DRC-2015-001772 - 0901a068805100db

Department of
Environmental Quality
Amanda Smith
Executive Director
State of Utah OFFICE OF SUPPORT SERVICES
Craig P Silotti, CPA GARY R HERBERT
Governor Director
SPENCERJ COX
Lieutenant Governor DRC-2015-001772
February 18,2015
Rusty Lundberg, Director
Division of Radiation Control
Re: Financial Analysis of Energy Fuels Inc.
Dear Rusty,
Energy Fuels Inc.'s financial stability is aligned strongly with the market prices of uranium and
vanadium, which has and continues to be affected by the after-effects of the March 2011 Japanese
earthquake and tsunami, and resulting nuclear accident. The company appears to have a growth
strategy, which commenced prior to this incident, with the movement from being primarily a
uranium and vanadium exploration and mine development company to being a production
company with the acquisition of Denison Mines Corp. in June 2012.
This appears to have changed with the company cutting its production quantities and putting at
least 6 of its mining operations on standby status during fiscal year 2013. In addition, due to the
drop in market prices of uranium in combination with the plan to put one of its mines on standby,
Energy Fuels Inc. tested its plant, property, and equipment for impairment and recognized an
impairment loss of $60.3 million during 2013, which greatly impacted the company's ($87M) net
loss for 2013.
The company shows a conservative use of debt, with only 12% of the organization financed
through debt and the remaining through equity. Energy Fuels Inc. has adequate liquidity at
December 31, 2013 and growing sales of $73M during 2013 with much of that coming through
term contracts. The primary concern for Energy Fuels Inc. is its low or negative profit margins,
which the company will have to focus on when the market prices return, which is expected to
occur when Japan begins to restart it nuclear reactors, projected for some time in 2015.
The market will greatly dictate the path for Energy Fuels Inc., though management is hopeful
given the number of operable nuclear reactors worldwide along with the number of new reactors
under construction worldwide (434 and 70, respectively as of February 2014 according to the
World Nuclear Association) that demand for uranium and vanadium will build. The company will
need a strong commitment to being conservative during this tumultuous time in order to maintain
its focus on its goal to strengthen its position as a leading uranium company in the United States.
Please let me know if I can assist with any other questions or concerns you may have with regard
195 North 1950 West • Salt Lake City, UT
Mailing Address PO Box 144810 • Salt Lake City, UT 84114-4810
Telephone [phone] • Fax [phone] -TDD [phone]
www deq Utah gov
Printed on 100% recycled paper
Page 2
to this matter.
Sincerely,
Rebecca L. Troutman, CPA, CGMA
Audit Manager, Office of Support Services
cc: Craig P. Silotti
Energy FIUJIS Inc.
FinjfctffU Results Comparisons lj^l Energy Fuels Inc.
2013 2012 2011 2010
Short-term (operating) activity ratios:
Receivables turnover ratio 9.20 3.17 0.00 N/A
Average no. days receivables outstanding 40 115 N/A N/A
Payables turnover ratio 7.05 3.09 0.00 N/A
Average no. days payables outstanding 52 118 N/A N/A
Working capital 33.5M 41.9M 6.8M 3.2M
Working capital turnover ratio 1.94 1.03 0.00 N/A
Cash turnover 7.22 2.43 0.00 N/A
Average no. days cash turns over per year 51 150 N/A N/A
The receivables turnover ratio and average number days receivables are outstanding ratio's measure
how effective a company's credit policies are, which is important because the primary reason to give
customers credit is to build revenues and improve the bottom line. The receivables turnover ratio
measures the number of times receivables are collected, on average, during the fiscal year. Energy
Fuels Inc.'s receivables turnover ratio increased from 2011 to 2013, the main driver of this change
was increasing sales, from $0 in 2011 to $25M in 2012 to $73M in 2013, though the company may
have also increased it's efforts to collect receivables during this timeframe.
The payables turnover ratio and average number of days payables are outstanding figures can
indicate how dependent an entity is on financing its operating activities through its accounts
payables. Typically when the payables turnover rate is increasing it signals that the entity is paying
suppliers at a faster rate, though with Energy Fuels Inc., the increased rate is primarily due to
increasing sales. Energy Fuels Inc.'s accounts payable balance decreased by ~$9.9M or 65% from
2012 to 2013 while its sales grew ~$48M or 193% during that same period, both positive changes
indicating less dependence on financing operations through accounts payables.
The working capital and cash turnover calculations give insight into a company's short-term
solvency and cash utilization. Turning over cash more frequently is generally better use of cash than
letting it sit idle because idle cash generates very low returns. The decrease in working capital
indicates lower current assets to cover its current obligations, but this is overshadowed by the
increase in sales since 2011. Energy Fuels Inc. is turning over cash more often, which was due to
more sales activity as the average cash from 2011 to 2013 remained stable at ~$10M, but sales
activity jumped from $0 in 2011 to $73M in 2013.
Long-term (investment) activity ratios:
Fixed asset turnover ratio 0.66 0.30 0.00 N/A
Total asset turnover ratio 0.37 0.18 0.00 N/A
Energy Fuels Inc. is in a capital-intensive industry and management decisions including the timing
of fixed asset purchases can affect the fixed asset turnover ratio. The fixed asset turnover ratio
measures a firm's capacity utilization as well as reflects the rate of sales growth stemming from a
company's investments in fixed assets. The increasing trend is desirable because it means that the
company has less money tied up in fixed assets for each unit of sales, mainly due to company's
increase in sales of ~$48M or 193% from $25M in 2012 to $73M in 2013.
The total asset turnover ratio measures the overall investment efficiency of an organization's short-
term and long-term investments. For every dollar of assets owned, $0.37 of revenue was generated
in 2013 and $0.18 of revenue was generated in 2012, an increase of 106%. As a reminder, low
figures for this ratio are in-line with Energy Fuels Inc. being in a capital-intensive industry.
Page 1 of 8
Energy Fuels Inc.
Financial Results Comparisons
Liquidity analysis:
Energy Fuels Inc.*
2013 2012 2011 2010
Current ratio 5.51 3.43 9.01 4.77
Quick ratio .04 1.77 8.81 4.37
Cash ratio 0.95 0.89 8.21 4.37
Cash flow from operations ratio 0.06 (0.83) (4-47) N/A
Defensive interval 29 278 687 N/A
The current ratio and other liquidity ratios shown measure the margin of safety provided by the cash
and other liquid resources relative to obligations rather than expected cash flows. A general rule of
thumb for current ratio results is to have one dollar of current assets for each dollar of current
liabilities and Energy Fuels Inc. has more than one dollar of current assets for each dollar of current
liabilities for each year-end period analyzed, its ratio results appear to have a healthy trend.
The quick ratio is a more stringent test of liquidity than the current ratio by excluding both
inventory, prepaid expenses, and other current assets from the calculation. This drops the ratio
results significantly from the current ratio, though the figures are still satisfactory as long as the
results are higher than 1, which they are for Energy Fuels Inc..
The cash ratio is the most conservative view of a company's liquidity as it only compares cash and
marketable securities against current liabilities. Energy Fuel Inc.'s ratio results for both 2013 and
2012 are barely less than 1, though this is the most conservative liquidity view. The company did
increase its ratio from 2012 to 2013 due to both a decrease of ~$7M or 51% in cash as well as a
decrease of ~$9.8M or 57% in current liabilities.
The cash flow from operations (CFO) ratio is a more sound measure of a company's liquidity
position as it analyzes the actual operational cash flows over the entire year instead of at a single
point in time (the above calculations use only the year-end balances) against a company's current
liability balance at year-end. Energy Fuels Inc. had negative cash flow from operations for 2011 and
2012, getting back out of the red with $45 3k of cash from operations in 2013, though the ratio shows
only a slight margin of cash from operations as able to cover current liabilities.
The defensive interval compares the currently available "quick" sources of cash with the estimated
outflows needed to operate the firm. The result of this calculation represents a "worst case" scenario
indicating the number of days a firm could maintain the current level of operations with its present
cash and accounts receivables resources but without considering any additional revenues. While
Energy Fuels Inc.'s numbers have decreased over the years, the changes made have been better for
it's financial health. The accounts receivables balance is smaller and appears to be collected more
often and it's projected expenditures has decreased, when in comparison to the fixed asset turnover
ratio, appears to be working out well for the entity. Energy Fuels Inc.'s projected expenditures
increased from $4M in 2011 to $40M in 2012 to $98M in 2013.
Page 2 of 8
Energy Fuels Inc.
Financial Results Comparisons
Long-term debt and solvency analysis:
Energy Fuels Inc.
2013 2012 2011 2010
Debt to total capital 0.12 0.12 0.00 0.00
Total debt to assets 0.22 0.25 0.03 0.04
Book value debt to market equity 0.17 0.23 0.02 0.00
The debt to total capital ratio reveals how leveraged a company is through debt in comparison to
being leveraged through equity. The higher the ratio, the more risk the company is undertaking to
operate. Energy Fuels Inc.'s ratio maintained a steady rate of 12%, indicating a maintained low
dependence on debt and a higher dependence on equity.
The total debt to assets ratio measures the percentage of total assets provided by creditors as well as
provides information about a company's ability to absorb asset reductions arising from losses
without jeopardizing the interest of creditors; therefore, the lower the ratio result, the more able a
company is to manage decreases in asset balances. Energy Fuels Inc. has a low debt to assets ratio,
demonstrating that only 22% of assets were provided by creditors in 2013.
The book value debt to market equity ratio basically measures how well creditors are protected in
the case of bankruptcy. Note that this calculation includes accounts payable in the determination of
book value of debt. Based on the results of this calculation, it appears that Energy Fuels Inc.'s
maintenance of low debt balances helps its creditors.
Interest coverage ratios:
Times interest earned (45) N/A N/A
This ratio measures how many times over earnings could be stretched to pay for a company's interest
expense, indicative of how well a creditor is protected in terms of receiving payment of the actual
interest expense. The primary concern indicated from these results are the company's low and
negative earnings over the past two years. In 2012 Energy Fuels Inc.'s earning benefited from a
~$40.6M gain on a purchase of the Denison US Mining Division, while in 2013, Energy Fuels Inc.'s
earnings suffered from the ~$60.3M impairment of property, plant, and equipment. Excluding these
two items, Energy Fuels Inc.'s net losses for 2013 and 2012 would be ~($27M) and ~($39M)
respectively, with negative times interested earned ratios, so the company should focus on reigning
in its regular operating costs.
Capital expenditures and CFO-to-debt analysis:
Capital expenditure ratio 0.02 (1.88) (1.62) N/A
CFO-to-debt ratio 0.02 (0-61) (3,519) N/A
The capital expenditure ratio measures the relationship between a firm's cash-generating ability and
its investment in capital expenditures, e.g. physical assets like property, equipment, or industrial
buildings. To the extent this ratio exceeds 1, it indicates the firm has cash left for debt repayment
and/or fund dividends after payment of capital expenditures. Energy Fuels Inc.'s cash from
operations was negative in 2012 and 2011 and only a positive $453,000 for 2013. With such low or
negative cash from operations, paired against the rate of capital expenditure purchases, the firm does
not have much left to pay towards debt and would be short-sighted in paying any dividends.
The CFO-to-debt ratio measures the coverage of a company's principal repayment requirements with
its current cash flows from operations. A low cash flows from operations to debt ratio could signal a
long-term solvency problem as the firm does not generate enough cash internally to repay its debt.
While Energy Fuels Inc. maintains a lower debt balance, being only -10% of its total assets, it needs
a sustained effort to improve its cash flows from operations.
Page 3 of 8
Energy Fuels Inc.
Financial Results Comparisons
Profitability analysis - return on sales:
2013
Energy Fuels Inc.
2012 2011 2010
Gross margin 0.07 0.13 N/A N/A
Operating margin (0.36) (0.53) N/A N/A
Margin before interest and tax (1.17) 0.08 N/A N/A
Pretax margin (1.19) 0.06 N/A N/A
Profit margin (1.19) 0.06 N/A N/A
Gross margin results can show a company's ability to control costs in relation to revenues: if high,
the gross margin can work to enhance earning power, if weak, it exposes the deterioration of a
company's earnings power. The gross margin ratio also provides clues to the company's pricing, cost
structure, and production efficiency. This ratio decreased by $.06 from 2012 to 2013, signaling
higher costs to produce Energy Fuels Inc.'s products in 2013.
The operating margin is a measure of profitability that tells investors how much of revenue will
eventually become profit for a company. It is also a measure of managerial flexibility and
competency, particularly during rough economic times. The operating margin calculation includes
selling, general, and administrative (SG&A) expenses of a company, which include such things as
marketing, research and development, and administrative salaries - more peripheral expenses which
are still necessary for the company's everyday operations, and which are particularly necessary for
the company to grow. Management has greater control over SG&A expenses, so it is important to
scrutinize this ratio result. Trends in operating margin - positive or negative - are, for the most part,
directly tied to management decisions. Energy Fuels Inc.'s negative operating margin trend is
concerning, though there was improvement from 2012 to 2013. While Energy Fuels Inc.'s operating
loss nearly doubled during that time from ($13M) in 2012 to ($26M) in 2013, its sales increased
from $25M in 2012 to $75M in 2013.
The margin before interest and tax measures a firm's profit margin independent of both the firm's
financing and tax position, while the pretax ratio results, if high, are desirable and indicative of
management's ability to keep operating costs low. Since pretax profit includes the cost of revenues,
operating expenses, as well as interest expense, this measure also takes into account the company's
use of debt. Energy Fuels Inc.'s results are nearly identical for both as its interest expenses are
negligible. Energy Fuels Inc.'s results were positive in 2012 due to a ~$40M gain on the purchase of
the Denison US Mining Division, and negative in 2013.
The profit margin is a measure of net income dollars generated by each dollar of sales. A higher
profit margin indicates a more profitable company that has better control over its costs compared to
its competitors. A low profit margin indicates a low margin of safety: higher risk that a decline in
sales will erase profits and result in a net loss. In 2012 Energy Fuels Inc.'s earning benefited from a
~$40.6M gain on a purchase of the Denison US Mining Division, while in 2013, Energy Fuels Inc.'s
earnings suffered from the ~$60.3M impairment of property, plant, and equipment. Excluding these
two items, Energy Fuels Inc.'s profit margins for 2013 and 2012 would be ($0.37) and ($1.56)
respectively, so while there was improvement during this time in base operations, the company
needs to focus on continuing to improve this trend.
Page 4 of 8
Energy Fuels Inc.
Financial Results Comparisons
Energy Fuels Inc.*
2013 I 2012 I 2011 I 2010
Profitability analysis - return on investment:
Return on assets I (0.43) I 0.01 I (0.09) I N/A ~
Return on total capital (0.49) 0.02 (0.10) N/A
Return on equity (0.57) 0.01 (0.10) N/A
Return on investment | (0.47) | O.OT | (0.09) | N/A
The return on assets (ROA) ratio identifies how effectively management is able to generate
operational profits, measured through earnings before interest and taxes (EBIT), by utilizing the
company's assets. Energy Fuels Inc.'s trend for its ROA is negative, with its 2012 results assisted
into the positive by the ~$40M gain on the purchase of the Denison US Mining Division. Without
this, Energy Fuels Inc.'s 2012 ROA would be ($0.29).
The return on total capital (ROTC) calculation evaluates a company's ability to utilize its external
debt and equity to create profits. This calculation takes the EBIT (same results as from the ROA
calculation) and divides it by the organization's average total debt plus equity. Energy Fuels Inc.'s
trend has been negative (2012 ROTC would be ($0.33) without the ~$40M gain on the purchase of
the Denison US Mining Division), which may concern both investors and creditors.
Return on equity (ROE) measures the income earned on the shareholders' investment in the business.
ROE is more than a measure of profit; it's a measure of efficiency. A rising ROE suggests that a
company is increasing its ability to generate profit without needing as much capital. It also indicates
how well a company's management is deploying the shareholders' capital. It is important to note that
a high level of debt can artificially boost ROE as the more debt a company has, the less shareholders'
equity it has (as a percentage of total assets), and the higher its ROE. Energy Fuels Inc.'s trend has
been negative (2012 ROE would be ($0.37) without the ~$40M gain on the purchase of the Denison
US Mining Division), which is never a good trend for a return-type ratio.
The return on investment (ROI) ratio calculates the income earned on invested capital (long-term
liabilities and equity, which are common mechanisms that firms use to stimulate and increase
growth). Company management often looks for ways to improve their ROI by reducing costs,
increasing gains, or accelerating gains, especially given that investors rely heavily on this
measurement when determining whether or not to invest in a company. Energy Fuels Inc.'s trend has
been negative (2012 ROE would be ($0.31) without the ~$40M gain on the purchase of the Denison
US Mining Division), which will not impress investors.
Page 5 of 8
Energy Fuels Inc.
Financial Results Comparisons
Financial leverage:
2013
Energy Fuels Inc.
2012 2011 2010
Financial leverage effect 0.30 (8.61) 1.11 N/A
Long-term debt to net working capital 0.54 0.54 0.00 0.00
Financial leverage magnifies changes in net income compared to changes in operating income. The
magnification operates both upward and downward, which means stockholders benefit from
financial leverage when times are good and operating income is increasing but their investment in a
firm can be at substantial risk when times are bad and operating income is falling. This calculation
is an attempt to estimate the percentage change in operating income for a one percent change in
revenue. While these results appear sound, the 2013 and 2011 results are positive as both the
numerator and denominator of the calculations are negative (negative operating income over
negative net income). The trends indicate that Energy Fuels Inc.'s financial leverage compared to its
operating results is putting the company at risk.
The long-term debt to net working capital ratio provides insight into a company's ability to pay long-
term debt from current assets after paying current liabilities (note that lower results are better).
Companies with too much long-term debt may easily find themselves with high interest payments, a
risk of having too little working capital, which can result in bankruptcy. Organizations with a debt
to equity ratio of 40-50% should be looked at more carefully to make sure there are no liquidity
problems. If their respective working capital and current and quick ratio's are very low, this is a sign
of serious financial weakness. Energy Fuels Inc.'s results are stable, as the level of debt decreased
from 2012 to 2013 in conjunction with a decrease in the company's working capital.
Page 6 of 8
Energy Fuels Inc.
Financial Results Comparisons
Earnings per share:
Energy Fuels Inc.
2013 2012 2011 2010
Earnings per share - basic $ (5.61) $ 0.26 $ (0.03) N/A
Earnings per share - diluted $ (5.61) $ 0.26 $ (0.03) N/A
Cash Earnings per share (diluted) $ 0.03 $ (2.42) $ (0.03) N/A
Price earnings ratio (1.09) 38.45 (390.27) N/A
Dividend payout ratio 0.00 0.00 0.00 N/A
Earnings per share (EPS) is one of the most important measures of a company's overall strength - the
higher the number the more money the company is making. Additionally, as Energy Fuels Inc. does
not have options or convertible securities that would need to be taken into consideration for the
potential weakening affects on earnings of these through the calculation of the diluted EPS;
therefore, the diluted EPS results match the basic EPS results. In 2012 Energy Fuels Inc.'s earning
benefited from a ~$40.6M gain on a purchase of the Denison US Mining Division, while in 2013,
Energy Fuels Inc.'s earnings suffered from the ~$60.3M impairment of property, plant, and
equipment. Excluding these two items, Energy Fuels Inc.'s EPS for 2013 and 2012 would be ($1.74)
and ($6.63) respectively, for a three-year consistently negative EPS trend.
Cash EPS (diluted) can provide insight into a company's financial health; although, it should be used
with caution as it can suffer from the following problems:
- variability from year to year,
- dependent on accounting methods,
- does not reflect cash needed for required debt payments, and
- does not reflect cash required for maintenance of productive capacity.
Note that while a positive cash flow from operations is a sign of strength, investors must also
consider that for growth, companies typically need more than just operational cash flows and should
strive for strong EPS figures as that calculation is the most widely available and commonly used
corporate performance statistic for publicly traded firms. Energy Fuels Inc.'s ratio is positive in
2013, stemming from a positive cash flows from operations, a trend which would significantly help
this organization if it continued as such.
The price earnings ratio is sometimes referred to as the "multiple" because it shows how much
investors are willing to pay per dollar of earnings. Without the ~$40M gain from the purchase of the
Denison US Mining Division in 2012, the price earnings ratio result would be ($1.51), so the trend
has been negative.
Page 7 of 8
Energy Fuels Inc.
Financial Results Comparisons
Financial distress predictor model:
2013
Energy Fuels Inc.*
2012 2011 2010
Altman Z-score 5.57 7.34 23,526 N/A
One should note that the Altman Z-score calculation is a predictive model used to determine the
potential for a company to experience financial distress - it cannot portray the future results of a
company with guaranteed accuracy; therefore, this calculation should be used with care. The
assessment categories are as follows:
Z-score < 1.8 = Probability of failure is very high
Z-score > 1.81 and < 2.99 = Probability of failure is unsure
Z-score > 3.0 = Probability of failure is unlikely
Using these gauges Energy Fuels Inc. looks financially okay. The piece of this calculation that gives
Energy Fuels Inc. the biggest safety net is its market value of equity to book value of debt ratio, with
7.48 in 2013, 7.18 in 2012, and 23,527 in 2011 (a year where only $1,076 of total debt at year-end).
In this regard (Energy Fuels Inc.'s low reliance on debt), the company is managing well. To be in a
strong position financially, Energy Fuels Inc. needs to both begin having positive net income and
continue experiencing positive cash from operations.
* Note Energy Fuels Inc. changed its fiscal year end from September 30 to December 31 beginning
in 2013.
Page 8 of 8