed to a level below the cost of
production, the Company ceased production activities in 1999 at both of its two
producing properties. 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
market price of uranium continues to be below the Company's cost to produce
uranium and the price needed to obtain the necessary financing to allow
development of new production areas at the Company's South Texas sites.
In October 2000 the Company finalized an agreement with Texas
regulatory authorities and the Company's bonding company, (the "Restoration
Agreement") that provided the Company access to up to $2.2 million in additional
funding. Approximately $1,527,000 has been released to the Company through March
31, 2001 to perform restoration at the Company's Kingsville Dome and Rosita mine
sites in South Texas. The term of the restoration agreement runs through the end
of 2001.
Assuming that the Company is able to continue funding its restoration
of the Kingsville Dome and Rosita mine sites through extensions to the
Restoration Agreement, the Company estimates it will have the funds to remain
operating into approximately mid to late 2002. Additional funds will be required
for the Company to continue operating after that date. The Company's current
agreement with the Texas regulatory authorities and its bonding company extends
through 2001. The Company cannot guarantee that it will be able to extend such
agreement beyond 2001, or that any extension of the agreement that is negotiated
will contain the same terms and conditions as the current agreement.
The Company would require additional capital resources to fund the
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.
In March 1998, the Company entered into an agreement to extend the
maturity date of its $6,000,000 secured convertible note from May 31, 1998 to
May 31, 2000. In February 2000, the note
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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.
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
2000, 1999 and 1998, $161,000, $77,000 and $244,000 in capital expenditures were
incurred at Rosita, respectively. Capital expenditures to be incurred for 2001
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 2000,
1999 and 1998 totaled $105,000, $137,000 and $2,999,000, respectively and are
expected to be minimal in 2001.
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 $37,000 and $103,000, respectively in 1999 and 1998. No
capital expenditures for this project were incurred in 2000.
Capital expenditures at the Company's Churchrock, Crownpoint and
Vasquez projects for permitting and land holding costs totaled approximately
$348,000, $1,598,000 and $2,361,000 in 2000, 1999 and 1998, respectively and are
not expected to be significant in 2001.
Cash provided from other investing activities was $793,000 in 2000
compared to cash used in investing activities in 1999 and 1998 of $2,000 and
$345,000, respectively. The funds generated in 2000 resulted from cash provided
under the Restoration Agreement. Cash used in 1999 and 1998 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 except as scheduled under the terms of the Restoration
Agreement. 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 was $3.0
million. Borrowings under this agreement were secured by the Company's uranium
inventory and/or by receivables from its uranium sales contracts. Principal and
interest payments under the loan were 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 was unable to draw on the credit facility and
terminated the credit facility effective April 30, 2000.
During 2000, the Company sought to raise funds to permit it to continue
operations until such time uranium prices increase to a level that will permit
the Company to resume mining operations. In August 2000 and April 2001 the
Company completed two private placements raising an aggregate of $2,835,000
through the issuance of 33,562,500 shares of common stock and warrants expiring
in August 2005 to purchase an additional 5,625,000 shares of Common Stock. As
adjusted for the April offering, the exercise price of the warrants is $0.14 per
share. The funds raised in the private placements are to be used to fund the
non-restoration overhead costs of the Company.
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The shares issued in the private placements represented approximately
69% of the outstanding Common Stock of the Company. The completion of the
private placement resulted in a significant dilution of the current
stockholders' equity in the Company.
Other Non-Cash Transactions
In 2000, the Company issued approximately 68,000 shares of common stock
to certain directors in satisfaction of compensation deferred totaling $25,000
by those individuals.
In 2000, the Company issued 720,000 shares of common stock to its
regulatory counsel in satisfaction of $466,000 of outstanding indebtedness
In 2000, the Company issued approximately 2,111,000 shares of common
stock for the conversion of the convertible note and accrued interest of
$6,272,000 to Lindner Investments and Lindner Dividend Fund.
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.
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 is currently below the Company's cost of
uranium production. The outlook for uranium prices through the end of 2001
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.
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
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upon future uranium prices, the availability of sales contracts and the
availability of capital. While on stand-by, the Company continues to perform
groundwater restoration activities at these locations.
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 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.
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 had exhausted all of
its available sources of cash to support continuing operations and was uncertain
of its ability to continue in business beyond mid-2000 unless it was able to
secure a cash infusion.
The Company's near-term potential illiquidity at year end 1999,
necessitated a reevaluation of the Company's method of valuing its uranium
properties for accounting purposes. The Company had previously valued its
uranium properties based upon the methodology that assumed that each property
would be ultimately placed into production. The Company 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 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.
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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 profitably. It was determined that at
December 31, 1999 the Company's South Texas Vasquez property could operate with
a positive cash flow in the then current market and all other development
properties including all New Mexico projects required higher prices. The
valuation for all development properties other than Vasquez were 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 2000
At December 31, 2000 uranium prices had declined to levels below those
at year-end 1999. As a result none of the Company's uranium properties were
projected to be able to generate positive cash flow from uranium operations. As
a result, the valuation method used for all the Company's properties has been
each project's salvage value of their tangible physical assets at December 31,
2000. This valuation resulted in a pre-tax writedown in 2000 of approximately
$1.4 million.
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
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customers. The Company's customers have generally elected, where possible, to
take delivery of the bulk of the annual deliveries under their long-term sales
contracts later in each year. Accordingly, operating results for any quarter or
year-to-date period are not necessarily comparable and may not be indicative of
the results which may be expected for future quarters or for the entire year.
Years Ended December 31, 2000, 1999 and 1998
The following is a summary of the key operational and financial
statistics related to the Results of Operations:
2000 1999 1998
------ ------ -------
(In thousands, except per pound data)
Uranium sales revenue(a) $ 937 $7,255 $23,347
Other uranium revenues $ 145 $1,290 --
Total pounds delivered 98 570 1,586
Average sales price/pound(b) $ 9.58 $12.72 $ 15.13
Pounds produced -- 109 623
Pounds purchased 85 414 865
Average production cost of produced pounds -- (c) $ 17.11
Average cost of purchased pounds $ 9.41 $10.35 $ 10.12
Average cost of produced pounds sold -- (c) $ 16.58
Average cost of purchased pounds sold $ 9.41 $10.35 $ 10.12
(a) 1998 uranium sales revenues include approximately $1.5 million from the sale
of Russian uranium which is sold under the matched sales Amendment.
(b) Average sales price in 1998 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.
Revenue from uranium sales in 2000 decreased by $6,318,000 from 1999
amounts. This decrease resulted primarily from lower uranium deliveries this
year (98,000 pounds) compared to 1999 (570,000 pounds).
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.
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Details of the cost of uranium sales were as follows:
2000 1999 1998
-------- -------- --------
(In thousands)
Cost of purchased uranium $ 800 $ 4,285 $ 8,745
Royalties 17 146 580
Operating expenses 734 2,913 5,347
Provision for restoration and reclamation costs 12 235 692
Depreciation and depletion of uranium properties 194 935 5,923
Writedown of uranium properties 1,415 38,455 23,112
-------- -------- --------
Total cost of uranium sales $ 3,172 $ 46,969 $ 44,399
======== ======== ========
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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 in 1999 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.
The average cost of uranium purchases made in 2000 was $9.41 per pound
compared to $10.35 in 1999 and $10.12 in 1998. Total deliveries in 2000 were
98,000 pounds of which 85,000 were purchased pounds and 13,000 were produced
pounds. 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
Operating expenses totaled $734,000 in 2000 compared to $2,913,000 in
1999 and $5,347,000 ($7.41 per pound) in 1998. 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 2000 of $12,000
resulted from the sale of the Company's remaining produced inventory. The
restoration and reclamation amount 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).
The depreciation and depletion provision in 2000 was $194,000 and
consisted primarily of depreciation while on stand-by. 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, an average rate of $8.21
per pound.
Royalties in 2000, 1999 and 1998 were $17,000, $146,000 and $579,000
respectively. The decrease each year 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 were $1,359,000 in 2000, $2,036,000 in 1999 and $2,672,000 in 1998.
These year to year decreases resulted primarily from lower overall compensation
levels and additional cost reductions implemented each year.
Interest and other income in 2000 totaled $365,000 and was comprised
primarily of the gain on the sale of property in South Texas ($112,000) and
interest from the funds held as collateral for the Company's bond obligations,
Interest and other income of $608,000 in 1999 compared to that in 1998 of
$208,000. This increase 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).
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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 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 December 31,
2000 and June 25, 2001 was $7.10 and $8.90 per pound, respectively.
URANIUM SALES CONTRACT PORTFOLIO
Long-term contracts have historically been the primary source of
revenue to the Company. Currently, the Company does not have any remaining
uranium sales contracts for the balance of 2001 or beyond.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by Item appears on pages F-1 through F-25 of
this Annual Report on Form 10-K/A.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
As previously reported on Form 8-K dated February 16, 2001, on February
9, 2001 the Board of Directors of the Company recommended and approved the
replacement of its principal accountants, Arthur Andersen LLP with the firm of
Hein + Associates LLP, independent auditors. Hein + Associates LLP have been
engaged to perform the audit of the Company's financial statements for the two
years ended December 31, 1999 and 2000.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS:
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS
At December 31, 2000, the Board of Directors of the Company consisted
of the three individuals shown below. Directors hold office until the next
annual meeting of stockholders and until their successors are elected and
qualified. Directors are elected by plurality vote.
The following table sets forth certain information concerning the
individuals nominated for election as directors of the Company:
Positions and Offices
Name Age with the Company
---- --- ----------------
Paul K. Willmott 61 Chairman, Chief Executive Officer,
President and Director
Leland O. Erdahl 72 Director
George R. Ireland 44 Director
NOMINEES FOR DIRECTOR
PAUL K. WILLMOTT has served as a director of the Company since August
1994, as President of the Company since February 1995 and as Chairman of the
Board and Chief Executive Officer since July 31, 1995. Mr. Willmott served as
the Company's Chief Financial Officer from April 12, 1995 to September 25, 1995.
Mr. Willmott retired from Union Carbide Corporation ("Union Carbide") where he
was involved for 25 years in the finance and operation of Union Carbide's
world-wide mining and metals business. Most recently, Mr. Willmott was President
of UMETCO Minerals Corporation, a wholly-owned subsidiary of Union Carbide, from
1987 to 1991, where he was responsible for Union Carbide's uranium and vanadium
businesses. From January 1993 until February 1995, Mr. Willmott was engaged by
the Concord Mining Unit as a senior vice president where he was primarily
involved in the acquisition of UMETCO Minerals Corporation's uranium and
vanadium operating assets. Mr. Willmott graduated from Michigan Technological
University with a Bachelor of Science degree in Mining in 1964 and a Bachelor of
Science Degree in Engineering Administration in 1967. He has been an active
member of the American Institute of Mining Engineers, the Canadian Institute of
Mining Engineers and a number of state professional organizations.
LELAND O. ERDAHL has served as a director of the Company since July 11,
1994. From 1986 to 1991, Mr. Erdahl served as President and Chief Executive
Officer for Stolar, Inc., a high-tech company involved in the radio wave imaging
of geologic media and underground radio transmission for voice and data. He was
President and CEO of Albuquerque Uranium Corporation, a uranium mining company,
from 1987 to 1991 and served as Vice President of AMAX Gold in 1997 and 1998.
Since January 2001, Mr. Erdahl has served as President of Nord Pacific Limited,
a mining company with gold and copper interests in Australia and Papau, New
Guinea. He is a Certified Public Accountant and is a graduate from the College
of Santa Fe. He is currently a director of Hecla Mining Company and Canyon
Resources Corporation. Mr. Erdahl also serves on the compensation committee of
Hecla Mining Company and Canyon Resources Corporation.
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GEORGE R. IRELAND has served as a director since May 25, 1995. Mr.
Ireland is a General Partner in Ring Partners, LLC, a private investment
partnership. From February 1991 to February 2000, Mr. Ireland was a financial
analyst for and a partner in Knott Partners L.P., a private investment
partnership. Mr. Ireland specialized in investing in securities of natural
resource and other basic industrial companies, both domestically and abroad.
From 1987 to 1991, he was a Vice President of Fulcrum Management, Inc., which
was the manager of the VenturesTrident Limited Partnerships, (venture capital
funds dedicated to investing in the mining industry), and Senior Vice President
and Chief Financial Officer of MinVen Gold Corporation, a company in which the
VenturesTrident funds had a significant investment. Mr. Ireland graduated from
the University of Michigan with degrees in Geology and Resource Economics. He
also attended the Graduate School of Business Administration of New York
University. Mr. Ireland is a director of Merrill & Ring, Inc., a private land
and timber holding company in the state of Washington. Mr. Ireland acted as a
consultant to Ryback Management Corporation and performed due diligence on the
Company in connection with Ryback's loan of $6 million to the Company on behalf
of members of the Lindner Group in 1995. Mr. Ireland is not otherwise affiliated
with the Lindner Group or Ryback.
ARRANGEMENTS REGARDING ELECTION OF DIRECTORS
In 1995, George R. Ireland was appointed to the Board of Directors
following the closing of certain transactions with the Lindner Group. In
connection with these transactions, the Company has agreed to nominate two
individuals designated by the Lindner Group for election to the Board. Mr.
Ireland was the Lindner Group's sole designee for membership to the Board. In
February 2000 the Lindner Group's agreement terminated.
OTHER EXECUTIVE OFFICERS
The executive officers of the Company serve at the discretion of the
Board of Directors and are subject to annual appointment by the Board at its
first meeting following the Annual General Meeting of the Stockholders. The
officers of the Company hold office until their successors are appointed by the
Board of Directors. All officers of the Company are employed on a full-time
basis. There is no family relationship between any director and executive
officer of the Company.
The following table sets forth certain information concerning executive
officers who are not also directors of the Company:
Positions and Offices
Name Age with the Company
---- --- ----------------
Richard A. Van Horn 54 Senior Vice President - Operations
Thomas H. Ehrlich 41 Vice President, Chief Financial Officer, Secretary
and Treasurer
Mark S. Pelizza 48 Vice President - Health, Safety and Environmental
Affairs and President - Hydro Resources, Inc.
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The following sets forth certain information concerning the business
experience of the foregoing executive officers during the past five years.
RICHARD A. VAN HORN joined the Company in March 1997 and assumed the
position of Senior Vice President of Operations on April 1, 1997. Previously, he
spent three years with Energy Fuels Nuclear, Inc. as General Manager - Colorado
Plateau Operations with responsibility for the daily management of and planning
for Energy Fuels Nuclear, Inc. mining activities on the Colorado Plateau. Prior
to his work at Energy Fuels Nuclear, Inc., Mr. Van Horn spent eighteen years
with Union Carbide Corporation where he was involved with the finance and
operation of that company's worldwide mining and metals business. From 1990 to
1994, Mr. Van Horn was Director of Operations of UMETCO Minerals Corporation, a
wholly owned subsidiary of Union Carbide Corporation, responsible for all
operating aspects of UMETCO's uranium and vanadium business on the Colorado
Plateau prior to its sale to Energy Fuels Nuclear, Inc. Mr. Van Horn graduated
from the Colorado School of Mines with a Engineer of Mines degree in mining in
1973.
THOMAS H. EHRLICH, a certified public accountant, rejoined the Company
in September 1995 as Vice President and Chief Financial Officer and was
appointed Secretary and Treasurer of the Company in December 1995. Immediately
prior to that, Mr. Ehrlich spent nine months as a Division Controller with
Affiliated Computer Services, Inc., an information technology services provider
in Dallas, Texas. Mr. Ehrlich originally joined the Company in November 1987 as
Controller-Public Reporting and was promoted to Controller and Chief Accounting
Officer in February 1990. In February 1993, Mr. Ehrlich assumed the additional
duties of Vice President and Secretary of the Company. Prior to joining the
Company, he spent four years with Deloitte Haskins & Sells and worked primarily
with clients that were publicly held companies. Prior to his work at Deloitte
Haskins & Sells, he spent three years in various accounting duties at Enserch
Exploration, Inc., an oil and gas company in Dallas, Texas. Mr. Ehrlich received
his B.S. B.A. degree in Accounting from Bryant College in 1981.
MARK S. PELIZZA has served as the Company's Environmental Manager since
1980, and as such, he has been responsible for all environmental regulatory
activities. In February 1996, he was appointed Vice President - Health, Safety
and Environmental Affairs of the Company. In November 1999, he was appointed
President and a Director of Hydro Resources, Inc., a wholly owned subsidiary of
the Company. Prior to joining the Company, he was employed for two years by
Union Carbide as an Environmental Planning Engineer at Union Carbide's Palangana
solution mining plant in South Texas. Mr. Pelizza received a M.S. degree in
Engineering Geology from Colorado School of Mines in 1978 and a B.S. degree in
Geology from Fort Lewis College in 1974.
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ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to
annual and long-term compensation for services in all capacities for the years
ended December 31, 2000, 1999 and 1998 paid to the Company's Chief Executive
Officer and certain other executive officers of the Company.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------------------------------------------- ------------------------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION(2)
POSITION YEAR ($) ($) ($) (#) ($)
------------------ ---- -------- ----- --------------- ---------- ---------------
Paul K. Willmott(3) 2000 $198,799 $0 $1,152 750,000 $ 1,788
Chairman, President 1999 $187,859 $0 $ 942 -- $ 9,818
and Chief Executive 1998 $200,701 $0 $ 561 40,000 $ 1,887
Officer
Richard A. Van Horn(4) 2000 $134,982 $0 $3,189 500,000 $ 1,686
Senior Vice President - 1999 $115,283 $0 $ 863 -- $11,036
Operations 1998 $132,749 $0 $1,960 25,000 $ 1,200
Mark S. Pelizza 2000 $104,924 $0 $5,636 500,000 $ 1,533
Vice President - 1999 $ 95,384 $0 $7,456 -- $ 6,166
Health, Safety and 1998 $107,634 $0 $6,386 9,000 $ 1,010
Environmental Affairs
Thomas H. Ehrlich(5) 2000 $105,237 $0 $ 100 500,000 $ 1,358
Vice President and 1999 $ 94,069 $0 $ 200 -- $ 7,309
Chief Financial 1998 $107,260 $0 $ 297 12,000 $ 1,050
Officer
- --------
(1) Represents amount paid for out-of-pocket medical and dental expenses
under the Company's Supplemental Health Care Plan.
(2) Represents contributions made by the Company under the Company's 401(k)
Profit Sharing Plan (see "401(k) Profit Sharing Plan" below) and compensation in
shares of the Company's Common Stock under the 1999 Deferred Compensation Plan
(See "Deferred Compensation Plans" below). The shares issued under the 1999
Deferred Compensation Plan were valued at $0.375 per share, which exceeded the
fair market value of such shares when issued.
(3) Salary for 2000 and 1999 includes $90,000 and $99,904, respectively which
was deferred under the Company's 1999 Deferred Compensation Plan and 2000-2001
Deferred Compensation Plan.
(4) Salary for 2000 includes $20,800 that was deferred under the Company's
2000-2001 Deferred Compensation Plan.
(5) Salary for 2000 and 1999 includes $17,140 and $6,163, respectively which was
deferred under the Company's 1999 Deferred Compensation Plan and 2000-2001
Deferred Compensation Plan.
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SUPPLEMENTAL HEALTH CARE PLAN
The Company has adopted a health care plan (the "Supplemental Plan")
for the officers of the Company and certain of the employees of the Company who
are also stockholders, which supplements the standard health care plan available
to all eligible employees of the Company (the "Standard Plan"). The Supplemental
Plan pays directly to the participant 80% of all out-of-pocket medical and
dental expenses not covered under the Standard Plan, including deductibles and
co-insurance amounts. Additionally, the Supplemental Plan provides to each
participant $100,000 of accidental death and dismemberment insurance protection
and a world wide medical assistance benefit. Each participant in the
Supplemental Plan may receive a maximum annual benefit of $50,000 or $100,000,
at the Company's option. The Company pays an annual premium under the
Supplemental Plan equal to $250 per participant plus 10% of claims paid. There
are currently three officers and employees covered by the Supplemental Plan.
401(k) PROFIT SHARING PLAN
The Company maintains a defined contribution profit sharing plan for
employees of the Company (the "401(k)") that is administered by a committee of
trustees appointed by the Company. All Company employees are eligible to
participate upon the completion of six months of employment, subject to minimum
age requirements. Each year the Company makes a contribution to the 401(k) out
of its current or accumulated net profits (as defined) in an amount determined
by the Board of Directors but not exceeding 15% of the total compensation paid
or accrued to participants during such fiscal year. The Company's contributions
are allocated to participants in amounts equal to 25% (or a higher percentage,
determined at the Company's discretion) of the participants' contributions, up
to 4% of each participant's gross pay. For the plan year ended July 31, 2000,
the Company contributed amounts equal to 25% of the participant's contributions,
up to 4% of gross pay. For the plan years ended July 31, 1999 and July 31, 1998,
the Company contributed amounts equal to 25% of the participant's contributions,
up to 4% of gross pay. Participants become 20% vested in their Company
contribution account for each year of service until full vesting occurs upon the
completion of five years of service. Distributions are made upon retirement,
death or disability in a lump sum or in installments.
EMPLOYEES' STOCK OPTION PLANS
On December 19, 1995 the Company's stockholders approved the 1995 Stock
Incentive Plan (the "1995 Plan") for key employees of the Company. The 1995 Plan
initially authorized grants of incentive stock options and non-qualified options
to purchase up to an aggregate of 750,000 shares of Common Stock. In 1998 the
Company adopted an amendment to the 1995 Plan which increased the number of
shares of Common Stock authorized to be issued to 1,250,000 shares. In March
2001 the stockholders approved an amendment to the 1995 Plan which increased the
number of shares of Common Stock authorized to be issued to 4,000,000. The Stock
Option Committee of the Board of Directors is responsible for the administration
of the 1995 Plan and has the full authority, subject to the provisions of the
1995 Plan, to determine to whom and when to grant options and the number of
shares of Common Stock covered by each grant.
As of February 28, 2001, a total of 3,079,145 shares are reserved for
issuance upon exercise of currently outstanding options granted under the 1995
Plan. As of that date 920,855 shares were reserved for issuance pursuant to
options that may be granted in the future under the 1995 Plan. No shares have
been issued upon the exercise of options under the 1995 Plan.
The Company also maintains an Employee's Stock Option Plan under which
the Company may grant non-qualified options. As of February 28, 2001, a total of
268,137 shares are reserved for issuance under options outstanding under that
plan.
42
46
DEFERRED COMPENSATION PLANS
Under the Company 1999 Deferred Compensation Plan (the "1999 Plan")
executive officers and directors of the Company and its subsidiaries were
permitted to defer until January 11, 2006 up to 100% of their 1999 salary. At
the time of the deferral election, a participant could elect to receive payment
of up to 100% of the deferred amount of salary in shares of the Company's Common
Stock. A total of $231,844 was deferred under the 1999 Plan of which $50,116 was
paid by issuing 302,939 shares of the Company's Common Stock at $0.375 per
share.
The Company also has a 2000-2001 Deferred Compensation Plan (the
"2000-2001 Plan"). Under that plan executive officers and directors of the
Company and its subsidiaries were permitted to defer up to 100% of their 2000
and 2001 salary with payment thereof to be made on January 11, 2006. On or
before that date, the participant may elect to receive the deferred amount in
shares of the Company's Common Stock valued at $0.20 per share. At January 31,
2001, a total of $171,813 has been deferred under that plan and no elections
have yet been made to convert any such amounts into shares.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with respect to
options granted to the executive officers named in the Summary Compensation
Table in the fiscal year ended December 31, 2000.
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
=========================================================================================== =====================
PERCENT OF
NUMBER OF TOTAL OPTIONS
SECURITIES GRANTED TO EXERCISE OF
UNDERLYING EMPLOYEES IN BASE PRICE
NAME OPTIONS GRANTED FISCAL YEAR ($/SHARE) EXPIRATION DATE 5% ($) 10% ($)
========================== =============== =============== ============ =============== ========= =========
Paul K. Willmott 750,000 33.3% $0.20 09/27/2010 $94,334 $239,061
Richard A. Van Horn 500,000 22.2% $0.20 09/27/2010 $62,889 $159,374
Mark S. Pelizza 500,000 22.2% $0.20 09/27/2010 $62,889 $159,374
Thomas H. Ehrlich 500,000 22.2% $0.20 09/27/2010 $62,889 $159,374
43
47
AGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following sets forth information with respect to each exercise of
stock options during the fiscal year ended December 31, 2000 and the year-end
value of unexercised options held by each of the executive officers named in
the Summary Compensation Table.
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED ON VALUE REALIZED OPTIONS AT FISCAL OPTIONS AT FISCAL
NAME EXERCISE (#) ($) YEAR END (#) YEAR END ($)
---- ------------ --- ----------------- -----------------
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
----------------- ------------------
Paul K. Willmott(1) -- -- 100,000/0 **
100,000/0 **
40,200/0 **
37,670/0 **
19,710/6,570 **
20,000/20,000 **
0/750,000 **
19,000/0 **
1,000/0 **
Richard A. Van Horn(2) -- -- 41,250/13,750 **
12,500/12,500 **
0/500,000 **
Mark S. Pelizza(3) -- -- 14,437/0 **
9,360/0 **
5,775/1,925 **
4,500/4,500 **
0/500,000 **
Thomas H. Ehrlich(4) -- -- 35,000/0 **
4,260/0 **
10,500/3,500 **
6,000/6,000 **
0/500,000 **
- ----------
** Represents an option whose grant price is above the December 31, 2000 closing
price on the Pink Sheets.
(1) Based on the closing price on the Pink Sheets on December 31, 2000 ($0.05)
less the grant prices of $4.13, $8.38, $6.88, $9.75, $7.125, $2.9375, $0.20,
$4.25 and $5.88, respectively.
(2) Based on the closing price on the Pink Sheets on December 31, 2000 ($0.05)
less the grant price of $5.50 $2.9375, and $0.20 respectively.
(3) Based on the closing price on the Pink Sheets on December 31, 2000 ($0.05)
less the grant price of $2.94, $9.75, $7.125 $2.9375, and $0.20 respectively.
(4) Based on the closing price on the Pink Sheets on December 31, 2000 ($0.05)
less the grant price of $6.94, $9.75, $7.125 $2.9375, and $0.20 respectively.
44
48
DIRECTOR COMPENSATION
Under the Company's Directors' Stock Option Plan ("Directors' Plan"),
each new non-employee director elected or appointed to the Board of Directors
for the first time is granted an option to purchase 20,000 shares of Common
Stock as of the date of such election or appointment and, upon the re-election
of a non-employee director at an annual meeting of the Company's stockholders,
such director is granted an option to purchase an additional 1,000 shares as of
the date of such election. As of December 31, 2000, a total of 71,000 shares are
reserved for issuance upon exercise of options granted under the Directors' Plan
and 50,500 shares were reserved for exercise upon the future grant of options
under the Directors' Plan.
Mr. Erdahl holds options covering 26,000 shares under the Directors'
Plan. Mr. Ireland holds options covering 25,000 shares under the Directors'
Plan. Mr. Willmott holds options covering 20,000 shares under the Directors'
Plan.
In addition, Messrs. Ireland and Erdahl each hold options to purchase
100,000 shares of Common Stock. Those options were not granted under the
Directors' Plan. On November 17, 1997, the expiration date of the options was
extended for three years until 2001 and the exercise price was increased by
$0.25 per share.
Compensation for 2000 to the non-employee directors was awarded at the
rate of $3,000 per quarter plus $1,000 per meeting attended of the Board and
committees of the Board. Each director deferred a total of $16,000 in 2000 under
the 2000-2001 Plan, which represented all of their compensation for that year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In August 1994, the Company formed a Compensation Committee to
determine the compensation of the executive officers and to set the guidelines
for compensation for the employees of the Company. During the fiscal year ended
December 31, 2000, the Compensation Committee was comprised of Leland O. Erdahl
and George R. Ireland . No member of the Compensation Committee has been or was
during the fiscal year ended December 31, 2000, an officer or employee of the
Company or any of the Company's subsidiaries. In addition, no member of the
Compensation Committee during the fiscal year ended December 31, 2000 had any
relationship requiring disclosure under the caption "Certain Relationships and
Related Transactions." No executive officer of the Company serves or served on
the compensation committee of another entity during the fiscal year ended
December 31, 2000 and no executive officer of the Company serves or served as a
director of another entity who has or had an executive officer serving on the
Compensation Committee of the Company.
COMPENSATION AGREEMENTS WITH KEY EXECUTIVES
In June 1997 the Company entered into Compensation Agreements with each
of the executive officers named in the compensation table that provide that in
the event of a change in control of the Company, the executive will have certain
rights and benefits for a period of either twenty-four or thirty-six months
following such change in control. The agreements specify that the executive will
continue to receive compensation and benefits for the remainder of the
applicable period if the Company terminates the executive or if the executive
terminates his employment following the occurrence of certain actions without
the executive's consent. However, the Company is not obligated to provide such
rights and benefits to the executive if the executive was terminated for cause.
45
49
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 12, 2001, certain
information regarding persons known by the Company to be the beneficial owner of
more than 5% of the outstanding shares of the Company's Common Stock. Shown
separately in the second table below is information regarding the beneficial
ownership of the Company's Common Stock by (i) each director of the Company,
(ii) each of the executive officers, and (iii) all directors and executive
officers as a group.
PRINCIPAL STOCKHOLDERS
AMOUNT AND NATURE OF BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS(2)
======================================================= ================================ =====================
Rudolf J. Mueller 6,787,700(3) 13.5%
c/o The Winchester Group
153 East 53rd Street, Suite 5101
New York, NY 10022
Arnold Spellun 4,062,500(4) 8.1%
529 Fifth Avenue
8th Floor
New York, NY 10017
3,987,350(5) 8.0%
Robert M. Manning
119 Cooper Ave.
Upper Montclair, NJ 07043
William D. Witter 3,750,000 7.7%
153 East 53rd Street
New York, NY 10022
Central Bank and Trust Co. Trustee of the John C. 3,500,000(6) 7.0%
Mull IRA
P.O. Box 1366
Hutchinson, KS 67504-1366
- ----------
(1) Each person has sole voting and investment power with respect to the shares
listed, unless otherwise indicated. Beneficial ownership includes shares over
which the indicated beneficial owner exercises voting and/or investment power.
(2) The shares owned by each person, and the shares included in the total number
of shares outstanding, have been adjusted, and the percentages owned have been
computed, in accordance with Rule 13d-3(d)(1) under the Securities Exchange Act
of 1934. Shares subject to options or warrants currently exercisable or
exercisable within 60 days are deemed outstanding for computing the percentage
ownership of the person holding such options or warrants, but are not deemed
outstanding for computing the percentage ownership of any other person.
(3) Includes (i) 78,300 shares owned by members of Mr. Mueller's family in which
Mr. Mueller shares voting and dispositive power, and (ii) 1,125,000 shares
obtainable at $0.14 per share pursuant to warrants that are exercisable through
August 21, 2005.
(4) Includes 937,500 shares obtainable at $0.14 per share pursuant to warrants
that are exercisable through August 21, 2005.
(5) Includes 618,750 shares obtainable at $0.14 per share pursuant to warrants
that are exercisable through August 21, 2005.
(6) Includes 750,000 shares obtainable at $0.14 per share pursuant to warrants
that are exercisable through August 21, 2005.
46
50
DIRECTORS AND EXECUTIVE OFFICERS
NAME OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS(2)
------------------------------------------ -------------------------- ---------------------
Paul K. Willmott 494,512(3) 1.0%
Leland O. Erdahl 157,323(4) 0.3%
George R. Ireland 194,073(5) 0.4%
Richard A. Van Horn 148,416(6) 0.3%
Mark S. Pelizza 320,568(7) 0.6%
Thomas H. Ehrlich 112,060(8) 0.2%
All executive officers and directors
as a group (6 persons) 1,426,952(9) 2.8%
- ----------
(1) Each person has sole voting and investment power with respect to the shares
listed, unless otherwise indicated. Beneficial ownership includes shares over
which the indicated beneficial owner exercises voting and/or investment power.
(2) The shares owned by each person, and the shares included in the total number
of shares outstanding, have been adjusted, and the percentages owned have been
computed, in accordance with Rule 13d-3(d)(1) under the Securities Exchange Act
of 1934. Shares subject to options currently exercisable or exercisable within
60 days are deemed outstanding for computing the percentage ownership of the
person holding such options, but not deemed outstanding for computing the
percentage ownership of any other person.
(3) Includes 451,249 shares that may be obtained by Mr. Willmott through the
exercise of stock options that are currently exercisable or will become
exercisable within 60 days. Does not include 954,201 shares that may be obtained
by Mr. Willmott through the exercise of stock options exercisable more than 60
days from the date hereof.
(4) Includes 124,250 shares that may be obtained by Mr. Erdahl through the
exercise of stock options that are currently exercisable or will become
exercisable within 60 days. Does not include 1,750 shares that may be obtained
by Mr. Erdahl through the exercise of stock options exercisable more than 60
days from the date hereof.
(5) Includes 123,500 shares that may be obtained by Mr. Ireland through the
exercise of stock options that are currently exercisable or will become
exercisable within 60 days. Does not include 1,500 shares that may be obtained
by Mr. Ireland through the exercise of stock options exercisable more than 60
days from the date hereof.
(6) Includes 95,083 shares that may be obtained by Mr. Van Horn through the
exercise of stock options that are currently exercisable or will become
exercisable within 60 days. Does not include 548,917 shares that may be obtained
by Mr. Van Horn through the exercise of stock options exercisable more than 60
days from the date hereof.
(7) Includes 49,047 shares that may be obtained by Mr. Pelizza through the
exercise of stock options that are currently exercisable or will become
exercisable within 60 days. Does not include 523,850 shares that may be obtained
by Mr. Pelizza through the exercise of stock options exercisable more than 60
days from the date hereof.
(8) Includes 79,660 shares that may be obtained by Mr. Ehrlich through the
exercise of stock options that are currently exercisable or will become
exercisable within 60 days. Does not include 537,800 shares that may be obtained
by Mr. Ehrlich through the exercise of stock options exercisable more than 60
days from the date hereof.
(9) Includes 922,789 shares that may be obtained through the exercise of stock
options that are currently exercisable or will become exercisable within 60
days.
47
51
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
EXTENSION OF MATURITY DATE AND ADJUSTMENT OF CONVERSION PRICE OF LINDNER LOAN
In May 1995, the Company borrowed $6,000,000 from two Lindner funds and
issued 6.5% secured convertible notes, convertible at $4.00 per share into
shares of Common Stock and maturing on May 25, 1998. In addition, the Company
issued warrants to purchase an aggregate of 1,500,000 shares of Common Stock at
an exercise price of $4.00 per share to the two Lindner Funds.
In March 1998, the Company and the Lindner Funds extended the maturity
date of the loan to May 31, 2000, reduced the conversion price to $3.00 per
share, reduced the exercise price of the warrants to $3.00 per share and
extended expiration date of the warrants to May 31, 2000. In February 2000, the
$6,000,000 loan and accrued interest of $334,000 was converted into 2,111,478
shares of the Company's Common Stock. The warrants expired unexercised on May
31, 2000 except for warrants covering 500,000 shares, which were exercised in
1996 at $4.00 per share.
48
52
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
See 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 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 Index to Exhibits on page E-1 for a listing of the exhibits that
are filed as a part of this Annual Report.
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K dated October 16, 2000 which
disclosed the Company had entered into a definitive agreement with Texas
regulatory authorities and the Company's bonding company providing access to
$2.3 million of funds to perform restoration at the Company's Kingsville Dome
and Rosita mine sites in South Texas.
The Company also disclosed that it received notification that the
Company no longer met the eligibility rules for quotation on the OTC Bulletin
Board. The Company's non-compliance resulted from the filing of its Annual
Report Form on 10-K for 1999 with unaudited financial statements. Beginning
November 14, 2000 the Company's common stock was quoted on the "Pink Sheets".
49
53
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: July 26, 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 July 26, 2001
-----------------------------------------------------
Paul K. Willmott,
Director, President and Chief Executive Officer
/s/ Thomas H. Ehrlich July 26, 2001
-----------------------------------------------------
Thomas H. Ehrlich,
Vice President - Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Leland O. Erdahl July 26, 2001
-----------------------------------------------------
Leland O. Erdahl, Director
/s/ George R. Ireland July 26, 2001
-----------------------------------------------------
George R. Ireland, Director
50
54
URANIUM RESOURCES, INC. AND CONSOLIDATED SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditor's Report............................................................................. F-2
Report of Independent Public Accountants................................................................. F-3
Consolidated Balance Sheets.............................................................................. F-4
Consolidated Statements of Operations.................................................................... F-6
Consolidated Statements of Common Shareholders' Equity................................................... F-7
Consolidated Statements of Cash Flows.................................................................... F-8
Notes to Consolidated Financial Statements............................................................... F-9
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, 2000, 1999 and
1998
II - Valuation and Qualifying Accounts and Reserves........... F-25
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
55
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Uranium Resources, Inc.
Lewisville, Texas
We have audited the accompanying consolidated balance sheets of Uranium
Resources, Inc. as of December 31, 2000 and 1999, and the related consolidated
statements of operations, changes in stockholders' equity (deficit) and cash
flows for the years then ended. These 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 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. as of
December 31, 2000 and 1999, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses due to depressed
uranium prices and future working capital requirements are dependent on the
Company's ability to generate profitable operations. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Our audits were made for the purpose of forming an opinion on the basic
financial statements for 2000 and 1999 taken as a whole. The schedule listed in
the index of financial statements is presented for purposes of complying with
Securities and Exchange Commission's rules and is not part of the basic
financial statements. The schedule as it relates to 2000 and 1999 has been
subjected to the auditing procedures applied to audits of the basic financial
statements referred to above and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
HEIN + ASSOCIATES LLP
Dallas, Texas
June 1, 2001
F-2
56
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Uranium Resources, Inc.:
We have audited the accompanying consolidated statements of operations,
shareholders' equity, and cash flows of Uranium Resources, Inc. (a Delaware
Corporation) and subsidiaries for the year ended December 31,1998. These
consolidated financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects the results of operations and cash flows of Uranium
Resources, Inc. and subsidiaries for the year ended December 31, 1998 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company has incurred operating losses in
1998 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, raise
substantial doubt concerning the ability of the Company to continue as a going
concern. The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
Our audit was made for the purpose of forming an opinion on the basic financial
statements for 1998 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 has been subjected to the
auditing procedures applied in the audit of the basic financial statements
referred to above and, in our opinion, fairly states 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-3
57
URANIUM RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
-----------------------------
2000 1999
------------ ------------
Current assets:
Cash and cash equivalents $ 212,523 $ 493,567
Receivables, net 20,883 1,155,198
Uranium inventory -- 112,901
Materials and supplies inventory 69,598 70,319
Prepaid and other current assets 19,912 45,913
------------ ------------
Total current assets 322,916 1,877,898
------------ ------------
Property, plant and equipment, at cost:
Uranium properties 99,532,193 99,400,677
Other property, plant and equipment 383,166 383,229
Less-accumulated depreciation,
depletion and impairment (99,141,105) (97,578,333)
------------ ------------
Net property, plant and equipment 774,254 2,205,573
Long-term investment:
Certificate of deposit, restricted 2,858,895 3,651,758
Other assets 4,299 4,299
------------ ------------
$ 3,960,364 $ 7,739,528
============ ============
The accompanying notes to financial statements are an integral part
of these consolidated statements.
F-4
58
URANIUM RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' DEFICIT
December 31,
----------------------------
2000 1999
------------ ------------
Current liabilities:
Accounts payable $ 199,183 $ 396,836
Notes payable -- 575,000
Accrued interest payable -- 2,336
Current portion of long-term debt 581 5,000
Royalties payable -- 64,922
Current portion of restoration reserve 83,000 83,000
Other accrued liabilities 201,281 164,646
------------ ------------
Total current liabilities 484,045 1,291,740
------------ ------------
Other long-term liabilities and deferred credits 5,010,631 6,474,680
Long-term debt, less current portion 585,000 6,372,208
Commitments and contingencies (Notes 2 and 12)
Shareholders' deficit:
Common stock, $.001 par value, shares authorized:
35,000,000; shares issued and outstanding
(net of treasury shares): 2000 - 22,740,366
1999 - 12,341,290 22,893 12,494
Paid-in capital 48,240,477 40,737,736
Accumulated deficit (50,373,264) (47,139,912)
Less: Treasury stock (152,500 shares), at cost (9,418) (9,418)
------------ ------------
Total shareholders' deficit (2,119,312) (6,399,100)
------------ ------------
$ 3,960,364 $ 7,739,528
============ ============
The accompanying notes to financial statements are an integral part
of these consolidated statements.
F-5
59
URANIUM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------
Revenues:
Uranium sales -
Produced uranium $ 121,954 $ 2,281,335 $ 10,984,040
Purchased uranium 815,148 4,973,741 12,363,274
------------ ------------ ------------
Uranium sales 937,102 7,255,076 23,347,314
Other uranium revenues 144,793 1,289,600 --
------------ ------------ ------------
Total revenues 1,081,895 8,544,676 23,347,314
Costs and expenses:
Cost of uranium sales -
Direct cost of purchased uranium 799,850 4,285,100 8,745,246
Royalties 16,626 145,690 579,439
Operating expenses 734,118 2,913,444 5,347,145
Provision for restoration and reclamation costs 12,387 234,537 692,317
Depreciation and depletion 194,021 935,056 5,922,508
Writedown of uranium properties and
other uranium assets 1,414,868 38,454,955 23,111,956
------------ ------------ ------------
Total cost of uranium sales 3,171,870 46,968,782 44,398,611
------------ ------------ ------------
Loss from operations
before corporate expenses (2,089,975) (38,424,106) (21,051,297)
Corporate expenses -
General and administrative 1,359,381 2,036,150 2,672,319
Depreciation 22,572 24,711 57,150
------------ ------------ ------------
Total corporate expenses 1,381,953 2,060,861 2,729,469
------------ ------------ ------------
Loss from operations (3,471,928) (40,484,967) (23,780,766)
Other income (expense):
Interest expense, net of capitalized interest (126,859) (226,841) (152,009)
Interest and other income, net 365,435 608,264 207,954
------------ ------------ ------------
Loss before federal income taxes (3,233,352) (40,103,544) (23,724,821)
Federal income tax provision (benefit):
Deferred -- (263,810) (4,745,000)
------------ ------------ ------------
Net loss $ (3,233,352) $(39,839,734) $(18,979,821)
============ ============ ============
Net loss per common share:
Basic
Diluted $ (0.19) $ (3.27) $ (1.57)
============ ============ ============
$ (0.19) $ (3.27) $ (1.57)
============ ============ ============
The accompanying notes to finanacial statements are an
integral part of these consolidated statements.
F-6
60
URANIUM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock
--------------------------- Paid-In Accumulated Treasury
Shares Amount Capital Earnings (Deficit) Stock
------------ ------------ ------------ ------------------ ------------
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 -- -- -- (39,839,734) --
Common stock issuance to officers
and directors for deferred compensation 288,263 289 107,813 -- --
------------ ------------ ------------ ------------------ ------------
Balances, December 31, 1999 12,341,290 $ 12,494 $ 40,737,736 $ (47,139,912) $ (9,418)
------------ ------------ ------------ ------------------ ------------
Net loss -- -- -- (3,233,352) --
Common stock issuance for
deferred compensation 67,598 68 25,282 -- --
Common stock issuance for
debt 2,111,478 2,111 6,269,635 -- --
Common stock issuance for
services 720,000 720 465,324 -- --
Common stock issuance for cash 7,500,000 7,500 742,500 -- --
------------ ------------ ------------ ------------------ ------------
Balances, December 31, 2000 22,740,366 $ 22,893 $ 48,240,477 $ (50,373,264) $ (9,418)
============ ============ ============ ================== ============
The accompanying notes to financial statements are an
integral part of these consolidated statements.
F-7
61
URANIUM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------
Cash flows from operations:
Net loss $ (3,233,352) $(39,839,734) $(18,979,821)
Reconciliation of net loss to cash provided by operations-
Provision for restoration and reclamation costs 12,387 234,537 692,317
Depreciation and depletion 216,593 959,767 5,979,658
Writedown of uranium properties and other assets 1,414,868 38,454,955 23,111,956
Credit for deferred income taxes -- (263,810) (4,745,000)
Decrease in restoration and reclamation accrual (784,220) (344,187) (69,357)
Other non-cash items, net 207,679 1,321,820 688,458
------------ ------------ ------------
Cash flow provided by (used in) operations, before
changes in operating working capital items (2,166,045) 523,348 6,678,211
Effect of changes in operating working capital items-
Decrease in receivables 1,134,315 327,608 3,024,284
Decrease in inventories 42,832 624,839 247,334
Increase in prepaid and other current assets (3,206) (150,078) (398,040)
Decrease in payables and accrued liabilities (228,276) (1,795,256) (1,350,414)
------------ ------------ ------------
Net cash provided by (used in) operations (1,220,380) (469,539) 8,201,375
Investing activities:
(Increase) decrease in investments 792,863 (2,432) (345,131)
(Additions) reductions to property, plant and equipment -
Kingsville Dome 60,734 (137,208) (2,998,871)
Rosita (159,043) (77,307) (244,290)
Vasquez (40,658) (58,607) (439,929)
Alta Mesa -- (36,679) (103,399)
Churchrock (108,274) (665,717) (1,044,948)
Crownpoint 243,255 (873,767) (876,474)
Other property (19,546) 219,168 (460,115)
Increase in other assets -- -- (27,240)
------------ ------------ ------------
Net cash provided by (used in) investing activities 769,331 (1,632,549) (6,540,397)
Financing activities:
Proceeds from borrowings -- 2,875,000 8,135,000
Payments of principal (579,995) (3,992,911) (8,407,570)
Issuance of common stock and warrants, net 750,000 -- --
------------ ------------ ------------
Net cash provided by (used in) financing activities 170,005 (1,117,911) (272,570)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (281,044) (3,219,999) 1,388,408
Cash and cash equivalents, beginning of period 493,567 3,713,566 2,325,158
------------ ------------ ------------
Cash and cash equivalents, end of period $ 212,523 $ 493,567 $ 3,713,566
============ ============ ============
The accompanying notes to financial statements are an
integral part of these consolidated statements.
F-8
62
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND DESCRIPTION OF COMPANY
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles and include the accounts of
Uranium Resources, Inc. ("URI") and its wholly owned subsidiaries (collectively
"the Company"). All significant intercompany transactions have been eliminated
in consolidation.
URI was formed in 1977 and 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. Production was ceased at
both sites in the first quarter of 1999 when each of the production facilities
were shut-in and placed on stand-by due to depressed uranium prices. Groundwater
restoration activities are currently ongoing at both Kingsville Dome and Rosita.
INVENTORIES
Uranium inventory consists of uranium concentrates (U(3)O(8) located at
the Company's Rosita and Kingsville Dome sites and also at converters awaiting
delivery to customers. All uranium inventories are valued at the lower of cost
(first-in, first-out) or market. The cost of produced uranium includes all
operating production costs, and provisions for depreciation, depletion and
future restoration obligations. Materials and supplies inventory is valued at
the lower of average cost or market.
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 Impairment and Abandonment" and "Uranium Properties -
Property Realizability"). Total exploration and evaluation costs capitalized in
2000, 1999 and 1998 were $5,000, $161,000, and $327,000, respectively.
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.
F-9
63
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
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, 2000,
1999 and 1998 amounted to $61,000, $620,000, and $704,000, respectively. Total
interest costs in these periods were $188,000, $847,000, and $856,000,
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
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. Due to net losses incurred for the three
years presented there were no dilutive securities included in any of these
years.
The weighted average number of shares used to calculate basic and
diluted loss per share were 17,335,000, 12,178,000, and 12,053,000 in 2000, 1999
and 1998, respectively. The potential common stock that was excluded from the
calculation of diluted earnings per share were 3,605,094, 2,319,690, and
2,405,021 in 2000, 1999 and 1998, respectively.
UNAMORTIZED DEBT ISSUANCE COSTS
Debt discount and related expenses arising from the issuance of debt
securities are amortized by the effective interest method.
F-10
64
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
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,
2000 1999 1998
---------- ---------- ----------
Cash paid during the period for:
Interest $ 110,000 $ 351,000 $ 567,000
The change in inventories in the Consolidated Statements of Cash Flows
during 2000, 1999 and 1998 excludes the changes in uranium inventories for
non-cash capitalized restoration and depreciation and depletion provisions. Such
decreases totaled ($71,000), ($241,000), and ($1,088,000), respectively.
Additional non-cash transactions occurred in 2000 and 1999 and such
transactions are summarized as follows:
In 2000, the Company issued approximately 68,000 shares of common stock to
certain directors in satisfaction of compensation deferred by those
individuals. $25,000
In 2000, the Company issued 720,000 shares of common stock to its
regulatory counsel in satisfaction of outstanding indebtedness. $466,000
In 2000, the Company issued approximately 2,111,000 shares of common stock for
the conversion of the convertible note and accrued interest to Lindner
Investments and Lindner Dividend Fund. $6,272,000
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
RESTRICTED CASH
At December 31, 2000 and 1999 the Company had pledged a certificate of
deposit of $2,859,000 and $3,652,000 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.
In October 2000, the Company finalized an agreement with Texas
regulatory authorities and the Company's bonding company that provided the
Company access to up to $2.2 million of Company funds pledged to secure the
Company's restoration bonds. Approximately $821,000 has been released to the
Company through December 31, 2000. The funds are being used by the Company to
perform restoration at the Company's Kingsville Dome and Rosita mine sites in
South Texas. The term of the agreement runs through the end of 2001.
F-11
65
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions. Such estimates and assumptions may affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Specifically regarding the Company's uranium properties, significant
estimates were utilized in determining the carrying value of these assets. 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.
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. Because uranium prices were depressed to a level below the cost of
production, the Company ceased production activities in 1999 at both of its two
producing properties. 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
market price of uranium continues to be below the Company's cost to produce
uranium and the price needed to obtain the necessary financing to allow
development of new production areas at the Company's South Texas sites.
During 2000, the Company sought to raise funds to permit it to continue
operations until such time uranium prices increase to a level that will permit
the Company to resume mining operations. In August 2000 and April 2001 the
Company completed two private placements raising an aggregate of $2,835,000
through the issuance of 33,562,500 shares of common stock and warrants expiring
in August 2005 to purchase an additional 5,625,000 shares of Common Stock. As
adjusted for the April offering, the exercise price of the warrants is $0.14 per
share. The funds raised in the private placements are to be used to fund the
non-restoration overhead costs of the Company. The shares issued in the private
placements represent approximately 69% of the outstanding Common Stock of the
Company. The completion of the private placements resulted in a significant
dilution of the current stockholders' equity in the Company.
In addition, in October 2000, the Company finalized an agreement with
Texas regulatory authorities and the Company's bonding company that provided the
Company access to up to $2.2 million in additional funding. Approximately
$1,527,000 has been released to the Company through March 31, 2001 to perform
restoration at the Company's Kingsville Dome and Rosita mine sites in South
Texas. The term of the restoration agreement runs through the end of 2001.
Assuming that the Company is able to continue funding its restoration
of the Kingsville Dome and Rosita mine sites through extensions to its agreement
with Texas regulatory authorities and the Company's bonding company, the Company
estimates it will have the funds to remain operating into approximately mid to
late 2002. Additional funds will be required for the Company to continue
operating after that date.
F-12
66
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
The Company's current agreement with the Texas regulatory authorities and its
bonding company extends through 2001. The Company cannot guarantee that it will
be able to extend such agreement beyond 2001, or that any extension of the
agreement that is negotiated will contain the same terms and conditions.
The Company would require additional capital resources to fund the
development of its undeveloped properties. There is no assurance the Company
will be successful in raising such capital or that uranium prices will recover
to levels which would enable the Company to operate profitably. These factors,
raise substantial doubt concerning the ability of the Company to continue as a
going concern.
3. URANIUM PROPERTIES
PROPERTY REALIZABILITY
The Company's potential illiquidity has necessitated a reevaluation of
the Company's method of valuing its uranium properties for accounting purposes
as of December 31, 1999 and 2000. Prior to the fourth quarter of 1999, the
Company had 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. Under this method, the Company reduced the
carrying value of its uranium properties by $38.4 million in 1999 and $1.4
million in 2000 with a corresponding charge against earnings, resulting in a
deficit shareholders' equity of $2.1 million at December 31, 2000.
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 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.
Cost of uranium sales in 1999 and 2000 in the Consolidated Statements
of Operations includes $1,088,000 and $500,000, respectively of costs incurred
to maintain the facility while Kingsville Dome was on standby and not in
production. At December 31, 2000, the Company believes that the property
contains a significant amount of undeveloped uranium resource. The Company
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 and $104,000 in 1999 and 2000,
respectively for the Kingsville Dome property. The net carrying value of the
property was approximately $389,000 at December 31, 2000.
F-13
67
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
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. 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.
Cost of uranium sales in 1999 and 2000 in the Consolidated Statements
of Operations includes $527,000 and $272,000, respectively 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 and $62,000 in 1999 and 2000,
respectively for the Rosita property. The net carrying value of the property at
December 31, 2000 was approximately $277,000.
VASQUEZ PROPERTY
The Company holds two mineral leases on 842 gross and net acres located
in southwestern Duval County, in south Texas.
The secondary lease term for this property expired in February 2000.
URI tendered payment under the shut-in royalty clause of the lease in 2000 and
2001 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
for 2000 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.
All of the required permits to begin uranium production for this
property have been received from the Texas Natural Resource Conservation
Commission and the Texas Department of Health.
The Company 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 $1,332,000 and $900,000
in 1999 and 2000, respectively for the Vasquez property. The net carrying value
of the property was written down to zero at December 31, 2000.
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.
F-14
68
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
In September 1991, an additional 200 acres of leases were obtained in
exchange for a future production royalty payment which, based upon the expected
selling price of the uranium production, may vary between 5% and 10%.
Permitting activities are currently ongoing on both of these
properties. The net carrying value of these properties were written down to
zero. Such writedown resulted in a pre-tax charge against earnings of
approximately $9,624,000 and $109,000 in 1999 and 2000, respectively.
CROWNPOINT PROPERTY
In August 1988, the Company acquired the Crownpoint property,
consisting of 163 acres of leases and related equipment and buildings for cash
payments of $550,000, amounts payable in future years of $950,000 and a sliding
scale overriding royalty on future production. The present value of the future
payable amount, $407,054 at December 31, 1996, is recorded as a purchase money
obligation. Additionally, also in 1988, the Company staked 321 acres of claims
in the same area. In August 1993, the Company acquired approximately 959 acres
of leases adjoining the Crownpoint properties. The net carrying value of these
properties were written down to approximately $61,000 at December 31, 2000. Such
writedown resulted in a pre-tax charge against earnings of approximately
$9,919,000 and $200,000 in 1999 and 2000, respectively.
SANTA FE PROPERTIES
In March 1998 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 1998 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. Such writedown resulted in a pre-tax charge against
earnings of approximately $11,547,000 and $18,000 in 1999 and 2000,
respectively.
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
F-15
69
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
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.
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.
All uranium sales revenues for the twelve months ended December 31,
2000 were from sales to one customer for a total of $937,000. 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 four 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.
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
was secured by the Company's uranium inventory and/or its receivables from its
uranium sales contracts with interest
F-16
70
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
on the loan accruing at the prime rate plus 1%. In 2000 the facility expired and
all remaining principal and interest payments were made.
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, 2000, these
certain other financial advisors have exercised 62,500 shares of warrants under
the agreement and 37,500 shares of warrants have expired.
In March 1998, the Company entered into an agreement with the Lender to
extend the maturity date of the Lindner Note to May 31, 2000. The note 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. All costs
associated with these warrants have 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. The
remaining warrants expired unexercised on May 31, 2000.
BENTON CONVERTIBLE NOTE
During 1994, the Company engaged in certain transactions with companies
controlled by Mr. Oren L. Benton (the "Benton Companies"). In 1995, Benton and
various of the Benton Companies filed for protection under Chapter 11 of the
Federal Bankruptcy Code (the "Benton Bankruptcy"). In 1998 the Trustee sought
recovery of approximately $1.6 million of payments made by certain of the Benton
Companies to the Company, claiming that the payments and advances were avoidable
as preferential and/or fraudulent transfers. On July 17, 2000, the parties
entered into a settlement agreement whereby the Company issued a $135,000
Convertible Note due July 17, 2005, assigned its rights under a $65,000
Promissory Note from Benton and assigned certain claims against Union Bank of
Switzerland in settlement of the complaint. Interest on the Convertible Note is
due at maturity and the Note bears interest at a rate of 6% per annum. The
Company may prepay the Note at any time and the holder of the Note may convert
all principal and accrued interest into shares of the Company's common stock at
a conversion price of $0.75 per share.
F-17
71
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
SUMMARY OF LONG-TERM DEBT
At December 31,
---------------------------
2000 1999
------------ ------------
Long-term debt of the Company consists of:
Lindner Note $ -- $ 5,921,632
Crownpoint property (Note 3) 450,000 450,000
Benton Convertible Note 135,000 --
Other 581 5,576
------------ ------------
585,581 6,377,208
Less - Current portion 581 5,000
------------ ------------
Total long-term debt $ 585,000 $ 6,372,208
============ ============
Maturities of long-term debt are as follows:
For the Twelve Months Ended: For the Twelve Months Ended:
- ---------------------------- ----------------------------
December 31, 2001 $ 581 December 31, 2004 $ --
December 31, 2002 -- December 31, 2005 and beyond 585,000
December 31, 2003 --
7. RELATED-PARTY TRANSACTIONS
During 1994, the Company engaged in certain transactions with companies
controlled by Mr. Oren L. Benton (the "Benton Companies") as described in Note
6.
8. SHAREHOLDERS' EQUITY
COMMON STOCK
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.
Common Stock Issued in 2000
In 2000, the Company issued 67,598 shares of common stock to certain
directors of the Company in connection with the Plan in satisfaction of
compensation deferred by those individuals.
In August 2000, the Company raised $750,000 of equity by the issuance
of 7.5 million shares of Common Stock at $0.10 per share to a group of private
investors. The investors were also issued five-year warrants to purchase an
aggregate of 5,475,000 shares of Common Stock at an exercise price of $0.14 per
share that are exercisable through August 2005.
F-18
72
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
Increase in Authorized Shares
In March 2001 the Company's stockholders approved an amendment to the
Company's Restated Certificate of Incorporation to increase the authorized
shares of Common Stock, par value $0.001 per share (the "Common Stock"), from
35,000,000 to 100,000,000. Stockholders also approved an amendment to the
Company's 1995 Stock Incentive Plan (the "1995 Plan") to increase the number of
shares of the Company's Common Stock eligible for issuance under the 1995 Plan
from 1,250,000 shares to 4,000,000 shares.
Settlement of Regulatory Counsel Indebtedness
The Company reached a compromise with its regulatory counsel settling
an outstanding indebtedness of approximately $566,000 for a payment of $100,000
in cash, the assignment of certain claims, the issuance of 720,000 shares of
Common Stock and an agreement to issue up to an additional 200,000 shares upon
the occurrence of certain events.
Lindner Note Conversion
In February 2000, the Company converted the Lindner Note as discussed
in Note 6, into 2,111,478 shares of common stock. See Note 6 - Long-Term Debt
"Lindner Note" for further discussion.
Financial Advisors' Options
On May 25, 1995, the Company granted options to purchase 50,000 shares
at an initial conversion price of $4.00 per share to certain financial advisors
associated with the Lindner Note transaction. 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, 2000 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, 2000.
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-19
73
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
9. STOCK-BASED COMPENSATION PLANS
The Company has three stock option plans, the Employees' Stock Option
Plan, the Stock Incentive Plan and the Directors' Stock Option Plan. The Company
accounts for these plans under APB Opinion No. 25, under which no compensation
cost has been recognized. Had compensation cost for these plans been determined
consistent with FASB Statement No. 123 ("FAS 123"), the Company's net loss and
loss per share ("EPS") for the years ended December 31, 2000, 1999 and 1998
would have been adjusted to the following pro forma amounts:
2000 1999 1998
----------- ------------ ------------
Net Loss: As reported $(3,233,352) $(39,839,734) $(18,979,821)
Pro forma $(3,338,649) $(40,545,062) $(19,684,005)
Basic EPS: As reported $ (0.19) $ (3.27) $ (1.57)
Pro forma $ (0.19) $ (3.33) $ (1.63)
Diluted EPS: As reported $ (0.19) $ (3.27) $ (1.57)
Pro forma $ (0.19) $ (3.33) $ (1.63)
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 2000, 1999 and 1998, respectively: expected
volatility of 99%, 88% and 68% and risk-free interest rates of 6.5%, 6.0% and
5.6%. An expected life of 5.7, and 5.2 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 71,000 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, 2000, there are 2,603,645 options outstanding under the Stock
Incentive Plan. During 2000 the Company's board of directors elected to increase
the available options under the Stock Incentive Plan to 4,000,000, subject to
stockholder approval. Such approval was received in March 2001.
F-20
74
Additional details about the options granted under the stock option plans are as
follows:
---------------------------------------------------------
At December 31, 2000
---------------------------------------------------------
Options
Exercise Options Available Options Options Options
Date of Grant Price Granted for Exercise Exercised Canceled Outstanding
------------- ---------- ---------- ------------ ------------ ------------ ------------
January 15, 1992 $ 2.94 617,248 17,937 327,625 271,686 17,937
May 22, 1992 $ 3.00 2,000 -- 1,000 1,000 --
-------- ---------- ------------ ------------ ------------ ------------
Balances at December 31, 1992 619,248 17,937 328,625 272,686 17,937
-------- ---------- ------------ ------------ ------------ ------------
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 17,937 331,625 281,686 17,937
-------- ---------- ------------ ------------ ------------ ------------
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 58,937 332,625 402,686 58,937
-------- ---------- ------------ ------------ ------------ ------------
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 40,200 -- 87,308 40,200
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 1,319,756 366,137 332,625 620,994 366,137
-------- ---------- ------------ ------------ ------------ ------------
February 22, 1996 $ 9.75 178,810 70,240 -- 108,570 70,240
May 29, 1996 $17.00 3,000 2,000 -- 1,000 2,000
May 30, 1996 $16.13 75,000 -- -- 75,000 --
July 22, 1996 $11.13 50,000 -- -- 50,000 --
-------- ---------- ------------ ------------ ------------ ------------
Balances at December 31, 1996 1,626,566 438,377 332,625 855,564 438,377
-------- ---------- ------------ ------------ ------------ ------------
February 10, 1997 $ 7.125 182,405 55,432 -- 108,500 73,905
April 1, 1997 $ 5.50 55,000 41,250 -- -- 55,000
May 1, 1997 $ 5.00 3,000 1,500 -- 1,000 2,000
-------- ---------- ------------ ------------ ------------ ------------
Balances at December 31, 1997 1,866,971 536,559 332,625 965,064 569,282
-------- ---------- ------------ ------------ ------------ ------------
February 23, 1998 $ 2.9375 172,000 59,750 -- 52,500 119,500
June 5, 1998 $ 2.50 3,000 1,000 -- 1,000 2,000
-------- ---------- ------------ ------------ ------------ ------------
Balances at December 31, 1998 2,041,971 597,309 332,625 1,018,564 690,782
-------- ---------- ------------ ------------ ------------ ------------
June 18, 1999 $ 2.50 2,000 500 -- -- 2,000
-------- ---------- ------------ ------------ ------------ ------------
Balances at December 31, 1999 2,043,971 597,809 332,625 1,018,564 692,782
-------- ---------- ------------ ------------ ------------ ------------
September 27, 2000 $ 0.20 2,250,000 -- -- -- 2,250,000
======== ========== ============ ============ ============ ============
Balances at December 31, 2000 4,293,971 597,809 332,625 1,018,564 2,942,782
======== ========== ============ ============ ============ ============
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. The
weighted average fair value of options granted in 2000, 1999 and 1998 were
$0.15, $0.19 and $1.83, respectively.
F-21
75
10. FEDERAL INCOME TAXES
The deferred federal income tax liability (asset) consists of the
following:
December 31,
----------------------------
2000 1999
------------ ------------
Depletion and impairment charges $(10,396,000) $(10,897,000)
for books in excess of tax
Accelerated depreciation 114,000 108,000
Restoration reserves (1,517,000) (1,780,000)
Valuation allowance and other - net 11,799,000 12,569,000
------------ ------------
Total deferred income tax liability $ 0 $ 0
============ ============
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,
--------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------- ---------------------------- -------------------------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
------ ------ ------ ------ ------ ------
Pretax loss $ (3,233,352) $ (40,103,544) $ (23,724,821)
------------- ------------- ------------- ---------- ------------- -------------
Pretax loss times
statutory tax rate (34.0)%
(1,099,000) (34)% (13,635,000) (34)% (8,066,000)
Effect on taxes
resulting from:
Depletion & impairment
1,099,000 34% 13,635,000 34% 8,066,000 34.0%
Alternative minimum
tax 0%
0 (263,810) (0.7)% (4,745,000) 0.0%
------------- ------------- ------------- ---------- ------------- -------------
Income tax benefit $ 0 0.% $ (263,810) (0.7)% $ (4,745,000) (20)%
============= ============= ============= ========== ============= =============
The Company's net operating loss carryforwards generated in 2000 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, 2000, approximately $45,418,000 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 $1,115, $3,348 and $42,000 from prior year's federal
income payments in 2000, 1999 and 1998, respectively.
The Company also has available for regular federal income tax purposes
at December 31, 2000 estimated net operating loss (NOL) carryforwards of
approximately $36,793,000 which expire primarily in 2004 through 2020, if not
previously utilized. Following the sale of stock in 2001 described in Note 2,
use of the Company's NOL will be severely limited on an annual and aggregate
basis. For this reason, the NOL is not included as a deferred tax asset in the
table above.
F-22
76
11. OTHER LONG-TERM LIABILITIES AND DEFERRED CREDITS
Other long-term liabilities and deferred credits on the balance sheet consisted
of:
December 31,
-----------------------
2000 1999
---------- ----------
Reserve for future restoration and reclamation costs,
net of current portion of $83,000 in
2000 and 1999 (Note 1) $4,270,655 $5,054,497
Long-term accounts and interest payable 3,696 811,943
Royalties payable 500,000 500,000
Deferred compensation 236,280 108,240
---------- ----------
$5,010,631 $6,474,680
========== ==========
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, 2000 due to the Company's financial position and
its inability to secure comparable financing.
F-23
77
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
2000 Quarters (In thousands)
1st 2nd 3rd 4th Total
-------- -------- -------- -------- --------
Net Sales $ 1,082 $ 0 $ 0 $ 0 $ 1,082
-------- -------- -------- -------- --------
Gross margin (411) (383) (253) (1,043) (2,090)
-------- -------- -------- -------- --------
Net income (loss) (843) (599) (580) (1,211) (3,233)
-------- -------- -------- -------- --------
Net income (loss) per common share:
-------- -------- -------- -------- --------
Basic and diluted (0.06) (0.04) (0.03) (0.06) (0.19)
-------- -------- -------- -------- --------
Weighted average common shares outstanding:
-------- -------- -------- -------- --------
Basic and diluted 13,556 14,520 18,452 22,740 17,335
-------- -------- -------- -------- --------
1999 Quarters (In thousands)
1st 2nd 3rd 4th Total
-------- -------- -------- -------- --------
Net Sales $ 2 $ 1,036 $ 4,418 $ 3,089 $ 8,545
-------- -------- -------- -------- --------
Gross margin (491) (721) 1,356 (38,568) (38,424)
-------- -------- -------- -------- --------
Net income (loss) (786) (1,141) 952 (38,865) (39,840)
-------- -------- -------- -------- --------
Net income (loss) per common share:
-------- -------- -------- -------- --------
Basic and diluted (0.07) (0.09) 0.08 (3.19) (3.27)
-------- -------- -------- -------- --------
Weighted average common shares outstanding:
-------- -------- -------- -------- --------
Basic and diluted 12,053 12,055 12,257 12,341 12,178
-------- -------- -------- -------- --------
F-24
78
SCHEDULE II
URANIUM RESOURCES, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
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, 2000:
Accrued restoration costs ....... $ 5,137,497 $ 12,387 $ 12,007(b) $ 784,222 $ 4,353,655(c)
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)
- ----------
(a) Deductions represent costs incurred in the restoration process.
(b) Increase 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, 2000, 1999 and
1998 are $83,000, $83,000, and $324,000, respectively.
F-25
79
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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* Certificate Amendment to the Certificate of Incorporation dated
June 22, 1999 (filed with the Company's Quarterly Report on Form
10-Q dated August 12, 1999).
3.3* Restated Bylaws of the Company (filed with the Company's Form
S-3 Registration No. 333-17875 on December 16, 1996).
3.4 Certificate Amendment to the Certificate of Incorporation dated
March 23, 2001.
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* 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).
10.7* 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)
10.8* 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).
10.9* 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)
80
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.10* 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) .
10.11* 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).
10.12* 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).
10.13* Compensation Agreement dated June 2, 1997 between the Company
and Richard A. Van Horn (filed with the Company's Annual Report
on Form 10-K dated March 27, 1998).
10.14* 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).
10.15* 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).
10.16* Uranium Resources, Inc. 1999 Deferred Compensation Plan (filed
with the Company's Annual Report on Form 10-K dated March 31,
1999).
10.17* Note Exchange Agreement dated June 30,1999 between the Company
and Lindner Investments (filed with the Company's Quarterly
Report on Form 10-Q dated August 12, 1999).
10.18 Kingsville Dome and Rosita Mines Agreement dated October 11,
2000 between the Company, the Texas Natural Resources
Conservation Commission, the Texas Department of Health and the
United States Fidelity & Guaranty Company.
10.19 Common Stock Purchase Agreement dated February 28, 2001 between
the Company and Purchasers of the Common Stock of the Company.
* Incorporated by reference pursuant to Rule 12b-32 under the Securities
and Exchange