WESTERN URANIUM & VANADIUM CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)
The information disclosed in this quarterly report, and the information incorporated by reference herein, include "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements include, but are not limited to, statements regarding our or our management's expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "possible," "potential," "predict," "project," "should," "would" and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. The forward-looking statements contained or incorporated by reference in this quarterly report are based on our current expectations and beliefs concerning future developments and their potential effects on us and speak only as of the date of each such statement. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in this Item 2 of Part I and Item 1A of Part II of this quarterly report. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
The following discussion should be read in conjunction with our condensed consolidated interim financial statements and accompanying footnotes contained in this quarterly report.
Western Uranium & Vanadium Corp.("Western" or the "Company", formerly Western Uranium Corporation) was incorporated in December 2006under the OntarioBusiness Corporations Act. On November 20, 2014, the Company completed a listing process on the Canadian Securities Exchange ("CSE"). As part of that process, the Company acquired 100% of the members' interests of Pinon Ridge Mining LLC("PRM"), a Delawarelimited liability company. The transaction constituted a reverse takeover ("RTO") of Western by PRM. Subsequent to obtaining appropriate shareholder approvals, the Company reconstituted its board of directors and senior management team. Effective September 16, 2015, Western completed its acquisition of Black Range Minerals Limited("Black Range"). On August 18, 2014, the Company closed on the purchase of certain mining properties in Coloradoand Utahfrom Energy Fuels Holding Corp.Assets purchased included both owned and leased lands in Utahand Colorado, and all represent properties that have been previously mined for uranium to varying degrees in the past. The acquisition included the purchase of the Sunday Mine Complex. The Sunday Mine Complexis located in western San Miguel County, Colorado. The complex consists of the following five individual mines: the Sunday mine, the Carnation mine, the Saint Judemine, the West Sunday mine and the Topaz Mine. The operation of each of these mines requires a separate permit, and all such permits have been obtained by Western. In addition, each of the mines has good access to a paved highway, electric power to existing declines, office/storage/shop and change buildings, and an extensive underground haulage development with several vent shafts complete with exhaust fans. The Sunday Mine Complexis the Company's core resource property and in July 2021status was changed to "Active" when mining operations were restarted. On September 16, 2015, Western completed its acquisition of Black Range, an Australian company that was listed on the Australian Securities Exchangeuntil the acquisition was completed. The acquisition terms were pursuant to a definitive Merger Implementation Agreement entered into between Western and Black Range. Pursuant to the agreement, Western acquired all of the issued shares of Black Range by way of Scheme of Arrangement ("the Scheme") under the Australian Corporation Act 2001 (Cth) (the "Black Range Transaction"), with Black Range shareholders being issued common shares of Western on a 1 for 750 basis. On August 25, 2015, the Scheme was approved by the shareholders of Black Range, and on September 4, 2015, Black Range received approval by the Federal Court of Australia. In addition, Western issued options to purchase Western common shares to certain employees, directors, and consultants. Such stock options were intended to replace Black Range stock options outstanding prior to the Black Range Transaction on the same 1 for 750 basis. The Company has registered offices at 330 Bay Street, Suite 1400, Toronto, Ontario, Canada, M5H 2S8, and its common shares are listed on the CSE under the symbol "WUC" and are traded on the OTCQX Best Market under the symbol "WSTRF". Its principal business activity is the acquisition and development of uranium and vanadium resource properties in the states of Utahand Coloradoin the United States of America("United States"). 17 Recent Developments
The SMC project entailed the development of multiple SMC ore bodies and involves a shift in the base of operations from the
St. Jude Mine(2019) to the Sunday Mine(2021). Underground development began in August 2021following mine ventilation, power upgrades, and increasing explosive capabilities. The first target was the extension of the drift (tunnel) 150 feet to reach the first surface exploration drill hole to access the GMG Ore Body (GMG). Early results were positive as drilling toward the GMG resulted in the location of ore-grade material within thirty feet of the existing mine workings. Notably, only limited exploration drilling has been done in this area due to the mountainous terrain on the surface above. As drifting proceeded, very high-grade ore continued to be intersected through the drift path and on both sides of the drift. As a result, the team shifted from development to mining. From December 2021to March 2022, over 3,000 tons of high-grade uranium/vanadium ore was mined from the drift based upon on site scintillometer readings. At the end of March 2022, the mining contractor engaged by Western decided to retire from contract mining operations. As a result, Western scaled back operations to focus on building an in-house mining capability.
Subsequently, the Company completed the construction of its internal mining capacity.
$1,000,000was spent on the acquisition, upgrading, and maintenance of a fleet of used/new mining equipment and vehicles. Additional employees have been hired for the first mining team and facilities have been upgraded. This first in-house mining team has been fully outfitted and readied for deployment. The initial project will focus on additional development of the GMG Ore body. This will involve ore production and stockpiling of high-grade ore and underground drilling /exploration to define additional production zones. The next project will be similar in scope and focus on the St. Jude Minetarget areas defined during the 2019/2020 work project. Mining operations are targeted to restart in January 2023.
January 20, 2022, the Company closed on a non-brokered private placement of 2,495,575 units at a price of CAD $1.60per unit. The aggregate gross proceeds raised in the private placement amounted to CAD $3,992,920. Each unit consisted of one common share of Western plus one common share purchase warrant of Western. Each warrant entitled the holder to purchase one common share at a price of CAD $2.50per share for a period of three years following the closing date of the private placement. A total of 2,495,575 common shares and 2,495,575 warrants were issued to investors, and 98,985 warrants were issued to broker dealers in connection with the private placement.
Strategic acquisition of physical uranium
May 2021, the Company executed a binding agreement to purchase 125,000 pounds of natural uranium concentrate at approximately $32per pound. In December 2021, the Company paid $4,044,083in connection with its full prepayment of the purchase price for 125,000 pounds of natural uranium concentrate. This uranium concentrate was subsequently delivered and sold under the terms of the uranium supply agreement in the second quarter of 2022.
Uranium Supply Agreement Delivery
In the second quarter of 2022, in satisfaction of the Year 5 delivery under our supply contract, we delivered and sold 125,000 lbs of uranium concentrate from our prepaid uranium concentrate inventory. Accordingly, during the nine months ended
September 30, 2022, we recorded revenue of $7,223,609(at a price of approximately $57per pound) and cost of revenue of $4,044,083related to this uranium delivery.
Bullen property (
The Bullen Property is an oil and gas property located in
Weld County Colorado. The Company acquired this non-core property in 2015 in the Black Range Minerals Limitedacquisition, and Black Range purchased the property in 2008 for its
Keota Uranium Project. 18 In 2017, the Company signed a three year oil and gas lease which in 2020 was extended for an additional three year term or until the end of continuous operations. The consideration was in the form of upfront bonus payments and a backend 3/16th production royalty payment. Additional right-of-way easement agreements were signed which allowed for the development of a pipeline. The lease agreement allows the Company to retain property rights to vanadium, uranium, and other mineral resources. A 2019 lawsuit was filed in the Weld County District Courtover the original Bullen Property deed language which was negotiated before the Company acquired Black Range by prior management and a bank representing the estate of the property owner. The Company settled with the plaintiffs by awarding the estate's beneficiaries a non-participating royalty interest of 1/8th for all hydrocarbon and non-hydrocarbon substances that are produced and sold from the property. In early 2020, the operator filed an application with the Colorado Oil & Gas Conservation Commission("COGCC") to update the permit to create a new pooled unit. Subsequently, during 2021, the operator advanced through the oil well production stages: drilling was completed in the first quarter, wellfield completion/fracking was completed during the second quarter, drill out was completed in July, and flowback was completed in August. By August 2021, each of the eight (8) wells had commenced oil and gas production. The first royalty payment was made in January 2022and monthly royalty payments have been received subsequently. Due to the success of the first 8 wells which were developed in 2021, the operator decided to develop a second set of 8 wells within Western's royalty area during 2022. The 2022 well installation was on a timeline which ran slightly behind the 2021 wells. However, by August 2022, each of the eight (8) new wells had come online; September 2022was the new well pad's first full month of production. The first royalty payment will be made in the first quarter of 2023. During the three months ended September 30, 2022and 2021, we recognized aggregate revenue of $108,547and $16,155, respectively, and for the nine months ended September 30, 2022and 2021, we recognized aggregate revenue of $387,810and $48,465, respectively, under these oil and gas lease arrangements. On January 31, 2022, the operator of the Weld County Coloradooil and gas pooled trust issued the first cumulative royalty payment in the amount of $207,552for August 2021through December 2021sales, which was recognized as income in
the fourth quarter of 2021. 19
Sunday Mine Complex Permit Status
February 4, 2020, the Colorado DRMS sent a Notice of Hearing to Declare Termination of Mining Operations related to the status of the mining permits issued by the state of Coloradofor the Sunday Mine Complex. At issue was the application of an unchallenged Colorado Court of Appeals Opinionfor a separate mine (Van 4) with very different facts that are retroactively modifying DRMS rules and regulations. The Company maintains that it was timely in meeting existing rules and regulations. The hearing was scheduled to be held during several monthly MLRB Board meetings, but this matter was delayed several times. The permit hearing was held during the MLRB Board monthly meeting on July 22, 2020. At issue was the status of the five existing permits which comprise the Sunday Mine Complex. Due to COVID-19 restrictions, the hearing took place utilizing a virtual-only format. The Company prevailed in a 3-to-1 decision which acknowledged that the work completed at the Sunday Mine Complexunder DRMS oversight was timely and sufficient for Western to maintain these permits. In a subsequent July 30, 2020letter, the DRMS notified the Company that the status of the five permits (Sunday, West Sunday, St. Jude, Carnation, and Topaz) had been changed to "Active" status effective June 10, 2019, the original date on which the change of the status was approved. On August 23, 2020, the Company initiated a request for Temporary Cessation status for the Sunday Mine Complexas the mines had not been restarted within a 180-day window due to the direct and indirect impacts of the COVID-19 pandemic. Accordingly, a permit hearing was scheduled for October 21, 2020to determine Temporary Cessation status. In a unanimous vote, the MLRB approved Temporary Cessation status for each of the five Sunday Mine Complexpermits (Sunday, West Sunday, St. Jude, Carnation, and Topaz). On October 9, 2020, the MLRB issued a board order which finalized the findings of the July 22, 2020permit hearing. On November 12, 2020, a coalition of environmental groups filed a lawsuit against the MLRB seeking a partial appeal of the July 22, 2020decision by requesting termination of the Topaz mine permit. On December 15, 2020, the same coalition of environmental groups amended their complaint against the MLRB seeking a partial appeal of the October 21, 2020decision requesting termination of the Topaz mine permit. The Company has joined with the MLRB in defense of their July 22, 2020and October 21, 2020decisions. On May 5, 2021, the Plaintiff in the Topaz Appeal filed an opening brief with the Denver District Courtseeking to overturn the July 22, 2020and October 21, 2020MLRB permit hearing decisions on the Topaz mine permit. The MLRB and the Company were to respond with an answer brief within 35 days on or before June 9, 2021, but instead sought a settlement. The judicial review process was delayed as extensions were put in place until August 20, 2021. A settlement was not reached and the MLRB and the Company submitted answer briefs on August 20, 2021. The Plaintiff submitted a reply brief on September 10, 2021. On March 1, 2022, the Denver District Courtreversed the MLRB's orders regarding the Topaz Mineand remanded the case back to MLRB for further proceedings consistent with its order. The Company and the MLRB had until April 19, 2022to appeal the Denver District Court'sruling. Neither the Company nor the MLRB appealed the Denver District Courtruling. Western anticipates receiving an MLRB board order of reclamation for the Topaz Mine. The Company is continuing to work toward the completion of an updated Topaz Mine Plan of Operations which is a separate federal requirement of the BLM for the conduct of mining activities on the federal land at the Topaz Mine.
During 2016, the Company submitted documentation to the
Colorado Department of Public Health and Environment("CDPHE") for a determination ruling regarding the type of license which may be required for the application of Kinetic Separation at the Sunday Mine Complexwithin the state of Colorado. During May and June of 2016, CDPHE held four public meetings in several cities in Coloradoas part of the process. On July 22, 2016, CDPHE closed the comment period. In connection with this matter, the CDPHE consulted with the NRC. In response, the CDPHE received an advisory opinion, dated October 16, 2016, which did not contain support for the NRC's opinion and with which the Company's regulatory counsel does not agree. NRC's advisory opinion recommended that Kinetic Separation should be regulated as a milling operation but did recognize that there may be exemptions to certain milling regulatory requirements because of the benign nature of the non-uranium bearing sands produced after Kinetic Separation is completed on uranium-bearing ores. On December 1, 2016, the CDPHE issued a determination that the proposed Kinetic Separation operations at the Sunday Mine Complexmust be regulated by the CDPHE through a milling license. Beginning in 2017, the Company's regulatory counsel prepared significant documentation in preparation for a prospective submission. On September 13, 2019, the Company's regulatory counsel submitted a white paper to the NRC entitled "Recommendations on the Proper Legal and Policy Interpretation for Using Kinetic Separation Processes at Uranium Mine Sites." On July 24, 2020, the NRC staff responded with a letter in support of the original conclusion. Western's regulatory counsel has proposed alternatives. However, management has decided not to proceed at this time, given its present opportunity set. 20
Uranium and Nuclear Fuel Section 232 Inquiry Task Force Process
An investigation under Section 232 of the Trade Expansion Act of 1962 was undertaken by the
Department of Commercein 2018 to assess the impact to national security of the importation of uranium utilized by civilian nuclear reactors within the United States. In response to the Section 232 report, the Trump White Houseformed the Nuclear Fuel Working Group("NFWG") to find solutions for reviving and expanding domestic nuclear fuel production and reinvigorating recommendations. In April 2020, the U.S. Department of Energy(DoE) released the NFWG report entitled "Restoring America's Competitive Nuclear Energy Advantage - A strategy to assure U.S.national security." The report outlines a strategy for the reestablishment of critical capabilities and direct support to the front end of the U.S.domestic nuclear fuel cycle. In July 2021, the uranium Section 232 report was publicly released. The report concluded that uranium imports were "weakening our internal economy" and "threaten to impair the national security" and recommended immediate actions to "enable U.S.producers to recapture and sustain a market share of U.S.uranium consumption". A number of the initiatives have been subsequently implemented. Most recently, in December 2020, U.S. Congresspassed the "COVID-Relief and Omnibus Spending Bill," which included $75 millionfor the establishment of a strategic U.S.Uranium Reserve. In June 2022, the DoE released program guidelines to initiate purchases of $75 millionof domestic uranium inventory which is already in storage at the Honeywell Metropolis Works uranium conversion facility in Illinois USA. RFP submissions were due by August 1, 2022, and awards were expected to be announced within 60 days, but have been delayed several times and not yet been made public. Western did not hold any qualifying inventory, so
the Company didn't submit an RFP.
Most notably the results of the Section 232 and NFWG processes provided an advance warning as to the national security risks of nuclear fuel cycle dependency upon
Russiaand its former Soviet republics. With Russia'sinvasion of Ukraine, the actual risk level is now understood to be of a greater magnitude than reported. Further, the cumulative market distortions of competing against state-sponsored entities for decades has caused countries across the world to seek government remedies to level the playing field. Any actions taken to remove pricing distortions from uranium markets are a positive outcome for U.S.uranium miners.
Vanadium Section 232 Investigation
the United States, a petition for an investigation under Section 232 of the Trade Expansion Act of 1962 was requested by two domestic companies in November 2019. In June of 2020, the U.S.Secretary of Commerce, Wilbur Ross, initiated an investigation into whether the present quantities or circumstances of vanadium imports into the United Statesthreaten to impair the national security. The Section 232 National Security Investigation of Imports of Vanadium was concluded, and a report was submitted to President Bidenin February 2021. In July 2021, the report was made public. It concluded that vanadium imports "do not threaten to impair the national security as defined in Section 232," but identified and recommended "several actions that would help to ensure reliable domestic sources of vanadium and lessen the potential for imports to threaten national security." No action has been taken on these recommendations.
Initiatives of the Biden-Harris administration
The positive momentum has continued for the nuclear and uranium mining sector due to the
Biden-Harris Administration'semphasis on climate change. Upon taking office, the Biden team immediately rejoined the Paris Agreement and continued its pursuit of campaign promises of investments in clean energy, creating jobs, producing clean electric power, and achieving carbon-free energy in electricity generation by 2035. Since taking office, President Bidenhas given all agencies climate change initiatives. The existing U.S.nuclear reactor fleet currently produces in excess of 50% of U.S.clean energy, and new, advanced nuclear technologies promise to generate additional clean energy. In an acknowledgement of the future growth potential of new nuclear technologies, the Biden-Harris Administrationhas increased U.S.government support of the industry to a level not seen in decades. 21
August 16, 2022, President Bidensigned into law the Inflation Reduction Act which provisions for $369 billionin climate and energy investments, a portion of which will significantly benefit the U.S.domestic nuclear industry. Notably, while protecting the climate, there is a leveling of the playing field with renewable energy which has long benefited from government support. We see the benefits to nuclear split across existing reactors, new advanced reactors, low enriched uranium and high-assay low enriched uranium nuclear fuels, and in multiple stages of the domestic nuclear fuel cycle. We believe that each of these benefits increase future aggregate demand for uranium. The Harris-Biden Administrationcontinues to prioritize climate change initiatives both in the United Statesand abroad. President Bidenattended both the ( COP26) and ( COP27) United Nations Climate Change Conferences. At the most recent conference, Special Presidential Envoy for Climate John Kerry, proposed a new initiative for the U.S.to assist and accelerate a European transition from coal plants to SMRs. This program is ongoing as the Department of Energyis already advancing this initiative.
Financial purchasers of uranium – Sprott Physical Uranium Trust and
The Sprott Physical Uranium Trust (U.UN) (the "Trust") took over the former Uranium Participation Corp. (U.TO) and launched an at-the-market program (ATM) on
August 17, 2021to raise capital for the closed-ended trust. Since the inception of the ATM program, the Trust has acquired significant quantities of uranium causing spot prices to increase. In the one year since the Trust initiated its ATM program in August 2021it has purchased ~40 million pounds of uranium and grown the net asset value to ~ $3 billion. Due to Sprott's success a clone physical uranium fund was launched on May 2022. The ANU Energy OEIC Ltdfund raised over $75 million dollarsin a private placement and has made its first uranium purchase. Kazatomprom, the world's largest producer of uranium is a strategic investor and uranium supplier to ANU Energy. Subsequently, the fund announced that it was contemplating a $500 millionIPO in 4Q2022 or 1Q2023. These dedicated investment vehicles highlight the increasing impact of financial buyers on uranium markets. Physical uranium purchases by financial buyers are depleting material from the spot market and sequestering it away from utility buyers. This has forced a market tightening as inventory levels of the most mobile inventory have been significantly depleted, initiating a new round of long-term contracting by utilities. Russia'sInvasion of UkraineIn February, Russiainvaded Ukrainecommencing a war between the two countries. Russiais a major global energy supplier and both countries are top ten uranium producers, and Russiais a global leader in nuclear fuel services. On the day prior to the invasion, the spot price of uranium was less than $44/lbs and it increased to a decade high peak of over $63/lbs, before subsequently settling around the $50/lbs spot price level. Russia'sinvasion of Ukrainehas called into question its role and future participation in the nuclear fuel cycle. However as of today, Rosatom, Russia'snational nuclear company has avoided sanctions due to dependencies that have been built-up in the industry over decades. However, a desire to stay away from bad actors and the threat of Russiaweaponizing energy exports has elicited responses. Worldwide, utilities have accelerated their contracting of non-Russian conversion and enrichment services. New uranium supply agreements are being signed with Western producers. In the U.S., legislative and agency solutions are moving forward. This year multiple new nuclear funding programs have already been put in place and the language from the DoE has only gotten stronger. The Secretary of Energy recently declared: " The United Stateswants to be able to source its own fuel from ourselves and that's why we are developing a uranium strategy." It has become clear that the DoE is committed to creating nuclear fuel solutions to address the current dependence and promote a geopolitical realignment of the nuclear fuel cycle away from Russia. As a result of these new realities, the U.S. Congressis considering both sanctions and multiple pieces of legislation focusing on prohibiting the importation of Russian uranium and nuclear fuel and supporting U.S.domestic miners and the U.S.nuclear fuel cycle. Most recently, in a show of bipartisan support, Senators Barrasso, Manchin and Risch merged their competing legislation, which has been positioned for post-election deliberations. There remains a possibility that Russiamight reverse-sanction the United Statesand not make nuclear fuel deliveries. Weaponizing of energy is a tactic that is already being deployed in the Russia/ Ukrainewar and is increasingly becoming a matter of concern from countries that utilize Russian energy. As the U.S.has the largest fleet of nuclear reactors, any action affecting this market will have the potential to cause a realignment of global uranium markets.
Nuclear fuel and uranium markets
Western currently is observing positive catalysts across multiple levels of the nuclear fuel and uranium markets. At a micro-level the projected supply / demand imbalance is expanding. Demand is increasing with new reactors being built, next generation reactors being advanced, operating reactor life extensions, restarts of idle reactors, and nuclear phase-out plans being reversed. There are multiple data points pointing to a depletion of the secondary supply overhang, which was prevalent for the last decade. At a macro-level, the electrification transition and climate change initiatives have increased global support for nuclear. Further,
Russia'sinvasion of Ukraineand the ensuing global energy crisis has focused attention on security of supply and supply chain risks. As a result, Western continues to advance our operational strategy in anticipation of increasing uranium price levels which will reward the ability to quickly scale-up ore production. 22 COVID-19
The world has been, and continues to be, impacted by the novel coronavirus ("COVID-19") pandemic. COVID-19, and measures to prevent its spread, impacted our business in a number of ways. The impact of these disruptions and the extent of their adverse impact on the Company's financial and operating results will be dictated by the length of time that such disruptions continue, which will, in turn, depend on the currently unpredictable duration and severity of the impacts of COVID-19, and among other things, the impact of governmental actions imposed in response to COVID-19 and individuals' and companies' risk tolerance regarding health matters going forward and developing strain mutations. To date, COVID-19 has primarily caused Western delays in reporting, regulatory matters, and operations. Most notably, the Company initiated a request for Temporary Cessation status for the
Sunday Mine Complexin August 2020as the mines had not been restarted within the 180-day window due to the direct and indirect impacts of the COVID-19 pandemic. The Van 4 Mine reclamation process was delayed because of COVID-19 pandemic lockdowns. The need to observe quarantine periods also caused a limited loss of manpower and delay to the 2021 / 2022 Sunday Mine Complexproject. The COVID-19 pandemic has limited Western's participation in industry and investor conference events. The Company is continuing to monitor COVID-19 and its subvariants, and the potential impact of the pandemic on the Company's operations. Results of Operations For the Three Months Ended For the Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Revenue $ 108,547 $ 16,155 $ 7,611,419 $ 48,465Cost of revenues - - 4,044,083 - Gross profit 108,547 16,155 3,567,336 48,465 Expenses Mining expenditures 204,520 335,028 616,146 422,921 Professional fees 97,077 136,174 445,596 287,042
General and administrative 351,928 361,301 1,870,747 835,281 Consulting fees 18,346 12,801 78,165 16,810 Total operating expenses 671,871 845,304
Operating profit/(loss) (563,324 ) (829,149
) 556,682 (1,513,589 )
Interest expense, net (35,799 ) 1,344 (17,740 ) 4,687 Other (income)/expense - - (4,000 ) - Settlement expense - - - 78,441 Net income/(loss) (527,525 ) (830,493 ) 578,422 (1,596,717 ) Other Comprehensive income/(loss) Foreign exchange gain/(loss) (148,365 ) (46,363
) (312,492) 23,531
$ (675,890 )$ (876,856
$ 265,930 $ (1,573,186 )
Three months completed
Our consolidated net loss for the three months ended
September 30, 2022and 2021 was $527,525or $0.01per share and $830,493or $0.02per share, respectively. The principal components of these year over year changes are discussed below.
Our overall loss for the three months ended
23 Revenue Our revenue for the three months ended
September 30, 2022and 2021 was $108,547and $16,155, respectively. The increase in revenue of $92,392was primarily related to oil and gas royalties that were paid each month during the current quarter; payment of production royalties had not yet commenced in the corresponding quarter in the prior year. Mining Expenditures Mining expenditures for the three months ended September 30, 2022were $204,520as compared to $335,028for the three months ended September 30, 2021. The decrease in mining expenditures of $130,508, or 39% was principally attributable to a reduction in mining operations during the current quarter while focusing on building an in-house mining capability; there were active mining operations during the full corresponding quarter in the prior year. Professional Fees Professional fees for the three months ended September 30, 2022were $97,077as compared to $136,174for the three months ended September 30, 2021. The decrease in professional fees of $39,097or 29% was primarily due to a decrease in legal fees as Securities and Exchange Commissionshare registration expenditures were concentrated in the prior period. General and Administrative General and administrative expenses for the three months ended September 30, 2022were $351,928as compared to $361,301for the three months ended September 30, 2021. The decrease in general and administrative expense of $9,373or 3% is primarily due to a $14,198decrease in utility bills due to limited mining operations in the current quarter versus full mining operations during the corresponding quarter in the prior period. Consulting Fees
Consulting fees for the three months ended
September 30, 2022were $18,346as compared to $12,801for the three months ended September 30, 2021. The increase in consulting fees of $5,545or 43% was principally due to our reduced utilization of consultants during 2021 due to COVID-19. Accretion and Interest Accretion and interest for the three months ended September 30, 2022produced income of $35,799as compared to expense of $1,344for the three months ended September 30, 2021. Due to increased capital balances, the Company was afforded access to a cash program paying higher interest rates which benefitted from both higher market interest rates and larger cash balances. Foreign Exchange Foreign exchange loss for the three months ended September 30, 2022was $148,365as compared to a loss of $46,363for the three months ended September 30, 2021. The foreign exchange loss is primarily due to the strengthening of the U.S.dollar relative to the Canadian dollar. 24
Nine month period ended
Summary: Our consolidated net income for the nine months ended
September 30, 2022was $578,422or $0.01per share and consolidated net loss was $1,596,717or $0.04per share for the nine months ended September 30, 2021. The principal components of these year over year changes are discussed below.
Our overall result for the nine months ended
Revenue Our revenue for the nine months ended
September 30, 2022and 2021 was $7,611,419and $48,465, respectively. The increase in revenue of $7,562,954was primarily related to the revenue recognized upon the satisfaction of the uranium concentrate delivery under our supply contract whereby we delivered 125,000 lbs of uranium concentrate from our prepaid uranium concentrate inventory. Further, oil and gas royalties were recognized during every month during 2022, but $0of oil and gas royalties and $48,465of lease revenue were recognized during the corresponding nine-month period in the prior year. Cost of Revenue
Cost of revenue was
$4,044,083for the nine months ended September 30, 2022as compared to $0for the nine months ended September 30, 2021. This increase was a result of recording the cost of the uranium concentrate that was sold and delivered during the second quarter of 2022. Mining Expenditures Mining expenditures for the nine months ended September 30, 2022were $616,146as compared to $422,921for the nine months ended September 30, 2021. The increase in mining expenditures of $193,225, or 46% was principally attributable to increases in the utilization of contract labor, hydrology expenditures, and mining costs. The Company's Sunday Mine Complexwas active more months during the current period versus the prior period and costs of building an in-house mining capability were concentrated in the second and third quarters. Professional Fees Professional fees for the nine months ended September 30, 2022were $445,596as compared to $287,042for the nine months ended September 30, 2021. The increase in professional fees of $158,554or 55% was primarily due to an increase in legal expenditures and the reduced utilization of consultants during the prior year period due to COVID-19. General and Administrative
General and administrative expenses for the nine months ended
September 30, 2022were $1,870,747as compared to $835,281for the nine months ended September 30, 2021. The increase in general and administrative expense of $1,035,446, or 124% is primarily due to a $744,327increase in stock-based compensation expense as the 2021 stock option awards were granted and vested entirely during 2022. There was also a $122,036increase in payroll expenses due to an increase in staff and compensation. Investor relations expenditures increased by $37,190as investor initiatives were re-initiated in 2022. 25 Consulting Fees Consulting fees for the nine months ended September 30, 2022were $78,165as compared to $16,810for the nine months ended September 30, 2021. The increase in consulting fees of $61,355was principally due to our reduced utilization of consultants during 2021 due to COVID-19. Accretion and Interest Accretion and interest for the nine months ended September 30, 2022produced income of $17,740as compared to expense of $4,687for the nine months ended September 30, 2021. Due to increased capital balances, the Company was afforded access to a cash program paying higher interest rates which benefitted from both higher market interest rates and larger cash balances. Foreign Exchange Foreign exchange loss for the nine months ended September 30, 2022was $312,492as compared to a gain of $23,531for the nine months ended September 30, 2021. The foreign exchange loss is primarily due to the strengthening of the U.S.dollar relative to the Canadian dollar.
Cash and capital resources
The Company's cash and restricted cash balance as of
September 30, 2022was $11,220,194. The Company's cash position is highly dependent on its ability to raise capital through the issuance of debt and equity and its management of expenditures for mining development and for fulfillment of its public company reporting responsibilities. Management believes that in order to finance the development of the mining properties and Kinetic Separation, the Company will be required to raise additional capital by way of debt and/or equity. Western could potentially require additional capital if the scope of Company's projects expands. This outlook is based on the Company's current financial position and is subject to change if opportunities become available based on current exploration program results and/or external opportunities.
Net cash provided by (used in) operating activities
Net cash provided by operating activities was
$5,174,546for the nine months ended September 30, 2022, as compared with $1,576,627used in operating activities for the nine months ended September 30, 2021. Of the $5,174,546in net cash provided by operating activities for the nine months ended September 30, 2022, $578,422is derived from our net income before non-cash adjustments. After non-cash adjustments the cash income increased to $1,378,191. Changes in our operating assets and liabilities for the period primarily includes a $4,085,723decrease in prepaid uranium concentrate inventory and a decrease of $146,177in subscription payable.
Net cash used in investing activities
Net cash used in investing activities was
$895,400for the nine months ended September 30, 2022, as compared with $65,000for the nine months ended September 30, 2021. This net cash used consists of purchases of equipment and vehicles to build Western's in-house mining capability.
Net cash provided by financing activities
Net cash provided by financing activities for the nine months ended
September 30, 2022and 2021 were $5,632,273and $5,519,337, respectively. During the nine months ended September 30, 2022we completed a private placement representing aggregate net proceeds of $3,011,878and received $2,620,395from the exercise of warrants. 26 Reclamation Liability The Company's mines are subject to certain asset retirement obligations, which the Company has recorded as reclamation liabilities. The reclamation liabilities of the United Statesmines are subject to legal and regulatory requirements, and estimates of the costs of reclamation are reviewed periodically by the applicable regulatory authorities. The reclamation liability represents the Company's best estimate of the present value of future reclamation costs in connection with the mineral properties. The Company determined the gross reclamation liabilities of the mineral properties to be $751,405and $740,446as of September 30, 2022and December 31, 2021, respectively. The Company expects to begin incurring the reclamation liability after 2054 for all mines that are not in reclamation and accordingly, has discounted the gross liabilities over their remaining lives using a discount rate of 5.4%. The net discounted aggregated values as of September 30, 2022and December 31, 2021were $297,510and $271,620, respectively. The gross reclamation liabilities as of September 30, 2022and December 31, 2021are secured by financial warranties in the amount of $751,405and $740,446, respectively. On March 2, 2020, the Colorado Mined Land Reclamation Board ("MLRB") issued an order vacating the Van 4 Temporary Cessation, terminating mining operations and ordering commencement of final reclamation. The Company has begun the reclamation of the Van 4 Mine. The reclamation cost is fully covered by the reclamation bonds posted upon acquisition of the property. The Company adjusted the fair value of its reclamation obligation for the Van 4 Mine. Reclamation at the Van 4 Mine has continued using company employees and equipment. The headframe and ore bins have been dissembled and placed into storage. This phase followed building removal; hence cement pads are the only structures remaining onsite. The portion of the reclamation liability related to the Van 4 Mine and its related restricted cash are included in current liabilities and current assets, respectively, at a value of $75,057.
Oil and gas lease and easement
The Company entered into an oil and gas lease that became effective with respect to minerals and mineral rights owned by the Company of approximately 160 surface acres of the Company's property in
Colorado. As consideration for entering into the lease, the lessee has agreed to pay the Company a royalty from the lessee's revenue attributed to oil and gas produced, saved, and sold attributable to the net mineral interest. The Company has also received cash payments from the lessee related to the easement that the Company is recognizing incrementally over the eight year term of the easement. On June 23, 2020, the same entity as discussed above elected to extend the oil and gas lease easement for three additional years, commencing on the date the lease would have previously expired. During 2021, the operator completed all well development stages and each of the eight (8) Blue Teal Fed wells commenced oil and gas production by mid-August 2021. During the three months ended September 30, 2022and 2021, the Company recognized aggregate revenue of $108,547and $16,155, respectively, and for the nine months ended September 30, 2022and 2021, the Company recognized aggregate revenue of $387,810and $48,465, respectively, under these oil and gas lease arrangements. On January 31, 2022, the operator of the Weld County Coloradooil and gas pooled trust issued the first cumulative royalty payment check in the amount of $207,552for August 2021through December 2021sales which was recognized as income in the fourth quarter of 2021. Subsequently, in 2022, monthly royalty checks were received for sales during each of the months in
the first quarter. 27 Related Party Transactions
The Company has entered into transactions with related parties pursuant to service agreements in the normal course of business, as follows:
Prior to the acquisition of Black Range, Mr.
George Glasier, the Company's CEO, who is also a director of the Company ("Seller"), transferred his interest in a former joint venture with Ablation Technologies, LLCto Black Range. In connection with the transfer, Black Range issued 25 million shares of Black Range common stock to Seller and committed to pay AUD $500,000(USD $321,600as of September 30, 2022) to Seller within 60 days of the first commercial application of the Kinetic Separation technology. Western assumed this contingent payment obligation in connection with the acquisition of Black Range. At the date of the acquisition of Black Range, this contingent obligation was determined to be probable. Since the deferred contingent consideration obligation is probable and the amount is estimable, the Company recorded the deferred contingent consideration as an assumed liability in the amount of $321,600and $362,794as of September 30, 2022and December 31, 2021, respectively.
The Company also had to
Going Concern With the exception of the quarter ending
June 30, 2022, we had incurred losses from our operations. During the three months ended September 30, 2022, we generated a net loss of $527,525. We expect to generate operating losses for the foreseeable future as we incur expenses to bring our mining operations online. As of September 30, 2022, we had an accumulated deficit of $12,583,074and working capital of $10,181,380. Since inception, the Company has met its liquidity requirements principally through the issuance of notes and the sale of its common shares. On January 20, 2022, the Company closed on a non-brokered private placement of 2,495,575 units at a price of CAD $1.60per unit. The aggregate gross proceeds raised in the private placement amounted to CAD $3,992,920(USD $3,011,878in net proceeds). During the nine months ended September 30, 2022, the Company received $2,620,395in proceeds from the exercise of warrants. The Company's ability to continue its operations and to pay its obligations when they become due is contingent upon the Company obtaining additional financing. Management's plans include seeking to procure additional funds through debt and equity financings, to secure regulatory approval to fully utilize its Kinetic Separation and to initiate the processing of ore to generate operating cash flows. There are no assurances that the Company will be able to raise capital on terms acceptable to the Company or at all, or that cash flows generated from its operations will be sufficient to meet its current operating costs and required debt service. If the Company is unable to obtain sufficient amounts of additional capital, it may be required to reduce the scope of its planned product development, which could harm its financial condition and operating results, or it may not be able to continue to fund its ongoing operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern to sustain operations for at least one year from the issuance of the accompanying financial statements. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. 28
Off-balance sheet arrangements
Critical accounting estimates and policies
The preparation of these condensed consolidated financial statements requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of expenses during the reporting period. Significant assumptions about the future and other sources of estimation uncertainty that management has made at the end of the reporting period, that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, include, but are not limited to, the following: fair value of transactions involving common shares, assessment of the useful life and evaluation for impairment of intangible assets, valuation and impairment assessments on mineral properties, deferred contingent consideration, the reclamation liability, valuation of stock-based compensation, valuation of available-for-sale securities and valuation of long-term debt, HST and asset retirement obligations. Other areas requiring estimates include allocations of expenditures, depletion and amortization of mineral rights and properties
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