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TABLE OF CONTENTS
URANIUM RESOURCES, INC. AND CONSOLIDATED SUBSIDIARIES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One) | ||
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2010 |
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or |
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o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
Commission file number 001-33404
URANIUM RESOURCES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE (State of Incorporation) |
75-2212772 (I.R.S. Employer Identification No.) |
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405 State Highway Bypass 121, Building A, Suite 110 Lewisville, Texas (Address of principal executive offices) |
75067 (Zip code) |
(972) 219-3330
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Name of Each Exchange on Which Registered | |
---|---|---|
Common Stock, $0.001 par value per share | NASDAQ Capital Market |
Securities registered pursuant to Section 12(g) of the Act: None
(Title of class)
Indicate by check mark if the Registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes o No ý
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer ý (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
The aggregate market value of the Common Stock held by non-affiliates of the Registrant at June 30, 2010, was approximately $21,613,583. Number of shares of Common Stock, $0.001 par value, outstanding as of March 14, 2011: 93,395,030 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12, 13 and 14 of Part III of this Form 10-K report are incorporated by reference to the Registrant's Definitive Proxy Statement for the Registrant's 2011 Annual Meeting of Stockholders.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010
i
ii
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The "Company" or "Registrant" or "URI" is used in this report to refer to Uranium Resources, Inc. and its consolidated subsidiaries. This 10-K contains "forward-looking statements." These statements include, without limitation, statements relating to management's expectations regarding the Company's ability to remain solvent, capital requirements, mineralized materials, 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: "Risk Factors" beginning on page 9[?].
Certain terms used in this Form 10-K and other industry terms are defined in the "Glossary of Certain Terms" appearing at the end of Part I hereto.
Uranium Resources, Inc. (URI) is a uranium exploration, development and production company. We were organized in 1977 to acquire and develop uranium mines in South Texas using the in-situ recovery mining process (ISR). Since its founding, URI has produced over 8 million pounds U3O8 from five Texas projects, two of which have been fully restored and returned to the land owners. The Company currently has two fully licensed ISR processing facilities in Texas: Kingsville Dome and Rosita. Since 1986, the Company has built a significant asset base in New Mexico that includes 101.4 million pounds U3O8 of in-place mineralized uranium material on 183,000 acres of uranium mineral holdings. We have a Nuclear Regulatory Commission (NRC) license to build a 3 million pound U3O8 per year ISR processing facility at Crownpoint, New Mexico. As of March 14, 2011 we had 40 employees. As a result of low uranium prices, we ceased production in 2009. Our plan is to preserve cash and maintain liquidity to allow the Company to be in a position to resume uranium production when sustained prices support such activities.
URI holds a NRC source materials license to build and operate an ISR uranium processing facility on company-owned property at Crownpoint, New Mexico. The license allows for ISR mining at the Churchrock and Crownpoint projects that together hold nearly 34 million pounds U3O8 of in-place mineralized uranium material. The license allows for the production of up to 1 million pounds per year from Churchrock until a successful commercial demonstration of restoration is made; after which the quantity of production can be increased and mining on other properties can begin. Total production under the license is limited to 3 million pounds U3O8 per year. This project has been delayed due to depressed uranium prices and by a lawsuit to determine whether the U.S. Environmental Protection Agency ("USEPA") or the State of New Mexico has the jurisdiction to issue the Underground Injection Control (UIC) program permits. On June 15, 2010 the United States Court of Appeals for the Tenth Circuit en banc held that the Company's Section 8 property in Churchrock, New Mexico is not Indian Country. The ruling means that the authority to issue a UIC permit to URI falls under the jurisdiction of the State of New Mexico and not the U.S. Environmental Protection Agency (USEPA). The opposing parties had the right to petition the Supreme Court for review until September 13, 2010; however no petitions were filed as of the deadline and the ability for opposing parties to petition the United States Supreme Court has expired. The Company is in the process of preparing feasibility studies on its New Mexico properties and believes that subject to sustained increases in uranium prices,
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available sources of financing and activation of our permits and licenses that we could begin plant construction and wellfield development as early as 2012 with production following in 2013.
Overall in New Mexico, the Company owns 183,000 acres of mineral holdings that contain approximately 101.4 million pounds U3O8 of in-place mineralized uranium material that has been verified by an independent engineering firm. A substantial amount of our acreage remains unexplored or currently has insufficient data to estimate in-place mineralized materials. These properties were acquired during the 1980s and 1990s along with a vast database of exploration logs and drill results that were developed by Conoco, Homestake Mining, Mobil Oil, Kerr-McGee, Phillips Petroleum, United Nuclear and Westinghouse Electric Corporation. Three of our properties were in various stages of being developed as conventional underground mines in the early 1980s with a total designed capacity to produce approximately 4.5 million pounds U3O8 per year. We also possess a 16.5% royalty interest on a partial section of the Mount Taylor Mine owned by Rio Grande Resources, a division of General Atomics.
Since 2007, we have digitized approximately 18,800 drill logs in order to secure the data and allow for easier analysis of drill hole information. These logs total nearly 23 million feet of hole drilled in the 1970s and 1980s with an estimated drilling and logging replacement cost of $700 million.
The Company plans to develop its uranium assets in New Mexico using the most economic and efficient method for each project and will be subject to improvements in uranium prices. These mining methods may include the use of ISR, old stope leaching, and conventional mining and milling techniques.
Texas Production History and Current Status
The Company developed and produced over 560,000 pounds U3O8 from the Longoria and Benavides projects in the early 1980s. These properties were fully restored between 1986 and 1991. From 1988 through 1999, we produced approximately 6.1 million pounds U3O8 from two South Texas projects: 3.5 million pounds from the Kingsville Dome project and 2.6 million pounds U3O8 from the Rosita project. In 1999, we shut-down production at both projects due to depressed uranium prices. We had no revenue from uranium sales between 2000 and the fourth quarter of 2004, and therefore had to rely on equity infusions to fund operations and maintain our critical employees and assets.
After uranium prices rose significantly in 2004, we placed our South Texas Vasquez property into production during the fourth quarter of that year. In April 2006, Kingsville Dome returned to production followed by a startup of Rosita in June 2008. From 2004 to the end of 2009, these three projects produced a total of 1.4 million pounds of U3O8.
The Vasquez project was mined out in 2008 and is now in restoration. Rosita production was shut-in in October 2008 due to depressed pricing and technical challenges in the first new wellfield that made mining uneconomical. The decline in uranium prices throughout 2008 also led to a decision in October 2008 to defer new wellfield development at Rosita and Kingsville Dome. Production continued in two existing wellfields at Kingsville Dome and was completed in July 2009. The Company has not had any operating mines in Texas since that time, and is currently evaluating the factors for resuming production at our South Texas projects.
The Company's strategy with regard to restarting production in South Texas is to insure that production, once resumed, is sustainable in the 300,000 to 500,000 pound range. The Company believes its existing South Texas reserve base from its existing production areas at Kingsville Dome and Rosita and the reserves identified at its Rosita South and adjacent Rosita production acreage will enable it to produce at that level for up to two years. The Company is in the process of finalizing the necessary permits for its Rosita South and adjacent Rosita acreage and expects the required permits will be granted. Production could begin within 6 - 12 months after a decision to restart is made and will be dependent upon sustainable realized uranium prices stabilizing at profitable levels.
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Longer-term, the Company plans to expand its resources through acquisition of additional South Texas properties and through exploration activities. The first phase of the exploration component of this plan was initiated with the Company signing a three-year exploration agreement covering 53,500 acres in Kenedy County, Texas. The exploration agreement includes an option to lease the acreage for uranium production.
The Company raised additional capital in mid-2010 in underwritten public offerings of 27,142,830 shares of common stock that resulted in net proceeds of approximately $10.2 million, after deducting underwriting discounts and commissions and offering expenses.
The Company raised additional capital in November 2010 through an underwritten public offering. A total of 8,222,500 shares of common stock were sold in the offering with net proceeds of approximately $9.0 million, after deducting underwriting discounts and commissions and offering expenses.
On June 15, 2010 the United States Court of Appeals for the Tenth Circuit en banc held that the Company's Section 8 property in Churchrock, New Mexico is not Indian Country. As a result, the authority to issue a UIC permit to URI falls under the jurisdiction of the State of New Mexico and not the U.S. Environmental Protection Agency (USEPA). The opposing parties had the right to petition the Supreme Court for review until September 13, 2010; however no petitions were filed and the time to petition the United States Supreme Court has expired. As a result of this ruling the question of jurisdiction over the UIC permitting process has been concluded in favor of the State of New Mexico which will allow the Company to move forward with the development of our Churchrock/Crown Point project after many years of delay."
On September 29, 2010, we settled the litigation titled Saenz v. URI Inc., by agreeing to pay to the plaintiffs $1.375 million, which includes amounts for prior royalties. The payment was made in February 2011 and amendments to the leases were executed and the suit was dismissed.
In November 2010, the United States Supreme Court denied the opponents' petition to review a March 2010, 10th Circuit Court of Appeals' ruling that upheld the Company's U.S. Nuclear Regulatory Commission ("NRC") license to conduct in-situ recovery (ISR) uranium mining at the Churchrock/Crownpoint project, which cleared the last remaining legal challenge to our NRC license.
On November 3, 2010, the Company signed a non-binding letter of intent with Power Resources, Inc. doing business as Cameco Resources ("CR"), a subsidiary of Cameco, for a three-phase exploration program funded by CR and an option for a production joint venture on a large ranch in South Texas. The agreement is contingent upon URI successfully completing the negotiation and execution of final definitive agreements between the Company and CR.
In early 2010, the Company adopted a new strategic plan which emphasized cash preservation and maintaining liquidity to allow the Company to be in a position to resume uranium production when sustained prices support such activities. As part of this plan the Company completed financings that we believe will provide sufficient working capital for the Company to maintain its liquidity into 2012. Key operational elements of the strategic plan for our Texas properties include (1) positioning the Company to return to production in Texas should the price of uranium return to a level sufficient to generate positive cash flow; (2) complete an analysis of the exploration potential in South Texas and enhance the Company's exploration capabilities; (3) continue to maintain our restoration activities in South Texas in accordance with the Company's existing agreements and regulatory requirements and (4) analyze any synergistic opportunities and potential asset monetization prospects in Texas. In New Mexico, our strategic plan calls for continuing to advance our discussions with others in the region that also hold
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uranium assets, as well as with entities that would benefit from the production of the uranium. In addition, we will continue our communication efforts with the local communities, State and local governments and the Navajo Nation to address legacy issues while continuing education efforts on the safety of today's uranium mining practices with the objective of bridging the gap that currently exists between uranium mining entities and others with stakeholder interests in the State.
Uranium Reserves/Mineralized Material
In accordance with the SEC's Guideline on Non-Reserve Mineralized Material, and as shown in the following table, we estimate 101.4 million pounds of in-place mineralized uranium material on our New Mexico properties as of December 31, 2010. The estimate for each New Mexico property is based on studies and geologic reports prepared by prior owners, along with studies and reports prepared by geologists engaged by the Company. The estimates presented below were reviewed and affirmed by Behre Dolbear & Company (USA) an independent private engineering firm in their report dated February 26, 2008. Since the date of the report, the Company has maintained its ownership position of these properties, the properties have not been subject to any production activities and the estimates remain unchanged.
SUMMARY OF IN-PLACE NON-RESERVE MINERALIZED
MATERIAL IN NEW MEXICO
Property
|
Tonnage Millions |
Grade Percent |
Non-Reserve Mineralized Material Millions of Lbs U3O8 |
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Mancos |
5.2 | 0.11 | % | 11.3 | |||||||
Churchrock |
7.8 | 0.12 | % | 18.6 | |||||||
Nose Rock |
7.6 | 0.15 | % | 21.9 | |||||||
West Largo |
2.8 | 0.30 | % | 17.2 | |||||||
Roca Honda |
3.9 | 0.19 | % | 14.7 | |||||||
Crownpoint |
4.8 | 0.16 | % | 15.3 | |||||||
Ambrosia Lake |
0.71 | 0.17 | % | 2.4 | |||||||
Total |
101.4 |
The Company believes the Mancos, Churchrock and Crownpoint properties will be amenable to ISR mining methods, the Roca Honda to conventional mining and the Nose Rock, West Largo and Ambrosia Lake to ISR and/or conventional mining methods.
The following table summarizes our estimates of Proven Reserves for our Kingsville Dome and Rosita properties in South Texas. These estimates have been produced by the Company's professional engineering and geologic staff.
SUMMARY OF IN-PLACE RESERVES IN SOUTH TEXAS
Property
|
Tonnage Millions |
Grade Percent |
Proven Uranium Reserves Millions of Lbs U3O8 at 12/31/10 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Kingsville Dome |
0.035 | 0.071 | % | 0.050 | |||||||
Rosita |
0.133 | 0.080 | % | 0.224 | |||||||
Rosita South(1) |
0.129 | 0.077 | 0.198 | ||||||||
Rosita(1) |
0.112 | 0.086 | 0.192 | ||||||||
Total |
0.664 |
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In March 2006 we entered into contracts with Itochu Corporation and UG USA, Inc. (superseding prior agreements), each of which calls for delivery of one-half of our actual production from our Texas properties (excluding certain large potential exploration plays). The terms of these new contracts are summarized below.
The Itochu Contract. Under the Itochu contract all production from the Vasquez property was sold at a price equal to the average spot price for the eight weeks prior to the date of delivery less $6.50 per pound, with a floor for the spot price of $37.00 per pound and a ceiling of $46.50 per pound. Other Texas production will be sold at a price equal to the average spot price for the eight weeks prior to the date of delivery less $7.50 per pound, with a floor for the spot price of $37.00 per pound and a ceiling of $43.00 per pound. On non-Vasquez production the price paid will be increased by 30% of the difference between the actual spot price and the $43.00 ceiling up to and including $50.00 per pound. If the spot price is over $50.00 per pound, the price on all Texas production will be increased by 50% of such excess. The floor and ceiling and sharing arrangement over the ceiling applies to 3.65 million pounds of deliveries, after which there is no floor or ceiling. Itochu has the right to cancel any deliveries on six-month's notice. Since the inception of the new contract through December 31, 2010 we have delivered approximately 510,000 pounds to Itochu.
The UG Contract. Under the UG contract all production from the Vasquez property and other Texas production will be sold at a price equal to the month-end long-term contract price for the second month prior to the month of delivery less $6 per pound until (i) 600,000 pounds have been sold in a particular delivery year and (ii) an aggregate of 3 million pounds of uranium has been sold. After the 600,000 pounds in any year and 3 million pounds total have been sold, UG will have a right of first refusal to purchase other Texas production at a price equal to the average spot price for a period prior to the date of delivery less 4%. In consideration of UG's agreement to restructure its previously existing contract, we paid UG $12 million in cash. Through December 31, 2010 we have delivered approximately 482,000 pounds to UG.
Joint Venture for Churchrock Property
On December 5, 2006, HRI-Churchrock, Inc., a wholly-owned subsidiary of the Company, entered into a Joint Venture with a wholly-owned subsidiary of Itochu to develop jointly our Churchrock property in New Mexico. The Joint Venture provided Itochu an opportunity to participate in New Mexico uranium production in exchange for renegotiating their sales contract with the Company. The new contract included a provision to allow the Company to receive up to an additional $2.10 per pound for certain South Texas uranium production sold to Itochu.
Under the terms of the Joint Venture Itochu elected to terminate the Joint Venture. As a result of the termination of the joint venture, the Company now retains 100% ownership of the 18.6 millions pounds of in place mineralized uranium material and depending on the level of spot prices, our sales price under the Itochu contract could be reduced by up to $2.10 per pound for future deliveries. We presently have no committed source of financing for development of this project.
Overview of the Uranium Industry
The only significant commercial use for uranium is as a fuel for nuclear power plants for the generation of electricity. According to the World Nuclear Association ("WNA"), as of February 2011, there were 443 nuclear power plants operating in the world with an annual consumption of about 163 million pounds of uranium. In addition, the WNA lists 62 reactors under construction, 156 being planned and 322 being proposed.
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Based on reports by Ux Consulting Company, LLC, or Ux, the preliminary estimate for worldwide production of uranium in 2010 is 120 million pounds. Ux reported that the gap between production and demand was filled by secondary supplies, such as inventories held by governments, utilities and others in the fuel cycle, including the highly enriched uranium, or HEU, inventories which are a result of the agreement between the US and Russia to blend down nuclear warheads. These secondary supplies are currently meeting over 25% of worldwide demand but are depleting.
Spot market prices rose from $21.00 per pound in January 2005 to a high of $136.00 per pound in June 2007 in anticipation of sharply higher projected demand as a result of a resurgence in nuclear power and the depletion or unavailability of secondary supplies. The sharp price increase was driven in part by high levels of utility buying, which resulted in most utilities covering their requirements through 2009. A decrease in near-term utility demand coupled with rising levels of supplies from producers and traders led to downward pressure on uranium prices since the third quarter of 2007. The spot market price for uranium at the start of 2010 was $44.50 per pound and ranged between a low of $40.50 per pound in March to a high at year-end of $62.50 per pound. As of March 14, 2011, the spot price was $60.00 per pound and the long-term contract price was $73.00 per pound.
The following graph shows annual average spot prices per pound from 1992 to 2010 and the average price for the period January 1, 2011 to March 14, 2011, as reported by Ux Consulting.
Ux Average Annual U3O8 Spot Price
The ISR mining process is a form of solution mining. It differs dramatically from conventional mining techniques. The ISR technique avoids the movement and milling of significant quantities of rock and ore as well as mill tailing waste associated with more traditional mining methods. It is generally more cost-effective and environmentally benign than conventional mining. Historically, the majority of United States uranium production resulted from either open pit surface mines or underground mining.
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The ISR process was first tested for the production of uranium in the mid-1960s and was first applied to a commercial-scale project in 1975 in South Texas. It was well established in South Texas by the late 1970's, where it was employed in about twenty commercial projects, including two operated by us.
In the ISR 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. The fluid-bearing uranium is then circulated to an ion exchange column on the surface where uranium is extracted from the fluid onto resin beads. The fluid is then reinjected into the ore body. When the ion exchange column's resin beads are loaded with uranium, they are removed and flushed with a salt-water solution, which strips the uranium from the beads. This leaves the uranium in slurry, which is then dried and packaged for shipment as uranium concentrates.
For greater operating efficiency and lower capital expenditures, when developing new wellfields we use a wellfield-specific remote ion exchange methodology as opposed to a central plant as we had done historically. Instead of piping the solutions over large distances through large diameter pipelines and mixing the waters of several wellfields together, each wellfield is being mined using a dedicated satellite ion exchange facility. This allows ion exchange to take place at the wellfield instead of at the central plant. A wellfield consists of a series of injection wells, production (extraction) wells and monitoring wells drilled in specified patterns. Wellfield pattern is crucial to minimizing costs and maximizing efficiencies of production. The satellite facilities allow mining of each wellfield using its own native groundwater.
Environmental Considerations and Permitting
Uranium mining is regulated by the federal government, states and, in some cases, by Indian tribes. Compliance with such regulation has a material effect on the economics of our operations and the timing of project development. Our primary regulatory costs have been related to obtaining licenses and permits from federal and state agencies before the commencement of mining activities. The current environmental regulatory requirements for the ISR industry are well established. Many ISR mines have gone full cycle without any significant environmental impact. However, the public anti-nuclear lobby can make environmental permitting difficult and timing unpredictable.
U.S. regulations pertaining to climate change continue to evolve in both the U.S. and internationally. We do not anticipate any adverse impact from these regulations that would be unique to our operations.
Radioactive Material License. Before commencing operations in both Texas and New Mexico, we must obtain a radioactive material license. Under the federal Atomic Energy Act, the United States Nuclear Regulatory Commission has primary jurisdiction over the issuance of a radioactive material license. However, the Atomic Energy Act also allows for states with regulatory programs deemed satisfactory by the Commission to take primary responsibility for issuing the radioactive material license. The Commission has ceded jurisdiction for such licenses to Texas, but not to New Mexico. Such ceding of jurisdiction by the Commission is hereinafter referred to as the "granting of primacy."
The Texas Commission of Environmental Quality (TCEQ) is the administrative agency with jurisdiction in Texas over the radioactive material license. For operations in New Mexico, radioactive material licensing is handled directly by the United States Nuclear Regulatory Commission.
See "Properties" and "Legal Proceedings" for the status of our radioactive material license for New Mexico and Texas.
Underground Injection Control Permits ("UIC"). The federal Safe Drinking Water Act creates a nationwide regulatory program protecting groundwater. This law is administered by the United States Environmental Protection Agency (the "USEPA"). However, to avoid the burden of dual federal and
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state regulation, the Safe Drinking Water Act allows for the UIC permits issued by states to satisfy the UIC permit required under the Safe Drinking Water Act under two conditions. First, the state's program must have been granted primacy. Second, the USEPA must have granted, upon request by the state, an aquifer exemption. The USEPA may delay or decline to process the state's application if the USEPA questions the state's jurisdiction over the mine site.
Texas has been granted primacy for its UIC programs, and the Texas Commission on Environmental Quality administers UIC permits. The TCEQ also regulates air quality and surface deposition or discharge of treated wastewater associated with the ISR mining process.
New Mexico has also been granted primacy for its UIC program. The Navajo Nation has been determined eligible for treatment as a state, but it has not requested the grant of primacy from the USEPA for uranium related UIC activity. Until the Navajo Nation has been granted primacy, ISR uranium mining activities within Navajo Nation jurisdiction will require a UIC permit from the USEPA. Despite some procedural differences, the substantive requirements of the Texas, New Mexico and USEPA underground injection control programs are very similar.
Properties located in Indian Country remain subject to the jurisdiction of the USEPA. Some of our properties are located in areas that may be in Indian Country.
See "Properties" and "Legal Proceedings" for a description of the status of our UIC permits in Texas and New Mexico.
Other. In addition to radioactive material licenses and UIC permits, we are also required to obtain from governmental authorities a number of other permits or exemptions, such as for wastewater discharge, for land application of treated wastewater, and for air emissions.
In order for a licensee to receive final release from further radioactive material license obligations after all of its mining and post-mining clean up have been completed, approval must be issued by the TCEQ for Texas properties along with concurrence from the United States Nuclear Regulatory Commission and for properties in New Mexico by the United States Nuclear Regulatory Commission.
In addition to the costs and responsibilities associated with obtaining and maintaining permits and the regulation of production activities, we are subject to 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.
Reclamation and Restoration Costs and Bonding Requirements
At the conclusion of mining, a mine site is decommissioned and decontaminated, and each wellfield is restored and reclaimed. Restoration involves returning the aquifer to its pre-mining use and removing evidence of surface disturbance. Restoration can be accomplished by flushing the ore zone 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 entails dismantling and removing the structures, equipment and materials used at the site during the mining and restoration activities.
The Company is required by the State of Texas regulatory agencies to obtain financial surety relating to certain of its future restoration and reclamation obligations. The Company has a combination of bank Letters of Credit (the "L/Cs) and performance bonds issued for the benefit of the Company to satisfy such regulatory requirements. The L/Cs were issued by Bank of America and the performance bonds have been issued by United States Fidelity and Guaranty Company ("USF&G"). The L/Cs relate primarily to our operations at our Kingsville Dome and Vasquez projects and amounted to $5,858,000 and $5,761,000, at December 31, 2010 and 2009, respectively. The L/Cs are collateralized in their entirety by certificates of deposit.
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The performance bonds were $2,834,000 on December 31, 2010 and 2009, and related primarily to our operations at Kingsville Dome and Rosita. USF&G has required that the Company deposit funds collateralizing a portion of the bonds, and we have deposited approximately $884,000 and $386,000 at December 31, 2010 and 2009, respectively, as cash collateral for such bonds. In September 2010, the Company received notice from the bonding company requesting that the Company either increase the collateral supporting the bonds to 100% of the bond amount by making equal quarterly payments of $500,000 or cause the release of the bonds by the fourth quarter of 2011. The amount of bonding issued by the carrier exceeded the amount of collateral by $2.0 million and $2.5 million at December 31, 2010 and 2009, respectively. In the event that the carrier is required to perform under its bonds or the bonds are called by the state agencies, the Company would be obligated to pay any expenditure in excess of the collateral.
We estimate that our actual reclamation liabilities for prior operations at Kingsville Dome, Vasquez and Rosita at December 31, 2010, are about $7.6 million of which the net present value of $5.0 million is recorded as a liability on our balance sheet as of December 31, 2010.
The Company's financial surety obligations are reviewed and revised periodically by the Texas regulators.
In New Mexico, surety bonding will be required before commencement of mining and will be subject to annual review and revision by the United States Nuclear Regulatory Commission and the State of New Mexico or the USEPA.
Water is essential to the ISR process. It is readily available in South Texas. In Texas, water is subject to capture, and we do not have to acquire water rights through a state administrative process. In New Mexico, water rights are administered through the New Mexico State Engineer and can be subject to Indian tribal jurisdictional claims. New water rights 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 our properties are located, must be obtained by permit from the State Engineer. Applications may be approved subject to conditions that govern exercise of the water rights.
Jurisdiction over water rights becomes an issue in New Mexico when an Indian nation, such as the Navajo Nation, objects to the State Engineer's authority and claims tribal jurisdiction over Indian Country. This issue may result in litigation between the Indian nation and the state, which may delay action on water right applications, and can require applications to the appropriate Indian nation and continuing jurisdiction by the Indian nation over use of the water. The foregoing issues have arisen in connection with certain of our New Mexico properties.
In New Mexico, we hold approved water rights to provide sufficient water to conduct mining at the Churchrock project and Section 24 for the Crownpoint project for the projected life of these mines. We also hold two unprotested senior water rights applications that, when approved by the New Mexico State Engineer, would provide sufficient water for future extensions of the Crownpoint project.
A primary area of competition is in the identification and acquisition of properties with high prospects of potential producible reserves. We compete with multiple exploration companies for both properties as well as skilled personnel. There is global competition for uranium properties, capital, customers and the employment and retention of qualified personnel. In the production and marketing of uranium, there are a number of producing entities, some of which are government controlled and all of which are significantly larger and better capitalized than we are. Many of these organizations also have substantially greater financial, technical, manufacturing and distribution resources than we have.
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Our uranium production also competes with uranium recovered from the de-enrichment of highly enriched uranium obtained from the dismantlement of United States and Russian nuclear weapons and imports to the United States of uranium from the former Soviet Union and from the sale of uranium inventory held by the United States Department of Energy. In addition, there are numerous entities in the market that compete with us for properties and are attempting to become licensed to operate ISR facilities. If we are unable to successfully compete for properties, capital, customers or employees or alternative uranium sources, it could have a materially adverse effect on our results of operations.
With respect to sales of uranium, the Company competes primarily based on price. We market uranium to utilities and commodity brokers and are in direct competition with supplies available from various sources worldwide. We believe we compete with multiple operating companies in the mining and sale of uranium.
Our Internet website address is www.uraniumresources.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports of Form 8-K, and amendments to those reports filed or furnished pursuant to section 13(a) of 15(d) of the Exchange Act, are available free of charge through our website under the tab "Investor Relations" as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission. We also make available on our website copies of materials regarding our corporate governance policies and practices, including our Code of Ethics, Nominating and Governance Committee Charter, Audit Committee Charter and Compensation Committee Charter. You may also obtain a printed copy of the foregoing materials by sending written request to: Uranium Resources, Inc., 405 State Highway 121 Bypass, Building A, Suite 110, Lewisville, Texas 75067, Attention: Information Request or by calling 972.219.3330. The information found on our Internet website is not part of this or any report filed or furnished to the SEC.
The factors identified below 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, we caution that, while we believe such assumptions or bases to be reasonable and make 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.
General Risks and Uncertainties
We are not producing uranium at this time, nor do we expect to begin production in the near future unless uranium prices recover to sustained profitable levels. As a result, we currently have no sources of operating cash. If we cannot monetize certain existing Company assets, partner with another Company that has cash resources, find other means of generating revenue other than uranium production and/or have the ability to access additional sources of private or public capital we may not be able to remain in business.
We will not commence production at our existing properties until uranium prices recover to sustainable profitable levels. Until such uranium price recovery we will have no way to generate cash
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inflows unless we monetize certain Company assets or find other means to generate cash. In addition, our Vasquez project has been depleted of its economically recoverable reserves and our Rosita and Kingsville Dome projects have limited identified economically recoverable reserves. Our future uranium production, cash flow and income are dependent upon our ability to bring on new, as yet unidentified wellfields and to acquire and develop additional reserves. We can provide no assurance that our properties will be placed into production or that we will be able to continue to find, develop, acquire and finance additional reserves.
Our ability to function as an operating mining company will be dependent on our ability to mine our properties at a profit sufficient to finance further mining activities and for the acquisition and development of additional properties. The volatility of uranium prices makes long-range planning uncertain and raising capital difficult.
In addition to ceasing all production, we have deferred all activities for delineation and development of new wellfields at our South Texas projects. This decision limits our ability to be ready to begin production when uranium prices improve to profitable levels. Our ability to operate on a positive cash flow basis will be dependent on mining sufficient quantities of uranium at a profit sufficient to finance our operations and for the acquisition and development of additional mining properties. Any profit depends on the long and short-term market prices of uranium, which are subject to significant fluctuation. Uranium prices have been and will continue to be affected by numerous factors beyond our control. These factors include the demand for nuclear power, political and economic conditions in uranium producing and consuming countries, uranium supply from secondary sources and uranium production levels . A significant, sustained drop in uranium prices may make it impossible to operate our business at a level that will permit us to cover our fixed costs or to remain in operation.
Exploration and development of uranium properties are risky and subject to great uncertainties.
The exploration for and development of uranium deposits involves significant risks. It is impossible to ensure that the current and future exploration programs and/or feasibility studies on our existing properties will establish reserves. Whether a uranium ore body will be commercially viable depends on a number of factors, including, but not limited to: the particular attributes of the deposit, such as size, grade and proximity to infrastructure; uranium prices, which cannot be predicted and which have been highly volatile in the past; mining, processing and transportation costs; perceived levels of political risk and the willingness of lenders and investors to provide project financing; labor costs and possible labor strikes; and governmental regulations, including, without limitation, regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting materials, foreign exchange, environmental protection, employment, worker safety, transportation, and reclamation and closure obligations. Most exploration projects do not result in the discovery of commercially mineable deposits of uranium and there can be no assurance that any of our exploration stage properties will be commercially mineable or can be brought into production.
Potential impact on the uranium markets of the earthquake in Japan.
The aftermath of the catastrophic earthquake and tsunami that struck parts of Japan and the subsequent developments at the Fukushima Nuclear Power Plant has created heightened concerns regarding the ability to safeguard the material used to fuel the operations of this nuclear power facility. The potential impact on the perception of the safety of nuclear power resulting from this event may cause an increased volatility of uranium prices in the near to mid-term as well as uncertainty involving the expansion of nuclear power in certain countries around the world. A reduction in the current and future generation of electricity from nuclear power could result in a reduced requirement for uranium to fuel nuclear power plants which may negatively impact the Company in the future.
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The only market for uranium is nuclear power plants world-wide, and there are a limited number of customers.
We are dependent on a limited number of electric utilities that buy uranium for nuclear power plants. Because of the limited market for uranium, a reduction in purchases of uranium by electric utilities for any reason (such as plant closings) would adversely affect the viability of our business.
The price of alternative energy sources affects the demand for and price of uranium.
The attractiveness of uranium as an alternative fuel to generate electricity may to some degree be dependent on the relative prices of oil, gas, coal and hydro-electricity and the possibility of developing other low cost sources for energy. If the price of alternative energy sources decrease or new low-cost alternative energy sources are developed, the demand for uranium could decrease, which may result in the decrease in the price of uranium.
Public acceptance of nuclear energy is uncertain.
Maintaining the demand for uranium at current levels and future growth in demand will depend upon acceptance of nuclear technology as a means of generating electricity. Lack of public acceptance of nuclear technology would adversely affect the demand for nuclear power and potentially increase the regulation of the nuclear power industry.
We may not be able to mine a substantial portion of our uranium in New Mexico until a mill is built in New Mexico.
A substantial portion of our uranium in New Mexico lends itself most readily to conventional mining methods and may not be able to be mined unless a mill is built in New Mexico. We have no immediate plans to build, nor are we aware of any third party's plan to build, a mill in New Mexico and there can be no guaranty that a mill will be built. In the event that a mill is not built a substantial portion of our uranium may not be able to be mined. Our inability to mine all or a portion of our uranium in New Mexico would have a material adverse effect on future operations.
We do not have a committed source of financing for the development of our New Mexico Properties, including the Churchrock Property, which is the property we expect to develop first in New Mexico.
With the election by Itochu to terminate the Churchrock Joint Venture we do not have a committed source of financing for the development of our Churchrock property. There can be no assurance that we will be able to obtain financing for this project or our other New Mexico projects. Our inability to develop the New Mexico properties would have a material adverse effect on our future operations.
Our operations are subject to environmental risks.
We are required to comply with environmental protection laws and regulations and permitting requirements, and we anticipate that we will be required to continue to do so in the future. We have expended significant resources, both financial and managerial, to comply with environmental protection laws, regulations and permitting requirements and we anticipate that we will be required to continue to do so in the future. The material laws and regulations within the U.S. that the Company must comply with include the Atomic Energy Act, Uranium Mill Tailings Radiation Control Act of 1978, or UMTRCA, Clean Air Act, Clean Water Act, Safe Drinking Water Act, Federal Land Policy Management Act, National Park System Mining Regulations Act, and the State Mined Land Reclamation Acts or State Department of Environmental Quality regulations, as applicable.
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We are required to comply with the Atomic Energy Act, as amended by UMTRCA, by applying for and maintaining an operating license from the NRC and the state of Texas. Uranium operations must conform to the terms of such licenses, which include provisions for protection of human health and the environment from endangerment due to radioactive materials. The licenses encompass protective measures consistent with the Clean Air Act and the Clean Water Act. We intend to utilize specific employees and consultants in order to comply with and maintain our compliance with the above laws and regulations. Mining operations may be subject to other laws administered by the federal Environmental Protection Agency and other agencies.
The uranium industry is subject not only to the worker health and safety and environmental risks associated with all mining businesses, but also to additional risks uniquely associated with uranium mining and milling. The possibility of more stringent regulations exists in the areas of worker health and safety, storage of hazardous materials, standards for heavy equipment used in mining or milling, the disposition of wastes, the decommissioning and reclamation of exploration, mining and in-situ sites, climate change and other environmental matters, each of which could have a material adverse effect on the cost or the viability of a particular project.
We cannot predict what environmental legislation, regulation or policy will be enacted or adopted in the future or how future laws and regulations will be administered or interpreted. The recent trend in environmental legislation and regulation, generally, is toward stricter standards, and this trend is likely to continue in the future. This recent trend includes, without limitation, laws and regulations relating to air and water quality, mine reclamation, waste handling and disposal, the protection of certain species and the preservation of certain lands. These regulations may require the acquisition of permits or other authorizations for certain activities. These laws and regulations may also limit or prohibit activities on certain lands. Compliance with more stringent laws and regulations, as well as potentially more vigorous enforcement policies or stricter interpretation of existing laws, may necessitate significant capital outlays, may materially affect our results of operations and business, or may cause material changes or delays in our intended activities.
Our operations may require additional analysis in the future including environmental, cultural and social impact and other related studies. Certain activities require the submission and approval of environmental impact assessments. Environmental assessments of proposed projects carry a heightened degree of responsibility for companies and directors, officers, and employees. We cannot provide assurance that we will be able to obtain or maintain all necessary permits that may be required to continue our operation or our exploration of our properties or, if feasible, to commence development, construction or operation of mining facilities at such properties on terms which enable operations to be conducted at economically justifiable costs. If we are unable to obtain or maintain permits or water rights for development of our properties or otherwise fail to manage adequately future environmental issues, our operations could be materially and adversely affected.
Because mineral exploration and development activities are inherently risky, we may be exposed to environmental liabilities and other dangers. If we are unable to maintain adequate insurance, or liabilities exceed the limits of our insurance policies, we may be unable to continue operations.
The business of mineral exploration and extraction involves a high degree of risk. Few properties that are explored are ultimately developed into production. Unusual or unexpected formations, formation pressures, fires, power outages, labor disruptions, flooding, explosions, cave-ins, landslides and the inability to obtain suitable or adequate machinery, equipment or labor are other risks involved in extraction operations and the conduct of exploration programs. Previous mining operations may have caused environmental damage at certain of our properties. It may be difficult or impossible to assess the extent to which such damage was caused by us or by the activities of previous operators, in which case, any indemnities and exemptions from liability may be ineffective. If any of our properties are
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found to have commercial quantities of uranium, we would be subject to additional risks respecting any development and production activities.
Although we carry liability insurance with respect to our mineral exploration operations, we may become subject to liability for damage to life and property, environmental damage, cave-ins or hazards against which we cannot insure or against which we may elect not to insure because of cost or other business reasons. In addition, the insurance industry is undergoing change and premiums are being increased. If we are unable to procure adequate insurance, we might be forced to cease operations.
Our inability to obtain financial surety would threaten our ability to continue in business.
Future bonding requirements to comply with federal and state environmental and remediation requirements and to secure necessary licenses and approvals will increase significantly when future development and production occurs at our sites in Texas and New Mexico. The amount of the bonding for each producing property is subject to annual review and revision by regulators. We expect that the issuer of the bonds will require us to provide cash collateral equal to the face amount of the bond to secure the obligation. In the event we are not able to raise, secure or generate sufficient funds necessary to satisfy these bonding requirements, we will be unable to develop our sites and bring them into production, which inability will have a material adverse impact on our business and may negatively affect our ability to continue to operate.
Because we have limited capital, inherent mining risks pose a significant threat to us compared with our larger competitors.
Because we have limited capital, we are unable to withstand significant losses that can result from inherent risks associated with mining, including environmental hazards, industrial accidents, flooding, interruptions due to weather conditions and other acts of nature which larger competitors could withstand. Such risks could result in damage to or destruction of our infrastructure and production facilities, as well as to adjacent properties, personal injury, environmental damage and processing and production delays, causing monetary losses and possible legal liability.
We will need to obtain additional financing in order to implement our business plan, and the inability to obtain it could cause our business plan to fail.
As of December 31, 2010, we had approximately $15.4 million in cash. We may require additional financing in order to complete our plan of operations. We may not be able to obtain all of the financing we require. Our ability to obtain additional financing is subject to a number of factors, including the market price of uranium, market conditions, investor acceptance of our business plan, and investor sentiment. These factors may make the timing, amount, terms and conditions of additional financing unattractive or unavailable to us. In recognition of current economic conditions and the shut-down of production, we have significantly reduced our spending, delayed or cancelled planned activities and substantially changed our current corporate structure. However, these actions may not be sufficient to offset the detrimental effects of the weak economy and cessation of production, which could result in material adverse effects on our business, revenues, operating results, and prospects.
Our business could be harmed if we lose the services of our key personnel.
Our business and mineral exploration programs depend upon our ability to employ the services of geologists, engineers and other experts. In operating our business and in order to continue our programs, we compete for the services of professionals with other mineral exploration companies and businesses. In addition, several entities have expressed an interest in hiring certain of our employees. Our ability to maintain and expand our business and continue our exploration programs may be impaired if we are unable to continue to employ or engage those parties currently providing services
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and expertise to us or identify and engage other qualified personnel to do so in their place. To retain key employees, we may face increased compensation costs, including potential new stock incentive grants and there can be no assurance that the incentive measures we implement will be successful in helping us retain our key personnel.
Approximately 27.1% of our Common Stock is controlled by one record owner and management.
Approximately 22.9% of our common stock is controlled by three significant stockholders. In addition, our directors and officers are the beneficial owners of approximately 4.2% of our common stock. This includes, with respect to both groups, shares that may be purchased upon the exercise of outstanding options. Such ownership by the Company's principal shareholders, executive officers and directors may have the effect of delaying, deferring, preventing or facilitating a sale of the Company or a business combination with a third party.
The availability for sale of a large amount of shares may depress the market price of our Common Stock.
As of December 31, 2010, 92,430,306 shares of our Common Stock were currently outstanding, all of which are freely transferable. Approximately 5,704,000 shares of Common Stock are reserved for issuance upon the exercise of outstanding options and warrants. The availability for sale of a large amount of shares or conversion of the Company's outstanding warrants by any one or several shareholders may depress the market price of our Common Stock and impair our ability to raise additional capital through the public sale of our Common Stock. We have no arrangement with any of the holders of the foregoing shares to address the possible effect on the price of our Common Stock of the sale by them of their shares.
Terms of subsequent financings may adversely impact our stockholders.
In order to finance our future production plans and working capital needs, we may have to raise funds through the issuance of equity or debt securities. We currently have no authorized preferred stock. Depending on the type and the terms of any financing we pursue, stockholder's rights and the value of their investment in our Common Stock could be reduced. For example, if we have to issue secured debt securities, the holders of the debt would have a claim to our assets that would be prior to the rights of stockholders until the debt is paid. Interest on these debt securities would increase costs and negatively impact operating results. If the issuance of new securities results in diminished rights to holders of our Common Stock, the market price of our Common Stock could be negatively impacted.
Shareholders would be diluted if we were to use Common Stock to raise capital.
As previously noted, we may need to seek additional capital in the future to satisfy our working capital requirements. This financing could involve one or more types of securities including common stock, convertible debt, preferred stock or warrants to acquire common or preferred stock. These securities could be issued at or below the then prevailing market price for our Common Stock. Any issuance of additional shares of our Common Stock could be dilutive to existing stockholders and could adversely affect the market price of our Common Stock.
Item 1B. Unresolved Staff Comments.
None.
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We currently control three production properties and two exploration properties in the state of Texas. These properties are owned by the Company's wholly owned subsidiary, URI, Inc. The Kingsville Dome, Rosita and Vasquez production properties and the Los Finados exploration property are shown in Figure No. 2.1 and are described below.
Figure No 2.1. Texas Properties Location Map
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Kingsville Dome (Figure 2.2)
The Property. The Kingsville Dome property consists of mineral leases from private landowners on about 2,434 gross and 2,227 net acres located in central Kleberg County, Texas. The leases provide for royalties based upon a percentage of uranium sales of 6.25%. The leases have expiration dates ranging from 2000 to 2007, however we hold most of these leases through our continuing restoration activities; and with a few minor exceptions, all the leases contain clauses that permit us to extend the leases not held by production by payment of a per acre royalty ranging from $10 to $30. We have paid such royalties on all material acreage. Mineralization is found in the Goliad formation at depths of 600 to 750 feet.
Production History. Initial production commenced in May 1988. From then until July 1999, we produced a total of 3.5 million pounds. Production was stopped in July 1999, because of depressed uranium prices. We resumed production at Kingsville Dome in April 2006 and produced 94,100 pounds of uranium in 2006; 338,100 pounds in 2007, 254,000 pounds in 2008 and 56,000 pounds in 2009. We had no production in 2010. We made approximately $3.6 million in capital expenditures in 2008, $159,000 in 2009 and $150,000 in 2010.
Permitting Status. A radioactive material license and underground injection control permit have been issued. As new areas are proposed for production, additional authorizations under the area permit are required. See "Legal Proceedings."
Restoration and Reclamation. During 2010, we conducted restoration activities as required by the permits and licenses on this project spending approximately $903,000 on restoration activities. In 2009 and 2008, we spent approximately $963,000 and $349,000, respectively. Since we began our groundwater activities in 1998, we have processed and cleaned approximately 2.2 billion gallons of groundwater at the Kingsville Dome project.
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Figure No. 2.2. Kingsville Dome Property
Rosita (Figure 2.3)
The Property: The Rosita property consists of mineral leases from private landowners on about 3,377 gross and net acres and the Rosita South property consists of mineral leases from private land owners on about 2,130 gross acres and 1,984 net acres located in north-central Duval County, Texas. The leases provide for sliding scale royalties based on a percentage of uranium sales. Royalty percentages on average increase from 6.25% up to 18.25% when uranium prices reach $80.00 per pound. The leases have expiration dates ranging from 2012 to 2015. We are holding these leases by payment of rental fees ranging from $10 to $30 per acre. Mineralization is found in the Goliad Formation at depths of 125 to 350 feet.
Production History: Initial production commenced in 1990. From then until July 1999, URI produced a total of 2.64 million pounds. Production was stopped in July of 1999 because of depressed uranium prices. Production from a new wellfield at Rosita wellfield was begun in June 2008. However, technical difficulties that raised the cost of production coupled with a sharp drop in uranium prices led to the decision to shut-in this wellfield in October 2008 after 10,200 pounds were produced. We had no production from Rosita in 2009 or 2010.
Our capital expenditures were approximately $137,000, $40,000 and $4.5 million in 2010, 2009 and 2008, respectively primarily for plant refurbishment and wellfield development.
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Restoration and Reclamation. We are conducting restoration and reclamation activities at this project and are currently in stabilization in our first two PA's. During 2010, our primary groundwater activity consisted of collecting groundwater samples throughout the year for stability testing. We spent $0 in 2010 and approximately $247,000 and $465,000 on restoration activities in 2009 and 2008, respectively. Since we began our groundwater activities in 2000, we have processed and cleaned approximately 1.3 billion gallons of groundwater at the Rosita project.
Permitting Status: A radioactive material license and an underground injection control permit have been issued for the Rosita property. Production could resume in areas already included in existing Production Area Authorizations. As new areas are proposed for production, additional authorizations under the permit will be required.
Figure No. 2.3. Rosita Property
Vasquez (Figure 2.4)
The Property. We have a mineral lease on 872 gross and net acres located in southwestern Duval County, in South Texas. The primary term expired in February 2008; however, we held the lease by production and are currently in restoration. The lease provides for royalties based upon 6.25% of uranium sales below $25.00 per pound and royalty rate increases on a sliding scale up to 10.25% for uranium sales occurring at or above $40.00 per pound. Mineralization is found in the Oakville formation at depths of 200 to 250 feet.
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Production History. We commenced production from this property in October 2004. Our capital expenditures in 2010 were approximately $78,000. We had approximately $194,000 in capital expenditures at Vasquez in 2009. We had approximately $355,000 in capital expenditures at Vasquez and produced 36,600 pounds of uranium in 2008. We had no production from Vasquez in 2010.
Restoration and Reclamation. We are conducting ongoing restoration and reclamation activities at this project and have spent $470,000, $591,000 and $224,000 in 2010, 2009 and 2008, respectively for such activities. Since the commencement of groundwater restoration activities at the end of 2007, we have treated approximately 244 million gallons of groundwater.
Permitting Status. All of the required permits for this property have been received.
Figure No. 2.4. Vasquez Property
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Los Finados Project (Figure 2.5)
On December 30, 2010, we entered into a three year lease option agreement with a large Texas landowner for the exploration of 53,500 acres in Kenedy County, Texas. The agreement includes an option to lease the acreage for future uranium production.
The property is located within the prolific South Texas uranium district which has been a major producer of uranium for half a century. Situated near uranium mining operations which produce from the Goliad Formation, the property also hosts several oil and gas fields and is bisected by a major depositional channel system. These provide the geologic, stratigraphic, and geochemical components for uranium deposition and water-saturated host sand with good rock permeability. Locally, water samples taken from a number of wells on the property contain levels of uranium or uranium decay products that indicate anomalously high concentrations of uranium in nearby rock.
The lease option agreement included a $1 million fee paid at signing. It requires a minimum exploration obligation of one hundred exploration wells or $1.0 million investment in the first year, an additional two hundred exploration wells or $1.5 million investment in the second year and, in the third year, an additional two hundred exploration wells or $2.0 million investment. Investment or drilling in excess of the minimum requirement in any year counts toward the following year's requirements. The uranium mining lease can be acquired at any time at a cost of $200 per acre. Royalties on uranium sales are determined by a sliding scale ranging from 10% to 20.5% based on the price received. In a separate letter agreement, the parties established guidelines for securing a major partner for the exploration projects, which is a condition for exercise of the lease option.
In connection with the planned exploration program for this project we have signed a non-binding letter of intent with Cameco Resources, a subsidiary of Cameco (NYSE: CCJ), for a three-phase exploration program that will be funded by Cameco Resources with an option for a production joint venture. Upon execution of the final exploration agreement, Cameco Resources would pay URI $300,000.
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Figure No. 2.5. Los Finados Property
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Marshall Exploration Property (figure 2.6).
The Marshall Property is a Goliad and Oakville prospect consisting of 2,467 gross and net acres. It is located in Duval and McMullen counties, Texas. During 2008 we drilled 280 exploration holes and discovered significant mineralization. Further evaluation will need to be conducted to determine if this property can be mined using ISR methods.
Figure No. 2.6. Marshall Exploration Property
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General. We have various interests in properties located in New Mexico, these properties are owned by the Company's wholly owned subsidiary, Hydro Resources, Inc. ("HRI") (Figure 2.7). We have fee lands, patented and unpatented mining claims, mineral leases and some surface leases. We have spent $13.3 million to date on permitting for New Mexico. Additional expenditures will be required and could be material. We are unable to estimate the amount. We expect that these costs will be incurred over multiple years. See "Legal Proceedings" for a discussion of the current status of our license for New Mexico
Figure No. 2.7. Location of New Mexico Properties
Churchrock/Mancos (Figure 2.8)
The Property. The Churchrock project encompasses about 2,200 gross and net acres. 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. See, "Item 3. Legal Proceedings." Access to the Churchrock property is via State Highway 566 and access to Mancos is via 4-wheel drive ranch roads west of State Highway 566.
We own the mineral estate in fee for the NE 1/4 and the SW 1/4 of the NW 1/4 of Section 17, T16N, R16W. In Section 8, T16N, R16W, we own the SE 1/4 in fee and hold the minerals in the rest of the
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section with 26 unpatented federal mining claims (UNC1A thru UNC 26). For the Mancos Property, we own the minerals in Section 13, T16N, R17W, in fee, the minerals in the NW 1/4 of Section 7, T16N, R16W, in fee and hold the minerals in the E 1/2 of Section 12, T16N, R17W, with 20 unpatented federal mining claims (KP1A thru KP5A, KP19, KP36, 121617-14A thru 121617-18A, 121617-20A thru 121617-23A and 121617-32A thru 121617-35A). The federal unpatented mining claims are all held through the payment of a $125.00 assessment fee each year on each claim.
Mineralization occurs in the Westwater Member of the Morrison Formation at depths of 800 to 1700 feet.
The surface estate on Section 17, Mancos Section 13 and Mancos Section 7 is owned by the United States Government and held in trust for the Navajo Nation. On those sections we have royalty obligations ranging from 5% to 61/4% and a 2% overriding royalty obligation to the Navajo Nation for surface use agreements. The total royalties on Section 8 depend on the sales' price of uranium. Aggregate royalties are potentially as much as 39.25% at the current price of uranium.
Development Plan. We anticipate that Churchrock will be the first of our New Mexico properties we will develop. We spent about $139,000, $219,000 and $421,000 in 2010, 2009 and 2008, respectively, for permitting activities and land holding costs. In December 2006, we entered into a joint venture with Itochu to jointly develop this property and in March 2009 the joint venture was terminated.
Water Rights. The State Engineer approved our water rights application in October 1999 and granted us sufficient water rights for the life of Churchrock.
Permitting Status. We have the radioactive material license for Section 8. This license is subject to the continuing proceedings described under "Legal Proceedings." With respect to the UIC permits, see "Legal Proceedings." We do not plan to pursue permits for Mancos at this time.
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Figure No. 2.8. Churchrock / Mancos Property Mineral Ownership
Crownpoint (Figure 2.9)
The Property. The Crownpoint properties are located in the San Juan Basin, 22 miles northeast of our Churchrock deposits and 35 miles northeast of Gallup, New Mexico, adjacent to the town of Crownpoint, New Mexico. The properties consist of 619 gross and 521.8 net acres. We hold the minerals in the NW 1/4 of Section 9, T17N, R13W with 9 unpatented federal mining claims (CP-1 thru CP9) and the minerals in the SW 1/4 of Section 24, T17N, R13W with 10 unpatented federal mining claims (CP-10 thru CP-19). In the SE 1/4 of Section 24, T17N, R13W we own in fee a 40% interest in the minerals on approximately 139 acres and hold 100% of the minerals on 20 additional acres with two unpatented federal mining claims (Consol I and Consol II). In the NE 1/4 of Section 25, T17N, R13W we hold the minerals with eight unpatented federal mining claims (Hydro-1 thru Hydro-8). The federal unpatented mining claims are held through the payment of a $140.00 assessment fee each year on each claim. Access is via paved road from State Highway 371, through the town of Crownpoint to Church Road to the main gate of the property.
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Mineralization is found in the Westwater Member of the Morrison Formation at a depth of from 2,100 to 2,300 feet. Three pilot shafts were commenced on the property in the early 1980's but were never completed. Surface facilities dating from those activities including buildings and their associated electrical/water infrastructure are still in-place and are currently used as offices and storage facilities.
Development Plan. We spent about $3,000, $3,000 and $127,000 in 2010, 2009 and 2008, respectively, for permitting activities and land holding costs.
Water Rights. The State Engineer approved our water rights application in 2004 and granted us sufficient water rights for ISR operations for the life of Crownpoint Section 24 mining. We have two additional pending applications for appropriations of water, which give us the first two "positions in line" on the hearings list for the San Juan Basin. These additional pending water rights applications may involve a claim of jurisdiction by the Navajo Nation.
Permitting Status. See "Legal Proceedings" for a discussion of the radioactive material license for Crownpoint. The surface estate on Section 19 and 29 is owned by the United States Government and held in trust for the Navajo Nation and may be subject to the same jurisdictional dispute with respect to the UIC permit as for Section 8 and 17 in Churchrock.
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Figure No. 2.9. Crownpoint Property Mineral Ownership
Nose Rock (Figure 2.10)
The Nose Rock property consists of approximately 6,400 acres and is located about 12 miles northeast of Crownpoint, New Mexico. The minerals are held in fee on Sections 10, 11, 15, 17, 18, 19, 20, 29, 30 and 31 all in T19N, R11W. Access to the property is via a 41/2 mile private paved road north of Tribal Road 9. The property was developed by Philips Uranium Corporation in the early 1980's and includes two circular concrete-lined shafts that have been completed to a depth of 3,300 feet. Both shafts have been plugged at surface and just above the Westwater. There is no usable surface infrastructure on site. Mineralization occurs in the Westwater Member of the Morrison Formation.
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Figure No. 2.10. Nose Rock Property Mineral Ownership
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West Largo (Figure 2.11)
The West Largo property is comprised of six contiguous sections of land located in McKinley County, New Mexico about 21 miles north of the town of Milan, New Mexico and about three miles west of State Highway 509. Access is via a nine-mile 4-wheel drive road from State Highway 509. The minerals on sections 17, 19, 21 and 29 T15N, R10W are held in fee and the minerals on sections 20 and 28 T15N, R10W are held by 75 unpatented federal mining claims (ID21 thru ID91 and ID95 thru ID98). The federal unpatented mining claims are held through the payment of a $125.00 assessment fee each year on each claim.
Mineralization occurs in the Westwater Member of the Morrison Formation at depths ranging from 2,000 to 2,750 feet depending on surface topography. Over 1,000 drill holes were used to define the mineralization in the late 1970's and early 1980's. Other than this exploration drilling, there has been no development on this property.
Figure 2.11. West Largo Property Mineral Ownership
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Roca Honda (Figure 2.12)
The Roca Honda property is comprised of four sections of land totaling approximately 2,560 acres located about 4 miles northwest of the town of San Mateo in McKinley County, New Mexico. Sections 13, 15 and 17, T13N, R8W are held in fee and Section 8, T13N, R8W is held by 36 unpatented federal mining claims (Roca Honda 55 thru Roca Honda 63, Roca Honda 82 thru Roca Honda 90, Roca Honda 109 thru 117 and Roca Honda 136 thru Roca Honda 144). The federal unpatented mining claims are held through the payment of a $125.00 assessment for each year on each claim. The property is accessed over various 4-wheel drive ranch roads north of State Highway 605.
Mineralization occurs in the Westwater Member of the Morrison Formation at depths ranging from 1,700 on Section 17 to over 3,300 feet in Section 13. In the late 1970's and early 1980's, various operators drilled 620 exploration holes on the property. In the late 1980's, Kerr-McGee sank a shaft to a depth of 1,475 feet on Section 17 to develop the property, then known as the Lee Mine. The shaft was stopped short of the ore zone and the mine closed down when uranium prices fell in 1983. There is no useable infrastructure on surface.
Figure No. 2.12. Roca Honda Property Mineral Ownership
31
Potential ISR and OSL areas (Figures 2.13 & 2.14). Several areas in T13N R 9 W and T14 N R 10W are being considered for application of ISR methods (Sections 13 and 17 of T13N R9W and Sections 5 and 27 of T14 N R 10W). All land described is owned in fee.
In November 2008, we received an exploration permit from the New Mexico Mining and Minerals Division on Section 13. The permit allowed URI to drill up to ten holes for the purpose of extracting core samples. The drilling was completed in September 2010, and we received preliminary results from a third-party laboratory analysis which demonstrated low organic carbons. This result indicates that some of the 860,000 pounds of in-place mineralized material at this property may be amenable to ISR mining. This property is not yet licensed or permitted. Although further leaching studies will be required to establish recovery percentages in a full scale mining scenario, we do not currently plan such additional work until after the completion of the feasibility study currently underway on our Churchrock/Crownpoint ISR project.
Two other sections in T14N R10W (Sections 23 and 25) have been the site of extensive development and mining in the past and could provide targets for the application of Old Stope Leaching operations. Mineral on these two sections is owned in fee.
32
Figure No. 2.13. West Ambrosia area
33
Our properties are covered by various types of insurance including property and casualty, liability and umbrella coverage. We have not experienced any material uninsured or under insured losses related to our properties in the past and believe that sufficient insurance coverage is in place.
We have completed production and groundwater restoration on our Benavides and Longoria projects in South Texas. We completed the final stages of surface reclamation on these projects and received full and final release for these sites in 1999.
We acquired the Section 17 leases in the New Mexico Churchrock district from United Nuclear Corporation who had conducted underground mining for uranium on Section 17 and had reclaimed these properties. In the acquisition, we assumed any liability of United Nuclear Corporation for any remaining remediation work that might be required. The New Mexico Energy Minerals and Natural Resources Department has not determined what, if any, additional remediation would be required under the New Mexico Mining Act. If more remediation work is required, we believe it would not involve material expenditures as required by the New Mexico Energy Minerals and Natural Resources Department regulation.
34
In January 2008 the Navajo Nation Environmental Protection Agency (NNEPA) notified the Company of their analysis that indicated potentially uranium contaminated materials present on the Churchrock Section 17 mine site. In response, the Company has performed a comprehensive characterization of the Churchrock Site at Section 17 and lands adjacent to the site area and completed the field work during the spring/summer of 2009. This study was completed in September 2009 and we believe that any off-site mine-related impacts at Section 17 and adjacent lands are minor. The jurisdiction of the Navajo Nation to require additional remediation at the Section 17 site, and their criteria for further remediation, are unknown.
See "Legal Proceedings" for a description of the status of the Navajo EPA letter and UNC Demand for Indemnity in New Mexico.
New Mexico Radioactive Material License
In the State of New Mexico, uranium recovery by ISR technology requires a combined source and 11e. (2) byproduct material (uranium recovery) license issued by the United States Nuclear Regulatory Commission (the "NRC" or the "Commission"). In January 1998 the Commission issued a uranium recovery license for our Crownpoint Uranium Project ("CUP") that allowed operations to begin in the Churchrock district. After various objections were raised by intervenors, a final Commission decision upholding HRI's license. That decision was appealed by intervenors to the United States Court of Appeals for the Tenth Circuit, which rejected the petition and affirmed the action of the Commission in all respects on March 8, 2010. The Tenth Circuit denied the petition for a rehearing en banc and on November 2010, the United States Supreme Court denied the opponents' petition for certiorari. This cleared the last remaining legal challenge to our NRC license.
New Mexico UIC PermitTenth Circuit Court of Appeals Decision
On June 15, 2010 the United States Court of Appeals for the Tenth Circuit en banc held that the Company's Section 8 property in Churchrock, New Mexico is not Indian Country. The result of the ruling is that the authority to issue a UIC permit to URI falls under the jurisdiction of the State of New Mexico and not the U.S. Environmental Protection Agency (USEPA). The opposing parties had the right to petition the Supreme Court for review until September 13, 2010; however no petitions were filed as of deadline and the ability for opposing parties to petition the United States Supreme Court has expired.
Dispute over Kleberg County Settlement Agreement
In February 2007, Kleberg County, Texas adopted a resolution alleging violations of its December 2004 Settlement Agreement with the Company and authorizing outside counsel to bring suit against the Company to force it to cease mineral production unless the Company promptly resolved the matter to the County's satisfaction. The County disputes the Company's interpretation of the December 2004 Settlement Agreement as to the level of groundwater restoration the Company agreed to achieve in Kingsville Dome Production Areas 1 and 2. The Company believes it is in full compliance and engaged in a mediation of this dispute. On September 28, 2007, after negotiations had stalled the Company filed suit against the County in the 105th Judicial District Court, Kleberg County, Texas for declaratory relief interpreting the Settlement Agreement and for recovery of the Company's legal fees and costs of the suit.
The County has answered the suit and has asserted counterclaims alleging the Company had violated the December, 2004 Settlement Agreement with Kleberg County and asked for injunctive relief ordering the Company to cure various alleged breaches of that agreement and asked that the County be awarded its legal fees and costs of suit. The County's motion for partial summary judgment was
35
heard on February 24, 2011, and taken under advisement by the court. Because the County's motion for partial summary judgment does not seek to dispose of the entire case, the Company expects this case will go to trial unless settled.
If this matter goes to trial, the Company will defend the case vigorously.
Kingsville Dome Production Disposal Well Permit Renewals and Production Area Authorization 3
After an August 2005 hearing, the Texas Commission on Environmental Quality ("TCEQ") voted unanimously February 22, 2006 to renew the Company's disposal well permits, WDW-247 and WDW-248, and to issue Kingsville Dome Production Area Authorization 3 ("PA 3"). A citizens group and a Ms. Garcia filed in the 201st Judicial District Court, Travis County, Texas for judicial review of the TCEQ action in June 2006. The Texas Attorney General answered in defense of TCEQ and the Company intervened to defend the TCEQ's action granting the permit renewals and production area authorization. The two cases have been consolidated; a judge has been assigned; and, in June 2007, the TCEQ submitted the administrative record to the court for review.
In June 2007 an attorney claiming to have been newly engaged by a plaintiff, Ms. Garcia, notified all parties that Garcia wished to withdraw from the litigation and requested that no further action be taken and that her action be dismissed. On June 27, 2007, Garcia's original counsel moved to appoint a guardian or representative for Ms. Garcia. The Company challenged the sufficiency of the request for appointment of a guardian or representative for Ms. Garcia; and Ms. Garcia's original counsel set his motion for hearing in August 2007. Before the hearing date, original counsel for Ms. Garcia, tentatively rescheduled the hearing for October 24, 2007 and then canceled that hearing date. No further action on the matter has been scheduled; and mining in Production Area 3 and the rest of the Company's Kingsville Dome mines has ceased, leaving the entire mine site in the process of groundwater restoration.
There were no further developments in this matter during 2010.
The permits and production area authorization issued by TCEQ remain effective unless overturned by a reviewing Court.
Navajo EPA letter and UNC/GE Demand for Indemnity
By letter dated January 23, 2008, the Navajo Nation Environmental Protection Agency (NNEPA) sent a document dated September 2007 titled "Radiological Scoping Survey Summary Report for the Old Churchrock Mine Site" (Survey Report) to our subsidiary, Hydro Resources, Inc. (HRI) and United Nuclear Corporation and General Electric (UNC/GE). The Survey Report was reportedly prepared in response to a claim by NNEPA against HRI and UNC/GE for potential liability for uranium contaminated materials present on HRI's Churchrock Mine Site. NNEPA requested HRI and UNC/GE to undertake a "comprehensive and detailed characterization" of HRI's Churchrock Mine Site and adjacent lease areas, as recommended in the Survey Report.
By letter dated January 29, 2008, UNC and GE, pursuant to a Supplemental Purchase Agreement and Guarantee, demanded that HRI and the Company defend and indemnify it for all loss, cost, expense, liabilities and obligations that have been or will be incurred or sustained by GE and UNC with respect to the request asserted by NNEPA.
In response HRI/URI has committed with UNC and GE to perform a site assessment at its expense of the Old Churchrock Site for potential contamination from historic mining. In August 2009, the Company submitted to NNEPA a site characterization report prepared by a third-party environmental consulting firm, Intera, Inc. The assessment concluded that site conditions did not constitute a threat to human health or the environment. NNEPA is presently evaluating the site characterization report. In the event that a governmental authority issues a formal Administrative
36
Order or files a lawsuit, the Company and UNC will be considered to have reserved their respective rights and defenses to the indemnity claims, and will immediately seek and attempt to resolve, in good faith, any areas of dispute which may exist at that time.
In the matter titled, Saenz v. URI Inc, in the 105th Judicial District Court, Kleberg County, Texas, the owners of the mineral estate of property in Kleberg County, Texas leased to the Company sought a declaratory judgment that the leases were not valid. The Company had produced uranium from both leases. On September 29, 2010, our counsel and the plaintiffs' counsel signed a settlement agreement in this matter and the settlement was finalized in February 2011. Under the Settlement, the Plaintiffs ratified, confirmed and recognized the validity of the leases, agreed to cooperate with the Company and execute a stipulation of interest with regard to their respective interests. Plaintiffs agreed to support and not interfere, either directly or indirectly, with the Company's efforts to obtain permits, licenses or other authorizations from the different regulatory and governmental agencies with regard to any mining or other operations. We paid to Plaintiffs $1.375 million in cash, which includes amounts for prior royalties that the plaintiffs had previously rejected. In addition royalties due for future production from the leases will be amended from a 6.25% royalty rate to a sliding scale royalty.
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 result in material expenditures or have any other material adverse effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
GLOSSARY OF CERTAIN URANIUM INDUSTRY TERMS
claim |
A claim is a 20 acre tract of land, the right to mine of which is held under the federal General Mining Law of 1872 and applicable local laws. | |
concentrates |
A product from a uranium mining and milling facility, which is commonly referred to as uranium concentrate or U3O8. |
|
conversion |
A process whereby uranium concentrates are converted into forms suitable for use as fuel in commercial nuclear reactors. |
|
cut-off grade |
Cut-off grade is determined by the following formula parameters: estimates over the relevant period of mining costs, ore treatment costs, general and administrative costs, refining costs, royalty expenses, process and refining recovery rates and uranium prices. |
|
gross acres |
Total acres under which we have 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. § 1151 and understood to encompass territory situated within Indian reservations, land owned by Indian allottees and land within a dependent Indian community. |
37
in-situ recovery (ISR) |
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. The fluid-bearing uranium is then circulated to an ion exchange column on the surface where uranium is extracted from the fluid onto resin beads. The fluid is then reinjected into the ore body. When the ion exchange column's resin beads are loaded with uranium, they are removed and flushed with a salt-water solution, which strips the uranium from the beads. This leaves the uranium in slurry, which is then dried and packaged for shipment as uranium powder, or yellowcake. |
|
mineralized material |
A mineralized body which has been delineated by appropriately spaced drilling and/or underground sampling to support a sufficient tonnage and average grade. Such a deposit does not qualify as a reserve, until a comprehensive evaluation based upon unit cost, grade, recoveries, and other material factors conclude legal and economic feasibility. |
|
net acres |
Actual acres under lease which may differ from gross acres when fractional mineral interests are not leased. |
|
old stope leaching |
Old stope leaching involves the pumping of ground water, through stopes, drifts, and other flooded underground mine workings of previously conventionally mined areas to remove the residual and soluble post mining uranium values. The resulting uranium-bearing ground water is pumped to the surface for uranium removal and then is re-circulated directly into the mine workings or into injection wells that are completed in or near to the workings. This re-circulation of the same ground water is repeated, until the residual uranium in the old underground mine is depleted. |
|
ore |
Naturally occurring material from which a mineral or minerals of economic value can be extracted at a reasonable profit. |
|
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 |
|
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. |
38
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 our pre-mining use. The restoration of 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. |
|
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. |
|
shut in |
A term that refers to ceasing production or the absence of production. |
|
shut-in royalty |
A lease clause permitting the extension of a lease not held by production by payment of a per acre royalty. |
|
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. |
|
uranium or uranium concentrates |
U3O8 or triuranium octoxide. |
|
U3O8 |
Triuranium octoxide equivalent contained in uranium concentrates, referred to as uranium concentrate. |
|
waste |
Barren rock in a mine, or uranium in a rock formation that is too low in grade to be mined and milled at a profit. |
|
yellowcake |
Uranium in powder form, the end-result of the ISR process. |
39
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
From April 12, 2007 to July 1, 2010 our common stock was listed on the NASDAQ Global Market under the symbol "URRE." Effective, July 2, 2010, our listing was transferred to the NASDAQ Capital Market because we had failed to regain compliance with the $1.00 per share minimum bid price by July 7, 2101, and we were granted until January 4, 2011 to demonstrate compliance with the minimum $1.00 bid price requirement of The NASDAQ Capital Market. In October 2010, we regained compliance with the $1.00 per share minimum bid price requirement for continued listing on the NASDAQ Capital Market.
The following table sets forth the high and low bid prices for our common stock as reported on the applicable markets for the periods indicated:
|
Common Stock | ||||||
---|---|---|---|---|---|---|---|
Fiscal Quarter Ending
|
High | Low | |||||
December 31, 2010 |
$ | 3.75 | $ | 1.14 | |||
September 30, 2010 |
1.38 | 0.39 | |||||
June 30, 2010 |
0.76 | 0.40 | |||||
March 31, 2010 |
0.86 | 0.69 | |||||
December 31, 2009 |
1.33 | 0.76 | |||||
September 30, 2009 |
1.32 | 0.89 | |||||
June 30, 2009 |
1.73 | 0.50 | |||||
March 31, 2009 |
1.92 | 0.40 |
As of December 31, 2010, 92,430,306 shares of our common stock were outstanding. As of March 14, 2010 there were 117 holders of record.
We have never paid any cash or other dividends on our common stock, and we do not anticipate paying dividends for the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth information as of December 31, 2010 regarding equity compensation to the Company's employees, officers and directors under equity compensation plans. We have no plans under which equity securities are authorized for issuance to non-employees (including lenders, suppliers, customers, advisors or consultants) in exchange for goods and services.
Plan category
|
Number of shares issuable under outstanding options and rights |
Weighted average exercise price |
Number of shares available for future issuance |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Equity compensation plans approved by security holders |
3,968,875 | $ | 2.55 | 626,833 | ||||||
Equity compensation plans not approved by security holders(1) |
735,982 | $ | 0.80 | | ||||||
Total |
4,704,857 | $ | 2.27 | 626,833 |
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The following chart compares the yearly changes in total stockholder return on the Company's common stock against two other measures of performance. The comparison is on a cumulative basis for the Company's last five fiscal years. The other performance measures are the Russell 2000 index, a peer group consisting of DenisonDNN, UranerzURZ, Uranium EnergyUEC and Strathmore MineralsSTHJF In each case, we assumed an initial investment of $100 on December 31, 2005 and reinvestment of all dividends. Dates on the following chart represent the last trading day of the indicated fiscal year.
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
December 2010
41
Item 6. Selected Financial Data.
The following tables provide selected financial and operating data for each of the fiscal years in the five-year period ended December 31, 2010. The selected financial and operating data set forth below should be read in conjunction with, and are qualified in their entirety by reference to, the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operation" and the Company's financial statements and related notes included elsewhere in this annual report. Historical results are not necessarily indicative of results to be expected in any future period.
|
For the Year Ended December 31, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||
|
(In thousands except per share and per pound amounts) |
|||||||||||||||
Uranium sales |
$ | | $ | 4,673 | $ | 18,551 | $ | 31,143 | $ | 8,581 | ||||||
Cost of salesoperations |
1,309 | 4,504 | 16,372 | 18,051 | 12,687 | |||||||||||
(Gain) loss on derivatives |
| | | | (34,821 | ) | ||||||||||
Writedown of uranium properties and exploration expenses |
961 | 3,580 | 17,623 | 999 | 3,495 | |||||||||||
Total cost of uranium sales |
2,270 | 8,084 | 33,995 | 19,050 | (18,639 | ) | ||||||||||
Earnings (loss) from operations before corporate expenses |
(2,270 | ) | (3,411 | ) | (15,444 | ) | 12,093 | 27,220 | ||||||||
Corporate expenses |
8,430 | 6,766 | 11,553 | 11,768 | 6,791 | |||||||||||
Earnings (loss) from operations |
(10,700 | ) | (10,177 | ) | (26,996 | ) | 325 | 20,429 | ||||||||
Other income |
345 | 111 | 487 | 753 | 1,081 | |||||||||||
Net income (loss) |
$ | (10,355 | ) | $ | (10,066 | ) | $ | (26,509 | ) | $ | 1,078 | $ | 21,510 | |||
Net income (loss) per common share: |
||||||||||||||||
Basic |
$ | (0.14 | ) | $ | (0.18 | ) | $ | (0.49 | ) | $ | 0.02 | $ | 0.44 | |||
Diluted |
$ | (0.14 | ) | $ | (0.18 | ) | $ | (0.49 | ) | $ | 0.02 | $ | 0.42 | |||
Weighted average common stock and equivalents outstanding: |
||||||||||||||||
Basic |
72,313 | 56,400 | 54,569 | 52,119 | 48,338 | |||||||||||
Diluted |
72,313 | 56,400 | 54,569 | 56,081 | 51,560 | |||||||||||
CONSOLIDATED OPERATING AND OTHER DATA |
||||||||||||||||
Cash provided by (used in) operations |
$ | (7,360 | ) | $ | (5,033 | ) | 1,042 | 11,294 | $ | (2,215 | ) | |||||
Capital expenditures and investing activities |
(2,366 | ) | (820 | ) | (11,016 | ) | (22,908 | ) | (31,906 | ) | ||||||
Financing activities |
19,020 | (97 | ) | 12,731 | 722 | 48,445 | ||||||||||
Net increase (decrease) in cash and equivalents |
$ | 9,294 | $ | (5,950 | ) | $ | 2,757 | $ | (10,893 | ) | $ | 14,324 | ||||
Pounds of uranium produced |
| 59 | 301 | 417 | 259 | |||||||||||
Pounds of uranium delivered |
| 95 | 286 | 435 | 263 | |||||||||||
Average sales price per pound |
$ | | $ | 49.08 | $ | 64.99 | $ | 71.61 | $ | 32.63 | ||||||
Average cost of produced pounds sold |
$ | | $ | 39.73 | $ | 48.60 | $ | 33.21 | $ | 43.36 | ||||||
Royalties/commissions per pound sold |
$ | | $ | 4.87 | $ | 5.99 | $ | 6.98 | $ | 2.92 |
42
CONSOLIDATED BALANCE SHEET DATA
|
At December 31, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||
|
(In thousands) |
|||||||||||||||
Cash and cash equivalents |
$ | 15,386 | $ | 6,092 | $ | 12,042 | $ | 9,284 | $ | 20,177 | ||||||
Working capital |
10,601 | 3,276 | 9,494 | 8,072 | 18,371 | |||||||||||
Net property, plant and equipment |
19,612 | 18,944 | 22,778 | 30,611 | 18,196 | |||||||||||
Total assets |
42,562 | 32,012 | 43,224 | 52,937 | 45,936 | |||||||||||
Total debt |
653 | 770 | 928 | 839 | 838 | |||||||||||
Total liabilities |
9,885 | 9,151 | 11,616 | 10,060 | 9,167 | |||||||||||
Total shareholders' equity |
$ | 32,677 | $ | 22,861 | $ | 31,608 | $ | 42,877 | $ | 36,769 |
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation.
This Item 7 contains "forward looking statements." These statements include, without limitation, statements relating to liquidity, financing of operations, continued volatility of uranium prices and other matters. The words "believes," "expects," "projects," "targets," "estimates" or similar expressions identify forward-looking statements. We do 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 our disclosures under the heading: "Risk Factors" beginning on page 9.
Financial Condition and Results of Operations
Comparison of Twelve Months Ended December 31, 2010, 2009 and 2008
Production and production costs. Our uranium production was zero in 2010, 59,000 pounds in 2009 and 300,800 pounds in 2008. In 2006 and 2007 we saw a decline in Vasquez production and the start-up of production from our Kingsville Dome project. The Vasquez project was mined out in 2008 and existing wellfields at Kingsville Dome completed production in the second quarter of 2009.
Production at our Rosita project was suspended in October 2008 because of high cost of production combined with lower uranium prices. Although technically challenging, we believe the reserves from Rosita can be produced economically with higher uranium prices.
We completed production at the Vasquez project in the fourth quarter of 2008 and we shut-in production at the Kingsville Dome project in the second quarter of 2009. The Vasquez project and is now being restored. At the Kingsville Dome and Rosita projects, we shut-in production to conserve the in-place reserve base in response to a drop in uranium market prices. We do not intend to resume production at these sites until there is a significant recovery of uranium prices.
43
The following table details our production and production cost breakdown for the year ended December 31, 2010, 2009 and 2008:
|
2010 | 2009 | 2008 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Kingsville Dome production |
| 56,100 | 254,000 | |||||||
Vasquez production |
| 2,200 | 36,600 | |||||||
Rosita production |
| 700 | 10,200 | |||||||
Total production |
| 59,000 | 300,800 | |||||||
Total operating costs |
$ | 395,000 | $ | 1,682,000 | $ | 7,173,000 | ||||
Per pound operating costs |
$ | n/a | $ | 28.51 | $ | 23.84 | ||||
Total depreciation and depletion costs |
$ | 756,000 | $ | 887,000 | $ | 7,165,000 | ||||
Per pound DD&A cost |
$ | n/a | $ | 15.02 | $ | 23.82 | ||||
Total production cost |
$ | 1,151,000 | $ | 2,569,000 | $ | 14,338,000 | ||||
Production cost per pound |
$ | n/a | $ | 43.53 | $ | 47.66 |
Total operating costs, total depreciation and depletion costs and total production costs incurred for the periods presented above differ from the cost of uranium sales recorded in consolidated statements of operations because of changes in the amounts recorded to inventory for the same periods. The cost of uranium sales include the sales of uranium inventory on hand at the beginning of the period and do not include uranium produced during the period but not sold at period end.
The following table provides a reconciliation of production costs to cost of uranium sales for the year ended December 31, 2010, 2009 and 2008:
|
2010 | 2009 | 2008 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Operating costs |
$ | 395,000 | $ | 1,682,000 | $ | 7,173,000 | ||||
Change in uranium inventory |
| 1,011,000 | (508,000 | ) | ||||||
Operating expense for uranium production sold |
$ | 395,000 | $ | 2,693,000 | $ | 6,665,000 | ||||
Depreciation and depletion costs |
$ | 756,000 | $ | 887,000 | $ | 7,165,000 | ||||
Change in uranium inventory |
| 203,000 | 43,000 | |||||||
Depreciation and depletion for uranium production sold |
$ | 756,000 | $ | 1,090,000 | $ | 7,208,000 | ||||
Total production costs |
$ | 1,191,000 | $ | 2,569,000 | $ | 14,338,000 | ||||
Change in uranium inventory |
| 1,214,000 | (466,000 | ) | ||||||
Direct cost of uranium production sold |
$ | 1,151,000 | $ | 3,783,000 | $ | 13,872,000 |
The costs incurred in 2010 for operations and depreciation/depletion resulted from stand-by, maintenance and monitoring activities at our Rosita and Kingsville Dome projects. Total expenditures for direct production costs in 2009 were significantly lower than 2008 as a result of the scale back of production during the year when compared to 2008. The reduced production in 2009 resulted from the decline in uranium prices throughout 2008 which led to the Company's decision in October 2008 to defer new wellfield development.
Our direct production costs in 2008 increased compared with 2007. These increases resulted from production being sourced from higher cost Kingsville Dome and Vasquez wellfields in 2008 and from the unfavorable results we saw from our Rosita production during 2008.
Uranium Sales. We had no uranium sales in 2010. In 2009, we sold a total of 95,200 pounds of uranium produced from our Kingsville Dome, Vasquez and Rosita projects, resulting in revenue of $4.7 million. In 2008, we sold a total of 285,500 pounds of uranium produced from our Kingsville Dome, Vasquez and Rosita projects, resulting in revenue of $18.5 million.
44
Cost of Uranium Sales. Our costs incurred in 2010 for operations and depreciation/depletion resulted from stand-by, maintenance and monitoring activities at our Rosita and Kingsville Dome projects during the year. Our direct production costs for uranium sales made in 2009 and 2008 was $3.8 million and $13.9 million, respectively. Our total cost of uranium sales is comprised of such production costs, including operating expenses, depreciation and depletion expenses, and also includes royalties and commissions related to our uranium sales, amortization of our restoration and reclamation cost estimates, exploration costs incurred during the year and impairment provisions for uranium properties. The following table details our production and royalties/commissions cost of uranium sales breakdown for the years ended December 31, 2010, 2009 and 2008:
|
2010 | 2009 | 2008 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Total pounds sold |
| 95,200 | 285,500 | |||||||
Total operating expenses |
$ | 395,000 | $ | 2,693,000 | $ | 6,664,000 | ||||
Per pound operating expense |
$ | n/a | $ | 28.29 | $ | 23.35 | ||||
Depreciation and depletion |
$ | 756,000 | $ | 1,090,000 | $ | 7,208,000 | ||||
Per pound DD&A expense |
$ | n/a | $ | 11.44 | $ | 25.25 | ||||
Direct cost of sales |
$ | 1,151,000 | $ | 3,783,000 | $ | 13,872,000 | ||||
Direct cost of sales per pound |
$ | n/a | $ | 39.74 | $ | 48.60 | ||||
Royalties and commissions |
$ | | $ | 464,000 | $ | 1,710,000 | ||||
Royalties and commissions per pound |
$ | n/a | $ | 4.87 | $ | 5.99 |
Production costs in 2009 were significantly lower than 2008 as a result of the scale back of production during the year when compared to 2008. As a result of lower sales, royalties and commissions were lower in 2009 than 2008. Our average cost of pounds sold in 2008 was $48.60 per pound, with Kingsville Dome production contributing approximately 85% of total pounds sold, Vasquez contributing approximately 12% of total pounds sold and Rosita contributing approximately 3% of total pounds sold during the year.
Royalties and Commissions. There were no royalties or commissions incurred in 2010. During 2009, royalties and commissions were $464,000, representing 9.9% of sales. During 2008, royalties and commissions for Kingsville Dome, Vasquez and Rosita were $1.710 million, representing 9.2% of sales. The changes in royalty percentages from 2009 to 2008 resulted primarily from the changes in uranium sales prices year to year and the source of our production in each year. Our Vasquez leases contain a sliding scale royalty with percentages that range from 6.25% up to 10.25% depending on our sales prices. Our Kingsville Dome leases have a 6.25% royalty and carry an additional 3.125% royalty payment to certain land owners. Our Rosita leases contain a 11.25% royalty.
Operating Expenses. During 2010 we incurred operating expenses related to our South Texas projects of $395,000, all such costs were from stand-by and/or care and maintenance activities. During 2009, operating expenses for Kingsville Dome, Vasquez and Rosita were $2.7 million which included $548,000 of stand-by and other operating costs at our South Texas projects, which were charged to operations. During 2008, operating expenses were $6.2 million. In 2008 we incurred $456,000 of stand-by costs at the Rosita project, which were charged to operations.
Depreciation and Depletion. During 2010 we incurred deprecation and depletion expense related to our South Texas projects of $756,000, all such costs were from stand-by and/or care and maintenance activities. During 2009, we incurred depreciation and depletion expense of $1.1 million compared to $7.2 million during 2008.
Impairment of Uranium Properties. During 2010, 2009 and 2008, we determined the carrying value of our uranium project assets exceeded their fair value. In 2010, this resulted in an impairment provision of $961,000, and we reduced the carrying value of Kingsville Dome by $590,000, Rosita by $58,000 and Vasquez by $313,000 at December 31, 2010. In 2009, we recorded an impairment provision
45
of $3.5 million, and we reduced the carrying value of Kingsville Dome by $2.5 million, Rosita by $214,000, Vasquez by $263,000 and other South Texas projects by $567,000 at December 31, 2009. In 2008 our impairment provision totaled $16.0 million reducing the carrying value of Kingsville Dome by $6.0 million, Rosita by $8.1 million and Vasquez by $1.8 million at December 31, 2008.
Accretion and Amortization of Future Restoration Costs. During 2010, 2009 and 2008, the accretion and amortization of future restoration costs was $156,000, $257,000 and $790,000, respectively.
General and Administrative Charges. We incurred general and administrative charges and corporate depreciation of $8.4 million, $6.8 million and $11.6 million in 2010, 2009 and 2008, respectively.
Significant expenditures for general and administrative expenses for the years ended December 31, 2010, 2009 and 2008 were:
|
Year Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | 2008 | |||||||
|
(Amounts in 000's) |
|||||||||
Stock compensation expense |
$ | 1,032 | $ | 1,258 | $ | 2,154 | ||||
Salaries and payroll burden |
2,597 | 2,186 | 3,180 | |||||||
Legal, accounting, public company expenses |
1,656 | 1,348 | 1,584 | |||||||
Provision for legal settlement |
1,375 | | | |||||||
Write-off of target acquisition costs |
| | 1,422 | |||||||
Insurance and bank fees |
565 | 539 | 703 | |||||||
Consulting and professional services |
593 | 748 | 1,247 | |||||||
Office expenses |
231 | 313 | 724 | |||||||
Travel and other expenses |
238 | 232 | 391 | |||||||
Total |
$ | 8,287 | $ | 6,624 | $ | 11,405 | ||||
The non-cash compensation expense recorded for the years ended December 31, 2010, 2009 and 2008 resulted from the recognition of expense related to the fair value of the Company's stock option grants. The value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the input of subjective assumptions, including the expected term of the option award and stock price volatility. The expected term of options granted was derived from historical data on our employee exercise and post-vesting employment termination experience. The expected volatility was based on the historical volatility of our stock.
The increases in salary and payroll burden in 2010 resulted primarily from a change in executive level personnel in late 2009, the reinstatement of the non-cash portion of executive level salaries in the 2nd half of 2010, the payment of performance related bonuses in 2010 and a 50% increase in medical premium costs for the 2010 plan year. Significant reductions in salary and payroll costs were made in 2009 compared with 2008. The $994,000, or 31% decrease resulted primarily from a reduction in personnel headcount that resulted from lower activities created by the shut down of the Company's production during the current year.
The Company's legal, accounting and public company expenses increased by $308,000 in 2010 compared with 2009. These increases resulted from legal fees related to the Saenz lawsuit, the recording of our regulatory fees as G&A costs in 2010 because of our no longer being in active uranium production during the year, increased Board of Director fees related to the addition of a Board member in January 2010 and an increase in the number of meetings held during the year and higher accounting fees related to services performed for the audit of the Company's 401k plan. The Company's legal, accounting and public company expenses decreased $236,000 in 2009 compared with
46
2008. The decrease resulted from reduced audit and Sarbanes-Oxley Section 404 ("SOX 404") related costs during the year that were partially offset by increases in legal fees.
In September, 2010, we recorded $1.375 million in settlement of the lawsuit titled, Saenz v. URI Inc. The payment of $1.375 million in cash included amounts for prior royalties that the plaintiffs had previously rejected. The payment was made in February 2011, upon the execution of amendments to the leases and to documentation of other aspects of the settlement and dismissal of the suit.
Insurance costs increased in 2010 primarily because of increase in director's and officer's liability premiums in 2010 compared to 2009. Insurance costs decreased in 2009 compared to 2008 as a result of lower general liability and umbrella coverage premiums because of reductions in payroll during the year.
Consulting and professional service expenses in 2010 were lower than 2009 by $155,000. This reduction resulted primarily because fees incurred in 2009 for New Mexico legacy and site and property characterization activities were not repeated in 2010. Consulting and professional service expenses were reduced significantly in 2009 compared to the prior year as a result of lower public relations costs associated with New Mexico community relations and community information education activities. This reduced spending resulted in savings of approximately $499,000 year over year.
Reduced office related costs in 2010 resulted from executive search fees and employee allowances paid in 2009 that were not incurred in 2010. Reduced office related costs in 2009 resulted from closures of the Company's New Mexico and Corpus Christi office locations along with peripheral office related cost reductions resulting from the reductions in work force seen in 2009.
Write-off of Target Acquisition Costs. In June 2008, the Company and Billiton Investment 15 B.V. agreed to terminate our agreement to purchase Rio Algom Mining, LLC, which was entered into on October 12, 2007. In connection with the targeted acquisition, we incurred costs of $1.4 million dollars which were originally recorded as an asset. Upon the termination of the agreement these pre-acquisition costs were expensed in 2008.
Net Income (Loss). For the year ended December 31, 2010 we had a net loss of $10.4 million compared to net losses of $10.1 million and $26.5 million in 2009 and 2008, respectively. On a diluted per share basis, losses were ($0.14) in 2010, ($0.18) in 2009 and ($0.49) in 2008. These losses in 2010, 2009 and 2008 include an impairment provision for the Kingsville Dome, Vasquez and Rosita projects of $961,000, $3.5 million and $16.0 million, respectively and exploration charges of $2,000, $62,000 and $1.6 million, respectively.
Cash Flow. As of December 31, 2010 we had a cash balance of approximately $15.4 million compared with approximately $6.1 million and $12.0 million at December 31, 2009 and 2008, respectively.
In 2010, we had a negative cash flow from operations of $7.4 million, resulting primarily from our cessation of uranium production in 2009 and the related lack of uranium sales during the year. In 2009, we had a negative cash flow from operations of $5.0 million, resulting primarily from low uranium production and related sales volumes. In 2008, we generated $1.0 million of cash flow from operations, resulting from our uranium production activities during the year.
In 2010, we raised net proceeds of approximately $19.1 million through the sale of 35,365,330 shares. In the June/July period we issued 27,142,830 shares at $0.42 per share and in November 8,222,500 shares at $1.16 per share in underwritten public offerings. In 2008, we raised net proceeds of approximately $12.8 million through the sale of 3,295,920 shares at $4.34 per share in May 2008 and $183,000 from the issuance of 169,250 shares from the exercise of employee stock options.
47
During 2010 we used $2.4 million in investing activities, which includes $1.2 million of capital additions for the acquisition of exploration property in South Texas. Additionally, we increased the collateral required for our financial surety obligation by $551,000 during the year. The deferral of wellfield development activities resulted in our capital expenditures used in investing activities being reduced by approximately $10.2 million to $820,000 in 2009 compared to 2008.
We also used $11.0 million in investing activities in 2007, including $8.4 million of capital additions for our South Texas production projects. These expenditures consisted primarily of wellfield evaluation, delineation and development costs of $2.8 million and plant and equipment additions of $634,000 at Kingsville Dome. Wellfield evaluation and development costs were $2.4 million and plant and equipment additions totaled $1.9 million at the Rosita project during 2008. Costs at the Vasquez project were $355,000 in 2008 and were primarily for wellfield development and land holding costs and we spent approximately $478,000 for evaluation and delineation activities at the Company's Rosita South project during 2008.
LiquidityCash Sources and Uses for 2011
As of December 31, 2010, the Company had $15.4 million in cash and our cash balance at February 28, 2011 was approximately $12.3 million. The Company is not currently conducting uranium production activities and has no uranium inventory. The Company is not projecting any sales revenue and related cash inflows for 2011.
During 2010 we significantly strengthened our balance sheet through the capital raises completed during the year. The approximately $19.1 million raised in 2010 has positioned the Company to move forward with its near term-plans in South Texas and New Mexico and we expect that our current financial resources will allow us to maintain the Company's liquidity for a period of twelve to fifteen months. While the Company believes it has sufficient capital resources to sustain its operating plans, as part of its strategy, it continues to seek opportunities to expand its resource base in both New Mexico and South Texas and such activities would require it to seek additional sources of financing. There can be no assurance that such activities will result in the acquisition of new properties or that we will be able to raise sufficient funds to allow the Company to move forward with such activities.
Off Balance Sheet Arrangements
The Company has obtained financial surety relating to certain of its future restoration and reclamation obligations as required by the State of Texas regulatory agencies. The Company has bank Letters of Credit (the "L/Cs) and performance bonds issued for the benefit of the Company to satisfy such regulatory requirements. The L/Cs were issued by Bank of America and the performance bonds have been issued by United States Fidelity and Guaranty Company ("USF&G"). L/Cs for $5,858,000, $5,761,000 and $5,629,000 at December 31, 2010, 2009 and 2008, respectively such L/Cs are collateralized in their entirety by certificates of deposit.
Performance bonds totaling $2,834,000 were issued for the benefit of the Company at December 31, 2010, 2009 and 2008. USF&G has required that the Company deposit funds collateralizing a portion of the bonds. The amount of bonding issued by USF&G exceeded the amount of collateral by $2.5 million at December 31, 2009, 2008 and 2007, respectively. In the event that USF&G is required to perform under its bonds or the bonds are called by the state agencies, the Company would be obligated to pay any expenditure in excess of the collateral.
48
The table below sets forth our best estimates as to the amounts and timing of future payments relating to our most significant contractual obligations as of December 31, 2010, except as otherwise noted.
|
|
Payment Due by Period | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contractual Obligations
|
Total | Less than 1 year |
1 - 3 years | 3 - 5 years | More than 5 years |
||||||||||||
Capital leases |
$ | 245,088 | $ | 102,215 | $ | 142,874 | $ | | $ | | |||||||
Corporate office lease |
94,713 | 56,828 | 37,885 | | | ||||||||||||
Crownpoint |
450,000 | | | | 450,000 | ||||||||||||
Total |
$ | 789,801 | $ | 159,043 | $ | 180,759 | $ | | $ | 450,000 |
Our significant accounting policies are described in Note 2 to the consolidated financial statements on page F-8 of this Form 10-K. We believe our most critical accounting policies involve those requiring the use of significant estimates and assumptions in determining values or projecting future costs.
Specifically regarding our uranium properties, significant estimates were utilized in determining the carrying value of these assets. These assets have been recorded at their estimated net realizable value for impairment purposes, which is less than our cost. The actual value realized from these assets may vary significantly from these estimates based upon market conditions, financing availability and other factors.
Regarding our reserve for future restoration and reclamation costs, significant estimates were utilized in determining the future costs to complete the groundwater restoration and surface reclamation at our mine sites. The actual cost to conduct these activities may vary significantly from these estimates.
Such estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.
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.
Recently Issued Accounting Pronouncements
In January 2010, the FASB issued ASC 2010-06, Improving Disclosures about Fair Value Measurements (ASC 820-10). These new disclosures require entities to separately disclose amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and the reasons for the transfers. In addition, in the reconciliation for fair value measurements for Level 3, entities should present separate information about purchases, sales, issuances, and settlements. This guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. Our adoption of the disclosures, excluding the Level 3 activity disclosures, did not have a material impact on the notes to the consolidated financial statements. We are still evaluating the impact of the Level 3 disclosure requirements on the notes to the consolidated financial statements.
49
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company is subject to market risk related to the market price of uranium. We have two uranium supply contracts whose pricing mechanisms are based upon the market price of uranium. Future sales under these contracts would be impacted by both spot and long-term uranium price fluctuations. 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 2001. Prices have risen from $7.10 per pound at January 2001 to a high of $136.00 per pound as of June 2007. The spot market price was $60.00 per pound as of March 14, 2011.
Item 8. Financial Statements and Supplementary Data.
The financial statement information called for by this item appears on pages F-1 through F-24.
Supplementary Financial Data Tables
SUPPLEMENTARY FINANCIAL DATA
(UNAUDITED)
|
For the Quarter Ended | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
12/31/2010 | 9/30/2010 | 6/30/2010 | 3/31/2010 | 12/31/2009 | 9/30/2009 | 6/30/2009 | 3/31/2009 | |||||||||||||||||
|
(Amounts in Thousands) |
||||||||||||||||||||||||
Uranium sales |
$ | | $ | | $ | | $ | | $ | 57 | $ | 1,407 | $ | 1,787 | $ | 1,422 | |||||||||
Earnings (loss) from operations |
(2,632 | ) | (3,731 | ) | (1,992 | ) | (2,345 | ) | (3,711 | ) | (2,554 | ) | (2,291 | ) | (1,621 | ) | |||||||||
Net earnings (loss) |
(2,622 | ) | (3,664 | ) | (1,721 | ) | (2,348 | ) | (3,721 | ) | (2,525 | ) | (2,246 | ) | (1,574 | ) | |||||||||
Net earnings (loss) per common share: |
|||||||||||||||||||||||||
Basic |
$ | (0.03 | ) | $ | (0.04 | ) | $ | (0.03 | ) | $ | (0.04 | ) | $ | (0.07 | ) | $ | (0.04 | ) | $ | (0.04 | ) | $ | (0.03 | ) | |
Diluted |
$ | (0.03 | ) | $ | (0.04 | ) | $ | (0.03 | ) | $ | (0.04 | ) | $ | (0.07 | ) | $ | (0.04 | ) | $ | (0.04 | ) | $ | (0.03 | ) |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its filings with the Securities and Exchange Commission (SEC) are recorded, processed, summarized and reported within the time period specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based on the definition of "disclosure controls and procedures" as defined in
50
Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In designing and evaluating the disclosure controls and procedures, management has recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply judgment in evaluating its controls and procedures.
During the fiscal period covered by this report, the Company's management, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have certified that our disclosure controls and procedures were effective as of December 31, 2010.
Management's Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company's internal control over financial reporting is designed, under the supervision of the Company's Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (GAAP). The Company's internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
The Company conducted an evaluation of the effectiveness of its internal control over financial reporting as of December 31, 2010. This evaluation was based on the framework in "Internal ControlIntegrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
Based on the Company's evaluation under the framework in Internal ControlIntegrated Framework, our Chief Executive Officer and Chief Financial Officer concluded that internal control over financial reporting was effective as of December 31, 2010.
There were no changes in our internal controls over financial reporting that occurred during the fourth quarter of 2010 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
None.
51
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this item is incorporated by reference from our definitive proxy statement for the 2011 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2010.
Item 11. Executive Compensation.
The information required by this item is incorporated by reference from our definitive proxy statement for the 2011 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2010.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item is incorporated by reference from our definitive proxy statement for the 2011 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2010.
Item 13. Certain Relationships and Related Transactions and Director Independence.
The information required by this item is incorporated by reference from our definitive proxy statement for the 2011 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2010.
Item 14. Principal Accountant Fees and Services.
The information required by this item is incorporated by reference in our definitive proxy statement for the 2011 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2010.
Item 15. Exhibits and Financial Statement Schedules.
See Index to Exhibits on page E-1 for a listing of the exhibits filed as part of this Annual Report.
52
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: March 30, 2011
URANIUM RESOURCES, INC. | ||||
By: |
/s/ DONALD C. EWIGLEBEN Donald C. Ewigleben, President, Chief Executive Officer and Chief Operating 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 Paul K. Willmott, Director and Executive Chairman |
March 30, 2011 | |
/s/ DONALD C. EWIGLEBEN Donald C. Ewigleben Director, President, CEO and COO |
March 30, 2011 |
|
/s/ THOMAS H. EHRLICH Thomas H. Ehrlich, Vice PresidentFinance and Chief Financial Officer (Principal Financial and Accounting Officer) |
March 30, 2011 |
|
/s/ LELAND O. ERDAHL Leland O. Erdahl, Director |
March 30, 2011 |
|
/s/ TERENCE J. CRYAN Terence J. Cryan, Director |
March 30, 2011 |
|
/s/ MARVIN K. KAISER Marvin K. Kaiser, Director |
March 30, 2011 |
53
URANIUM RESOURCES, INC. AND CONSOLIDATED SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements For The Years Ended December 31, 2010, 2009 and 2008 | ||
Report of Independent Registered Public Accounting Firm |
F-2 |
|
Consolidated Balance Sheets |
F-3 |
|
Consolidated Statements of Operations |
F-5 |
|
Consolidated Statements of Shareholders' Equity |
F-6 |
|
Consolidated Statements of Cash Flows |
F-7 |
|
Notes to Consolidated Financial Statements |
F-8 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors
Uranium Resources, Inc.
Lewisville, Texas 75067
We have audited the consolidated balance sheets of Uranium Resources, Inc. as of December 31, 2010 and 2009, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2010. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Uranium Resources, Inc. as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States.
Hein &
Associates, LLP
Dallas, Texas
March 30, 2011
F-2
URANIUM RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
|
December 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | |||||||
Current assets: |
|||||||||
Cash and cash equivalents |
$ | 15,386,472 | $ | 6,092,068 | |||||
Receivables, net |
46,244 | 63,890 | |||||||
Prepaid and other current assets |
179,231 | 125,400 | |||||||
Total current assets |
15,611,947 | 6,281,358 | |||||||
Property, plant and equipment, at cost: |
|||||||||
Uranium properties |
82,989,579 | 82,212,719 | |||||||
Other property, plant and equipment |
905,511 | 886,992 | |||||||
Lessaccumulated depreciation, depletion and impairment |
(64,282,888 | ) | (64,155,311 | ) | |||||
Net property, plant and equipment |
19,612,202 | 18,944,400 | |||||||
Long-term investment: |
|||||||||
Certificate of deposit, restricted |
7,337,366 | 6,786,000 | |||||||
|
$ | 42,561,515 | $ | 32,011,758 | |||||
The accompanying notes to financial statements are an integral part of these consolidated statements.
F-3
URANIUM RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
|
December 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | |||||||
Current liabilities: |
|||||||||
Accounts and short term notes payable |
$ | 602,190 | $ | 641,727 | |||||
Current portion of restoration reserve |
1,239,588 | 1,236,588 | |||||||
Royalties and commissions payable |
665,745 | 693,303 | |||||||
Deferred compensation |
697,028 | | |||||||
Accrued legal settlement |
1,375,000 | | |||||||
Accrued interest and other accrued liabilities |
348,269 | 321,235 | |||||||
Current portion of capital leases |
83,183 | 112,559 | |||||||
Total current liabilities |
5,011,003 | 3,005,412 | |||||||
Other long-term liabilities and deferred credits |
4,304,057 | 5,487,389 | |||||||
Long-term capital leases, less current portion |
119,588 | 207,922 | |||||||
Other long-term debt |
450,000 | 450,000 | |||||||
Commitments and contingencies (Notes 2, 3, 4, 5 and 13) |
|||||||||
Shareholders' equity: |
|||||||||
Common stock, $0.001 par value, shares authorized: 200,000,000; shares issued and outstanding (net of treasury shares): 201092,430,306; 200956,781,792; |
92,468 | 56,820 | |||||||
Paid-in capital |
167,971,955 | 147,837,204 | |||||||
Accumulated deficit |
(135,378,138 | ) | (125,023,571 | ) | |||||
Less: Treasury stock (38,125 shares), at cost |
(9,418 | ) | (9,418 | ) | |||||
Total shareholders' equity |
32,676,867 | 22,861,035 | |||||||
|
$ | 42,561,515 | $ | 32,011,758 | |||||
The accompanying notes to financial statements are an integral part of these consolidated statements.
F-4
URANIUM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
Year Ended December 31, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | 2008 | ||||||||||
Revenues: |
|||||||||||||
Uranium sales |
$ | | $ | 4,673,169 | $ | 18,551,065 | |||||||
Total revenue |
| 4,673,169 | 18,551,065 | ||||||||||
Costs and expenses: |
|||||||||||||
Cost of uranium sales: |
|||||||||||||
Royalties and commissions |
| 464,028 | 1,709,748 | ||||||||||
Operating expenses |
394,763 | 2,692,960 | 6,664,341 | ||||||||||
Accretion/amortization of restoration reserve |
155,943 | 257,791 | 790,204 | ||||||||||
Depreciation and depletion |
756,377 | 1,089,612 | 7,207,719 | ||||||||||
Writedown of uranium properties |
961,278 | 3,517,970 | 15,992,623 | ||||||||||
Exploration expenses |
1,646 | 61,677 | 1,630,043 | ||||||||||
Total cost of uranium sales |
2,270,007 | 8,084,038 | 33,994,678 | ||||||||||
Loss from operations before corporate expenses |
(2,270,007 | ) | (3,410,869 | ) | (15,443,613 | ) | |||||||
Corporate expenses: |
|||||||||||||
General and administrative (includes stock compensation expense of $1,032,000, $1,258,000 and $2,154,000 in 2010, 2009 and 2008, respectively) |
6,911,672 | 6,624,023 | 11,405,169 | ||||||||||
Provision for legal settlement |
1,375,000 | | | ||||||||||
Depreciation |
143,361 | 142,531 | 147,561 | ||||||||||
Total corporate expenses |
8,430,033 | 6,766,554 | 11,552,730 | ||||||||||
Loss from operations |
(10,700,040 | ) | (10,177,423 | ) | (26,996,343 | ) | |||||||
Other income (expense): |
|||||||||||||
Interest expense |
(25,362 | ) | (40,637 | ) | (43,549 | ) | |||||||
Interest and other income, net |
370,835 | 152,198 | 530,536 | ||||||||||
Total other income, net |
345,473 | 111,561 | 486,987 | ||||||||||
Net loss |
$ | (10,354,567 | ) | $ | (10,065,862 | ) | $ | (26,509,356 | ) | ||||
Net loss per common share: |
|||||||||||||
Basic |
$ | (0.14 | ) | $ | (0.18 | ) | $ | (0.49 | ) | ||||
Diluted |
$ | (0.14 | ) | $ | (0.18 | ) | $ | (0.49 | ) | ||||
The accompanying notes to financial statements are an integral part of these consolidated statements.
F-5
URANIUM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
|
Common Stock | |
|
|
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
Treasury Stock | ||||||||||||||
|
Shares | Amount | Paid-In Capital | Accumulated Deficit | |||||||||||||
Balances, December 31, 2007 |
52,305,129 | $ | 52,343 | $ | 131,282,687 | $ | (88,448,353 | ) | $ | (9,418 | ) | ||||||
Net loss |
| | | (26,509,356 | ) | | |||||||||||
Common stock issuance |
3,295,920 | 3,296 | 12,806,899 | | | ||||||||||||
Common stock issued for services |
115,250 | 115 | 92,085 | | | ||||||||||||
Restricted common stock issued for services |
70,000 | 70 | (70 | ) | | | |||||||||||
Stock compensation expense |
| | 2,154,281 | | | ||||||||||||
Common stock issued for stock option exercise |
169,250 | 170 | 182,871 | | | ||||||||||||
Balances, December 31, 2008 |
55,955,549 | 55,994 | 146,518,753 | (114,957,709 | ) | (9,418 | ) | ||||||||||
Net loss |
| | | (10,065,862 | ) | | |||||||||||
Restricted common stock issued for services |
826,243 | 826 | (826 | ) | | | |||||||||||
Stock compensation expense |
| | 1,257,909 | | | ||||||||||||
Common stock issuance |
| | 61,368 | | | ||||||||||||
Balances, December 31, 2009 |
56,781,792 | 56,820 | 147,837,204 | (125,023,571 | ) | (9,418 | ) | ||||||||||
Net loss |
| | | (10,354,567 | ) | | |||||||||||
Restricted common stock issued for services |
282,071 | 282 | (282 | ) | | | |||||||||||
Common stock issued for stock option exercise |
1,113 | 1 | 807 | | | ||||||||||||
Stock compensation expense |
| | 1,032,308 | | | ||||||||||||
Common stock issuance |
35,365,330 | 35,365 | 19,101,918 | | | ||||||||||||
Balances, December 31, 2010 |
92,430,306 | $ | 92,468 | $ | 167,971,955 | $ | (135,378,138 | ) | $ | (9,418 | ) | ||||||
The accompanying notes to financial statements are an integral part of these consolidated statements.
F-6
URANIUM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
Year Ended December 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | 2008 | |||||||||
Cash flows from operations: |
||||||||||||
Net loss |
$ | (10,354,567 | ) | $ | (10,065,862 | ) | $ | (26,509,356 | ) | |||
Reconciliation of net loss to cash provided by (used in) operations |
||||||||||||
Accretion/amortization of restoration reserve |
155,943 |
257,791 |
790,204 |
|||||||||
Depreciation and depletion |
899,738 | 1,232,143 | 7,355,280 | |||||||||
Writedown of uranium properties and exploration expenses |
961,278 | 3,517,970 | 15,992,623 | |||||||||
Decrease in restoration and reclamation accrual |
(1,373,228 | ) | (1,802,370 | ) | (840,416 | ) | ||||||
Stock compensation expense |
1,032,308 | 1,257,909 | 2,154,281 | |||||||||
Write-off of target acquisition costs |
| | 1,422,410 | |||||||||
Other non-cash items, net |
19,700 | 34,584 | 78,521 | |||||||||
Effect of changes in operating working capital items |
||||||||||||
(Increase) decrease in receivables |
17,646 | (23,530 | ) | 2,612,214 | ||||||||
(Increase) decrease in inventories |
| 1,010,845 | (508,342 | ) | ||||||||
(Increase) decrease in prepaid and other current assets |
(53,831 | ) | 388,089 | (43,585 | ) | |||||||
Increase (decrease) in payables and accrued liabilities and deferred credits |
1,334,939 | (840,545 | ) | (1,462,326 | ) | |||||||
Net cash provided by (used in) operations |
(7,360,074 | ) | (5,032,976 | ) | 1,041,508 | |||||||
Investing activities: |
||||||||||||
Increase in certificate of deposit, restricted |
(551,366 | ) | (149,285 | ) | (553,639 | ) | ||||||
Additions to property, plant and equipment |
||||||||||||
Kingsville Dome |
(149,652 | ) | (158,911 | ) | (3,577,994 | ) | ||||||
Rosita |
(58,504 | ) | (40,274 | ) | (4,471,110 | ) | ||||||
Vasquez |
(77,500 | ) | (193,528 | ) | (354,600 | ) | ||||||
Rosita South |
(78,813 | ) | (19,926 | ) | (477,912 | ) | ||||||
Los Finados project |
(1,168,780 | ) | | (671 | ) | |||||||
Churchrock |
(138,541 | ) | (218,966 | ) | (421,484 | ) | ||||||
Crownpoint |
(2,972 | ) | (2,991 | ) | (127,479 | ) | ||||||
Other property |
(139,775 | ) | (36,340 | ) | (1,059,439 | ) | ||||||
Other assets/notes receivable |
| | 28,773 | |||||||||
Net cash used in investing activities |
(2,365,903 | ) | (820,221 | ) | (11,015,555 | ) | ||||||
Financing activities: |
||||||||||||
Payments of borrowings |
(117,710 | ) | (157,695 | ) | (261,867 | ) | ||||||
Issuance of common stock, net |
19,138,091 | 61,368 | 12,993,236 | |||||||||
Net cash provided by (used in) financing activities |
19,020,381 | (96,327 | ) | 12,731,369 | ||||||||
Net increase (decrease) in cash and cash equivalents |
9,294,404 | (5,949,524 | ) | 2,757,322 | ||||||||
Cash and cash equivalents, beginning of year |
6,092,068 | 12,041,592 | 9,284,270 | |||||||||
Cash and cash equivalents, end of year |
$ | 15,386,472 | $ | 6,092,068 | $ | 12,041,592 | ||||||
The accompanying notes to financial statements are an integral part of these consolidated statements.
F-7
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
1. DESCRIPTION OF THE COMPANY
Uranium Resources, Inc. ("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 recovery ("ISR") or solution mining process. Historically, the primary customers of the Company have been major utilities who utilize nuclear power to generate electricity. At present the Company owns both developed and undeveloped uranium properties in South Texas and undeveloped uranium properties in New Mexico.
The Company resumed uranium production in 2004 at its Vasquez project, in 2006 at its Kingsville Dome project and in the 3rd quarter of 2008 at its Rosita project, each of such projects are located in South Texas. As a result of declining uranium market prices and high production costs, the Company ceased development of additional wellfields and curtailed production from its South Texas projects as existing production wellfields from each project were depleted. Production at our Vasquez and Rosita projects were shut down in the 4th quarter of 2008 and production was shut-in at the Kingsville Dome project in June 2009. The Vasquez project was mined out in 2008 and is now being restored. At the Kingsville Dome and Rosita projects, our production shut-in was done to conserve the in-place reserve base until higher prices can be realized.
Prior to resuming Vasquez production, the Company had been in production stand-by since the first quarter of 1999 at its Kingsville Dome and Rosita projects. Groundwater restoration and reclamation activities have been conducted at these two sites and are currently ongoing at each of the Kingsville Dome, Vasquez and Rosita projects.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of URI and its wholly owned subsidiaries (collectively "the Company"). All significant intercompany transactions have been eliminated in consolidation.
All acquisition and development costs (including financing, salary and related overhead costs) incurred in connection with the various uranium properties are capitalized. Exploration and evaluation costs associated with uranium properties are expensed as incurred until such time that the existence of a commercially minable uranium deposit is confirmed. 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 through a reduction in the net carrying value of the asset. (See Note 4"Uranium Properties").
Depreciation and Depletion. Depletion of uranium mineral interests, permits, licenses and related development costs are computed on a property-by-property basis using the units-of-production method based on each project's pounds of recoverable uranium. The determination of the depletable base for each uranium mineral interest is calculated by the Company's professional geologists to determine the estimated recoverable uranium to be produced over the projected life for each uranium mineral interest. Depreciation and depletion are provided on the investment costs, net of salvage value, of the
F-8
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010 AND 2009
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
various uranium properties' production plants and related equipment using the estimated production life of the uranium reserves. During the periods that our facilities are not in production, depletion on our mineral interests, permits, licenses and development properties are suspended. Depreciation and depletion of our plant facilities, machinery and equipment continues, at significantly reduced amounts, in accordance with the level of stand-by activity being conducted at each site.
Other ancillary plant equipment and vehicles are depreciated using a straight line method based upon the estimated useful lives of the assets.
Other Property, Plant and Equipment
Other property, plant and equipment 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.
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. No interest was capitalized in the twelve months ended December 31, 2010, 2009 and 2008. Total interest costs in these periods were $25,400, $40,600 and $43,500, respectively.
Restoration and Remediation Costs (Asset Retirement Obligations)
Various federal and state mining laws and regulations require the Company to reclaim the surface areas and restore underground water quality for its mine projects to the pre-existing mine area average quality after the completion of mining. The Company records the estimated present value of reclamation liabilities and increases the carrying amount of the related asset. Reclamation costs are allocated to expense over the life of the related assets and are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation and remediation costs.
Future reclamation and remediation costs are accrued based on management's best estimate at the end of each period of the costs expected to be incurred at each project. Such estimates are determined by the Company's engineering studies calculating the cost of future of surface and groundwater activities.
Contingent LiabilitiesOff Balance Sheet Arrangements
The Company has obtained financial surety relating to certain of its future restoration and reclamation obligations as required by the State of Texas regulatory agencies. The Company has bank Letters of Credit (the "L/Cs) and performance bonds issued for the benefit of the Company to satisfy such regulatory requirements. The L/Cs were issued by Bank of America and the performance bonds have been issued by United States Fidelity and Guaranty Company ("USF&G"). L/Cs for $5,858,000,
F-9
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010 AND 2009
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
$5,761,000 and $5,629,000 at December 31, 2010, 2009 and 2008, respectively. Such L/Cs are collateralized in their entirety by certificates of deposit.
Performance bonds totaling $2,834,000 were issued for the benefit of the Company at December 31, 2010, 2009 and 2008. USF&G has required that the Company deposit funds collateralizing a portion of the bonds. In September 2010, the Company received notice from the bonding company requesting that the Company either increase the collateral supporting the bonds to 100% of the bond amount by making quarterly payments of $500,000 or cause the release of the bonds by the fourth quarter of 2011. The amount of bonding issued by USF&G exceeded the amount of collateral by $2.0 million at December 31, 2010 and $2.5 million at December 31, 2009 and 2008, respectively. In the event that USF&G is required to perform under its bonds or the bonds are called by the state agencies, the Company would be obligated to pay any expenditure in excess of the collateral.
Revenue Recognition for Uranium Sales
The Company delivers uranium to its customers at third-party conversion facilities. The third-party converters warehouse our uranium and transfer title to our customers via book transfer upon instructions supplied by the Company. The Company recognizes revenue from the sale of uranium when title to the uranium transfers and delivery is completed through such book transfer. The Company bears the risk of loss while its uranium is held at the converter prior to its sale to our customers, except in the case of negligence by the converter, whereby the converter would bear such risk. Upon completion of the book transfer, which is a record keeping entry, not a physical transfer of goods to the customer, the risk of loss passes to our customer.
Net earnings (loss) per common sharebasic has been calculated based on the weighted average shares outstanding during the year and net earnings (loss) per common sharediluted has been calculated assuming the exercise or conversion of all dilutive securities. Due to net losses incurred for 2010 there were no dilutive securities included in this year.
The weighted average number of shares used to calculate basic and diluted earnings (loss) per share was 72,313,464 in 2010, 56,400,466 in 2009 and 54,568,550 in 2008. The potential Common Stock that was excluded from the calculation of diluted earnings per share was 5,947,143 in 2010, 6,216,989 in 2009 and 5,961,583 in 2008.
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.
F-10
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010 AND 2009
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Additional disclosures of cash flow information follow:
|
Year Ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | 2008 | |||||||
Cash paid during the period for: |
||||||||||
Interest |
$ |
25,400 |
$ |
40,600 |
$ |
43,600 |
||||
The following non-cash transactions occurred in 2010, 2009 and 2008 and such transactions are summarized as follows: |
||||||||||
Restricted share issuance of Common Stock in connection with a cash conservation plan |
$ |
106,500 |
$ |
324,000 |
$ |
|
||||
Restricted share issuance of Common Stock in connection with the Amended and Restated 2004 Directors' Stock Option and Restricted Stock Plan |
$ |
|
$ |
|
$ |
92,200 |
During 2008, the Company entered into capital leases and financings to acquire certain property plant and equipment totaling $301,000. No new capital leases or financings were entered into in 2010 and 2009. The balance of the capital leases at December 31, 2010 was $203,000.
Cash Balances in Excess of Federally Insured Limits
The Company's cash balance at December 31, 2010 was $15.4 million and it maintains its cash accounts primarily with Bank of America, N.A. The total cash balances are insured by the Federal Deposit Insurance Corporation up to $250,000 per account. The Company has cash balances with Bank of America, N.A. that exceeded the balance insured by the FDIC that totaled approximately $14.6 million at December 31, 2010.
At December 31, 2010 and 2009, the Company had pledged certificates of deposit and money market accounts of $7,337,000 and $6,786,000, respectively, in order to collateralize letters of credit 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.
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 and in the case of producing and development properties, the pounds of uranium to be recovered. The actual values received from the disposition of these assets and the amount of uranium recovered from
F-11
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010 AND 2009
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
these projects may vary significantly from these estimates based upon market conditions, financing availability and other factors.
Regarding the Company's reserve for future restoration and reclamation costs, significant estimates were utilized in determining the future costs and timing to complete the groundwater restoration and surface reclamation at the Company's mine sites. The actual cost to conduct these activities may vary significantly from these estimates.
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.
Certain reclassifications have been made to the prior years' financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or retained earnings.
Recently Issued Accounting Pronouncements
In January 2010, the FASB issued ASC 2010-06, Improving Disclosures about Fair Value Measurements (ASC 820-10). These new disclosures require entities to separately disclose amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and the reasons for the transfers. In addition, in the reconciliation for fair value measurements for Level 3, entities should present separate information about purchases, sales, issuances, and settlements. This guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. Our adoption of the disclosures, excluding the Level 3 activity disclosures, did not have a material impact on the notes to the consolidated financial statements. We are still evaluating the impact of the Level 3 disclosure requirements on the notes to the consolidated financial statements.
3. LIQUIDITY
The Company had negative cash flow from operations of $7.4 million and $5.0 million for the year ended December 31 2010 and 2009, respectively and generated cash from operations for the year ended December 31, 2008 of $1.0 million.
On September 29, 2010, in connection with the legal action initiated in June 2008 titled, Saenz v. URI Inc., we entered into a settlement agreement under which we agreed to pay to the plaintiffs $1.375 million in cash which includes amounts for prior royalties that the plaintiffs had
F-12
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010 AND 2009
3. LIQUIDITY (Continued)
previously rejected. The payment of this settlement was made in February 2011, upon the execution of amendments to the leases and to documentation of other aspects of the settlement and dismissal of the suit.
We had $15.4 million in cash at December 31, 2010 and $6.1 million at December 31, 2009. As of December 31, 2009 the Company had sold its entire uranium inventory and as such, we are currently evaluating the opportunities for additional sales revenue and related cash inflows for the Company in 2011. The Company raised additional capital in June and July 2010 through an underwritten public offering. Under the transactions, a total of 27,142,830 shares of common stock were sold in the offering with net proceeds of approximately $10.2 million, after deducting underwriting discounts and commissions and estimated offering expenses. The Company raised additional capital in November 2010 through an underwritten public offering. Under the transaction, a total of 8,222,500 shares of common stock were sold in the offering with net proceeds of approximately $8.9 million, after deducting underwriting discounts and commissions and estimated offering expenses.
The Company expects that its existing cash will provide sufficient liquidity into 2012.
4. PROPERTY, PLANT AND EQUIPMENT
|
Property, Plant and Equipment Balances (net) At December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2010 | 2009 | |||||
Uranium plant |
$ | 9,241,000 | $ | 9,349,000 | |||
Permits and licenses |
2,663,000 | 2,529,000 | |||||
Mineral rights |
2,877,000 | 1,598,000 | |||||
Evaluation and delineation |
2,460,000 | 2,460,000 | |||||
Vehicles/depreciable equipment |
1,702,000 | 2,113,000 | |||||
Wellfield development |
115,000 | | |||||
Other uranium properties |
354,000 | 580,000 | |||||
Other property, plant and equipment |
200,000 | 315,000 | |||||
Total |
$ | 19,612,000 | $ | 18,944,000 | |||
Impairment of Uranium Properties
The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. An impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets. An impairment loss is measured and recorded based on discounted estimated future cash flows. Future cash flows are estimated based on quantities of recoverable minerals, expected uranium prices, production levels and operating costs of production and capital, based upon the projected remaining future uranium production from each project. The Company's estimates of future cash flows are based on numerous assumptions and it is possible that actual future
F-13
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010 AND 2009
4. PROPERTY, PLANT AND EQUIPMENT (Continued)
cash flows will be significantly different than the estimates, as actual future quantities of recoverable minerals, uranium prices, production levels and operating costs of production and capital are each subject to significant risks and uncertainties.
At December 31, 2010, we determined the carrying value of our project assets at each of our South Texas production locations exceeded their fair value. A decline in the current and projected market price of uranium and an increase in the estimated production costs for each of our South Texas projects resulted in a decrease in the estimated future cash flow to be generated from each site. Such determination resulted in an impairment provision of approximately $961,000 for the year. The impairment provision for 2010 was approximately $590,000 for the Kingsville Dome project, $58,000 for the Rosita project, $313,000 for the Vasquez project and $567,000 for other South Texas projects. The impairment provision recorded in 2009 was approximately $3.5 million and included approximately $2.6 million for the Kingsville Dome project, $214,000 for the Rosita project, $263,000 for the Vasquez project and $576,000 for other South Texas projects.
The Kingsville Dome property consists of mineral leases from private landowners on about 2,434 gross and 2,227 net acres located in central Kleberg County, Texas. The leases provide for royalties based upon a percentage of uranium sales of 6.25% to 9.375%. The leases have expiration dates ranging from 2000 to 2007, however we hold most of these leases by production; and with a few minor exceptions, all the leases contain clauses that permit us to extend the leases not held by production by payment of an annual per acre royalty ranging from $10 to $30. We have paid such royalties on all material acreage.
The net carrying value of the property was approximately $5,355,000 at December 31, 2010. Such assets consisted of plant buildings/uranium processing/drying facilities ($4,285,000), and restoration and other equipment ($1,070,000).The net carrying value of the property was approximately $5,583,000 at December 31, 2009. Such assets consisted of plant buildings/uranium processing/drying facilities ($4,393,000) and restoration and other equipment ($1,190,000).
The Company has a mineral lease on 1369 gross and net acres located in southwestern Duval County, in South Texas. The primary term expired in February 2008; however we hold the lease by production. The lease provides for royalties based upon 6.25% of uranium sales below $25.00 per pound and royalty rate increases on a sliding scale up to 10.25% for uranium sales occurring at or above $40.00 per pound.
The net carrying value of the property was approximately $493,000 at December 31, 2010. Such assets consisted of plant buildings/uranium processing/drying facilities ($154,000) and restoration and other equipment ($339,000). The net carrying value of the property was approximately $590,000 at December 31, 2009. Such assets consisted of plant buildings/uranium processing/drying facilities ($305,000), restoration and other equipment ($305,000) and asset retirement obligations ($435,000).
F-14
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010 AND 2009
4. PROPERTY, PLANT AND EQUIPMENT (Continued)
The Rosita property consists of mineral leases from private landowners on about 3,377 gross and net acres located in north-central Duval County, Texas. The leases provide for sliding scale royalties based on a percentage of uranium sales. Royalty percentages on average increase from 6.25% up to 18.25% when uranium prices reach $80.00 per pound. The leases have expiration dates ranging from 2012 to 2015. We are holding these leases by payment of rentals ranging from $10 to $30 per acre.
The net carrying value of the Rosita property at December 31, 2010 was approximately $5,003,000. Such assets consisted of plant buildings/uranium processing/drying facilities ($4,801,000) and restoration and other equipment of ($202,000). The net carrying value of the Rosita property at December 31, 2009 was approximately $5,186,000. Such assets consisted of plant buildings/uranium processing/drying facilities ($4,802,000) and restoration and other equipment of ($384,000).
The Rosita South property consists of mineral leases from private land owners on about 2,130 gross acres and 1,984 net acres located in Duval County near its Rosita property. Evaluation of the uranium mineralization of this property began in 2006 and continued in 2007.
The net carrying value of the property at December 31, 2010 was approximately $2,744,000. Such assets consisted of mineral rights ($548,000), evaluation costs ($2,022,000) and permits/licenses ($174,000). The net carrying value of the property at December 31, 2009 was approximately $2,665,000. Such assets consisted of mineral rights ($469,000), evaluation costs ($2,021,000) and permits/licenses ($174,000).
The Los Finados Project consists of an exploration lease from private land owners on about 53,500 gross acres located in Kenedy County near its Kingsville Dome property. Evaluation of the uranium mineralization of this property is scheduled to begin in the second quarter of 2011 and continue for up to three years.
The net carrying value of the property at December 31, 2010 was approximately $1,169,000. Such assets consisted entirely of the acquisition costs to obtain the mineral rights to the property.
The Churchrock project encompasses about 2,200 gross and net acres. 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. We own the mineral estate in fee for both Section 17 and the Mancos properties. We own patented mining claims on Section 8.
The surface estate on Section 17 is owned by the United States Government and held in trust for the Navajo Nation. We have royalty obligations ranging from 5% to 61/4% and a 2% overriding royalty obligation to the Navajo Nation for surface use agreements.
F-15
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010 AND 2009
4. PROPERTY, PLANT AND EQUIPMENT (Continued)
Permitting activities are currently ongoing on both of these properties. The net carrying value of these properties was $2,094,000 and $1,955,000 at December 31, 2010 and 2009, respectively and the assets consisted of mineral rights and permitting/licensing costs.
The Crownpoint properties are located in the San Juan Basin, 22 miles northeast of our Churchrock deposits and 35 miles northeast of Gallup, New Mexico, adjacent to the town of Crownpoint. The Properties consist of 619 gross and 522 net acres.
The net carrying value of these properties was $885,000 and $906,000 at December 31, 2010 and 2009, respectively, and consisted primarily of mineral rights, permits/licenses and plant buildings and equipment.
In March 1997, we acquired the fee interest in 177,000 acres in northwestern New Mexico. Several significant occurrences of uranium mineralization are known to be within this acreage, including a uranium mineralized property called the West Largo and a uranium mineralized property called Roca Honda.
The West Largo property is about 21 miles north of the town of Milan and about 1.5 miles west of State Highway 509 in McKinley County, New Mexico. The property lies about 3 miles to the northwest of the Ambrosia Lake District, a major producer of uranium by means of underground operations from the late 1950s to the early 1980s.
The Roca Honda property lies about 4 miles northwest of the town of San Mateo in McKinley County, New Mexico. We also own 36 unpatented mining claims encompassing approximately 640 acres that are adjacent to the fee land. The net carrying value of the properties was $398,000 and $381,000 at December 31, 2010 and 2009, respectively.
5. CONTRACT COMMITMENTS
In March 2006 we entered into new sales contracts with Itochu Corporation ("Itochu") and UG U.S.A., Inc. ("UG") that superseded the previously existing contracts. Each contract provides for delivery of one-half of our actual production from our properties in Texas currently owned or hereafter acquired by the Company (excluding certain large potential exploration plays). The Itochu contract contains separate pricing terms for the Vasquez property that are no longer applicable since Vasquez has reached the end of its useful life. Our Texas production will be sold to Itochu at a price equal to the average spot price for the eight weeks prior to the date of delivery less $7.50 per pound, with a floor for the spot price of $37 per pound and a ceiling of $43 per pound. If the spot price is over $50 per pound the price will be increased by 50% of such excess. The floor and ceiling and sharing arrangement over the ceiling applies to 3.65 million pounds of deliveries, after which there is no floor or ceiling. Itochu has the right to cancel any deliveries on six-month's notice. Uranium deliveries from
F-16
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010 AND 2009
5. CONTRACT COMMITMENTS (Continued)
the inception of the contracts through December 31, 2010 have totaled approximately 510,000 pounds to Itochu and 480,000 pounds to UG.
Under the amended Itochu contract there was potential for reinstatement of the original contract terms if our joint venture with Itochu to develop our Churchrock property in New Mexico was terminated by us. On March 6, 2009, Itochu terminated the Joint Venture. The only consequence of the termination is that for sales prices in excess of $43 per pound, we will not receive 30% of the amount of the spot price that exceeds the ceiling price for future uranium sales from $43 per pound to $50 per pound.
Under the UG contract all production from our Texas properties will be sold at a price equal to the month-end long-term contract price for the second month prior to the month of delivery less $6 per pound until (i) 600,000 pounds have been sold in a particular delivery year and (ii) an aggregate of 3 million pounds of uranium has been sold. After the 600,000 pounds in any year and 3 million pounds total have been sold, UG will have a right of first refusal to purchase other Texas production at a price equal to the average spot price for a period prior to the date of delivery less 4%. In 2006, we paid UG $12 million in cash to restructure its previously existing contract.
6. LONG-TERM DEBT
|
At December 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | |||||||
Long-term debt of the Company consists of: |
|||||||||
Crownpoint property |
$ | 450,000 | $ | 450,000 | |||||
Capital leases |
202,771 | 320,481 | |||||||
|
652,771 | 770,481 | |||||||
LessCurrent portion |
(83,183 | ) | (112,559 | ) | |||||
Total long-term debt |
$ | 569,588 | $ | 657,922 | |||||
Maturities of long-term debt and capital leases are as follows:
For the Twelve Months Ended:
|
Long-Term Debt | Capital Leases | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
December 31, 2011 |
$ | | $ | 102,215 | ||||||
December 31, 2012 |
| 76,054 | ||||||||
December 31, 2013 |
| 52,423 | ||||||||
December 31, 2014 |
| 14,396 | ||||||||
December 31, 2015 and beyond |
450,000 | | ||||||||
Totals |
$ | 450,000 | $ | 245,088 | ||||||
Less amounts representing imputed interest |
(42,317 | ) | ||||||||
Present value of future payments |
$ | 202,771 | ||||||||
F-17
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010 AND 2009
7. RELATED-PARTY TRANSACTIONS
On January 4, and April 1, 2010, 65,820 and 73,751 shares of restricted stock were granted, respectively to executive officers of the Company in connection with a cash conservation plan for 2010. All of these shares were scheduled to vest one year from the date of grant. On November 12, 2010, 20,000 restricted shares granted to the CEO were cancelled. Restricted stock grants are valued using the fair market value of the stock on the date of grant.
In June 2010, the Company issued a total of 200,000 shares of restricted stock to non-employee directors of the Company at the annual meeting under the terms of the Company's stock option plans.
In August 2010, the Company issued a total of 63 shares of Common Stock at $0.160 per share to a non-employee director of the Company upon his election to exercise stock options under the terms of the Company's Directors' stock option plans.
Effective September 30, 2010, Robert M. Gallagher resigned as a member of the Board of Directors and, as of October 1, 2010 was engaged as a consultant to assist the Company in its efforts to advance toward production in New Mexico. Mr. Gallagher is engaged through the entity RMG Consulting, LLC, a government and community relations firm in which he is a principal.
In connection with this change, the terms of the equity awards granted to Mr. Gallagher were modified whereby the vesting attributable to 25% of the 50,000 share stock option grant made on January 20, 2010 was accelerated to the date of his resignation and the exercise period was extended to September 30, 2012. In addition, the vesting attributable to 25% of the 50,000 share restricted stock grant made on June 3, 2010 was accelerated to the date of his resignation. The Company recognized stock compensation expense for the modifications of approximately $24,000 during 2010. All remaining unvested equity awards were forfeited upon his resignation.
On January 2, April 1, July 1, and October 1, 2009, 142,680, 164,016, 69,092 and 50,455 shares of restricted stock were granted, respectively to executive officers of the Company in connection with a cash conservation plan for 2009. All of these shares were scheduled to vest one year from the date of grant. On September 3, 2009 the vesting schedule with respect to the former CEO's 115,628 restricted shares was modified to provide for immediate vesting. Restricted stock grants are valued using the fair market value of the stock on the date of grant.
In August 2008, the Company issued a total of 50,000 shares of Common Stock at $0.80 per share to an executive officer of the Company upon his election to exercise stock options under the terms of the Company's stock option plans.
In July 2008, the Company issued a total of 115,250 shares of Common Stock at $0.80 per share to a non-employee director of the Company upon his election to convert deferred compensation into shares under the terms of the deferred compensation plans. Also in July 2008, the Company issued a total of 119,250 shares of Common Stock (at prices ranging from $0.16 per share to $1.80 per share, the weighted average exercise price was $1.20 per share) to the same non-employee director of the Company upon his election to exercise stock options under the terms of the Company's Directors' stock option plans.
F-18
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010 AND 2009
8. SHAREHOLDERS' EQUITY
In 2007, the Board of Directors adopted and the shareholders approved the 2007 Restricted Stock Plan (the "2007 Plan"). The 2007 Plan permits the Company to make Restricted Stock grants of shares of Common Stock to management personnel and other key employees of the Company. Unless otherwise specified by the Committee, the term of the restricted period for any Restricted Stock grant under the 2007 Plan shall not be less than five years from the date of grant. Employee participants who receive Restricted Stock grants will have all of the rights of a stockholder, including the right to vote the shares of Restricted Stock that are the subject of the grant and the right to receive any regular cash dividends paid out of current earnings. The Company may issue an aggregate maximum of 1,500,000 shares of Common Stock under the 2007 Plan.
A total of 70,000 shares of restricted stock were granted in the first quarter of 2008. Total restricted share grants of 60,000 shares were made to three non-executive employees on March 6, 2008. 30,000 of these shares vested ratably over five years and 30,000 shares vest ratably over four years. Another 10,000 restricted share grant was made to an executive of the Company on March 24, 2008, these shares vest ratably over 5 years. In November 2008, the terms of the restricted stock grants were modified to permit the acceleration of their vesting upon certain conditions. In the first quarter of 2009, the vesting for 60,000 of the Restricted Shares was accelerated to be fully vested. Restricted stock grants are valued using the fair market value of the stock on the later of the date of grant or modification. The Company recognized a reduction of stock compensation expense for the restricted share grants of approximately $36,000 during the first quarter of 2009 as a result of the vesting modification.
A total of 142,680 shares of restricted stock were granted to five executive officers on January 2, 2009 at a price of $0.615 per share in connection with a cash conservation plan for 2009. The issuance price is determined by the average closing price of the last ten trading days of the previous quarter. The shares were to vest one year from date of grant. On September 3, 2009 the vesting schedule with respect to 43,902 of these restricted shares was modified to provide for immediate vesting.
On April 1, 2009 a total of 164,016 shares of restricted stock were granted to five executive officers at a price of $0.535 per share in connection with the cash conservation plan for 2009. The issuance price is determined by the average closing price of the last ten trading days of the previous quarter. The shares were to vest one year from the date of grant. On September 3, 2009 the vesting schedule with respect to 50,467 of these restricted shares was modified to provide for immediate vesting.
On July 1, 2009 a total of 69,092 shares of restricted stock were granted to five executive officers at a price of $1.27 per share in connection with the cash conservation plan for 2009. The issuance price is determined by the average closing price of the last ten trading days of the previous quarter. The shares were to vest one year from the date of grant. On September 3, 2009 the vesting schedule with respect to 21,259 of these restricted shares was modified to provide for immediate vesting.
On October 1, 2009 a total of 50,455 shares of restricted stock were granted to four executive officers at a price of $1.20 per share in connection with the cash conservation plan for 2009. The issuance price is determined by the average closing price of the last ten trading days of the previous quarter and these shares vest one year from their date of grant.
F-19
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010 AND 2009
8. SHAREHOLDERS' EQUITY (Continued)
On September 3, 2009, the Company granted a total of 400,000 restricted shares of the Company's common stock in connection with the hire of Donald C. Ewigleben as its President/CEO/COO. 100,000 of these shares vest on March 3, 2010; the remaining 300,000 shares vest 1/3 on each of September 2010, 2011 and 2012. The vesting of the remaining 300,000 restricted shares is also subject to certain annual performance objectives as specified in Mr. Ewigleben's employment agreement. In November 2010, 20,000 restricted shares for Mr. Ewigleben were cancelled. Restricted stock grants are valued using the fair market value of the stock on the date of grant.
On January 4, and April 1, 2010, 65,820 and 73,751 shares of restricted stock were granted, respectively to executive officers of the Company in connection with a cash conservation plan for 2010. All of these shares were scheduled to vest one year from the date of grant. On November 12, 2010, 20,000 restricted shares granted to the CEO were cancelled. Restricted stock grants are valued using the fair market value of the stock on the date of grant.
In June 2010, the Company issued a total of 200,000 shares of restricted stock to non-employee directors of the Company at the annual meeting under the terms of the Company's stock option plans.
Effective September 30, 2010, Robert M. Gallagher resigned as a member of the Board of Directors and, as of October 1, 2010 was engaged as a consultant to assist the Company in its efforts to advance toward production in New Mexico. Mr. Gallagher is engaged through the entity RMG Consulting, LLC, a government and community relations firm in which he is a principal.
In connection with this change, the terms of the equity awards granted to Mr. Gallagher were modified whereby the vesting attributable to 25% of the 50,000 share stock option grant made on January 20, 2010 was accelerated to the date of his resignation and the exercise period was extended to September 30, 2012. In addition, the vesting attributable to 25% of the 50,000 share restricted stock grant made on June 3, 2010 was accelerated to the date of his resignation. The Company recognized stock compensation expense for the modifications of approximately $24,000 during 2010. All remaining unvested equity awards were forfeited upon his resignation.
A summary of the status of non-vested shares for the years ended December 31, 2010 and 2009, is presented below:
|
Number of Shares |
Weighted Average Grant Date Fair Value |
|||||
---|---|---|---|---|---|---|---|
Non-vested at January 1, 2009 |
70,000 | $ | 8.21 | ||||
Granted |
826,243 | $ | 0.85 | ||||
Vested |
(177,628 | ) | $ | 3.31 | |||
Non-vested at December 31, 2009 |
718,615 | $ | 0.96 | ||||
Granted |
339,571 | $ | 0.63 | ||||
Vested |
(505,115 | ) | $ | 0.87 | |||
Cancelled |
(57,500 | ) | $ | 0.68 | |||
Non-vested at December 31, 2010 |
495,571 | $ | 0.86 | ||||
F-20
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010 AND 2009
8. SHAREHOLDERS' EQUITY (Continued)
The unrecognized compensation of $219,000 related to the non-vested shares will be recognized over a remaining service period of 1.6 years.
Equity InfusionPublic Offering
The Company raised additional capital in June and July 2010 through an underwritten public offering. Under the transactions, a total of 27,142,830 shares of common stock were sold in the offering with net proceeds of approximately $10.2 million, after deducting underwriting discounts and commissions and estimated offering expenses.
The Company raised additional capital in November 2010 through an underwritten public offering. Under the transaction, a total of 8,222,500 shares of common stock were sold in the offering with net proceeds of approximately $8.9 million, after deducting underwriting discounts and commissions.
Common Stock Issued Upon Conversion of Options and Deferred Compensation
In August 2010, the Company issued a total of 63 shares of Common Stock at $0.160 per share to a non-employee director of the Company upon his election to exercise stock options under the terms of the Company's Directors' stock option plans.
In November 2010, the Company issued a total of 1,050 shares of Common Stock at $0.76 per share to an employee director of the Company upon his election to exercise stock options under the terms of the Company's stock option plans.
Employee Stock Options
The Company has two stock Incentive Plans for Employees, both of which were approved by the Company's shareholders.
At December 31, 2010 there were outstanding under the 1995 Stock Incentive Plan (the "1995 Plan") options to purchase 1,881,212 shares of Common Stock with exercise prices ranging from $0.76 to $3.12 per share. No new options may be granted under the 1995 Plan.
Under the Company's 2004 Stock Incentive Plan (the "2004 Plan") a total of 1,750,000 shares may be issued upon exercise of options granted under the 2004 Plan. At December 31, 2010 there were outstanding under the 2004 Plan options to purchase 1,194,876 shares of Common Stock at exercise prices ranging from $0.73 to $5.19 per share. At December 31, 2010, 420,583 shares were available for future grants under the 2004 Plan.
Employee stock options generally vest ratably over a 3 or 4 year time frame and have a contractual term of 10 years.
Directors' Stock Options
On June 19, 2001, the Company granted to certain outside directors options to purchase 75,000 shares of the Company's Common Stock at an exercise price of $0.88 per share. 25,000 options were
F-21
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010 AND 2009
8. SHAREHOLDERS' EQUITY (Continued)
exercised in both July 2008 and April 2007, and 25,000 were cancelled in 2006. None of such options remains outstanding at December 31, 2010.
On June 2, 2004 the Company adopted the 2004 Directors' Stock Option Plan (the "2004 Directors' Plan"). Under the 2004 Directors' Plan, each non-employee director on the date the Plan was adopted was granted an option to purchase 75,000 shares of Common Stock. Each non-employee Director elected or appointed to the Board of Directors for the first time will be granted an option to purchase 25,000 shares of Common Stock and, each Non-Employee Director shall be granted an option to purchase 25,000 shares either, (a) upon his or her reelection at an annual meeting of the Company's stockholders or (b) in any calendar year in which an annual meeting of shareholders is not held, on June 1 of such year.
In June 2006, the Directors' Stock Option Plan was amended to increase the initial grants and the annual re-election grants to non-employee Directors to 50,000 shares of Common Stock. The 2004 Directors' Plan replaces an earlier plan that expired in 2004. None of such options remains outstanding at December 31, 2010.
In January 2010, an option to purchase 50,000 shares of the Company's Common Stock was granted to Robert M. Gallagher, a non-employee director of the Company at an exercise price of $0.76 per share. Effective September 30, 2010, Robert M. Gallagher resigned as a member of the Board of Directors.
In connection with this change, the terms of the equity awards granted to Mr. Gallagher were modified whereby the vesting attributable to 25% of the 50,000 share stock option grant made on January 20, 2010 was accelerated to the date of his resignation and the exercise period was extended to September 30, 2012. In addition, the vesting attributable to 25% of the 50,000 share restricted stock grant made on June 3, 2010 was accelerated to the date of his resignation. The remaining unvested equity awards were forfeited upon his resignation. Additional stock compensation expense of $6,000 was recognized in 2010 in connection with the modifications of these options.
At the June 2010 annual meeting of the stockholders, each of the non-employee directors of the Company (Leland O. Erdahl, Terence J. Cryan, Marvin K. Kaiser and Robert M. Gallagher) was granted restricted stock under the 2004 Directors' Plan to purchase 50,000 shares of the Company's common stock at an exercise price of $0.53 per share. Upon the resignation of Mr. Gallagher in September 2010, the vesting attributable to 25% of the 50,000 share restricted stock grant made on June 3, 2010 was accelerated to the date of his resignation. The remaining unvested equity awards were forfeited upon his resignation. The non-employee directors held options covering 706,250 shares under the 2004 Directors' Plan at December 31, 2010. At December 31, 2010, 206,250 shares were available for future grants under the 2004 Directors' Plan.
At the June 2009 annual meeting of the stockholders, each of the non-employee directors of the Company (Leland O. Erdahl, Terence J. Cryan and Marvin K. Kaiser) was granted an option under the 2004 Directors' Plan to purchase 50,000 shares of the Company's common stock at an exercise price of $1.49 per share. The non-employee directors held options covering 731,250 shares under the 2004 Directors' Plan at December 31, 2009. At December 31, 2009, 381,250 shares were available for future grants under the 2004 Directors' Plan.
F-22
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010 AND 2009
8. SHAREHOLDERS' EQUITY (Continued)
At the June 2008 annual meeting of the shareholders, each of the non-employee directors of the Company (Leland O. Erdahl, George R. Ireland, Terence J. Cryan and Marvin K. Kaiser) was granted an option under the 2004 Directors Plan to purchase 50,000 shares of the Company's common stock at an exercise price of $4.10 per share.
Options Issuable for Deferred Compensation
The Company has a 1999 Deferred Compensation Plan (the "1999 Plan") and Deferred Compensation Plans for 2000-2001, 2002, 2003 and 2004 (the "2000-2004 Plans") whereby executive officers and directors were permitted to defer up to 100% of their compensation for the years 1999-2004.
Under the 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 our Common Stock. A total of approximately $242,000 was deferred under the 1999 Plan of which $133,450 was paid by issuing 88,965 shares of Common Stock at $1.50 per share. As of December 31, 2010, approximately $108,200 remains outstanding as deferred compensation under the 1999 Plan.
Under the 2000-2004 Plans, the executive officers and directors were permitted to defer up to 100% of their 2000, 2001, 2002, 2003 and 2004 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 our Common Stock valued at $0.80 per share. A total of $829,000 was deferred under the 2000-2004 Plans of which $95,300 was paid in 2004 by issuing 119,125 shares of Common Stock at $0.80 per share. As of December 31, 2010, approximately $588,800 remains outstanding as deferred compensation under the 2000-2004 Plans.
In December 2005, the 1999 Plan and the 2000-2004 Plans were amended, extending the election of the participants under the plans to receive their deferred compensation until January 11, 2011. All of the participants with accrued deferred compensation at December 2005 elected to defer their election to such date. On January 11, 2011 the participants elected to receive restricted stock totaling 885,021 shares.
In connection with the May 2008 equity infusion, the Company issued warrants to purchase 988,771 additional shares of common stock at a price of $5.78 per share. These warrants expire in May 2013 and are outstanding and exercisable as of December 31, 2010.
9. STOCK-BASED COMPENSATION PLANS
Our stock based compensation programs consist of stock options granted to employees and directors and restricted stock grants made to employees.
F-23
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010 AND 2009
9. STOCK-BASED COMPENSATION PLANS (Continued)
Stock Compensation Expense
Stock compensation expense for the year ended December 31, 2010, 2009 and 2008 of $1,032,000, $1,258,000 and $2,154,000, respectively, was recorded to general and administrative expenses. The Company has not recognized a tax benefit from the stock compensation expense because the Company considers it is more likely than not that the related deferred tax assets, which have been reduced by a full valuation allowance, will not be realized.
The Black-Scholes option-pricing model was used to estimate the option fair values. The option-pricing model requires a number of assumptions, of which the most significant are, expected stock price volatility, the expected pre-vesting forfeiture rate and the expected option term (the amount of time from the grant date until the options are exercised or expire). Expected volatility was calculated based upon actual historical stock price movements through the measurement date of the stock option grant. Expected pre-vesting forfeitures were estimated based on actual historical pre-vesting forfeitures over the most recent periods ending December 31, 2010 for the expected option term. The expected option term was estimated based on historical averages over the most recent periods ending December 31, 2010.
In April 2010, three employees and one officer of the Company were granted options under the 2004 Employee Incentive Program to purchase a total of 85,000 shares of the Company's common stock at an exercise price of $0.73 per share. These options vest ratably over 3 years.
In December 2010, four officers of the Company were granted options under the 2004 Employee Incentive Program to purchase a total of 95,000 shares of the Company's common stock at an exercise price of $3.29 per share. These options vest in one year.
In September 2009, the Company hired Donald C. Ewigleben as the Company's President, CEO and COO. In connection with the hire, the Company granted Mr. Ewigleben a total of 400,000 restricted shares of the Company's common stock. 100,000 of these shares vest on March 3, 2010; the remaining 300,000 shares vest 1/3 on each of September 3, 2010, 2011 and 2012. The vesting of the remaining 300,000 restricted shares is also subject to certain annual performance objectives as specified in Mr. Ewigleben's employment agreement. As of December 31, 2010 280,000 restricted shares remain outstanding. Restricted stock grants are valued using the fair market value of the stock on the date of grant.
On September 3, 2009, in connection with the resignation of David N. Clark as President and CEO, the Company and Mr. Clark entered into an agreement which extended to September 3, 2011 the termination date for the stock options previously granted to Mr. Clark and the immediate vesting of 12,500 previously granted stock options scheduled to vest in June 2010. The Company recognized $260,000 of stock compensation expense in the third quarter of 2009 in connection with the modification of these stock options.
At the June 2009 annual meeting of the stockholders, each of the four non-employee directors of the Company was granted an option under the 2004 Directors' Plan to purchase 50,000 shares of the Company's common stock at an exercise price of $1.49 per share. The non-employee directors held options covering 731,250 shares under the 2004 Directors' Plan at December 31, 2009. At December 31, 2009, 381,250 shares were available for future grants under the 2004 Directors' Plan.
F-24
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010 AND 2009
9. STOCK-BASED COMPENSATION PLANS (Continued)
At the June 2008 annual meeting of the stockholders, each of the three non-employee directors of the Company was granted an option under the 2004 Directors' Plan to purchase 50,000 shares of the Company's common stock at an exercise price of $4.10 per share.
On January 4, and April 1, 2010, 65,820 and 73,751 shares of restricted stock were granted, respectively to executive officers of the Company in connection with a cash conservation plan for 2010. All of these shares were scheduled to vest one year from the date of grant. On November 12, 2010, 20,000 restricted shares granted to the CEO were cancelled. Restricted stock grants are valued using the fair market value of the stock on the date of grant.
In January 2010, an option to purchase 50,000 shares of the Company's Common Stock was granted to Robert M. Gallagher, a non-employee director of the Company at an exercise price of $0.76 per share. Effective September 30, 2010, Robert M. Gallagher resigned as a member of the Board of Directors. In connection with this change, the terms of the equity awards granted to Mr. Gallagher were modified whereby the vesting attributable to 25% of the 50,000 share stock option grant made on January 20, 2010 was accelerated to the date of his resignation and the exercise period was extended to September 30, 2012. In addition, the vesting attributable to 25% of the 50,000 share restricted stock grant made on June 3, 2010 was accelerated to the date of his resignation. The remaining unvested equity awards were forfeited upon his resignation. Additional stock compensation expense of approximately $13,000 was recognized in 2010 in connection with the modification of this equity award.
At the June 2010 annual meeting of the stockholders, each of the non-employee directors of the Company (Leland O. Erdahl, Terence J. Cryan, Marvin K. Kaiser and Robert M. Gallagher) was granted restricted stock under the 2004 Directors' Plan to purchase 50,000 shares of the Company's common stock valued at $0.53 per share. Upon the resignation of Mr. Gallagher in September 2010, 25% of the 50,000 share was vested on the date of his resignation. The remaining unvested equity awards were forfeited upon his resignation. The non-employee directors held options covering 706,250 shares under the 2004 Directors' Plan at December 31, 2010. At December 31, 2010, 206,250 shares were available for future grants under the 2004 Directors' Plan.
A total of 142,680, 164,016, 69,092 and 50,455 shares of restricted stock were granted in the first, second, third and fourth quarters of 2009, respectively to five executive officers on January 2, April 1 and July 1, 2009 and four executive officers on October 1, 2009 in connection with a cash conservation plan for 2009. All of these shares were scheduled to vest one year from the date of grant. On September 3, 2009 the vesting schedule with respect to the former CEO's 115,628 restricted shares was modified to provide for immediate vesting. The Company has recognized $110,000 of compensation cost for modification of the vesting schedule for these restricted shares. Restricted stock grants are valued using the fair market value of the stock on the date of grant.
A total of 70,000 shares of restricted stock were granted in the first quarter of 2008. The vesting with respect to 60,000 of these restricted shares was modified in the first quarter of 2009 to provide for immediate vesting, which resulted in a reduction of stock compensation expense of approximately $24,000 being recorded in 2009. The remaining 10,000 restricted shares vest ratably over 5 years.
The Company recognized stock compensation expense for its restricted share grants of approximately $350,000 for the year ended December 31, 2010. The Company recognized stock compensation cost for the restricted share grants of approximately $339,000 for the year ended
F-25
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010 AND 2009
9. STOCK-BASED COMPENSATION PLANS (Continued)
December 31, 2009. The total estimated unrecognized compensation cost from the unvested restricted grants at December 31, 2010 was approximately $219,000, which is expected to be recognized over the weighted average vesting period of the individual grants which range from 1-3 years.
Stock Options as of December 31, 2010
The Company has four stock option plans as summarized under Footnote 8 "Shareholders EquityStock Options." The following table summarizes stock options outstanding and changes during the year ended December 31, 2010:
|
Outstanding Options | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Number of Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term (in years) |
Aggregate Intrinsic Value |
||||||||||
Options outstanding at January 1, 2010 |
4,406,074 | $ | 2.75 | |||||||||||
Granted |
230,000 | $ | 1.79 | |||||||||||
Exercised |
(1,113 | ) | $ | 0.73 | ||||||||||
Canceled or forfeited |
(815,123 | ) | $ | 2.73 | ||||||||||
Options outstanding at December 31, 2010 |
3,819,838 | $ | 2.70 | 5.07 | $ | 5,539,826 | ||||||||
Options exercisable at December 31, 2010 |
3,414,838 | $ | 2.64 | 4.63 | $ | 4,541,783 | ||||||||
The total intrinsic value of options exercised during the years ended December 31, 2010, 2009 and 2008 was $2,976, $0 and $153, respectively.
Shares available for grant under the Plans as of December 31, 2010 were 626,833.
Stock options outstanding and currently exercisable at December 31, 2010 are as follows:
|
Options Outstanding | Options Exercisable | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Stock Option Plan
|
Number of Options Outstanding |
Weighted Average Remaining Contractual Life (in years) |
Weighted Average Exercise price |
Number of Options Exercisable |
Weighted Average Exercise Price |
|||||||||||
1995 Stock Incentive Plan |
1,881,212 | 3.89 | $ | 1.31 | 1,881,212 | $ | 1.31 | |||||||||
2004 Employee Incentive Plan |
1,194,876 | 5.57 | 3.15 | 1,014,876 | 3.34 | |||||||||||
2004 Directors Plan |
743,750 | 7.25 | 5.49 | 518,750 | 6.13 | |||||||||||
|
3,819,838 | 5.07 | $ | 2.70 | 3,414,838 | $ | 2.64 | |||||||||
Total estimated unrecognized compensation cost from unvested stock options as of December 31, 2010 was approximately $752,000, which is expected to be recognized over a weighted average period of approximately 2 to 3 years.
The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model.
F-26
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010 AND 2009
9. STOCK-BASED COMPENSATION PLANS (Continued)
Using the Black-Scholes option pricing model, the weighted average assumptions for grants in 2010: fair market value: $0.73, $0.70, $0.69 and $2,51; expected volatility of 144%, 147%, 103% and 89%; and risk-free interest rate of 4.25%, $.75%, #.75% and 3.125%. An expected life of 7.91 years, 7.27 years, 2 years and 6.32 years was used for the options granted. The weighted average fair value of the options granted in 2010 was $1.71
Using the Black-Scholes option pricing model, the weighted average assumptions for grants in 2009: fair market value: $1.44, expected volatility of 143% and risk-free interest rate of 4.5%. An expected life of 8.01 years was used for the options granted. The weighted average fair value of the options granted in 2009 was $1.44.
Using the Black-Scholes option pricing model, the weighted average assumptions for grants in 2008: fair market value: $4.10, expected volatility of 143% and risk-free interest rate of 4.25%. An expected life of 9.42 years was used for the options granted. The weighted average fair value of the options granted in 2008 was $4.10.
The exercise price for the options granted under the plans is the fair market value 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 2010, 2009 and 2008 was $1.71, $1.44 and $4.10, respectively.
10. FEDERAL INCOME TAXES
The deferred federal income tax asset (liability) consists of the following:
|
December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | 2008 | |||||||
Property development costsnet of amortization |
$ | 11,583,000 | $ | 13,018,000 | $ | 13,688,000 | ||||
Accelerated depreciation |
(151,000 | ) | (193,000 | ) | (195,000 | ) | ||||
Restoration reserves |
(1,560,000 | ) | (1,093,000 | ) | (480,000 | ) | ||||
Net operating loss and percentage depletion carryforwards |
34,766,000 | 29,621,000 | 26,235,000 | |||||||
Valuation allowance and othernet |
(44,638,000 | ) | (41,353,000 | ) | (39,248,000 | ) | ||||
Total deferred income tax asset (liability) |
$ | | $ | | $ | | ||||
F-27
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010 AND 2009
10. FEDERAL INCOME TAXES (Continued)
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, | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | 2008 | ||||||||||||||||
|
Amount | % of Pretax Income |
Amount | % of Pretax Income |
Amount | % of Pretax Income |
|||||||||||||
Pretax income (loss) |
$ | (10,354,567 | ) | | $ | (10,065,862 | ) | | $ | (26,509,356 | ) | | |||||||
Pretax income (loss) times statutory tax rate |
(3,521,000 | ) | 34 | % | (3,422,000 | ) | 34 | % | (9,013,000 | ) | 34 | % | |||||||
Increases (decreases) in taxes resulting from: |
|||||||||||||||||||
Change in valuation allowance |
3,521,000 | (34 | )% | 2,105,000 | (21 | )% | 9,013,000 | (34 | )% | ||||||||||
Correction to deferred tax |
| | 1,317,000 | (13 | )% | | | ||||||||||||
Income tax benefit |
$ | 0 | 0 | % | $ | 0 | 0 | % | $ | 0 | 0 | % | |||||||
The Company also has available for regular federal income tax purposes at December 31, 2010 estimated net operating loss ("NOL") carryforwards of approximately $102,252,000, before limitations which expire primarily in 2011 through 2030, if not previously utilized. Following the issuance of the Company's Common Stock in 2001, use of the Company's NOL will be severely limited on an annual and aggregate basis. For this reason, and due to no expectation of profitable operations in the near future, the NOL has a full valuation allowance and is not shown as a deferred tax asset in the table above.
11. OTHER LONG-TERM LIABILITIES AND DEFERRED CREDITS
Other long-term liabilities and deferred credits on the balance sheet consisted of:
|
December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2010 | 2009 | |||||
Reserve for future restoration and reclamation costs (Asset Retirement Obligations), net of current portion of $1,240,000 and $1,237,000 in 2010 and 2009. (Note 2) |
$ | 3,804,057 | $ | 4,290,361 | |||
Royalties payable |
500,000 | 500,000 | |||||
Deferred compensation, net of current portion of $697,028 and $0 in 2010 and 2009 |
| 697,028 | |||||
|
$ | 4,304,057 | $ | 5,487,389 | |||
F-28
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010 AND 2009
11. OTHER LONG-TERM LIABILITIES AND DEFERRED CREDITS (Continued)
The following table shows the change in the balance of the restoration and reclamation liability (Asset Retirement Obligation) during the years ended December 31, 2010 and 2009:
|
December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2010 | 2009 | |||||
Reserve for future restoration and reclamation costs at January 1, |
$ | 5,526,949 | $ | 6,994,772 | |||
Changes in cash flow estimates |
733,981 | 79,604 | |||||
Costs incurred |
(1,373,228 | ) | (1,802,369 | ) | |||
Accretion expense |
155,943 | 254,942 | |||||
Reserve for future restoration and reclamation costs at December 31, |
$ | 5,043,645 | $ | 5,526,949 | |||
12. EARNINGS (LOSS) PER SHARE
Basic earnings per share includes no dilution and is computed by dividing income or loss attributed to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if security interests were exercised or converted into common stock.
The Company has issued potentially dilutive instruments in the form of common stock warrants, deferred compensation plan and common stock options granted to our employees. There were 5,736,341 and 6,216,989 dilutive securities outstanding at December 31, 2010 and 2009, respectively. The Company did not include any of these instruments in the calculation of diluted loss per share during the period because to include them would be anti-dilutive due to the net loss during the periods.
13. 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.
Registration Statement
In May 2008, the Company completed the sale of 3,295,920 shares of common stock to accredited investors at a price of $4.34 per share and warrants to purchase 988,771 additional shares of common stock, at a price of $5.78. These warrants expire 60 months after issuance and are exercisable immediately. The Company filed a registration statement under the Securities Act of 1933, as amended, to register the resale of the shares of its common stock issued in the May 2008 private placement. The registration rights agreement executed in connection with the private placement and pursuant to which
F-29
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010 AND 2009
13. COMMITMENTS AND CONTINGENCIES (Continued)
the shares were registered, provides for penalties in the event the registration statement fails to remain effective. At December 31, 2010, the Company's registration statement was and remains effective.
Compensation Agreements
The Company has entered into Compensation Agreements with Executive Officers of the Company, with the exception of the CEO/President/COO, that provide that, in the event of a change in control, such officers will have certain rights and benefits for a period of thirty-six months for the Executive Chairman of the Company and twenty-four months for the other officers, following such change in control. The Compensation Agreements provide that the executive's base salary payments shall be made on a monthly basis for the duration of the term and any incentive payments shall be paid annually until the obligation to make such payments expires. In September, 2009 the Company entered into a Compensation Agreement with the CEO/President /COO of the Company that provides that, in the event he terminates employment following a change in control he would be entitled to two years salary and bonus plus medical and dental benefits for up to 12 months. A change in control would also result in the immediate vesting of all unvested restricted shares of stock granted to him.
Kingsville Dome Contingent Royalty
The Company accrued a royalty obligation from its production activities at the Kingsville Dome Project in 2007 from leases which have a 6.25% royalty and carry and additional 3.125% royalty payment to certain land owners of the property that have ratified lease agreements with the Company. At December 31, 2007, none of these additional leases had been ratified and the contingent liability and related royalty expense recorded for the first nine months of 2007 of approximately $453,000 was reversed.
Legal Contingencies
In the matter titled, Saenz v. URI Inc, in the 105th Judicial District Court, Kleberg County, Texas, the owners of the mineral estate of property in Kleberg County, Texas leased to the Company sought a declaratory judgment that the leases were not valid. The Company had produced uranium from both leases. On September 29, 2010, our counsel and the plaintiffs' counsel signed a settlement agreement in this matter and the settelment was finalized in February 2011. Under the Settlement, the Plaintiffs ratified, confirmed and recognized the validity of the leases, agreed to cooperate with the Company and execute a stipulation of interest with regard to their respective interests. Plaintiffs agreed to support and not interfere, either directly or indirectly, with the Company's efforts to obtain permits, licenses or other authorizations from the different regulatory and governmental agencies with regard to any mining or other operations. We paid to Plaintiffs $1.375 million in cash, which includes amounts for prior royalties that the plaintiffs had previously rejected. In addition royalties due for future production from the leases will be amended from a 6.25% royalty rate to a sliding scale royalty.
In connection with the resignation of David N. Clark as President and CEO of the Company on September 3, 2009, the Company and Mr. Clark entered into an agreement which provided for his salary continuation through December 2, 2009, continuation of employee benefits through March 31, 2010, extension to September 3, 2011 of the termination date for the stock options granted to Mr. Clark and immediate vesting of the restricted shares and stock options granted to Mr. Clark.
F-30
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010 AND 2009
14. JOINT VENTURE FOR CHURCHROCK PROPERTY
On December 5, 2006, HRI-Churchrock, Inc., a wholly-owned subsidiary of the Company, entered into a Joint Venture with a wholly-owned subsidiary of Itochu to develop jointly our Churchrock property in New Mexico.
A feasibility study was completed and delivered at the end of 2006. Under the terms of the Joint Venture, both parties had until April 2, 2007 to decide whether to terminate the Joint Venture. The parties extended that date until March 2, 2009. On March 6, 2009 we received notification that Itochu had decided to terminate the Joint Venture which resulted in the termination of the Joint Venture. Such action eliminates the potential for reinstatement of the original delivery contracts with Itochu for South Texas production. However, depending on spot market prices, our sales price may be reduced by up to $2.10 per pound on some of our South Texas production for future deliveries under the contract.
F-31
Exhibit Number |
Description | ||
---|---|---|---|
3.1 | * | Restated Certificate of Incorporation of the Company, dated February 15, 2004 (filed with the Company's Registration Statement on Form SB-2 dated July 26, 2004, SEC File Number 333-117653). | |
3.1.1 | * | Certificate of Amendment of Restated Certificate of Incorporation of the Company (filed with the Company's Form 8-K dated April 11, 2006, SEC File Number 000-17171 and as corrected in the Company's Form 8-K dated December 7, 2007). | |
3.2 | * | Restated Bylaws of the Company (filed with the Company's Form 10-K on March 10, 2010). | |
4.2 | * | Form of Warrant to Purchase Common Stock (filed with the Company's Form 8-K on May 19, 2008). | |
10.3 | * | Amended and restated 1995 Stock Incentive Plan (filed with the Company's Form SB-2 Registration No. 333-117653 on July 26, 2005). | |
10.7 | * | 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). | |
10.12 | * | 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 June 30, 1998, SEC File Number 000-17171). | |
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 June 30, 1998, SEC File Number 000-17171). | |
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 June 30, 1998, SEC File Number 000-17171). | |
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 June 30, 1998, SEC File Number 000-17171). | |
10.16 | * | Uranium Resources, Inc. 1999 Deferred Compensation Plan (filed with the Company's Annual Report on Form 10-K dated June 30, 1999, SEC File Number 000-17171). | |
10.16.1 | * | Amendment No. 1 to the Uranium Resources, Inc. 1999 Deferred Compensation Plan (filed with the Company's Annual Report on Form 10-KSB dated March 31, 2006, SEC File Number 000-17171). | |
10.17 | * | 2000-2001 Deferred Compensation Plan (filed with the Company's Annual Report on Form 10-K dated December 31, 2004, SEC File Number 000-17171). | |
10.17.1 | * | Amendment No. 2 to the Uranium Resources, Inc. Deferred Compensation Plan for 2000-2001 (filed with the Company's Annual Report on Form 10-KSB dated March 31, 2006, SEC File Number 000-17171). | |
10.22 | * | Uranium Resources, Inc. Deferred Compensation Plan for 2002 (filed with the Company's Quarterly Report on Form 10-QSB dated November 13, 2002, SEC File Number 000-17171). | |
10.23 | * | Uranium Resources, Inc. Deferred Compensation Plan for 2003 (filed with the Company's Quarterly Report on Form 10-QSB dated November 13, 2002, SEC File Number 000-17171). |
E-1
Exhibit Number |
Description | ||
---|---|---|---|
10.24 | * | Uranium Resources, Inc. Deferred Compensation Plan for 2004 (filed with the Company's Quarterly Report on Form 10-QSB dated May 14, 2004, SEC File Number 000-17171). | |
10.24.1 | * | Amendment No. 2 to the Uranium Resources, Inc. Deferred Compensation Plan for 2002, Deferred Compensation Plan for 2003, and Deferred Compensation Plan for 2004 (filed with the Company's Annual Report on Form 10-KSB dated March 31, 2006, SEC File Number 000-17171). | |
10.35 | * | Uranium Resources, Inc. 2004 Stock Incentive Plan (filed with the Company's Quarterly Report on Form 10-QSB/A dated November 18, 2005, SEC File No. 000-17171). | |
10.37 | * | Amended and Restated Uranium Supply Contract between Itochu Corporation and Uranium Resources, Inc. effective March 1, 2006 (filed with the Company's Form 10-KSB dated March 31, 2006, SEC file Number 000-17171). | |
10.38 | * | Agreement for the Sale of Uranium Concentrates between UG U.S.A., Inc. and Uranium Resources, Inc. dated March 31, 2006 (filed with the Company's Form 10-KSB dated March 31, 2006, SEC file Number 000-17171). | |
10.43 | * | Amended and Restated 2004 Directors' Stock Option Plan dated April 10, 2007 (filed with the Company's Post-Effective Amendment No. 1 to Registration Statement on Form S-3 dated April 11, 2007, SEC File No. 333-133960) | |
10.43.1 | * | Amended and Restated 2004 Directors' Stock Option and Restricted Stock Plan dated April 1, 2010 (filed with the Company's Form 10-Q dated August 9, 2010, SEC File No. 000-17171). | |
10.44 | * | Uranium Resources, Inc. 2007 Restricted Stock Plan (filed with the Company's Form 10-Q dated May 10,2007, SEC File No. 000-17171) | |
10.45 | * | Agreement dated September 3, 2009 between the Company and David N. Clark (Filed with the Company's Form 8-K dated September 4, 2009, SEC File No. 001-33404). | |
10.46 | * | Letter Agreement dated September 3, 2009 between the Company and Donald C. Ewigleben (Filed with the Company's Form 8-K dated September 4, 2009, SEC File No. 001-33404). | |
10.47 | * | Consulting Services Agreement with RMG Consulting, LLC dated October 1, 2010 (Filed with the Company's Form 8-K dated October 4, 2010, SEC File No. 001-33404). | |
10.48 | Uranium Mining Lease option Agreement dated December 1, 2010 between URI, Inc. and The John G. and Marie Stella Kenedy Memorial Foundation. | ||
14 | * | Uranium Resources, Inc. Amended Code of Ethics for Senior Executives. (filed with the Company's Form 10-KSB dated March 30, 2004, SEC File No. 000-17171). | |
21 | * | Subsidiaries of the Registrant | |
23.1 | Consent of Independent Registered Public Accounting Firm | ||
23.2 | Consent of Behre Dolbear & Company (USA) | ||
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
E-2
Exhibit Number |
Description | ||
---|---|---|---|
32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
E-3
Exhibit 10.48
URANIUM MINING LEASE OPTION
STATE OF TEXAS |
§ |
|
§ |
COUNTY OF KENEDY |
§ |
THIS URANIUM MINING LEASE OPTION AGREEMENT (this Agreement), made and entered into effective December 1, 2010 (the Effective Date of this Agreement), by and between The John G. and Marie Stella Kenedy Memorial Foundation, herein called Grantor, and URI, Inc., a Delaware corporation, its successors and assigns, whose address is 641 East FM 1118, Kingsville, Texas, 78363, herein called Grantee.
WITNESSETH
WHEREAS, upon the terms and conditions hereinafter set forth, Grantee desires to secure the right to perform exploration activities on and to acquire an option to acquire an In-Situ Uranium Mining Lease covering the lands located in Kenedy County, described on Exhibit A, attached hereto and made a part hereof (the Option Premises).
NOW, THEREFORE, for and in consideration of Ten ($10.00) dollars in hand paid, and in consideration of and subject to the terms, conditions, covenants, limitations and reservations contained in this agreement, the receipt and sufficiency of which are acknowledged, Grantor and Grantee agree as follows, to-wit:
1. Definitions. When used in this Option, the following capitalized terms have the meaning specified:
Adverse Environmental Event means any spill, release, discharge, or storage, treatment, disposal, or any underground injection of any Polluting Substance, or the violation of any Environmental Protection Law. Such term also includes any contamination of air, surface water, ground water, soil, subsurface or any other natural resource.
Affiliate or Affiliates shall mean any person or entity that is a parent, subsidiary, affiliate, venturer, partner, member of or with or otherwise related to Grantee or whose ownership, operation, control or management is to any extent in common with or related to Grantee.
Drilling Operations shall mean actual drilling operations with a drilling rig rigged up and on location on the Option Premises, together with all attendant equipment needed to drill an Exploration Well to the intended depth, where the drill bit is below the surface of the ground.
Environmental Protection Laws means any and all applicable local, state, and federal environmental laws; any regulations promulgated under such statutes; or any other environmental statutes or regulations administered by the U.S. Environmental Protection Agency, the U.S. Department of Transportation, the U.S. Coast Guard, the U.S. Army Corps of Engineers, the U.S. Fish & Wildlife Service, the National Oceanic and Atmospheric
Administration, the Department of Commerce, the Department of the Interior, the Council on Environmental Quality, the Texas Parks & Wildlife Department, the Texas General Land Office, the Texas Water Commission, the Texas Air Control Board, the Texas Railroad Commission, the Texas Department of Health, the Texas Commission on Environmental Quality, or any successor to any such governmental agency, and further including without limitation, the Comprehensive Environmental Response Compensation and Liability Act of 1980 (CERCLA), the Resource Conservation and Recovery Act of 1976 (RCRA), the Federal Water Pollution Control Act (Clean Water Act), the Safe Drinking Water Act, the Clean Air Act, the National Environmental Protection Act (NEPA), the Emergency Planning and Community Right to Know Act, the Hazardous Materials Transportation Act, the Uranium Mill Tailings Act, the Texas Water Code, the Texas Soil and Waste Disposal Act, Railroad Commission of Texas Surface Mining and Reclamation rules and regulations, and all Texas Commission on Environmental Quality rules and regulations pertaining to uranium mining and exploration activities and to the protection of natural resources, as those laws, rules and regulations presently are in effect or are hereafter enacted or amended or interpreted by legislative, judicial or administrative authority during the term of this Agreement.
Exploration Program shall mean a staged drilling program designed to evaluate a property for the presence of an economically recoverable uranium ore body. This program may encompass drilling, logging, access, reclamation and restoration work, data analysis, geological and engineering evaluation, permitting and any other associated activities necessary for evaluation of the Option Premises.
Exploration Well shall mean any well drilled for the purposes of determining the existence of favorable geologic environments for the formation of uranium ore bodies or the existence of the ore bodies themselves.
Lease Option shall mean Grantees option to enter into one or more In-Situ Uranium Mining Leases as described in Section 4.
Leased Substances shall mean uranium, uranium oxide, thorium, molybdenum, vanadium and other fissionable or spatially associated substances similar to and produced in conjunction therewith, and specifically excluding oil, gas and associated hydrocarbon substances and coal, lignite, sand, gravel, rock and caliche.
NGO shall mean any non-governmental organization.
Option Premises means the land upon which the Exploration Program will be conducted as described in Exhibit A to this Agreement. The land comprises all of the Rita Division and a portion of the Jaboncillos Division of the lands of the John G. and Marie Stella Kenedy Memorial Foundations lands in Kenedy County, Texas. Said lands are out of the Juan N De La Garza Survey, Abstract 36, Los Finados, comprising 52, 024 acres, more or less, and a 1,500 acre tract adjacent to its south side described as a portion of the Sarita Kenedy East, for a total of 53,524 acres, more or less.
Polluting Substance means: a) any hazardous substance as defined by CERCLA; b) any hazardous waste as defined in the RCRA; c) any petroleum, or petroleum product or by-product; d) any polychlorinated biphenyl; e) any other pollutant or contaminant or hazardous,
dangerous or toxic chemical, material, waste or substance of any kind or character regulated or within the meaning of any other Environmental Protection Laws.
RCT shall mean the Railroad Commission of Texas.
TCEQ shall mean the Texas Commission on Environmental Quality.
Water Supply Well shall mean any Well that is used to supply water for domestic, livestock, agricultural, or industrial purposes that is not used or intended for use in uranium recovery or groundwater restoration operations as provided for in this Agreement.
Well shall mean any excavation that is drilled, cored, bored, washed, fractured, driven, dug, jetted, or otherwise constructed for the intended use of locating, monitoring, dewatering, depressurizing, observing, diverting, or acquiring groundwater, or for conducting pumping or aquifer tests.
2. Exploration Rights. Grantor does hereby GRANT UNTO Grantee and its successors and assigns, to the extent, but only to the extent that Grantor has the right and power to do so, the exclusive and irrevocable permit, right and privilege, but only for the express purposes set out herein, for a period of 36 months, commencing as of the date appearing above, and ending at 5:00 p.m. Corpus Christi time, on November 30, 2013 (the Election Date), to explore for Leased Substances and to conduct or have conducted geological, geophysical, core hole drilling and core analysis or other survey evaluation techniques of a similar nature selected by Grantee to determine the possibility of the presence of one or more deposits, structures and/or reservoirs favorable for the accumulation and production of Leased Substances, insofar as said Leased Substances are located in, under, or on all or any portion the Option Premises.
3. Minimum Exploration Obligation. Subject to relief granted under the Force Majeure clause in Section 9, Grantee agrees to drill or cause to be drilled a minimum of one hundred (100) Exploration Wells on the Option Premises or to expend at least One Million Dollars ($1,000,000), whichever first occurs, in conducting the Exploration Program prior to the first anniversary date of the Effective Date of this Agreement. Likewise, Grantee agrees to drill or cause to be drilled an additional two hundred (200) Exploration Wells on the Option Premises or to expend at least an additional One Million Five Hundred Thousand Dollars ($1,500,000), whichever first occurs, in conducting the Exploration Program prior to the second anniversary date of the Effective Date of this Agreement. Finally, Grantee agrees to drill or cause to be drilled an additional two hundred (200) Exploration Wells on the Option Premises or to expend at least an additional Two Million Dollars ($2,000,000), whichever first occurs, in conducting the Exploration Program prior to the Election Date. Exploration Wells drilled in excess of the yearly requirements, and dollars expended in excess of the yearly requirements shall count towards the next years requirements. Unless the Grantee has exercised the Lease Option as provided for in Section 4 below, at each anniversary date following the Effective Date of this Agreement, and subject to the following paragraph of this Section, this Agreement, and all of Grantees rights hereunder, will automatically terminate if Grantee has not met the minimum Exploration Well drilling or dollar expenditure obligations set forth in this Section, provided
however, that if Grantor agrees in writing that Grantee is actively advancing the Exploration Program to Grantors satisfaction, this Agreement shall not terminate. Before each anniversary date of the Effective Date of this Agreement, Grantee will evaluate the results of the Exploration Program, and Grantee will furnish to Grantor a detailed statement identifying the number and location of Exploration Wells drilled, along with all other expenditures incurred attributable to the Exploration Program. Grantee retains the right to terminate this Agreement at any time, and in the event of such termination, Grantee shall have no further obligation to drill any Exploration Wells or to expend any additional amounts for the Exploration Program other than those commitments for the year in which termination occurs, provided that Grantees obligations to restore the Option Premises will survive termination of this Agreement until and unless Grantee is fully released by the regulatory agency having jurisdiction for restoration. In the event of termination under the provisions of this Section, Grantee will immediately furnish to Grantor a release of this Agreement and will cause such release to be recorded in the Official Records of Kenedy County, Texas.
If, as of any anniversary date of the Effective Date of this Agreement, a shortfall in the required minimum drilling or monetary expenditure is identified, and Grantee does not dispute the same, Grantee shall have thirty (30) days to remedy such deficiency, either by completing the commitment or by paying to Grantor the difference between the monetary amount required to meet the commitment and the monetary amount actually expended on the Option Premises for the applicable annual period.
4. Lease Option. If Grantee is not in breach of any term, covenant or condition of this Agreement, then Grantee shall have the right, but not the obligation, to make an election at any time on or before the Election Date, to acquire one or more In-Situ Uranium Mining Leases covering not less than 1000 acres each of the Option Premises in the form of the In-Situ Uranium Mining Lease attached hereto as Exhibit B, by (a) designating in writing the portion or portions of the Option Premises to be included in the In-Situ Uranium Mining Lease(s), (b) paying or tendering to Grantor the sum of Two Hundred Dollars ($200.00) per acre for each acre included in the In-Situ Uranium Mining Lease(s) by cashiers check or by wire transfer (c) delivering a fully completed In-Situ Uranium Mining Lease or Leases in the form as is attached hereto as Exhibit B, complete with all blanks properly filled in and with a property description containing a legal metes and bounds description for the portion of the Option Premises to be covered by each Lease and (d) delivering a form of memorandum of each In-Situ Uranium Mining Lease for recording, as provided in Section 23.3 of Exhibit B (Memorandum) and a duly executed recordable release describing the Option Premises not being leased. If Grantee exercises the Lease Option, it will be released from any further minimum exploration requirements as outlined in Section 3 above. It is agreed that the acreage to be included and covered in each In-Situ Uranium Mining Lease shall be formed in such a manner so as to include contiguous lands and not leave any strips or gores of unleased acreage. Furthermore, the acreage to be covered by each distinct In-Situ Uranium Mining Lease must correspond to Grantees good faith assessment of one or more distinct Production Areas capable of being developed under a unified and coordinated mine plan or logical mining unit. Grantee agrees to consult in advance with Grantor in the designation of acreage to be assigned to any In-Situ Uranium Mining Lease(s) acquired hereunder, so that the lease or leases acquired hereunder are designated in a manner that prohibits Grantee from warehousing acreage without conducting actual
development and production of Leased Substances. The written designation shall be by instrument prepared and signed by Grantee, stating that Grantee has elected to exercise the Lease Option to obtain one or more In-Situ Uranium Mining Leases and containing such other statements, terms, covenants and conditions as are appropriate to such election. Such designation and the payment of such sum of money may be either hand delivered to Grantor or mailed to Grantor at the address provided above by Certified Mail, Return Receipt Request, postage prepaid, deposited with the U.S. Postal Service, or delivered by reputable overnight courier. Upon such timely and proper election by Grantee, that includes (a) designation in writing of the portion of the Option Premises to be included in the In-Situ Mining Lease, and (b) the proper and timely payment of the full bonus money required, (c) the delivery of the In-Situ Uranium Mining Lease(s) and Memoranda thereof that are fully and completely filled out with a proper metes and bounds legal description, Grantor shall immediately execute said In-Situ Uranium Mining Lease(s) and Memoranda, dated as of the date Grantor receives all of the four above-required items required to elect to exercise this Lease Option and deliver same to Grantee.
5. Damages to Pasture Lands. Grantee shall pay to Grantor the sum of One Hundred Dollars ($100.00) for each Exploration Well drilled on any portion of the Option Premises as damages for surface damages caused by the drilling of each Exploration Well, including, without limitation, subsidence and any damage to pasture resulting from such operations. In addition to the above, Grantee shall, as much as is reasonably possible, restore the land back to its original condition within sixty (60) days of the drilling of each Exploration Well. In the event Grantee fails to restore the land as required, Grantee shall pay Grantor any actual damages it incurs as the result of the failure to restore. Such payment shall be in addition to any other payment required above in this Section.
6. Damages to Crop Lands. In addition to the damages described in Section 5 above, Grantee shall pay to the Grantor the sum of Two Hundred Fifty Dollars ($250.00) for each acre, or a proportionate amount for each fraction of an acre, of then-growing crops which are damaged by virtue of Grantees operations in drilling any such Exploration Well. Crops shall mean planted and cultivated crops to be harvested from the Option Premises, such as, but not limited to, wheat, corn, milo, hay and alfalfa, but excluding naturally growing vegetation used solely for onsite livestock grazing or ground cover. Such crop damages shall be reduced by the amount of Exploration Well damages that have already been paid within the crop damage acreage. In addition to the above, Grantee shall, as much as is reasonably possible, restore the land back to as near its original condition as is reasonably possible within sixty (60) days of the drilling of each Exploration Well. In the event Grantee fails to restore the land as required, Grantee shall pay Grantor any actual damages it incurs as the result of the failure to restore. Such payment shall be in addition to any other payment required above in this Section.
7. INDEMNITY, RELEASE, INSURANCE AND WAIVERS
7.1 INDEMNITY. GRANTEE SHALL INDEMNIFY AND HOLD HARMLESS GRANTOR, ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, REPRESENTATIVES, SUCCESSORS, AND ASSIGNS (THE INDEMNIFIED PERSONS), AGAINST ANY AND ALL EXPENSES, CLAIMS, DEMANDS, CAUSES OF ACTION, JUDGMENTS, LIABILITIES, FINES, LIENS, PENALTIES, AND
CAUSES OF ACTION OF ANY NATURE OR INJURY TO OR DEATH OF PERSONS (INCLUDING DEATHS OF OR INJURIES TO EMPLOYEES, AGENTS, CONTRACTORS, SUBCONTRACTORS, INVITEES AND PERMITEES OF GRANTEE) AND/OR LOSS OR DAMAGE TO PROPERTY INCLUDING, WITHOUT LIMITATION, ATTORNEYS FEES, EXPERTS FEES, AND COURT COSTS (INDEMNIFIED LIABILITIES) DIRECTLY OR INDIRECTLY ARISING OUT OF, CAUSED BY, OR RESULTING FROM (IN WHOLE OR IN PART) THE FOLLOWING ACTS OR OMISSIONS INCLUDING NEGLIGENCE AND WILLFUL MISCONDUCT, ON THE GRANTORS PROPERTY DURING OR UNDER THE TERMS OF THIS AGREEMENT:
(A) THE CONDITION OF THE OPTION PREMISES,
(B) ANY ACTS OR OMISSIONS OF GRANTEE, OR OF GRANTEES SUCCESSORS OR ASSIGNS, OR OF EMPLOYEES, AGENTS, INVITEES, OR CONTRACTORS OF ANY OF SUCH PERSONS,
(C) ANY VIOLATION OF ANY LAWS, RULES OR REGULATIONS BY GRANTEE, OR BY GRANTEES SUCCESSORS OR ASSIGNS, OR BY EMPLOYEES, AGENTS, INVITEES, OR CONTRACTORS OF ANY OF SUCH PERSONS,
(D) THE VIOLATION BY GRANTEE OF THE RIGHTS OF HOLDERS OF RIGHTS OR INTERESTS IN THE OPTION PREMISES, OR
(E) THE DISCLOSURE BY GRANTEE OF DATA, ANALYSES OR INFORMATION PERTAINING TO THE OPTION PREMISES OBTAINED BY, THROUGH, OR UNDER GRANTEE, OR OF INTERPRETATIONS THEREOF, BY, THROUGH OR UNDER GRANTEE, EVEN IF THE INDEMNIFIED LIABILITIES ARE CAUSED IN PART BY OR DUE TO THE PARTIAL OR CONCURRENT NEGLIGENCE OR STRICT LIABILITY OF AN INDEMNIFIED PERSON. GRANTEES OBLIGATION TO INDEMNIFY THE INDEMNIFIED PERSONS DOES NOT COVER LIABILITIES RESULTING FROM THE SOLE NEGLIGENCE OR SOLE WILLFUL MISCONDUCT OF AN INDEMNIFIED PERSON.
GRANTOR SHALL ADVISE GRANTEE IN WRITING OF ANY ACTION, ADMINISTRATIVE OR LEGAL PROCEEDING OR INVESTIGATION AS TO WHICH THIS INDEMNIFICATION MAY APPLY WITHIN 10 DAYS OF GRANTORS RECEIPT OF NOTICE OF ANY SUCH ACTION, PROCEEDING OR INVESTIGATION. HOWEVER, THE INDEMNIFIED PERSONS FAILURE TO NOTIFY GRANTEE WITHIN SUCH 10 DAY PERIOD WILL NOT AFFECT THE INDEMNIFIED PERSONS RIGHTS, NOR THE GRANTEES OBLIGATIONS, PROVIDED THE INDEMNIFIED PERSONS USE THEIR GOOD FAITH EFFORTS TO GIVE GRANTEE NOTICE. GRANTEE, AT GRANTEES EXPENSE, SHALL ASSUME ON BEHALF OF THE INDEMNIFIED PERSONS AND CONDUCT WITH DUE
DILIGENCE AND IN GOOD FAITH, THE DEFENSE THEREOF WITH COUNSEL SATISFACTORY TO GRANTOR; PROVIDED, HOWEVER, THAT THE INDEMNIFIED PERSONS SHALL HAVE THE RIGHT, AT ITS OPTION, TO BE REPRESENTED THEREIN BY ADVISORY COUNSEL OF SUCH PERSONS SELECTION AND AT SUCH PERSONS OWN EXPENSE. IN THE EVENT OF THE FAILURE BY GRANTEE TO FULLY PERFORM IN ACCORDANCE WITH THIS INDEMNIFICATION, THE INDEMNIFIED PERSONS MAY SO PERFORM, BUT ALL COSTS AND EXPENSES SO INCURRED BY THE INDEMNIFIED PERSONS IN THAT EVENT SHALL BE REIMBURSED BY GRANTEE TO THE INDEMNIFIED PERSONS, TOGETHER WITH INTEREST ON THE SAME FROM THE DATE ANY SUCH EXPENSE WAS PAID BY AN INDEMNIFIED PERSON UNTIL REIMBURSED AT THE RATE OF 18% PER ANNUM OR THE MAXIMUM RATED PROVIDED BY LAW, WHICHEVER IS LESS. THIS INDEMNIFICATION SHALL NOT BE LIMITED TO DAMAGES, COMPENSATION OR BENEFITS PAYABLE UNDER INSURANCE POLICIES, WORKERS COMPENSATION ACTS, DISABILITY BENEFIT ACTS OR OTHER EMPLOYEES BENEFIT ACTS. THIS SECTION SHALL SURVIVE THE TERMINATION OR RELEASE OF THIS AGREEMENT IN WHOLE OR IN PART.
7.2 RELEASE.
A. GRANTEE RELEASES GRANTOR, ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, TENANTS, SUCCESSORS AND ASSIGNS (RELEASED PERSONS) FROM ALL LIABILITY FOR ANY DAMAGE OR INJURY GRANTEE, GRANTEES SUCCESSORS OR ASSIGNS, OR ANY EMPLOYEES, AGENTS, INVITEES, OR CONTRACTORS OF ANY OF SUCH PERSONS, MAY SUSTAIN FROM ANY AND ALL SOURCES OR CAUSES EXCEPT TO THE EXTENT, SUCH DAMAGE OR INJURY IS PROXIMATELY CAUSED BY THE SOLE GROSS NEGLIGENCE OR SOLE WILLFUL MISCONDUCT OF A RELEASED PERSON. GRANTEE WAIVES ALL RIGHT TO RECOVER FOR CONSEQUENTIAL, PUNITIVE AND/OR EXEMPLARY DAMAGES, UNLESS SUCH WAIVER IS SPECIFICALLY PROHIBITED BY STATUTE, WITH RESPECT TO ANY CAUSES OF ACTION WHICH MAY ARISE AGAINST A RELEASED PERSON OR ON OR AFTER THE DATE HEREOF. THIS SECTION SHALL SURVIVE THE TERMINATION OR RELEASE OF THIS AGREEMENT IN WHOLE OR IN PART.
7.3 ENVIRONMENTAL INDEMNITY. GRANTEE SHALL COMPLY WITH ALL APPLICABLE LAWS NOW IN EFFECT OR HEREINAFTER ENACTED, INCLUDING ENVIRONMENTAL PROTECTION LAWS. GRANTEE TAKES FULL RESPONSIBILITY FOR ALL CLEANUP COSTS AND DAMAGES AS A RESULT OF ANY AND ALL ADVERSE ENVIRONMENTAL EVENTS ARISING OUT OF THE ACTS OR OMISSIONS OF GRANTEE, OR OF GRANTEES SUCCESSORS OR ASSIGNS, OR OF EMPLOYEES, AGENTS, INVITEES, CONTRACTORS OR SUBCONTRACTORS OF ANY SUCH PERSONS.
GRANTEE SHALL BE RESPONSIBLE FOR AND SHALL INDEMNIFY AND
HOLD THE INDEMNIFIED PERSONS HARMLESS FOR ALL COSTS, EXPENSES, AND LIABILITY RELATING OR ARISING IN ANY WAY WHATSOEVER FROM AN ADVERSE ENVIRONMENTAL EVENT AFFECTING THE OPTION PREMISES OR ADJACENT LAND ARISING OUT OF THE ACTS OR OMISSIONS OF GRANTEE, OR OF GRANTEES SUCCESSORS OR ASSIGNS, OR OF EMPLOYEES, AGENTS, INVITEES, CONTRACTORS OR SUBCONTRACTORS OF ANY SUCH PERSONS. SUCH INDEMNIFICATION INCLUDES ALL ACTIONS, LIABILITIES, CLAIMS, DAMAGES (INCLUDING CONSEQUENTIAL DAMAGES), FINES, LIENS, PENALTIES, FORFEITURES, ADMINISTRATIVE AND JUDICIAL PROCEEDINGS, AND THE COSTS AND EXPENSES INCIDENT THERETO (INCLUDING COSTS OF DEFENSE, SETTLEMENT, AND REASONABLE INVESTIGATION AND EXPERT WITNESS AND ATTORNEYS FEES), CHARGES, ORDERS, REMEDIAL ACTIONS, REQUIREMENTS, AND ENFORCEMENT ACTIONS OF ANY KIND, WHETHER FORESEEABLE OR UNFORESEEABLE, WHICH GRANTOR MAY HEREINAFTER INCUR OR BE PARTY TO, BECOME RESPONSIBLE FOR OR PAY OUT AS A RESULT OF DEATH OR BODILY INJURY TO ANY PERSON, DESTRUCTION OR DAMAGE TO ANY PROPERTY, CONTAMINATION OF OR ADVERSE EFFECTS ON THE ENVIRONMENT, ANY VIOLATION OF ANY APPLICABLE LAW, RULE OR REGULATION PROMULGATED BY ANY LOCAL, STATE OR FEDERAL AGENCY OR ENTITY HAVING JURISDICTION OVER SUCH MATTERS, INCLUDING WITHOUT LIMITATION ENVIRONMENTAL PROTECTION LAWS.
THIS INDEMNITY SHALL FURTHER APPLY TO ANY RESIDUAL CONTAMINATION RESULTING FROM THE ACTIVITIES OF GRANTEE, GRANTEES SUCCESSORS OR ASSIGNS, OR OF EMPLOYEES, AGENTS, INVITEES, CONTRACTORS OR SUBCONTRACTORS OF ANY SUCH PERSONS, OR OTHER PERSONS ON THE OPTION PREMISES OR ADJACENT LANDS ACTING ON BEHALF OF GRANTEE, OR AFFECTING ANY NATURAL RESOURCES THEREIN, AND TO ANY CONTAMINATION OF ANY PART OF THE GRANTORS LAND, THE OPTION PREMISES, LANDS ADJACENT TO THE OPTION PREMISES, OR NATURAL RESOURCES.
GRANTOR SHALL NOTIFY GRANTEE OF ANY CLAIMS OR DEMANDS ASSERTED AGAINST GRANTOR FOR WHICH GRANTOR MAY SEEK INDEMNITY FROM GRANTEE HEREUNDER WITHIN 10 DAYS OF GRANTORS RECEIPT OF NOTICE OF ANY SUCH CLAIM OR DEMAND. HOWEVER, THE INDEMNIFIED PERSONS FAILURE TO NOTIFY GRANTEE WITHIN SUCH 10 DAY PERIOD WILL NOT AFFECT THE INDEMNIFIED PERSONS RIGHTS, NOR THE GRANTEES OBLIGATIONS, PROVIDED THE INDEMNIFIED PERSONS USE THEIR GOOD FAITH EFFORTS TO GIVE GRANTEE SUCH NOTICE. THIS SECTION SHALL SURVIVE THE TERMINATION OR RELEASE OF THIS AGREEMENT IN WHOLE OR IN PART.
7.4 Insurance. Grantee agrees to obtain and maintain at Grantees sole cost and expense, commercial general liability insurance; business auto liability insurance; and workmans compensation insurance and employers liability insurance on its employees. Such commercial
general liability insurance shall be written on an ISO occurrence most current form (or a substitute form providing equivalent coverage), and shall cover liability from premises, operations, independent contractors, products-completed operations, personal injury and advertising injury, and liability assumed under an insured contract; shall provide for insured limits for bodily injury or death of not less than $10,000,000 per occurrence limit (if such commercial general liability insurance contains a general aggregate limit, it shall apply separately to the Option Premises); and shall name Grantor as an additional insured using an ISO additional insured endorsement (or a substitute providing equivalent coverage). Such business auto liability insurance shall cover liability arising out of any auto (including owned, hired, and non-owned autos) and shall be written on ISO form (or a substitute form providing equivalent liability coverage), and, if necessary shall be endorsed to provide contractual liability coverage equivalent to that provided in the 1990 and later editions of CA 00-01. Workmans compensation insurance shall be for the statutory limits.
Grantee shall furnish to Grantor, prior to conducting any activities on the Option Premises certificates of such insurance issued by insurance companies reasonably acceptable to Grantor, which companies shall be licensed to do business in the State of Texas.
The policies shall contain severability of interest endorsements, state that the insurance is primary insurance as regards any other insurance carried by Grantor, and shall include a waiver of subrogation in favor of Grantor and its officers, directors, employees, tenants, and agents. Such insurance shall state that Grantor will be notified in writing 30 days prior to cancellation, material change, or non-renewal of insurance. Grantee shall provide to Grantor a certified copy of any and all applicable insurance policies upon request of Grantor. Timely renewal certificates will be provided as the coverage renews. Grantee agrees that if such insurance policies are not kept in force during the entire term of this Agreement, Grantor may, but is not obligated to, procure the necessary insurance and pay the premiums therefor. Grantee agrees that such premiums shall be repaid to Grantor on demand.
All contractors hired by Grantee that will enter on the Option Premises shall also provide insurance complying with these insurance coverage requirements, including providing Grantor with a certificate of insurance verifying coverages required hereby and naming Grantor as additional insured prior to entering upon the Option Premises. Alternatively, Grantee shall provide Grantor with written evidence from its insurance carriers that Grantees required insurance adequately covers the actions and property of such contractors, and supports all of Grantees indemnification obligations with respect to the actions of such contractors.
7.6 Waiver of Subrogation. Grantee will have no right or claim against Grantor or its officers, directors, employees, tenants, for any matter covered by Grantees insurance (whether caused by negligence of any of such persons or the condition of the Option Premises) by way of subrogation or assignment. Grantee hereby waives any such right. Grantee shall require its insurance carrier to endorse all applicable policies waiving the carriers right of recovery under subrogation or other right or claim that might be asserted against Grantor, and to provide Grantor a certificate of insurance verifying this waiver.
8.0 Miscellaneous.
8.1 Timeliness. Time is of the essence for all purposes of this Agreement and its attachments.
8.2 Payments. All payments remain hereunder to Grantor, including the option payment, shall be paid to Grantor at 555 North Carancahua, Suite 1700 Tower II, Corpus Christi, Texas 78478.
8.3 Notices. All notices and documents required to be delivered hereunder shall be delivered in person, by reputable overnight courier service (such as FedEx or UPS) or by registered U.S. Mail, return receipt requested, postage prepaid, to the following addresses:
If to Grantor:
The John G. and Marie Stella Kenedy Memorial Foundation
555 North Carancahua, Suite 1700 Tower II
Corpus Christi, Texas 78401
Attn: Marc A. Cisneros,
CEO/Executive Vice President
If to Grantee:
URI, Inc.
641 East FM 1118
Kingsville, Texas 78363
Attn: Richard A. Van Horn
Senior Vice President Operations
with a copy to:
Uranium Resources, Inc.
405 State Highway Bypass 121,
Building A, Suite 110
Lewisville, TX 75067
Attn: Corporate Secretary
or to such other address as the parties may designate by notice in accordance therewith; and such notices may be effective when received or five (5) days after mailing to the last known correct address, proper postage prepaid, whichever is earlier.
8.4 Other Leases and Easements. This Agreement is subject to all existing valid and effective oil, gas and/or minerals leases, easements, wind easements, restrictions, liens and encumbrances burdening the Option Premises regardless of whether or not visible on the ground and/or shown and reflected by instruments of record in Kenedy County, Texas, to which, where applicable, reference is here made for all purposes.
8.5 Roads. All travel by Grantee and its agents, employees, contractors, sub-contractors, invitees and permittees, shall be as much as possible on current ranch roads unless instructed otherwise. Grantee shall be responsible for any damages to ranch roads and agrees to make repairs and restore all roads promptly following any damage. Grantor reserves the right to fully use and enjoy said lands and roads. Immediately after Grantee has completed its operations on the surface of the lands, it shall restore the surface of the ground to as near as practicable the original condition. Grantee, to the extent it is necessary to travel off-road, shall have the right to construct temporary roads as necessary and shall use every reasonable effort not to pack, compress or rut the ground and shall restore same to as near as practicable its original condition. In conducting clearing operations for temporary roads, Grantee shall clear senderos with a hydro-axe (wood gator) capable of mulching all brush cleared, and Grantee may use no other equipment for such activities. All cleared limbs and scrub brush will be stack mulched and the windrows of mulched material shall be spread evenly over all such cleared areas in an effort to control erosion. No windrowing of brush and debris along the edge of the cleared lines shall be allowed. Grantee agrees to restore the surface of the portion of the Option Premises used by Grantee as nearly as reasonably practicable to the same condition as it was in before the commencement of such operations.
8.6 Fences. Grantee will not cut or go over any fence or fences of Grantor at any time or in connection with any operation under this Agreement without first obtaining Grantors express consent thereto in writing. If Grantor consents to the cutting of any fence, the cut must be made in the place and manner designated by the Grantor and prior to the cutting of any fence of Grantor, Grantee will brace the existing fence adequately on both sides of the proposed cut so there will no slack in any of the wires. Promptly after making such cut Grantee shall and maintain an adequate metal gate in such opening. In the event any gate required to be installed by Grantee is located on an outside fence of Grantor, Grantee shall keep it locked at all times. Grantee shall promptly close all gates, which Grantee, its agents, servants, employees, permittees, contractors, sub-contractors or licensees may use in Grantees operations on the Option Premises to prevent the escape of any cattle or other livestock (or wildlife if high fenced) through any open gates. Grantee further agrees to comply with all reasonable rules and regulations proposed by Grantor regarding the opening, closing and locking of all such gates.
8.7 Well Offset. No exploratory test well, development test well or production hole shall be drilled within one thousand (1,000) feet of any house, barn or any other structure situated on the Option Premises as of the date of Grantees operations, or within one thousand (1,000) feet of any water well or similar improvement or corrals on said lands without Grantors prior written consent.
8.8 Maps. Grantee shall furnish to Grantor a map (including GPS coordinates) showing the location and depth of all exploratory test holes, electronic copies of all test hole data, well logs, and any other tests or core analysis taken as well as any and all technical information, analysis, reports and summaries thereof. Grantor acknowledges that Grantee makes no representation or warranty as to the accuracy, correctness or completeness of any data supplied to Grantor pursuant to this Section.
8.9 Confidential Information. To the extent any information obtained by Grantor in connection with this Agreement is Confidential Information as described herein, the Confidential Information will be kept confidential until the occurrence of the earlier of: (a) the point in time such information is released by Grantee into the public domain; or (b) termination of Grantees rights to all or any portion of the Option Premises, provided that in the event Grantees rights terminate as to some, but not all of the Option Premises, Grantor will preserve the confidentiality of all Confidential Information attributable to that portion of the Option Premises where Grantee retains rights under this Agreement or any In-Situ Uranium Mining Lease acquired by Grantee hereunder until such time as Grantees rights terminate as to such lands. During said period of time the Confidential Information shall not, without Grantees prior written consent, be disclosed by Grantor to third parties in any manner whatsoever, in whole or in part, other than by Grantor to its board of directors, officers, attorneys, agents, representatives, consultants or employees, except as specifically allowed or authorized under the terms of this Agreement. Grantor shall be obligated to require authorized recipients of Confidential Information pursuant to the foregoing sentence to maintain such information as confidential in accordance with this Section.
The term Confidential Information shall include all information required to be delivered to Grantor under this Agreement that pertains to the Option Premises, except it shall not include any information or any portion of the such information that: (i) is now or hereafter becomes available to Grantor or anyone else on a non-confidential basis; (ii) is already in Grantors possession and not subject to a confidentiality agreement with Grantee or a third party; (iii) is not held as confidential by Grantee; (iv) is filed with or is required to be filed with a governmental or regulatory agency, commission or department; or (v) is obtained pursuant to discovery under the Texas or Federal Rules of Evidence in any future lawsuit.
In the event that Grantor or any of its attorneys, agents, representatives, consultants or employees becomes legally compelled, or required by law, rule or regulation to disclose any of the Confidential Information, said person or entity being legally compelled or required to provide such Confidential Information, will, to the extent reasonably possible or practicable, provide Grantee with prompt notice so that a protective order or other remedy may be timely sought. In the event that such protective order or other remedy is not obtained on or before two (2) days prior to the date the Grantor is required to furnish said Confidential Information, Grantor will only furnish that portion of the Confidential Information that Grantor is advised by opinion of counsel is legally compelled or required to be provided.
Notwithstanding anything to the contrary stated elsewhere herein, it is agreed and controllingly provided that this Section 8.9 does not restrict legal discovery under the Texas Rules of Civil Procedure or the Federal Rules of Civil Procedure, nor does it require the exclusion of any evidence otherwise discoverable or admissible under the Texas Rules of Evidence or the Federal Rules of Evidence in any subsequent proceeding merely because documents and/or information were obtained under the terms of this Section.
8.10 Warranty. Grantee stipulates that Grantee has inspected and is familiar with the Option Premises and except as specifically set forth in this Section 8.10, Grantor makes no warranty of any kind under this Agreement, including without limitation warranties as to title, the condition or fitness for any particular purpose of the Option Premises or the Agreement
hereby entered into. Grantee expressly stipulates it has made its own independent investigation and determination of all facts deemed relevant by Grantee before entering into this Agreement. Before commencing operations, Grantee shall obtain and fully comply with all necessary governmental permits and secure written permission from all necessary parties or owners. GRANTEE ACCEPTS THE CONDITION OF THE OPTION PREMISES AS IS WITHOUT WARRANTY OF TITLE, FITNESS OR ANY IMPLIED WARRANTIES. Grantor represents and warrants that it has taken all steps and obtained all board of director and other approvals necessary to duly authorize Grantor to enter into this transaction and that the person executing this Agreement on behalf of the Grantor is duly authorized to do so as the lawful and valid act of the Grantor. Grantor covenants and agrees that, promptly after execution of this Agreement, it shall take reasonable measures in an effort to supply Grantee with copies of all unrecorded agreements it has entered into or to its knowledge is subject to (or relevant excerpts therefrom) that may materially and adversely affect Grantees operations hereunder. Furthermore, Grantor shall apprise Grantee of any new agreements it enters into with third parties that may materially and adversely affect Grantees operations under this Agreement.
8.11 Staging Area. Grantee shall have the right to establish and utilize a maximum of two (2) temporary staging areas, each of which will not exceed three (3) acres, for temporary storage of drilling materials, equipment, and supplies, dry work and office areas, restroom facilities, and yard area. The temporary staging areas will be located within the exploration area in a location that must be approved by both Grantee and Grantor. The staging areas shall be fenced and gated with the ground surface being surfaced with caliche. All equipment, materials, temporary building, and the like, as well as fencing and surfacing material shall be removed upon termination of this Agreement, and Grantee will restore the surface of any lands affected thereby in the manner contemplated in this Agreement, unless Grantor agrees in writing that such staging area or areas may be utilized for future operations associated with any In-Situ Uranium Mining Lease acquired by Grantee hereunder.
8.12 Restoration of Damage. The consideration paid by Grantee to Grantor for this Agreement and for the initial damages set forth above shall not be considered liquidated damages, and Grantee will remain liable for any actual damages suffered by Grantor by reason of Grantee, its agents, employees, servants, contractors, subcontractors, invitees or permittees (i) exercising its rights hereunder, including, but without limitation, damages to roads, crops, water wells, tanks, fences, cattle guards, and any other improvements located on the Option Premises or injury or death to any livestock and/or (ii) breaching the terms, conditions or covenants of this Agreement, including but not limited to Grantees failure to restore the surface of the Option Premises as required. Grantee shall disc the surface and reseed all surface areas where Grantees operations have caused any significant disturbance, including but not limited to all temporary roads and senderos constructed by Grantee. In such reseeding, Grantee shall use only grass seed native to the Option Premises as directed by Grantor, and Grantee shall obtain prior consent from Grantor as to the timing and manner of any reseeding. Restoration and reclamation by Grantee as required hereunder shall be deemed sufficient if the reclamation and restoration are to the standards imposed by applicable laws, regulations or permit conditions pertaining to such disturbances or as otherwise set forth in this Agreement. If Grantor considers that Grantee has not completed restoration or reclamation in accordance with requirements of this Agreement, Grantor shall so notify Grantee and Grantee shall have thirty (30) days from receipt of such
notice within which to remedy the matter before being liable for additional damages hereunder. Grantee shall not be required to perform restoration or reclamation that is in violation of applicable laws, rules, regulations, licenses or permit conditions.
8.13 Payment of Fees. If either party pays any expenses, including reasonable attorneys fees, court costs or expert fees necessarily incurred in instituting, prosecuting or defending any action or proceedings instituted by reason of any default of the other party or its agents, employees, servants, contractors, subcontractors, invitees or permittees hereunder, or as a result of any other dispute under this Agreement, the sum or sums to be paid by the prevailing party in any such proceedings, together with all interest, costs and damages shall be paid by the other party.
8.14 Inspection. Upon completion of its operations hereunder, Grantee shall notify Grantor of such completion so that a joint inspection of the Option Premises and the operations hereunder can be made to see that all of the terms of this Agreement are met.
8.15 Default. Grantor shall be entitled to terminate this Agreement by written notice to Grantee in addition to all of the remedies available at law or in equity as follows:
A. If Grantee fails to make any payments when due hereunder, Grantor may at Grantors option give Grantee written notice of such failure and Grantee shall have fifteen (15) days from the date it receives notice to pay the amounts owed to Grantor. If Grantee fails to pay the past due amounts to Grantor within the fifteen (15) day period, Grantor may at Grantors option declare Grantee in default and terminate this Agreement.
B. If Grantee defaults in the performance of any obligation hereunder other than the obligation to make payments when due, Grantor may at Grantors option give written notice of such default to Grantee, and Grantee shall have thirty (30) days from the date it receives such notice to cure the default or such longer time as is reasonably required to effect a cure of the default if the nature of the default is such that cure cannot be effected in 30 days, provided that Grantor commences cure of the default within 30 days and thereafter pursues cure diligently. If Grantee fails to cure the default within the cure period, Grantor may at Grantors option terminate this Agreement; provided, however, that if the default is minor and the default can be fully compensated for in damages, then such default shall not be a basis for cancellation or forfeiture of this Agreement or any of Companys rights hereunder if Grantee pays the full amount of damages within thirty (30) days after demand by Grantor.
C. If Grantee in good faith disputes the existence of a default, then this Agreement shall not be terminated and Grantee shall not be barred from the Option Premises until a final non-appealable judgment finding such a default is entered by a court of competent jurisdiction and Grantee shall not have cured such default within 30 days after the judgment becomes final and non-appealable. No good faith dispute between Grantor and Grantee shall be the basis for Grantor barring Grantee from conducting operations pursuant to this Agreement until such dispute is resolved adversely to Grantee and Grantee fails to cure any default as allowed hereunder.
8.16 Protection of Trees. All operations on the Option Premises shall be conducted in a good workmanlike manner so as to minimize damage to any Oak trees located on the Option Premises and no Oak tree having a trunk with a diameter of six inches (6) or more measured at two feet (2) above ground level shall be damaged or destroyed by Grantee without the written consent of the Grantor.
8.17 Hunting Prohibition. Neither Grantee nor its agents, employees contractors, subcontractors, licensee or permittee, nor their agents or employees, shall have any right or privilege whatsoever to hunt or fish on the Option Premises, nor shall it, they or any of them, carry onto the Option Premises firearms, fishing equipment or other articles ordinarily used for hunting or fishing. Grantor or Grantors duly authorized representatives, shall have the right at all reasonable times, at Grantors expense, to inspect vehicles entering upon the Option Premises for the purpose of ascertaining that no such articles are being brought onto the Option Premises.
8.18 General Housekeeping. Grantee shall keep the Option Premises clean from trash during its operations.
8.19 Plugging and Abandonment. Grantee agrees that within sixty (60) days after any Exploration Well or any other Well dug by Grantee has served its purpose, it shall be plugged in accordance with existing permit requirements as issued by the appropriate regulatory agencies having jurisdiction over such matters. If such holes are cased, the casing shall be cut off at least three (3) feet beneath the surface of the ground after plugging. While excavating the pit around the cased hole, top soil shall be scraped off and saved and shall be placed back on top of the fill after backfilling. Additionally, with respect to any such Exploration Well or other Well, Grantee will provide to Grantor copies of any reports filed with the RCT, TCEQ or other governmental agency having jurisdiction over such matters, such copy to be delivered within thirty (30) days of filing same.
8.20 Water Supply Well Takeover. Any Water Supply Well drilled by Grantee upon the Option Premises shall, at Grantors option, become the property of Grantor upon the termination of this Agreement as to the portion of the Option Premises upon which such Water Supply Well is located, if, in the judgment of Grantee, such Water Supply Well is no longer needed in connection with Grantees development or clean-up or restoration operations on the Option Premises. The casing in any such Water Supply Well or wells shall not be removed by Grantee, and Grantor shall thenceforth assume all risks and obligations attendant to Grantors ownership and use of such Water Supply Well or wells, and Grantee is relieved from any further liability and Grantor shall indemnify Grantee against and hold Grantee harmless from any and all liability and claims with respect to such Water Supply Well or wells. Grantee may not use any surface water or water from any Water Supply Well owned by the Grantor or any surface owner on the Option Premises without the express written permission of the Grantor. Grantee shall use no more water than is reasonably necessary for its operations on the Option Premises. Grantee shall not use or sell water for use on any lease or land other than the Option Premises. Grantee shall comply with all rules and regulations promulgated by the Kenedy County Groundwater Conservation District, and any other agency having jurisdiction over Water Supply Wells that may be drilled by Grantee on the Option Premises, including without limitation, requirements to
register such Water Supply Wells and to measure and report all water produced from such Water Supply Wells.
8.21 Water Usage. Grantee shall have use of water from any Well or Water Supply Well drilled by Grantee on the Option Premises for the limited purposes authorized in this Agreement. Grantee shall have the use of water from any Water Supply Well owned by Grantor prior to the execution of this Agreement, subject to the grant of prior written permission and subject to payment to Grantor of a water usage fee in the amount of $3.00 per 1,000 gallons of water used as provided by Grantees metering and/or truck tallies. Additionally, Grantee shall test water from Grantors existing Water Supply Wells and from any Water Supply Wells drilled by Grantee prior to using any water in, on or under the Option Premises. All operations under this Agreement, including exploration, solution mining and restoration operations wherever situated on the Option Premises shall be conducted so not to damage, contaminate or destroy any Water Supply Well or appurtenances constructed or owned by Grantor. In the event for any reason such activity should result in damage to, contamination or destruction of any such water supply, Grantee shall repair, restore, remediate, decontaminate or replace any such Water Supply Well, tank, above or below ground reservoir or strata or other water facility so damaged, contaminated or destroyed, with reasonable diligence and dispatch, weather permitting. If such repair, restoration, remediation or replacement is not feasible, then Grantee shall pay to Grantor a reasonable compensation for any such damage so sustained or the loss in value of Grantors and/or surface owners property, whichever is the highest. Any such Water Supply Well, tank, above or below ground reservoir or strata or other water facility so repaired, restored, decontaminated, remediated or replaced shall be of a capacity and quality equal to that which was damaged or destroyed.
8.22 Assignment. The rights of either party hereunder and the provisions hereof shall be binding upon and inure to the benefit of Grantor, its heirs, executors, successors, and administrators, and upon Grantee, its legal representatives, successors and permitted assigns. Grantee acknowledges that this Agreement has been executed by Grantor based on the unique qualifications of Grantee, and Grantor has an expectation of dealing solely with Grantee with respect to operations on the Option Premises. As such, Grantee may not assign this Agreement, or any of its rights hereunder, in whole or in part, without the prior written consent of Grantor, which may be withheld for any reason or for no reason in Grantors sole discretion.
8.23 Recording. Grantor, without the prior written approval of Grantee, shall not file this Agreement for recording with the County Clerk of Kenedy County, Texas. Grantor upon request of Grantee, shall sign, acknowledge and deliver a recordable Memorandum of Uranium Mining Lease Option upon a form prepared by Grantee for the purpose of evidencing this Agreement in the Records of the County Clerk of Kenedy County, Texas, which recordable Memorandum of Uranium Mining Lease Option shall not modify, amend or impair this Agreement in any respect. Further, in the event Grantee elects to exercise its option to obtain one or more In-Situ Uranium Mining Leases in the form attached hereto as Exhibit B, in the manner herein provided, then upon Grantees request, Grantor shall execute, acknowledge and deliver the In-Situ Uranium Mining Lease(s) in said form to Grantee. Grantor, without the prior written approval of Grantee, shall not file a copy of such In-Situ Uranium Mining Lease for recording with the County Clerk of Kenedy County, Texas, and Grantor shall, upon request of
Grantee, sign, execute and acknowledge a recordable Memorandum of In-Situ Uranium Mining Lease upon a form prepared by Grantee for the purpose of evidencing such In-Situ Uranium Mining Lease in the Records of the County Clerk of Kenedy County, Texas, which recordable Memorandum of In-Situ Uranium Mining Lease shall not modify, amend or impair the In-Situ Uranium Mining Lease in any respect.
9.0 Force Majeure. It is understood and agreed that if Grantee is prevented through no fault of Grantee from complying with any express or implied covenant of this Agreement including conducting drilling of Exploration Wells thereon: a) by reason of or as a result of any Federal or State law, or any order, ruling or regulation of governmental authority or delay in obtaining any required authorization or permit from any governmental authority despite diligent efforts to do so, other than as a result of a failure to comply with Environmental Protection Laws or this Agreement; or b) due to hurricane, flooding, tornado, earthquake or similar act of God; or (c) due to interference or legal action brought by any NGO or other private party; or (d) as the result of the unavailability of qualified drilling contractors (each event under (a), (b), (c) and (d) being referred to herein as a Force Majeure Event), then while and so long as such Force Majeure Event exists, Grantees obligation to comply with such covenant shall be suspended and Grantee shall not be liable in damages for failure to comply therewith, and this Agreement shall be extended while and so long as such Force Majeure Event exists. In the event of the occurrence of a Force Majeure Event, Grantee must provide written notice to Grantor specifying the nature and cause of such Force Majeure Event. Furthermore, Grantee must use diligence in removing the cause of the Force Majeure Event, and Grantee may not suspend obligations arising under this Agreement due to any one or more Force Majeure Events for a time period or periods exceeding one (1) year in the aggregate.
10.0 Title Opinions. If Grantee shall have the title to the Option Premises or any part thereof examined by an attorney, Grantee agrees to furnish Grantor with a copy of such attorneys Title Opinion upon receipt. If Grantee causes an Abstract of Title or Supplements thereto to be prepared, it shall notify Grantor of same, shall make same available at all reasonable times, and shall furnish same to Grantor free of charge upon termination of this Agreement, Grantor agrees, upon request from Grantee, to furnish to Grantee any Title Opinions and/or abstracts of title in Grantors possession, covering all or part of the Option Premises. Grantor acknowledges that Grantee makes no representation or warranty as to the completeness, accuracy or correctness of any Title Opinion or Abstract or Supplement supplied to Grantor pursuant to this Section.
11.0 Property Taxes. Grantor shall pay all ad valorem taxes and assessments on the Option Premises attributable to its ownership or use of the Option Premises and its operations thereon. Grantee shall pay all such taxes or any increases in taxes payable by the Grantor to the extent such taxes or increases are attributable to Grantees operations or equipment and materials, or to the exercise of Grantees rights under this Agreement.
12.0 Permit Cooperation. Grantor agrees to reasonably cooperate with Grantee, at no cost to Grantor, with respect to any permits or applications by Grantee necessary for Grantees operations hereunder, and Grantor shall not contest or oppose such applications and permits
provided that they are consistent with the rights of and requirements imposed upon Grantee by this Agreement.
13. Limitation of Rights. Grantee is not acquiring any rights in and to oil, gas or associated hydrocarbons underlying the Option Premises, or to any other minerals or substances other than the Leased Substances, and then only to the extent expressly contemplated in this Agreement. During the term of this Agreement, Grantor shall enjoy any and all rights and privileges attributable to the surface estate not specifically granted herein, along with the right and authority to execute oil and gas leases, seismic permits or similar agreements contemplating oil and gas exploration and/or development of all or any portion of the Option Premises, provided that in the exercise of such rights, Grantor will not unduly interfere with the rights of Grantee under this Agreement.
IN WITNESS WHEREOF, this instrument is executed effective as of the 1st day of December, 2010.
GRANTOR: |
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The John G. and Marie Stella Kenedy Memorial Foundation |
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By: |
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Marc A. Cisneros, CEO/Executive Vice President |
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GRANTEE: |
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URI, Inc. |
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By: |
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Donald C. Ewigleben, President/ Chief Executive Officer |
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ACKNOWLEDGEMENTS
STATE OF TEXAS |
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COUNTY OF NUECES |
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This instrument was acknowledged before me this the 30th day of December, 2010, by Marc A. Cisneros, CEO/Executive Vice President of The John G. and Marie Stella Kenedy Memorial Foundation, a Texas non-profit corporation, on behalf of said corporation.
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Notary Public, State of Texas |
STATE OF TEXAS |
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COUNTY OF Nueces |
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This instrument was acknowledged before me this the 30th day of December, 2010, by Donald C. Ewigleben, President of URI, Inc., a Texas corporation, on behalf of said corporation.
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Notary Public, State of Texas |
EXHIBIT A
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Uranium Mining Lease Option
ATTACHED TO AND MADE A PART OF THAT CERTAIN IN-SITU URANIUM MINING LEASE OPTION BY THE JOHN G. AND MARIE STELLA KENEDY MEMORIAL FOUNDATION, AS GRANTOR, AND URI, Inc. AS GRANTEE, DATED EFFECTIVE December 1, 2010.
OPTION PREMISES DESCRIPTION
The land comprises all of the Rita Division and a portion of the Jaboncillos Division of the lands of the John G. and Marie Stella Kenedy Memorial Foundations lands in Kenedy County, Texas. Said lands are out of the Juan N De La Garza Survey, Abstract 36, Los Finados, comprising 52,024 acres, more or less, and a 1,500 acre tract adjacent to its south side described as a portion of the Sarita Kenedy East, for a total of 53,524 acres, more or less.
(Note: See ATTACHMENT A)
EXHIBIT B
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Uranium Mining Lease Option
ATTACHED TO AND MADE A PART OF THAT CERTAIN IN-SITU URANIUM MINING LEASE OPTION BY THE JOHN G. AND MARIE STELLA KENEDY MEMORIAL FOUNDATION, AS GRANTOR, AND URI, INC., AS GRANTEE, DATED EFFECTIVE December 1, 2010.
IN-SITU URANIUM MINING LEASE
STATE OF TEXAS |
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COUNTY OF KENEDY |
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THIS AGREEMENT, sometimes hereinafter referred to as this Lease, is entered into by and between The John G. and Marie Stella Kenedy Memorial Foundation, a Texas non-profit corporation, (hereinafter referred to as Lessor), and URI, Inc., a Delaware Corporation, (hereinafter referred to as Lessee).
This Lease and all of the rights, titles and interests granted herein to Lessee and reserved herein to Lessor are subject to the terms, agreements, reservations, conditions, covenants, limitations and exceptions contained in this Lease. Each of Lessor and Lessee, for itself and its successors and assigns, agrees to comply with and be bound by this Lease.
ARTICLE I
DEFINITIONS
The following terms, when used throughout this Lease, shall have the meanings assigned to such terms below:
11e.(2) Byproduct Material shall mean solid or liquid tailings or wastes produced by the extraction or concentration of uranium from any ore processed for its source material content as defined at 42 USC 2014§11e.(2).
Adverse Environmental Event means any spill, release, discharge, or storage, treatment, disposal, or any underground injection of any Polluting Substance, or the violation of any Environmental Protection Law. Such term also includes any contamination of air, surface water, ground water, soil, subsurface or any other natural resource.
Affiliate or Affiliates shall mean any person or entity that is a parent, subsidiary, affiliate, venturer, partner, member of or with or otherwise related to Lessee or whose ownership, operation, control or management is to any extent in common with or related to Grantee.
Allowable Taxes shall mean severance taxes, and similar taxes imposed, levied, assessed, or measured by or on the value of Leased Substances produced and sold from the Leased Premises.
By-Products shall mean all Leased Substances other than uranium, such as thorium, vanadium, molybdenum and any fissionable materials, whether in the form of ores, mine waters, leachates, pregnant liquors, pregnant slurries, concentrated slurries, precipitates, whether in dry or slurry state, concentrates, or products beneficiated, upgraded, or refined further than concentrates, occurring in intimate depositional relationship with uranium and recovered as secondary values during the mining, extraction, processing, or treatment of Uranium-bearing Products (as hereinafter defined).
Central Plant Facility shall mean any off-site facility owned by the Lessee or an Affiliate with whom Lessee has entered into a contractual relationship for processing at which (a) the uranium is stripped or eluted from the IX resin forming an high-grade uranium eluate, (b) the uranium values are then precipitated from the slurry to produce yellowcake slurry which is washed and filtered, and (c) the resulting yellowcake is dried and packaged for shipment to the converter.
Commercial Production shall mean the diligent and continuous conduct of all actions and operations necessary to effect production of Leased Substances in commercially salable quantities, including the injection of leaching solutions and recovery of such solutions for processing at the Remote IX Facility. Commercial Production shall be deemed to have ceased for all purposes under this Lease at any point in time in which total actual sales of Uranium-bearing Products for any consecutive three (3) year period are less than 90,000 pounds.
Delay Rentals shall mean payments made during the Primary Term to hold the Leased Premises on an annual basis until Production in Paying Quantifies begins.
Drilling Operations shall mean actual drilling operations with a drilling rig rigged up and on location on the Leased Premises, together with all attendant equipment needed to drill a Production Well to the intended depth and the drill bit is below the surface of the ground.
Effective Date is defined in the last paragraph of this Lease.
EPA shall mean the United States Environmental Protection Agency.
Environmental Protection Laws means any and all applicable local, state, and federal environmental laws; any regulations promulgated under such statutes; or any other environmental statutes or regulations administered by the U.S. Environmental Protection Agency, the U.S. Department of Transportation, the U.S. Coast Guard, the U.S. Army Corps of Engineers, the U.S. Fish & Wildlife Service, the National Oceanic and Atmospheric
Administration, the Department of Commerce, the Department of the Interior, the Council on Environmental Quality, the Texas Parks & Wildlife Department, the Texas General Land Office, the Texas Water Commission, the Texas Air Control Board, the Texas Railroad Commission, the Texas Department of Health, the Texas Commission on Environmental Quality, or any successor to any such governmental agency, , and further including without limitation, the Comprehensive Environmental Response Compensation and Liability Act of 1980 (CERCLA), the Resource Conservation and Recovery Act of 1976 (RCRA), the Federal Water Pollution Control Act (Clean Water Act), the Safe Drinking Water Act, the Clean Air Act, the National Environmental Protection Act (NEPA), the Emergency Planning and Community Right to Know Act, the Hazardous Materials Transportation Act, the Uranium Mill Tailings Act, the Texas Water Code, the Texas Soil and Waste Disposal Act, Railroad Commission of Texas Surface Mining and Reclamation rules and regulations, and all Texas Commission on Environmental Quality rules and regulations pertaining to uranium mining and exploration activities and to the protection of natural resources, as those laws, rules and regulations presently are in effect or are hereafter enacted or amended or interpreted by legislative, judicial or administrative authority during the term of this Lease.
Exploration Well shall mean any well drilled for the purposes of determining the existence of favorable geologic environments for the formation of uranium ore bodies or the existence of the ore bodies themselves.
Gross Value shall mean in a sale of Uranium-bearing Products, By-Products or Other Mineral Products to a person or entity that is not an Affiliate, the gross proceeds received by Lessee from the sale of such Uranium-bearing Products, By-Products or Other Mineral Products. However, in a sale of Uranium-bearing Products, By-Products or Other Mineral Products to an Affiliate, the Gross Value shall be the higher of: (i) the gross proceeds received by Lessee in the first sale by Lessee of such Uranium-bearing Products, By-Products or Other Mineral Products; (ii) the average of the most recently published month-end TradeTech Spot Price Indicator for U3O8 in the NUCLEAR MARKET REVIEW and the UX U3O8 Price in the UX Weekly (herein Indicators) for the month immediately preceding the transaction date. In the event that one of the foregoing Indicators should cease to be published, then the price shall be determined using the remaining Indicator that is then-published and calculated using the same method of calculation. In the event that both Indicators should cease to be published or are materially altered in definition or method of calculation, then the Lessor and Lessee shall select a replacement Indicator, with the intent of reproducing as closely as possible the pricing being replaced. For purposes of determining Gross Value, the taking of Leased Substances in kind by one or more parties to a joint venture or entity formed to operate the Leased Premises as Lessee shall not be deemed a sale, and, in such case, the Gross Value and means for calculating Gross Value and Production Royalty shall be determined by reference to the first disposition of Leased Substances by the party or parties so taking in kind. Gross value will include the proceeds received by Lessee in any hedging transaction or similar financial arrangement to the extent such proceeds are directly or indirectly attributable to Uranium-bearing Products, By-Products or Other Mineral Products produced from the Leased Premises. Hedging transactions or similar financial arrangement shall mean agreements entered into by Lesssee with the purpose of managing fluctuations in the price of Uranium-bearing Products, By-Products or Other Mineral Products produced from the Leased Premises.
Lease shall mean this in-situ uranium mining lease.
Lease Year shall mean the annual period commencing at 12:01 a.m. on the Effective Date or its anniversary and ending at 11:59 p.m. of the last day of such annual period as long as the Lease is in existence.
Leased Premises means the lands and depths covered by this Lease, all as more particularly described on Exhibit A attached hereto and made a part hereof.
Leased Substances shall mean uranium, uranium oxide, thorium, molybdenum, vanadium and other fissionable or spatially associated substances similar to and produced in conjunction therewith, and specifically excluding oil, gas and associated hydrocarbon substances and coal, lignite, sand, gravel, rock and caliche.
Mine Permit Area means a distinct, contiguous area of land, reasonably determined to encompass a sufficient amount of acreage to allow for the economic production of Leased Substances. A Mine Permit Area may encompass one or more Production Areas, and multiple Wellfields, but only to the extent multiple Production Areas are situated within one (1) mile of each other. A Mine Permit Area shall also mean the area within which the Lessee is licensed to operate an in-situ mining operation by the TCEQ as defined at 30 TAC 331.2(10).
Minimum Royalty Shall mean the minimum payment due to Lessor on each anniversary of this Lease as further defined in Section 5.10.
Monitor Well shall mean any Well that is named in a government issued license, permit or authorization that is used to monitor uranium recovery or groundwater restoration operations as provided for in this Lease.
NGO shall mean any non-governmental organization
Other Mineral Products shall mean all Leased Substances mined or extracted primarily for values derived from their content of minerals other than uranium and By-Products in the form of ores, mine waters, leachates, pregnant liquors, pregnant slurries concentrated slurries, precipitates, whether in dry or slurry state, concentrates, or products beneficiated, upgraded or refined further than concentrates.
Polluting Substancemeans: a) any hazardous substance as defined by CERCLA; b) any hazardous waste as defined in the RCRA; c) any petroleum, or petroleum product or by-product; d) any polychlorinated biphenyl; e) any other pollutant or contaminant or hazardous, dangerous or toxic chemical, material, waste or substance of any kind or character regulated or within the meaning of any other Environmental Protection Laws.
Primary Term shall mean the period commencing on the Effective Date and ending at Midnight at the end of the last day of the eighth (8th) Lease Year as further defined in Section 3.1 of this Lease.
Production Area means a contiguous area of land where actual production of Leased Substances will occur, and shall comprise an area within the Mine Permit Area, which after the establishment of a monitor well ring and baseline wells, allows for the injection and extraction of solutions under a Class III permit setting specific conditions for the production and restoration of the groundwater.
Production Royalty is defined in Section 5.1.
Production Well shall mean any Well that is an injection or extraction well installed for use in uranium recovery or groundwater restoration operations as provided for in this Lease.
Remote IX Facility shall mean any on-site facility containing Ion Exchange (IX) columns, piping and valves, pumps, filters, concrete pads, retention ponds or other equipment necessary to extract the Leased Substances from the water being returned from the Production Wells or equipment necessary to complete groundwater restoration. For the purposes of this Lease, the Remote IX Facility shall only load uranium values onto the IX resin from pregnant solutions coming in from the Wellfield. Other processes necessary to produce a Saleable Product shall be conducted at an off-site Central Plant Facility of Lessee.
Reworking Operations shall mean the actual re-entry of an existing Production Well on the Leased Premises (or, if authorized, on lands pooled therewith), with the equipment necessary on location to conduct such reworking of such Well and actual operations in the hole in a good and workmanlike manner and prosecuted with reasonable diligence with the good faith intent to establish or reestablish production therefrom or to establish or reestablish the injection of solution materials for the purposes of in-situ mining.
Royalty Percentage is the percent of Gross Value payable as royalty as defined in Section 5.1.1(b).
Saleable Product means any Uranium-bearing Product, By-Product, or Other Mineral Product for which there exists an active market where any of such products can be purchased and sold.
Separate Tract shall mean any tract with royalty and/or mineral ownership differing, now or hereafter, either as to parties or amounts, from that as to any other part of the Leased Premises.
Uranium-bearing Products shall mean uranium ore, uranium oxide (U308), uranium-bearing mine waters, leachates, pregnant liquors, pregnant slurries, concentrated slurries, precipitates, whether in dry or slurry state, uranium concentrates in the form commonly known as yellowcake, or uranium compounds upgraded, beneficiated, or refined further than yellowcake.
Waste Disposal Well shall mean any Class I non-hazardous Well permitted by the
TCEQ or other regulatory agency that is constructed for the disposal of liquid wastes from Lessees uranium extraction and reclamation operations on the Leased Premises.
Water Supply Well shall mean any Well that is used to supply water for domestic, livestock, agricultural, or industrial purposes that is not used or intended for use in uranium recovery or groundwater restoration operations as provided for in this lease.
Well shall mean any excavation that is drilled, cored, bored, washed, fractured, driven, dug, jetted, or otherwise constructed for the intended use of locating, monitoring, dewatering, depressurizing, observing, diverting, or acquiring groundwater, or for conducting pumping or aquifer tests.
Wellfield shall mean an area within the Production Area in which the Production Wells are installed and the actual mining takes place. Each Wellfield is wholly within a Production area and is enclosed by fence capable of turning away livestock.
Withdrawn Area shall mean any area that is fenced for regulatory or safety reasons with fencing able to turn livestock which causes Lessor to lose the use of the land for grazing, hunting or other purposes. Typical situations where fencing would have to be employed would include the fencing required by regulation around Wellfields, Remote IX Facilities, retention ponds and Waste Disposal Well installations.
ARTICLE II.
GRANTING CLAUSE
2.1 Lease. Lessor, in consideration of Ten ($10.00) Dollars in hand paid, of the royalties herein provided for, and of the agreements of Lessee herein stated, subject to the terms, conditions, covenants, limitations and reservations contained in this Lease, hereby GRANTS, LEASES and LETS exclusively unto Lessee for the sole purposes hereinafter specifically set forth in Section 2.3 below, the land and depths situated in Kenedy County, of the State of Texas, which are more particularly described on Exhibit A, which is attached hereto and incorporated herein for all purposes. The lands and depths covered by this Lease are sometimes hereinafter referred to as the Leased Premises.
2.2 Acreage. Subject to the following paragraph, for purposes of calculating the payments hereinafter provided for, said land shall be considered to comprise (Note: Fill in acres leased), whether it actually comprises more or less. Lessor may own adjacent lands to the above-described Leased Premises. However, this Lease only covers the above-described Leased Premises. Additionally, in the event this Lease now or hereafter covers any Separate Tract, no pooling or unitization of royalty interests or any other apportionment of royalties as between any such Separate Tract is intended or shall be implied or result merely from the inclusion of any such Separate Tract within this Lease, nor shall the inclusion of any Separate Tract within this Lease be considered as an offer to pool to any nonparticipating royalty owner or any nonexecutive mineral or royalty owner.
2.3 Limited Purposes. Said Leased Premises are hereby granted, leased and let for the
sole purposes of:
(a) investigating, exploring, prospecting, drilling, solution or in-situ mining, operating for, producing, extracting, milling, treating, processing, upgrading, removing, transporting, stockpiling, storing and selling Uranium-bearing Products, By-Products and Other Mineral Products. Notwithstanding anything to the contrary stated elsewhere herein, it is controllingly provided that Leased Substances shall exclude sand, sulfur, gravel, caliche, coal, lignite, oil, gas, condensate, casinghead gas, distillate, and other hydrocarbon substances, and also any mineral or substance of any kind or character that is produced on the Leased Premises by any method other than In-Situ leaching solution mining methods. Other than In-Situ mining methods, no or other methods including open pits and strip mining shall be utilized on the Leased Premises;
(b) injecting and reinjecting gas, water, other fluids, air and any other substances or fluids commonly associated with generally accepted In-Situ mining practices into subsurface strata, and conducting all types of generally accepted solution mining recovery operations for Leased Substances, and to the extent legally allowed by all requisite Federal, State and local authorities, law and administrative rules establishing and using facilities for the acquisition, disposition or disposal of Leased Substances, salt, water, In-Situ leaching solutions, tailings and other waste materials produced or generated in the extraction of the Leased Substances;
(c) laying pipelines, building roads, bridges, tanks, power lines, telephone lines, Remote IX Facilities, together with the maintenance and removal thereof, and any other improvements, structures and facilities thereupon that are necessary to conduct In-Situ Leaching Solution mining recovery, and restoration operations under this Lease; and
(d) reclaiming and restoring the Leased Premises pursuant to the terms of this Lease and any governmental rules and regulations; together with such rights and easements in the Leased Premises which are necessary or useful in Lessees operations on the Leased Premises to carry out the limited purposes of the Lease.
ARTICLE III.
TERM
3.1 Primary Term. Subject to the other provisions herein contained, this Lease shall be for a term of eight (8) years from the Effective Date ending at 11:59 oclock p.m. on the day of , 20 (called Primary Term), and as long thereafter as Commercial Production is occurring on the Leased Premises or this Lease is expressly maintained by virtue of another written provision hereof.
3.2 Delay Rentals. If a) Commercial Production is not occurring, or b) the Gross Value attributable to total sales of Uranium-bearing Products is less than $20,000.00 upon commencement of the third Lease Year, i.e., on the day of , 20 , this Lease shall terminate unless on or before such date Lessee shall pay or tender to Lessor or to the credit of Lessor or any bank designated in writing by Lessor, the sum of One Hundred Dollars ($100.00)
(hereinafter referred to as Delay Rental) per acre of Leased Premises, which shall cover the privilege of deferring commencement of Commercial Production of Leased Substance (and actual sales of Uranium-bearing Products) from said Leased Premises for a period of twelve (12) months. In like manner and upon like payment or tender annually, the commencement of Commercial Production of Leased Substances (and actual sales of Uranium-bearing Products) from said Leased Premises may be further deferred for successive periods of twelve (12) months each during the Primary Term. The payment or tender of Delay Rental under this paragraph or of any other payment coming due under the terms of this Lease may be made by wire or check of Lessee mailed, hand-delivered or wired to the parties entitled thereto or to said bank on or before the due date of such payment. Such bank or its successor, is hereby designated as Lessors agent to receive from Lessee all payments by Lessee to Lessor under the terms of this Lease and shall continue as depository for all payments hereunder regardless of changes of ownership of the Leased Premises and/or Leased Substances. Lessees obligations to Lessor as to the payment of money under the terms of this Lease shall end upon payment of the correct amounts to Lessor or said bank, as set forth in this paragraph, and Lessee in no manner shall be responsible for any disposition or distribution of moneys so paid or deposited. In the event that such bank (or any successor bank) should fail, liquidate or be succeeded by another bank, or for any reason fail or refuse to accept payment, or should Lessor or any assignee or assignees desire to designate another depository bank, the Lessee shall not be held in default for failure to make payment or tender payment until thirty (30) days after Lessor, or Lessors assignees, shall deliver to Lessee a proper recordable instrument, naming another bank as agent to receive such payments or tender. No payment made by check shall be considered made unless the funds are currently available in Lessees bank at the time of Lessors presentation to its bank.
ARTICLE IV.
RELEASE
4.1 Release Option. Lessee may, at any time or times, execute and deliver to Lessor or may file for record in the county in which the Leased Premises are situated, a release or releases covering all or any portion or portions of the Leased Premises and thereby surrender this Lease as to such portion or portions and may be relieved of all non-accrued obligations as to the acreage surrendered; provided that any such release or releases shall cover all depths leased herein under each released tract and also the whole, and not less than the whole, of each of the separate tracts comprising the Leased Premises, as described above, to be included in such release, and provided further that no such release shall be effective unless the lands remaining subject hereto after taking such release into account shall form a single contiguous block. For purposes hereof, tracts having only a common corner shall not be deemed contiguous. If this Lease is released as to all the minerals and horizons under a portion of the land covered by this Lease, any payments that are computed on an acreage basis pursuant to express terms set forth in this Lease shall be reduced in the proportion that the Leased Premises is reduced by such release or releases, provided that such payments will not be reduced as to any portions of the Leased Premises where all necessary restoration obligations have not been completed as contemplated herein, which restoration obligations (and any payment obligations associated therewith) will survive termination of this Lease until all restoration contemplated herein has been completed in its entirety.
ARTICLE V
ROYALTIES
5.1 Reservation of Royalty. Lessor reserves and Lessee shall pay, a landowners production royalty on Leased Substances produced from the Leased Premises (Production Royalty) that shall be determined and computed as follows:
5.1.1 Uranium-bearing Products; By-Products or Other Mineral Products.
(a) In the event Uranium-bearing Products, By-Products or Other Mineral Products which are produced from the Leased Premises, are sold by or for Lessee, on the basis of weight determination, Lessee shall pay to Lessor a royalty on such Uranium-bearing Products, By-Products or Other Mineral Products sold which is equal to the product of the following calculation: (i) the weight of the Uranium bearing Products, By-Products or Other Mineral Products sold (calculated in pounds and measured in dry weight); multiplied by the (ii) Gross Value; multiplied by (iii) the Royalty Percentage applicable to such Gross Value as set forth below: less (iv) the Allowable Taxes attributable to Lessors proportionate share of such Uranium-bearing Products, By-Products or Other Mineral Products.
(b) The Royalty Percentage contemplated by the calculation in this Section 5.1.1 for Uranium-Bearing Products shall be determined as follows:
Royalty
|
Percentage |
|
|
Gross Value |
|
|
10.0 |
% |
|
$ 0.00 to $50.00 per pound |
|
|
11.5 |
% |
|
$50.01 to $75.00 per pound |
|
|
12.5 |
% |
|
$75.01 to $90.00 per pound |
|
|
13.5 |
% |
|
$90.01 to $105.00 per pound |
|
|
14.5 |
% |
|
$105.01 to $115.00 per pound |
|
|
15.5 |
% |
|
$115.01 to $125.00 per pound |
|
|
16.5 |
% |
|
$125.01 to $135.00 per pound |
|
|
17.5 |
% |
|
$135.01 to $145.00 per pound |
|
|
18.5 |
% |
|
$145.01 to $155.00 per pound |
|
|
19.5 |
% |
|
$155.01 to $175.00 per pound |
|
|
20.5 |
% |
|
$175.01 per pound and above |
|
and
the Royalty Percentage for By-Products or Other Mineral Products shall be 15.0%, without adjustment to the percentage for unit Gross Value.
5.1.2 Disposed of Without Sale. In the event (i) Lessee takes the Uranium-bearing
Products, the By-Products or the Other Mineral Products without selling it; (ii) Lessee delivers any Uranium-bearing Products, By Products or Other Mineral Products in kind to itself or any of its Affiliates; or (iii) otherwise disposes of any Uranium-bearing Products, By Products or Other Mineral Products without a sale; or (iv) any Leased Substance is lost or wasted and royalties are payable to Lessor pursuant to Section 5.13 below; such Uranium-bearing Products, By-Products or Other Mineral Products shall be deemed to be Disposed of Without Sale and Lessee shall pay to Lessor a royalty on such Uranium-bearing Production, By-Product Production or Other Mineral Products that are Disposed of Without Sale, which royalty shall be equal to the product of the following calculation: (a) the weight of the Uranium-bearing Products, By-Products or Other Mineral Products Disposed of Without Sale (calculated in pounds and measured in dry weight); multiplied by the (b) Gross Value of such Uranium-bearing Products, By-Products or Other Minerals Products Disposed of Without Sale, which for the purposes of this subsection 5.1.2(b) shall be defined based on the Indicators in clause (ii) of the definition of Gross Value; multiplied by (c) the Royalty Percentage as set forth in subsection 5.1.1(b) above which is applicable to such Gross Value arrived at in accordance with subsections 5.1.2(b) and (c) above, less (d) the Allowable Taxes attributable to Lessors proportionate share of such Uranium-bearing Products, By-Products or Other Mineral Products. For purposes of this Section, the taking of Leased Substances in kind by one or more parties to a joint venture or entity formed to operate the Leased Premises as Lessee shall not be deemed a disposition without sale, and, in such case, the determination of whether Lessee has disposed of Leased Substances without sale shall be made by reference to the first disposition of Leased Substances by the party or parties so taking in kind.
5.2 Royalty Deductions. Notwithstanding anything to the contrary stated elsewhere herein or at law, it is controllingly provided and agreed that all royalties payable under this Lease shall be free royalty and shall not bear any costs; including but not limited to any costs of lifting, operating, producing, gathering, treating, separating, processing or transporting the Leased Substances. Lessors royalties payable under this Lease shall bear its proportionate share of all Allowable Taxes. If any contract for the sale of production from this Lease or lands pooled therewith includes any reduction for a non-deductible expense, then such deduction shall be added to the price and/or the monies received by Lessee and such contracts for the purpose of determining the Gross Value and for calculating and paying Lessors royalties payable under this Lease. It is additionally understood and agreed that in the event Lessee is entitled to any additional price increments or credits, such as severance tax or other price increments under any purchase and/or sales agreement, or by law, such price increment(s) or credit(s) shall be added to the price and/or monies received by Lessee for the purposes of determining the Gross Value for calculating and paying Lessors royalties under this Lease. In the event the Royalty Percentage is not determinable for the purposes of supplementing Lessors royalty payment pursuant to the terms of this Section 5.2 for any such addition of non-deductible expenses, or as to such price increment or credit, the Royalty Percentage shall be deemed to be the average Royalty Percentage paid by Lessee to Lessor during the prior six (6) month period.
5.3 Market Value or Gross Value. In the event the provisions of Section 5.2 are in conflict, or are deemed to be in conflict, with any other provisions in this Lease, including, without limitation, any provisions which contain the phrase, market value or Gross Value, it is the intention of Lessor and Lessee that the provisions of Section 5.2 shall prevail. Specifically, it
is the intention of the parties that the provisions of Section 5.2 are to be fully effective and enforceable and that such provisions are not to be construed as surplusage under the principles set forth in Heritage Resources, Inc. vs. NationsBank, 938 S.W.2d 118 (Texas, 1997).
5.4 Duty to Market. Notwithstanding anything to the contrary stated elsewhere herein, it is controllingly provided that the parties hereto agree and acknowledge that Lessor is dependent upon and reliant upon Lessees actions under this Lease on behalf of Lessor. Therefore, Lessee owes to Lessor the duty to operate the Leased Premises for the common good of both parties and to act prudently and in accordance with industry standards, considering all relevant circumstances at the time any particular sales arrangement is entered into, and to exercise good faith and fair dealing with due regard for the interests of Lessor, including without limitation the Production Royalty, in the sale and marketing of the products of Leased Substances from the Leased Premises.
In the event Lessee or any of its Affiliates own a plant or mill that processes Uranium-bearing Products, By Products or Other Mineral Products from the Leased Premises and also Uranium-bearing Products, By Products or Other Mineral Products from other properties located off of the Leased Premises, Lessee shall assure that sales of the Uranium-bearing Products, By Products or Other Mineral Products owned by Lessee and processed in its (or its Affiliates) plant or mill are on a first-in/first-out basis. By way of example, if there are 3 leases, the A lease, the B lease and the this Lease that have Leased Substances processed at such plant or mill, and the production arrived at the plant or mill from this Lease first, the B Lease second and the A lease third, Lessee must sell the Uranium-bearing Products, By Products or Other Mineral Products produced from this Lease first, and the A Lease and B Lease thereafter, without regard to the royalty burden or lease burdens affecting any such production. Lessee shall take all necessary precautions and operations in order to keep track of the first in/first out basis of accounting for royalties and it shall follow all sampling, assaying, measurement, testing and analysis required in this Lease and in the laws and regulations of the State of Texas and the United States and their regulatory agencies and commissions.
Lessee will not enter into any contract for the sale of Leased Substances with a term greater than two (2) years, unless Lessee provides to Lessor a copy of the proposed contract in advance. Lessor will have a period of fifteen (15) days from receipt of any contract provided to it by Lessee within which to accept or reject such contract by written response, and the failure to respond will be deemed acceptance of the relevant contract. In the event Lessor accepts a contract proposed in accordance with this Section, the Gross Value for purposes of calculating Production Royalty with respect to Leased Substances sold under such contract shall be the price indicated in the contract for the duration of the contract. In the event Lessor rejects the contract, the Gross Value for purposes of calculating Production Royalty with respect to Leased Substances sold under such contract shall be determined based on the Indicators in clause (ii) of the definition of Gross Value.
Lessee shall be deemed to have satisfied its duty to market under this Section to the extent Lessee delivers any contract or contracts for the sale of Leased Substances to Lessor as provided for in the paragraph above, and Lessee thereafter delivers Production Royalties in accordance with the results of Lessors acceptance or rejection of such contract.
Lessee will not sell or offer for sale any Uranium-bearing Products, By-Products or Other Mineral Products produced from the Leased Premises to any person, government or entity when Lessee knows or reasonably should have known that such products will be utilized by such purchaser in the development, manufacture or production of weapons or as a fuel source for weapons.
5.5 Royalty Payments. Royalties shall accrue at the time of sale or at the time Leased Substances are Disposed of Without Sale and in the amount as provided in this Article V. Royalty payments shall become due and payable no later than sixty (60) days after the first sale or after any Leased Substances attributable to the Leased Premises are Disposed of Without Sale. Thereafter, Royalty payments shall be due and payable to Lessor by Lessee no later than the thirtieth (30th) day of the month following the month in which the same is sold or Disposed of Without Sale. Royalty payments shall be made by Lessees check and shall be accompanied by a settlement sheet showing the quantities and grades of Leased Substances produced from the Leased Premises and saved and removed for sale or processing, proceeds of sale, allocable taxes, and other pertinent information in sufficient detail to explain the calculation of the royalty payment.
5.6 Depository Bank. Upon written request of Lessee, Lessor shall designate a bank within the State of Texas to act as Lessors agent to receive from Lessee all payments payable under the terms hereof, and all such payments may be made by paying or tendering the same to Lessor, or to said bank for Lessors credit, which bank shall continue as the depository for all royalty payments hereunder regardless of changes of ownership of the Leased Premises, or rights to receive payments hereunder, subject only to the subsequent provisions in this Section 5.6. All charges of such depository bank shall be for Lessors account. A single payment or tender to said depository bank shall be shall be made by mailing or by delivering a check to it, and such a payment shall effectively and for all purposes whatsoever constitute full payment of the amount thereof to Lessor to the same extent as if made directly. In the event Lessor fails to name said bank upon the request of Lessee, or in the event such bank (or any successor bank) should fail, liquidate or be succeeded by another bank, or for any reason fail or refuse to accept royalties, or should the owners of all rights to payments hereunder desire to designate another depository bank, then Lessee shall not be held in default for failure to make payment or tender of payments until thirty (30) days after said persons shall deliver to Lessee a proper, recordable instrument naming a bank as agent to receive such payments or tenders.
5.7 Late Payment. Any amount of money owed under this Lease to Lessor, including but not limited to Royalty Payments, Minimum Royalties, Shut-in Royalties, Delay Rentals and surface damages that are not paid when due shall bear interest from the due date until paid at the lesser of (a) fifteen percent 15%) per annum, or (b) the maximum legal interest rate allowed by law, if less. If royalty or any other payment due under this Lease is not paid by its due date, Lessor may give Lessee written notice of such non-payment. If within thirty (30) days after Lessees receipt of Lessors written notice of such non-payment, Lessee fails to either: (i) make full payment of such amount due to Lessor (including accrued but unpaid interest); or (ii) dispute in good faith and with particularity the existence of a default, as provided in Section 22.1.C., Lessor may elect to terminate this Lease as provided in Section 22.1.
In the event this Lease terminates pursuant to the provisions of this Section and Section 22.1, Lessor shall be entitled to all subsequent production from this Lease after such termination date and may enforce its security interest under Section 5.15 on all equipment situated on the Leased Premises to secure amounts due and unpaid.
5.8 Royalty Audit. Lessor shall have the right, personally or by representative, at all reasonable times and as shall not unreasonably hinder or interrupt operations of Lessee, to enter into and upon the Leased Premises and workings thereon and Lessees offices for the purpose of examining and inspecting same in order to ascertain whether the terms of this Lease are being complied with. Such inspections and examinations shall include the right to review, inspect and copy the books, accounts, contracts, settlements, records and data of Lessee pertaining to the development, production, assay records, tests and evaluations of the ore records and production records, exploration, savings and transportation of the Leased Substances and other products produced from or attributable to the Leased Substances. Lessors right to inspect is limited to an inspection of Lessees records only insofar as those records pertain to or in any way affect Lessors Production Royalty interest in the Leased Premises or the Leased Substances and unless it affects Lessors Production Royalty interest, does not extend to the working interest or net revenue interest owned by parties other than Lessee in the Leased Premises or the Leased Substances except to the extent any Leased Substances from the Leased Premises have been commingled with Leased Substances from other property. Lessor shall have the right to require Lessee to furnish Lessor with a copy of any sales agreement(s), processing agreement(s) or transportation agreement(s) concerning the disposition of the Leased Substances produced from the Leased Premises, and full information as to all Leased Substances and other products produced and at the time sold from, or used on, the Leased Premises and acreage pooled therewith. Lessor shall also have the right to review in Lessees offices any sales contract, meter records, meter maintenance and repair records, assay records, ore body tests and reports, engineering and geological tests and reports, marketing agreement or processing contract of Lessee and all amendments thereto, covering the exploration, mining, producing, sales or processing of the Leased Substances from the Leased Premises. In the event such information is not public, Lessor agrees, and if so requested by Lessee, any representative of Lessor shall agree in writing, to hold confidential any material or data furnished hereunder pursuant to Section 17.2. Additionally, it is understood and agreed that, as to any area of the Lease that is still held under the terms of the Lease, Lessors right to enter upon any area of the Leased Premises that is still held by the Lease at such time of inspection, in order to inspect any tangible property owned or operated by Lessee in connection with its operations under the terms of this Lease, shall be subject to: (i) all reasonable and applicable safety rules of Lessee and also any rules or regulations of any governmental authorities having jurisdiction over such property; and (ii) the requirement that such access or inspection does not unreasonably interfere with Lessees operations on the Leased Premises.
Any inspection of the Leased Premises shall be at Lessors sole risk and in compliance with applicable laws and Lessees normal safety rules and regulations.
Lessor shall have the right not more frequently than once each Lease Year, and to the extent necessary to determine the calculation of Lessors Production Royalty, to audit Lessees
relevant books and records at Lessees offices and during Lessees normal business hours. Such audit shall be limited to matters relevant to Production Royalty paid or due in the Lease Year in which the audit is made and the immediately preceding Lease Year. Lessee shall have no obligation to retain or submit to inspection records for Production Royalty other than for the present and immediate past Lease Year.
5.9 Shut-In Royalty. In the event this Lease has been continued in force and effect beyond its Primary Term by Commercial Production or by Drilling Operations or Reworking Operations pursuant to Article VI of this Lease or pursuant to any other provision of this Lease, and all Production Wells on said Leased Premises are shut-in or thereafter shut-in, then Lessee may pay as shut-in payments to Lessor herein, commencing on or before ninety (90) days following the expiration of the Primary Term of this Lease or ninety (90) days after all such Production Wells have been shut-in for ninety (90) consecutive days (whichever date is the latest), the sum of Fifty Thousand Dollars ($50,000.00) for the Leased Premises, and annually thereafter on or before the anniversary date of such initial payment, subject however to the limiting provisions hereafter stated; and such payments (as hereinabove provided) when made, shall (for such annual period) be considered as though Commercial Production of Leased Substances is occurring from the Leased Premises; provided, however, that after production and marketing of Leased Substances, all of such Production Wells on the Leased Premises may thereafter be temporarily shut-in to negotiate a more favorable price or a market therefore by payment of such shut-in payments to Lessor. It is controllingly provided, however, that the payment of shut-in royalty pursuant to the terms of this paragraph will not perpetuate this Lease as to the acreage allocated to the Leased Premises for a period of more than seven hundred and thirty (730) days, calculated on a cumulative basis. The timely and proper payment of this shut-in payment is a condition of the continued validity of this Lease.
Payments under this Section 5.9 shall not be considered as a credit upon Minimum Royalty payments payable to Lessor during such annual or semi-annual period, (whichever is applicable), and shall in no manner reduce such obligation of Lessee. No payments under this Lease, including, but not limited to, royalties, minimum royalties and shut-in royalties shall relieve Lessee from the express or the implied covenants contained in this Lease or implied under the law.
5.10 Minimum Royalty. Notwithstanding anything to the contrary stated elsewhere herein, it is specifically agreed that once there is actual production of Leased Substances from the Leased Premises or lands pooled therewith (if authorized), the sum or sums of all of the royalties (excluding shut-in royalty and production taxes paid by Lessee on behalf of Lessor) actually paid to Lessor during each Lease Year for production from the Leased Premises or lands pooled therewith (if authorized) shall never be less than the sum of One Hundred Fifty Thousand Dollars ($150,000.00)(Minimum Royalty). However, it is agreed that for the first Lease Year in which there is actual production of Leased Substances, the guaranteed Minimum Royalty shall be reduced to equal the sum of Twelve Thousand Five Hundred Dollars ($12,500.00) times the number of months elapsed in such Lease Year since the first production of Leased Substances. If the payment of actual Production Royalty during a Lease Year does not at least equal the guaranteed Minimum Royalty, the difference shall be made up on or before sixty (60) days after the end of the Lease Year and it is not recoupable out of future production. Following the end of
each Lease Year, Lessee shall calculate the Production Royalty actually received by Lessor during the Lease Year and if such sum is less than such Minimum Royalty amount, then Lessee shall pay the difference to Lessor within such sixty (60) day period. Notwithstanding anything to the contrary contained elsewhere herein, Lessees proper and timely payments of Minimum Royalty in excess of actual Production Royalty payments are merely contractual payment obligations and the proper payment of same in no way perpetuates or extends the Lease. Drilling Operations shall not extend the time for computation or payment of any Minimum Royalty under the terms of this paragraph. Also no tender or payment of any Minimum Royalty as herein provided shall be construed as Commercial Production unless derived from actual Production Royalty. No payment paid or to be paid under this Lease, including, but not limited to, Minimum Royalty payments, royalty payments, or shut-in royalty payments shall relieve Lessee from the obligations expressed in this Lease, nor shall any express provisions of this Lease relieve Lessee from any implied covenant, duty or obligation arising by law, under this Lease or at equity.
5.11 Commingling. As a material consideration for the execution of this Lease, Lessee agrees that Leased Substances produced from the Leased Premises may not be commingled with Leased Substances produced from any other lands at any time prior to completion of processing at Lessees Central Plant Facility, unless Lessor consents to earlier commingling in writing in advance of any such commingling. Furthermore, and without limiting the foregoing, except in the event of pooling (if authorized herein), Lessee shall not commingle and shall keep Leased Substances produced from any lands not covered by this Lease separate and apart from any Leased Substances (including any ore, solutions, pregnant liquors, pregnant slurries, or yellowcake) mined and/or removed from the Leased Premises until such Leased Substances produced from the Leased Premises, and any other property in which the Leased Substances are to be commingled with have been sampled, measured, assayed, tested and analyzed in accordance with Section 5.12 below in order that payments of royalties to Lessor may reflect the correct quantity and quality of the Leased Substances, including the solution volume of each Leased Substance mined and removed from the Leased Premises. Furthermore, except in the event of pooling, (if authorized herein), Lessee shall not commingle and shall keep Leased Substances produced from any Withdrawn Area or Separate Tract separate and apart from any Leased Substances (including any ore, solutions, pregnant liquors, pregnant slurries or yellowcake) mined and/or removed from any other Withdrawn Area or Separate Tract until such Leased Substances produced from each Withdrawn Area or Separate Tract have been sampled, measured, assayed, tested and analyzed pursuant to Section 5.12 below.
After proper sampling, measurement, assaying, testing and analyzing have been done in accordance with this Section and Section 5.12 below, Lessee may commingle Leased Substances produced from Withdrawn Areas and Separate Tracts (if any) with Leased Substances produced elsewhere on the Leased Premises for the purpose of subsequent processing or shipment to a plant or place of sales. Additionally, Lessee may commingle Leased Substances produced from lands off the Leased Premises with Leased Substances produced from this Lease for the purposes of subsequent processing or sales off the Leased Premises if and only if Lessee has first conducted proper and accurate sampling, measurement, assaying, testing and analysis (pursuant to the terms of this lease, including Section 5.12) of the Leased Substances that were produced from the Leased Premises and also of the Leased Substances produced from other lands off the
Leased Premises that are to be commingled with the Leased Substances produced from the Leased Premises. However, notwithstanding anything to the contrary stated elsewhere herein, it is controllingly provided that in no event shall any Leased Substances produced from lands outside of the Leased Premises be brought onto the Leased Premises.
5.12 Sampling, Assaying, Measurement, Testing and Analysis. All sampling, assaying, measurement, testing and analysis of wet weight and volume, dry weight and volume, moisture content, amenability, pay metal content, and any sampling procedures, assaying, testing, measurement and analysis shall be made in accordance with sound mining and metallurgical practices and sound industry standard sampling and analysis procedures prevailing in the uranium mining and milling industry. In this regard, it is imperative that Lessee use practices and procedures that are necessary to produce accurate determinations, measurements, allocations and results so that Lessor is accurately paid its royalties for all Leased Substances produced from the Leased Premises. Lessor shall have the right to have a representative at the times any samples are taken and to monitor any testing or assaying of the samples at reasonable times and on reasonable prior notice. Lessor shall have no right to take possession of any samples or other radioactive material unless and until such possession is by a laboratory, person or entity that is properly licensed to possess such materials. Detailed records shall be kept by Lessee showing the results of all sampling, assaying, measurements, metering, testing, analysis and computation required in this Agreement necessary to properly and accurately calculate and pay Lessors royalties and so that Lessor and its representatives will be able to verify that the royalty payments have been paid to Lessor accurately and in order to recreate Lessees methodology and calculation of Lessors royalty payments. Sampling, assaying, measurement, testing and analysis pursuant to this Section and Section 5.11 are for purposes of attribution or allocation of production of Leased Substances to or among the Leased Premises or properties as to which commingling occurs. Production Royalty shall be calculated on the basis of Leased Substances actually recovered from the processed products, using sound mining and metallurgical engineering practices.
5.13 Waste Rock, Spoil, Tailings and Lost Production. It is expressly provided that Lessee shall be liable to Lessor for the royalty on any Leased Substances which may be lost or wasted due to leakage, fire, theft or other reasons to the extent they are lost or wasted are the result of Lessees negligence, intentional acts, or the negligence or intentional acts of its agents, independent contractors, contractors, subcontractors, employees, assigns or any other party connected with operations on this Lease or under the direction of or at the request of Lessee. Lessee shall not be liable for royalties on Leased Substances lost in mining or processing, such as Leased Substances caked on production or processing facilities and are not reasonably and economically obtainable, or waste rock, spoils, tailings, or any other mine waste or residue, to the extent and only to the extent that such Leased Substances were lost while using sound mining and metallurgical engineering practices.
5.14 Payment Instructions. Unless required to be paid to a depository bank under Section 5.6 above, all payments of royalties and other monies payable under this Lease by Lessee to Lessor shall be payable to the credit of Lessor at their offices located at 555 N. Carancahua, Suite 1700 Tower II, Corpus Christi, Texas 78478.
5.15 Lessors Lien. In addition to any other rights of Lessor hereunder, Lessee agrees that all sums due as royalty shall be secured by a lien on the Leased Premises, the Leased Substances, all proceeds attributable to the production and sale of Leased Substances, and any and all equipment, goods, and fixtures of Lessee placed on the Leased Premises (the Collateral). A memorandum of this lease filed for record in the county in which the Leased Premises are situated is intended to serve as perfection of the lien on Collateral described herein, and such memorandum will also be deemed a financing statement under applicable law.
5.16 Most Favored Nations. If during the Primary Term of this Lease, Lessee enters into or acquires from a third party an in situ uranium mining lease taken on behalf of Lessee, covering any mineral interest of at least 1000 gross acres within fifteen (15) miles of the Leased Premises, which instrument provides for royalty provisions that are more favorable or of greater value than the terms or payments provided for in this Lease, then Lessor shall ipso facto receive such greater and more favorable terms as if same had been incorporated in this Lease at the time of its execution. Lessee shall promptly execute and deliver to Lessor an amendment to this Lease in recordable form to reflect the increase in royalty, and payment shall be made to reflect any difference in royalty. Said amounts shall be payable under the more favorable terms as if such terms had been in force from the inception of the Lease.
ARTICLE VI.
DRILL OR REWORK
6.1 Drill or Rework. In addition to the right to maintain this Lease in effect by the payment of Shut-in Royalties pursuant to Section 5.9, if, after discovery and production of Leased Substances, the production thereof should cease from any cause, this Lease shall not terminate if Lessee commences Drilling Operations or Reworking Operations directed towards the establishment or reestablishment of production from the Leased Premises within ninety (90) days after the cessation of production and such operations continue with no cessation of more than ninety (90) days until Commercial Production is established, re-established or if such cessation occurs during the Primary Term, commences or resumes, the payment or tender of Delay Rentals or commences Drilling Operations or Reworking Operations directed towards re-establishment of Commercial Production on or before the Delay Rental payment date next ensuing. If, at the expiration of the Primary Term, Leased Substances are not being produced on the Leased Premises but Lessee is at that specific time then engaged in Drilling Operations or Reworking Operations directed towards the establishment or reestablishment of production there from, this Lease shall remain in force so long as Drilling Operations or Reworking Operations are prosecuted with no cessation of more than ninety (90) consecutive days, and if they result in the production of Leased Substances, so long thereafter as Commercial Production of Leased Substances is occurring on the Leased Premises.
All Drilling Operations and/or Reworking Operations shall be conducted in compliance with all applicable laws and regulations including any and all Environmental Protection Laws, in good faith, with reasonable diligence, with adequate equipment, and in a good and workmanlike manner and the failure to comply with this provision where such operations are relied upon by Lessee to extend this Lease shall operate as a limitation on this Lease to the same extent as though no such operations were conducted.
ARTICLE VII.
WATER RIGHTS
7.1 Water Supply Well Takeover. Any Water Supply Well drilled by Lessee upon the Leased Premises shall, at Lessors option, become the property of Lessor upon the termination of this Lease as to the portion of the Leased Premises upon which such Water Supply Well is located, if, in the judgment of Lessee, such Water Supply Well is no longer needed in connection with Lessees development or clean-up or restoration operations on the Leased Premises. The casing in any such Water Supply Well or wells shall not be removed by Lessee, and Lessor shall thenceforth assume all risks and obligations attendant to Lessors ownership and use of such Water Supply Well or wells, and Lessee is relieved from any further liability and Lessor shall indemnify Lessee against and hold Lessee harmless from any and all liability and claims with respect to such water Supply Well or wells. Lessee may not use any surface water or water from any Water Supply Well owned by the Lessor or any surface owner on the Leased Premises. Lessee shall use no more water than is reasonably necessary for its operations on the Leased Premises. Lessee shall not use or sell water for use on any lease or land other than the Leased Premises. Lessee shall comply with all rules and regulations promulgated by the Kenedy County Groundwater Conservation District, and any other agency having jurisdiction over Water Supply Wells that may be drilled by Lessee on the Leased Premises, including without limitation, requirements to register such Water Supply Wells and to measure and report all water produced from such Water Supply Wells.
7.2 Water Usage. Lessee shall have use of water from any Well, Water Supply Well, Monitor Well or Production Well drilled by Lessee on the Leased Premises for the limited purposes authorized in this Lease. Lessee shall have the use of water from any Water Supply Well owner by Lessor prior to the execution of this lease, subject to the grant of prior written permission and subject to payment to Lessor of a water usage fee in the amount of $3.00 per 1,000 gallons of water used as provided by Lessees metering and/or truck tallies. Additionally, Lessee shall test water from Lessors existing Water Supply Wells and from any Water Supply Wells drilled by Lessee prior to using any water in, on or under the Leased Premises. All operations on this Lease, including exploration, solution mining and restoration operations wherever situated on the Leased Premises shall be conducted so not to damage, contaminate or destroy any water supply constructed or owned by Lessor. In the event for any reason such activity should result in damage to, contamination or destruction of any such water supply, Lessee shall repair, restore, remediate, decontaminate or replace any such Water Supply Well, tank, above or below ground reservoir or strata or other water facility so damaged, contaminated or destroyed, with reasonable diligence and dispatch, weather permitting. If such repair, restoration, remediation or replacement is not feasible, then Lessee shall pay to Lessor a reasonable compensation for any such damage so sustained or the loss in value of Lessors and/or surface owners property, whichever is the highest. Any such Water Supply Well, tank, above or below ground reservoir or strata or other water facility so repaired, restored, decontaminated, remediated or replaced shall be of a capacity and quality equal to that which was damaged or destroyed. Prior to beginning operations on the Leased Premises, Lessee will establish baseline groundwater parameters for the entirety of the Leased Premises and test all water from all Water Supply Wells and open tanks on the Leased Premises in order to determine
pre-mining groundwater quality. As part of testing requirements, Lessee will comply with all applicable RCT and TCEQ in-situ mine permitting processes, including all reclamation requirements. Lessee agrees to provide Lessor with water test data conducted prior to the beginning of operations as required above, and also all water test data consistent with periodic reporting requirements of the TCEQ, the EPA, the RCT, or otherwise as provided for in this Lease. For purposes of this Lease, the term baseline groundwater parameters means water quality parameters that are naturally occurring which are measurable and quantifiable as identified by TCEQ and EPA, and identifying certain chemical or physiological conditions and properties, which if such conditions and properties are altered, may be harmful to human health and/or the environment.
7.3 Adjacent Surface Owners. In the event that the boundary of a Withdrawn Area is located within 5,000 feet of the perimeter boundary of lands owned by Lessor, prior to beginning operations on the Leased Premises, Lessee will, to the extent authorized by the adjacent surface owner, test the adjacent surface owner or owners groundwater supply in order to establish baseline groundwater parameters. Lessee will communicate and negotiate directly with the applicable adjacent surface owner(s) regarding this provision. During the conduct of operations in any such Withdrawn Area, to the extent authorized by the adjacent surface owner, Lessee will drill and maintain not less than one (1) Monitor Well on the lands of each affected adjacent surface owner (or such number of Monitor Wells as may be required under any Environmental Protection Laws), and Lessee will provide such adjacent surface owner(s) with copies of all data obtained during such monitoring operations. In the event for any reason the monitoring data indicates the occurrence of an Adverse Environmental Event affecting an adjoining surface owners groundwater supply, Lessee will take all steps necessary to immediately prevent further damage to the groundwater supply, together with all steps necessary to remediate any damage to, or contamination of the water supply revealed by monitoring operations. Lessee will provide Lessor with copies of all data obtained pursuant to this subsection within ten (10) days of the date such data is obtained by or on behalf of Lessee. Inability of Lessee to obtain adjacent landowner consent to drill and/or test a monitor well on the adjacent landowners property, despite Lessees diligent efforts to do so, shall not affect Lessees right to conduct exploration, development or extraction operations within 5000 feet of the referenced perimeter.
ARTICLE VIII
ENVIRONMENTAL MANAGEMENT SYSTEMS/INDEPENDENT
THIRD PARTY REVIEW
It is of the utmost priority to the Lessor for the Leased Premises to be reclaimed and restored to as near its original state as reasonably possible. If Lessor considers that Lessee has not completed restoration or reclamation in accordance with requirements of this Lease, Lessor shall so notify Lessee and Lessee shall have a reasonable period of time to remedy the matter before being liable for additional damages hereunder. In no event shall Lessee be required to undertake any action or remediation that is in violation of applicable laws, rules, regulations, licenses or permit conditions. The groundwater underlying the Leased Premises will be reclaimed and restored to as near its original state as possible and consistent with its previous use as defined by regulatory permits and licenses. The groundwater underlying adjacent lands will be free from contamination as a result of operations being performed under this Lease. As such, during the
term of this Lease, Lessee agrees to establish and maintain an environmental management system compatible with the International Organization for Standardization (ISO) 14001 standards as such standards may be revised from time to time by ISO. Furthermore, Lessor, in consultation with the Lessee, but at Lessors sole discretion and at Lessors cost, may engage an independent third party expert (the Expert) of its choosing to assist in reviewing (1) all filings and plans provided to regulatory agencies, (2) all testing to determine baseline groundwater parameters, and all water quality monitoring and restoration activities, (3) all actions taken by Lessee with respect to the Leased Premises, including but not limited to daily operations, establishment, review, and maintenance of baseline wells and Monitor Wells, excursion detection and correction, remediation, restoration, reclamation, (4) reviewing the form and amount of the financial environmental protection security tendered with the TCEQ as adjusted from time to time, and (5) any other action relating to or arising out of the terms and provisions of this Lease or the Leased Premises. If Lessor deems it necessary or advisable, the Expert may be engaged to propose and assist in the implementation of measures and procedures deemed necessary by the Expert to prevent or remedy damages to the Leased Premises, groundwater supply or the environment occurring while operations are being conducted under this Lease. Lessee agrees to implement any and all environmental protection measures, groundwater testing and monitoring procedures, environmental and/or groundwater or surface restoration and remediation procedures as may be recommended by the Expert (collectively the Expert Recommendations) during the conduct of Lessees operations under this Lease. Lessee will bear all costs associated with implementation of the Expert Recommendations. Notwithstanding the foregoing, Lessee will not be required to implement the applicable Expert Recommendations to the extent all of the following conditions exist:
1. The Expert Recommendations exceed the requirements under Environmental Protection Laws as applicable to Lessees Permits and Licenses; and
2. The costs of implementation of the Expert Recommendations are excessive and would substantially affect the profitability of Lessees operation.
In the event the Expert Recommendations meet conditions 1. and 2. above and Lessee and the Expert cannot agree regarding an alternative to the Expert Recommendations, Lessee may retain its own expert (a Lessee Expert) at Lessees sole cost. The Lessee Expert and Lessors Expert will meet in an effort to reach an agreement as to the implementation of Lessors Expert Recommendations or an alternative thereto. In the event the Lessor Expert and the Lessee Expert cannot reach an agreement, such parties will select a third expert (the Neutral), the cost of which will be shared equally by Lessor and Lessee. The Neutral will make one of the following decisions: a) implementation of the Expert Recommendations; b) implementation of an alternative to the Expert Recommendations, whether or not the alternative was proposed by Lessee; or c) rendering of a decision in writing that Lessees operations are in compliance with all Environmental Protection Laws, and that the Expert Recommendations are unreasonable and that no reasonable alternative to such recommendations exists. The decision of the Neutral will be binding upon Lessor and Lessee.
ARTICLE IX
ASSIGNMENT
9.1 Assignment by Lessee. This Lease is personal in nature between Lessor and Lessee. Therefore, this Lease cannot be assigned by any Lessee without the prior written consent of Lessor, which consent may be withheld for any reason or for no reason in Lessors sole discretion. Furthermore, no approved assignment by Lessee, or by any assignee of Lessee, shall be valid or have any force until Lessor shall have been furnished with a copy of the recorded assignment, and any assignment approved by Lessor must cover and include all of Lessees rights under this Lease. All leasehold estate owners and their subsequent assignees, heirs and assigns shall be jointly and severally liable to Lessor for the covenants, conditions and obligations under this Lease. The provisions hereof, both express and implied, shall be considered as covenants running with the land and binding upon any and all assignor, assignee or sub-lessee of Lessee and shall extend to their heirs, successor and assigns. Assignment of this Lease or any part thereof shall not relieve any Lessee, its assignees, or any sub-assignees of any obligations hereunder, heretofore accrued or to accrue in the future; and any assignee of Lessee shall, by acceptance of such assignment, be bound by and subject to all of the terms and provisions hereof. The term assignment as used herein shall include, without limitation, any sublease, farmout, operating agreement, pooling agreement, unitization agreement, assignment or any other agreement by which any share of the operating rights granted by this Lease are assigned or conveyed, or agreed to be assigned or conveyed, to any other party. Any attempted assignment by Lessee in violation of the provisions of this Section will be void.
9.2 Assignment by Lessor. Lessors rights under this Lease are freely assignable in whole or in part, provided that no sale or assignment by Lessor shall be binding on Lessee unless Lessee shall have actual knowledge of or be furnished with a copy of the recorded instrument evidencing same.
ARTICLE X
SURFACE RESTRICTIONS
10.1 Surface Use. Lessee agrees to use only so much of the surface of the Leased Premises as is necessary to exercise its rights hereunder and Lessees use shall be subject to any prior oil, gas or other mineral leases, wind leases or wind easements or similar agreements in effect that cover all or part of the Leased Premises, and its use shall be in compliance with all Environmental Protection Laws. Furthermore, Lessee shall, to the extent practicable, accommodate the use and occupation of the Leased Premises by Lessor and its successors and assigns, including future Lessees of water, oil, gas and/or other mineral rights, wind rights, or hunting, grazing or other surface rights. This clause is of material value to Lessor in that it is important that surface rights are not unreasonably interfered with and that other minerals (including oil and gas) and wind rights are not devalued, and that the exploration, drilling, development, production and other operations for the development of wind, oil and gas are not impeded and that oil and/or gas wells are able to be drilled at optimum locations and wind turbines are able to be sited at optimal locations. Prior to commencing any surface operations that would affect the Lessors use of any part of the Leased Premises or damage any part of the
Leased Premises, including wells, pipelines, roads, Drilling Operations or seismic operations on the Leased Premises, Lessee, Lessor, and/or their respective agents, shall, at the option of the Lessor, make a joint inspection of the Leased Premises so that Lessor may be informed where and when surface operations are going to be conducted on the Leased Premises. Lessee agrees to notify Lessor prior to the commencement of development of or operations on each separate Production Area, Withdrawn Area or other separate surface operation.
10.2 Roads. Lessee will use existing gates and roadways for entering upon and leaving the Leased Premises, and to the extent practicable it will use such routes, roadways, and approaches in going upon, over, or about the Leased Premises as are designated for its use by Lessor who, in turn, agrees that Lessor will, upon request and in consultation with Lessee, designate a reasonable route for Lessees purposes consistent with terrain, preservation of improvements, the location of Lessees activities, and the conduct of Lessors existing or proposed land use. Lessee further agrees for itself and for all persons entering or leaving said Leased Premises in connection with Lessees operations hereunder that it shall keep all outside and interior gates along the route or routes designated for such use securely closed (and locked when designated by Lessor to be locked) except immediately before and immediately after each separate use, and further agrees that it will promptly repair any gate, fence, or other improvement that may suffer damage or injury by reason of Lessees operations hereunder. Lessee further agrees that it will maintain approaches, gates, cattle guards, and roadways used in connection with its operations in a good state of repair and will promptly cause to be repaired and restored any damage thereto occasioned by or resulting from Lessees operations. Prior to the locating and construction of any road, Lessee shall consult with Lessor with the intent being to situate said road(s) in mutually agreeable locations, and the construction and use of such roads shall be in compliance with all Environmental Protection Laws and the provisions of this Lease. Lessee agrees to surface such roads in such a manner that they will classify as all weather roads of gravel, caliche, or other similar material resulting in a substantial surface (minimum 8 base, after compaction), and further agrees to construct such diversion terraces or take such other actions as may be reasonably necessary to reduce soil erosion and particularly to prevent sand dune formation. If Lessor shall desire, on all such new roads Lessee shall also install and maintain substantial iron cattle guards capable of turning cattle in substitution for any gates on the Leased Premises which Lessee uses. Lessee shall pay Lessor for the damage to the lands caused by such roads, including loss of or interference with the use of the surface. Lessee agrees to maintain all roads used by Lessee in Lessees operation on the Leased Premises in good condition and repair during the period of Lessees operations on the Leased Premises. Lessees obligation to maintain such roadways includes, but shall not be limited to regular grading of the roads, immediate repair of any rutting or subsidence caused or exacerbated by Lessees use of such roads, and all other maintenance activities necessary to preserve the roadways in their current condition as of the date of this Lease, or in their as built condition in the case of new roads. When any roads constructed by Lessee are no longer used by Lessee, if Lessee has constructed any character of topping, such as caliche or otherwise on such roads, surface owner(s) shall have the option to require Lessee to remove such topping from the roads or to abandon them for Lessors future use and possession. If the surface owner(s) require the road to be removed, Lessee shall restore the surface of the land occupied by said road and its adjacent drainage area to substantially its former condition.
10.3 Surface Compensation and Areas Withdrawn From Lessors Use. Lessee agrees to pay Lessor reasonable compensation for all use of or damage to the surface (or any incident of the surface estate), which use is made or which damages are incurred in the exercise of the rights granted to Lessee by this Lease. Lessees obligations to compensate Lessor for such use or damage shall exist whether or not such use or damage is due to the negligence of Lessee, its agents, employees, invitees or independent contractors. Lessee agrees to pay for all damages to or loss of crops, cattle, livestock, wildlife, trees, surface and subsurface water, and any other personal or real property situated on the Leased Premises, resulting from Lessees operations thereon.
(a) Lessee shall pay Lessor the sum of One Hundred Dollars ($100.00) per Exploration Well drilled by Lessee as full compensation for all damages to grass, crops and land that occur during any exploration Drilling Operations. Lessee shall, in addition to the above, within sixty (60) days after the drilling of such Exploration Well(s), restore the land to as near its original condition as is reasonably possible.
(b) At least thirty (30) days prior to the date Lessee commences Drilling Operations on any Production Well on the Leased Premises, or commences construction for any Remote IX Facility, building, stockpiles or waste dumps or other facility that is authorized under this Lease, Lessee shall construct a fence around the area planned to be occupied by such Wellfield or Remote IX Facilities, and Lessee shall pay Lessor a one- time payment of Six Hundred Fifty dollars ($650.00) per each acre that is included within such fenced area, less any payments already received for drill holes or other surface damage payments. Each Remote IX Facility or facilities other than production and injection grids, shall encompass as small an area as is reasonably necessary for Lessee to safely and prudently operate the facilities thereon. Each Withdrawn Area for each Wellfield shall not encompass an area that is more than one hundred (100) feet outside of the exterior limits of the uranium ore body that Lessee has delineated and plans to produce by such injection well and Production Well grid unless approved by the Lessor in writing. Other than the use of roads as set forth elsewhere here in this Lease, the sampling of Monitor Wells and the drilling of Exploration Wells or seismic studies pursuant to the terms of this Lease, all other operations by Lessee shall be conducted only upon the Withdrawn Area(s). Except for rights, titles and estates reserved by Lessor and for examination, inspection and/or audit purposes to insure the Lease is being complied with and for the use of any road that runs through such Withdrawn Area to other areas of the Leased Premises or other property owned by Lessor, Lessor shall not use the surface of any Withdrawn Area.
The above consideration for each Exploration Well and each Wellfield shall be considered as a permit fee for such operations and use and a damage payment for the initial damages to the surface or improvements located thereon. However, notwithstanding anything to the contrary stated elsewhere herein, it is agreed that the payment of any compensation under the terms of this Lease shall not relieve Lessee of its obligation to restore the surface estate and improvements to as near as reasonably possible to its original condition unless fully released by the regulatory agency having oversight authority on the restoration. If Lessee breaches its restoration obligations, it shall owe additional sums to Lessor as damages.
10.4 Maintenance and Restoration of Wellfields. Once the Primary Term expires and Commercial Production has ceased on any Production Area for more than ninety (90) days, if Lessee has not elected to pay the Shut-In Royalty pursuant to Section 5.9, Lessee shall immediately commence restoration and reclamation activities on such Production Area if it has not already done so and it shall pursue such restoration and reclamation activities in good faith and in compliance with all Environmental Protection Laws, so that the surface and subsurface of the area affected by the Lessees operations are returned to as near the condition that existed immediately prior to the Lessees operation thereon and to deep plow the area disturbed by methods common to the area. Lessee shall also take all actions necessary in order to comply with all Environmental Protection Laws and in order to receive a full release from all governing authorities pertaining to the surface and groundwater in the Production Area and the Leased Premises. When the full releases are obtained from all governing authorities, the Lessee shall remove the fencing it placed thereon and return the surface of the land affected by the fencing to as near the condition that existed immediately prior to the Lessees installation of such fence. If the acreage covered by the Wellfield is to be used for grazing purposes, Lessee shall re-seed the area so plowed to prevent erosion with seeds selected by Lessor that are consistent with the surrounding area. Furthermore, Lessee agrees to maintain all fences, roads, improvements, tanks, pipelines, wells, and wellheads in good repair at all times during the life of this Lease. Lessee shall keep all buildings, tanks and other fixtures, property, machinery and equipment painted and free of rust and stains and shall keep all roads used by Lessee free from all weeds, potholes and debris. In the event this Lease or any portion hereof has or may have expired or terminated, but all restoration and reclamation activities on the Leased Premises have not been completed by Lessee or Lessee has not received a full release from all governing authorities pertaining to the surface, subsurface and water reservoirs located in, on, under and around such Leased Premises within five (5) years of the termination date of this Lease, Lessee shall pay Lessor an annual payment equal to One Hundred Dollars ($100.00) dollars per acre for each acre included within each Withdrawn Area not yet reclaimed as consideration for a one year period of restoration and reclamation. Upon such payment, Lessee will continue to have rights to (a) possess and use water as provided for under the terms of the original Lease, (b) easements for ingress and egress across the surface of the Leased Premises as allowed pursuant to the Lease, to access any facility or plant, Withdrawn Areas, and any other portion of the surface or subsurface that may require restoration and reclamation activities, as well as any other facilities associates with Lessees operations that Lessee deems necessary, (c) easements for ingress and egress over the surface of the Leased Premises for the purposes of removing property for a period of time, not to exceed one year after the termination of the Lease, pursuant to the terms of the Lease. Such annual payment for such continued rights to conduct restoration and reclamation activities shall be payable on or before the fifth (5th) anniversary following the date of termination or expiration of the Lease and on or before each successive anniversary date for as long as is necessary to receive complete release form the regulatory agencies. Upon such timely payment(s) for the applicable acreage, Lessee shall acquire the above rights to conduct restoration and reclamation activities for each one (1) year period. Beginning with the sixth (6th) anniversary date of the date of termination of this Lease, the annual payments contemplated in this Section will be adjusted upward according to the following formula (the Annual Adjustment): The month five (5) years from the date the Lease terminates shall be the base month. The corresponding month in each subsequent year shall be the anniversary month. The Annual Adjustment shall be determined
using the average of the preceding twelve (12) months Consumer Price Index All Urban Consumers U.S. City Average (CPI-U), as published by the U.S. Bureau of Labor Statistics. If the CPI-U for an annual monthly average shall exceed the average of the twelve (12) months CPI-U ending in the base month (the Base Annual Average), then the payment being adjusted shall be increased by the percentage by which the CPI-U for such annual average exceeds the CPI-U for the Base Annual Average. In the event the CPI-U shall hereafter be converted to a different standard reference base or otherwise revised, the determination of the Annual Adjustment shall be made with use of such conversion factor, formula or table for converting the CPI-U as may be published by the U.S. Bureau of Labor Statistics or, if not so published by the U.S. Bureau of Labor Statistics, then with the use of such conversion factor, formula or table for converting the CPI-U as may be published by a nationally recognized publisher of similar statistical information, and mutually agreed between Lessor and Lessee. If the CPI-U shall no longer be published then, for purposes of determining the Annual Adjustment there shall be substituted for the CPI-U such other index as Lessor and Lessee shall agree upon. In no event will the Annual Adjustment cause a reduction of any payment from the prior years amount.
10.5 Pipelines; Above Ground Restrictions. Unless waived by the Lessor in writing, Lessee will bury all pipelines that are located outside of a Withdrawn Area so that the top of the pipeline shall remain more than three feet (3) below the surface of the land and shall comply with all Environmental Protection Laws and regulations that may be implicated by any activity associated with the construction, use, and decommissioning of any pipelines. Lessee shall keep the top soil separated during its excavation procedures and shall replace the top soil on top of the excavation. Lessee shall periodically check all pipelines to make sure that the surface has not subsided and that the pipeline has not created any rutting or drainage problems. Except for wellheads, pipelines, waterlines, equipment, tanks, buildings or other facilities located within a Withdrawn Area or pipeline valves, meters or risers on buried pipelines lying outside of a Withdrawn Area, there shall not be any above-ground device or property on the Leased Premises. Notwithstanding anything to the contrary stated herein, it is controllingly provided that none of the following equipment, buildings, fixtures or accessories shall be located upon the Leased Premises: (i) any facility, improvement or equipment that produces, transports, treats or otherwise deals with or pertains to any other Lease; (ii) any housing facility or (iii) any plant or treatment facility other than any Remote IX Facility wherein the uranium is loaded onto ion exchange resins that enable the ion exchange resins to be hauled to a full plant for stripping, product benefication, upgrading or refining.
10.6 Fences. All fences constructed on the Leased Premises by Lessee shall be constructed with at least five (5) strands of wire, using all cedar posts. Each fence will be constructed in a good and workmanlike manner so that said fence does not sag and is capable of turning all livestock of surface owner. Lessee shall install an adequate metal gate across each road leading in or out of any Withdrawn Area, or at any cut Lessee makes in any fence to provide an opening, and if surface owner shall desire, Lessee shall also install and maintain a substantial iron cattle guard capable of turning cattle and horses, which gate(s) and cattle guard(s) shall become the property of Lessor. Lessee will not cut or go over any fence or fences of Lessor at any time or in connection with any operation of the Leased Premises without first obtaining Lessors express consent thereto in writing. If Lessor consents to the cutting of any fence, the cut must be made in the place and manner designated by Lessor and prior to the
cutting of any fence of surface owner, Lessee will brace the existing fence adequately on both sides of the proposed cut so that there will be no slacking of the wires. Promptly after making such cut, Lessee shall install and maintain an adequate metal gate in such opening. In the event that any gate required to be installed by Lessee is located on an outside fence of Lessor, Lessee shall keep it locked at all times. Lessee shall promptly close all gates, which Lessee, its agents, servants and/or employees may use in Lessees operations on the Leased Premises to prevent the escape of any cattle or other livestock (or wildlife if high-fenced) through any open gates. Lessee further agrees to comply with all reasonable rules and regulations proposed by Lessor regarding the opening, closing and locking of all such gates.
10.7 Well Locations. Without the express written consent of Lessor, no Well shall be located within One Thousand Feet (1,000) of any Water Supply Well or water reservoir or house on the Leased Premises, or within Five Hundred feet (500) of any improvement or corrals on the Leased Premises, existing as of the date of commencement of operations for such Well.
10.8 Removal of Property. Subject to Sections 7.1 and 7.2 above, Lessee shall have the right at any time during the term of this Lease and the obligation within a reasonable time (not exceeding three hundred and sixty (360) days) after the expiration or termination of this Lease, to remove all property, equipment and fixtures in and around such wells as are plugged and abandoned pursuant to requirements of the regulatory agencies having jurisdiction over such activities. In the event that any casing or pipe is required to remain in any wells bore hole upon plugging and abandonment, Lessee shall cut off such pipe or casing hole at least three (3) feet beneath the surface of the ground and the well shall be capped, plugged and abandoned in accordance with the rules and regulations of the regulatory agency governing such plugging and abandonment activities.
10.9 Gate Guard. It shall not be necessary to have a gate guard unless Lessor finds that Lessee or any of its employees, contractors, subcontractors, officers, invitees or permittees on more than five (5) occasions, either leaves a gate opened that should have been shut, fails to lock any gate that should be locked, violates Section 10.10 below or allows any unauthorized person onto the Leased Premises. In that event, during any time operations are conducted on the Leased Premises and two (2) or more of Lessees employees, contractors, subcontractors, invitees or permittees will be entering the Leased Premises during any consecutive period of two (2) or more days, Lessee shall provide at its sole cost, expense and liability a 24-hour gate guard at the gate where access is gained to the Leased Premises for such operation. If a gate guard is required hereunder, said gate guard shall be paid by Lessee and the gate guard shall record the name of each person entering, the company affiliate of each person entering, the time entered, the time exited and the license plate of each vehicle.
10.10 No Hunting. It is agreed and stipulated that neither the Lessee, nor its agents, employees, contractors or subcontractors, their agents or employees, shall at any time hunt or fish on the Leased Premises, nor shall they, or any of them, carry on to the Leased Premises firearms, fishing poles, bows and arrows, traps or other equipment designed or adapted for such purposes. Lessor, any designated gate guard, or their duly authorized representatives, shall have the right at all time to inspect vehicles entering upon or leaving the Leased Premises for the purposes of ascertaining whether the terms and conditions of this Lease are being carried out.
10.11 Waste Disposal Well. Lessee, requiring a way to dispose of licensed 11e.(2) By-Product Material, is granted the right to install and operate on the Leased Premises one or more Class I non-hazardous Waste Disposal Well(s) to the extent permitted by TCEQ. Such installation(s) will consist of the Waste Disposal Well, pumps, tanks, retention ponds, filters and associated piping necessary to inject the solutions into suitable deep brackish formations.
10.12 Additional Compensation. Lessee agrees to pay Lessor reasonable compensation for all use of or damage to the surface estate incurred in the exercise of the rights granted to Lessee hereunder. Lessees obligations to compensate Lessor for such use or damage shall exist whether or not it is due to the negligence of Lessee, its agents, employees, invitees, or independent contractors, or otherwise. In any event, the minimum compensation for Lessees use of the surface of Lessors property shall be as follows:
A. Pipeline rights-of-way outside of Withdrawn Areas: $3.00 per linear foot
B. New Roads outside of Withdrawn Areas: $2,000.00/Acre
C. Overhead power and phone line Right-of-Ways outside of Withdrawn Areas: $3.00 per linear foot
ARTICLE XI
FORCE MAJEURE
11.1 Force Majeure . It is understood and agreed that if Lessee is prevented through no fault of Lessee from complying with any express or implied covenant of this Lease, from conducting Drilling Operations or Reworking Operations thereon, or from producing Leased Substances therefrom: a) by reason of or as a result of any Federal or State law, or any order, ruling or regulation of governmental authority, or delay in obtaining any required authorization or permit from any governmental authority despite diligent efforts to do so, other than as a result of a failure to comply with Environmental Protection Laws or this Lease; or b) due to hurricane, flooding, tornado, earthquake or similar act of God; or (c) due to interference or legal action brought by any NGO or other private party the effect of which would be to deny or revoke or enjoin operations under any license, permit or order that authorizes Lessee to mine the leased Premises; or (d) as the result of the unavailability of qualified drilling contractors (each event under (a), (b), (c) and (d) being referred to herein as a Force Majeure Event), then while and so long as such Force Majeure Event exists, Lessees obligation to comply with such covenant shall be suspended and Lessee shall not be liable in damages for failure to comply therewith, and the term of this Lease shall be extended while and so long as such Force Majeure Event exists and the time while such Force Majeure Event exists shall not be counted against Lessee. If the Force Majeure Event occurs during the Primary Term of this Lease, then the Primary Term shall be extended by the number of days that the Force Majeure Event exists. Notwithstanding the foregoing, the term of this Lease (including the Primary Term) may not be extended by operation of this Section for any single period of time in excess of two (2) years per Force Majeure Event, or for any periods of time exceeding five (5) years in the aggregate. However, it is controllingly provided that this clause shall not excuse the timely and proper payments called for in this Lease, including but not limited to any Production Royalty payments, Minimum Royalty payments,
shut-in payments, or Rental payments. In the event of the occurrence of a Force Majeure Event, Lessee must provide written notice to Lessor specifying the nature and cause of such Force Majeure Event. Furthermore, Lessee must use diligence in removing the cause of the Force Majeure Event.
ARTICLE XII
CONTINUOUS DEVELOPMENT
12.1 Continuous Development. If, at the expiration of the Primary Term, Commercial Production is not occurring on the Leased Premises or lands pooled therewith, (if authorized) but Lessee is then engaged in Drilling Operations or Reworking Operations thereon, or shall have completed a dry hole thereon within ninety (90) days prior to the end of the Primary Term, then all the acreage covered by this Lease and all the depths under the Leased Premises shall remain in force and effect so long as operations on said well or the Drilling Operations or Reworking Operations on any other additional well on the Leased Premises or on acreage pooled therewith (if authorized), are prosecuted with no cessation of more than ninety (90) consecutive days.
12.2 Logical Mining Units. Unless otherwise specifically provided by the express provisions of this Lease, at the expiration of the Primary Term, or upon the cessation of the continuous Drilling Operations or Reworking Operations pursuant to the terms of Section 12.1 above, whichever is the later, unless the Lessee has elected to pay Shut-In Royalties pursuant to Section 5.9, this Lease shall ipso facto terminate and revert to Lessor, its successors and assigns, without re-entry, except as to those portions of the Leased Premises where there is Commercial Production, together with those related Production Areas capable of being developed and produced under a unified and coordinated mine plan or logical mining unit within the Leased Premises (collectively, Qualifying Lands).
12.3 Release. Within sixty (60) days after automatic termination of this Lease under Section 12.2 above, Lessee shall execute and deliver to Lessor an instrument in recordable form which designates all Qualifying Lands, acknowledges such termination and releases the Lease except as to the acreage included within the Qualifying Lands. In such instrument designating Qualifying Lands, the acreage held shall be identified by field notes made by a natural survey on the ground, using property lines, not fence lines, at Lessees expense, and all acreage not held shall be released. However, Lessee shall not be obligated to survey the Qualifying Lands if it otherwise provides a proper legal description of such Qualifying Lands and Lessor agrees that the description used is a proper legal description. After the partial release of this Lease is properly filed of record, Lessee shall have no further liability or obligation (other than any liability or obligation that has accrued prior to such termination) in connection with any strata or acreage to which this Lease shall have so terminated. However, in the event Lessee fails to timely execute and deliver a partial release of this Lease in accordance with the above terms within said sixty (60) days, Lessee shall forfeit the right to file such partial release. Thereafter, Lessor shall have the sole right to execute such partial release of this Lease, and any instrument so executed by Lessor shall be effective as of the date of termination for all purposes, including the purpose of identifying which acreage has been held and which acreage has terminated.
12.4 Retained Rights. Regardless of a partial termination of this Lease under any provision of this Lease, it is agreed that Lessee shall have and retain such non-exclusive easements of ingress and egress over those lands covered by this Lease as shall be necessary to enable Lessee to develop and operate the portion or portions of this Lease that continue in force and effect for the production of Leased Substances therefrom, and it is further agreed that it shall not be necessary for Lessee to remove or relocate any pipelines, or other surface equipment or installation from any portion of this Lease which have terminated for so long as same continue to be used for development and operation of such portion of this Lease that is continued in force and effect.
12.5 Failure to Release. If any release is required under the terms of this Lease and there is no bona fide dispute between Lessor and Lessee that a release is required and Lessee fails to timely file any release required under the terms of this Lease, Lessee shall pay to Lessor the sum of Five Hundred Dollars ($500.00) per day for each day that such release is not timely filed, until such release is filed of record by Lessee. However, the above described monetary amount shall not begin to accrue until thirty (30) days after Lessor has made a written request to Lessee for such release. This monetary amount shall be in addition to any other damages or remedies that Lessor shall be entitled to at law or in equity.
ARTICLE XIII
RESERVED RIGHTS
13.1 Concurrent Rights. It is agreed that Lessor may hereafter execute leases, easements, permits or licenses for the exploration, development and/or production of wind, any minerals not covered by this Lease, and/or any minerals covered by this Lease that are located within any depths not covered by this Lease at the time of the execution of such Lease, including but not limited to released deep oil, gas strata, uranium and other fissionable materials. Additionally, Lessor, or its assigns may make any use of the surface of the Leased Premises it deems useful or advisable provided that such use does not materially interfere with Lessees rights hereunder. It is also agreed that Lessor may hereafter grant rights to third persons to use all or part of the surface of the Leased Premises for such purposes and to penetrate the strata and horizons covered hereby, by drilling or seismic operations or otherwise, provided that any penetration of strata or horizons may not unduly interfere with or damage existing operations of Lessee hereunder or materially interfere with Lessees rights hereunder. Any such third party agreement shall require the third party to acknowledge the existence of this Lease and agree to conduct its operations so as not to materially interfere with Lessees rights hereunder. Lessor shall promptly supply Lessee with a copy of any such third party agreement or excerpts therefrom that may materially and adversely affect Lessees operations on the Leased Premises. Furthermore, Lessor shall be allowed to execute any top lease which leases all or part of the minerals, acreage and/or depths covered by this Lease, so long as such top lease is expressly subject to the terms of this Lease to the extent it is valid and subsisting, provided however that the Lessor reserves the right in the top lease to acknowledge that this Lease is in force and effect and binding upon the top lease lessee without the top lessee joinder. Lessor shall never be held liable to any Lessee for any such third parties acts or omissions and Lessee shall not be prohibited from receiving any actual monetary damages from such third parties that result from the third parties acts or omissions in any drilling or other operations. No liability shall be incurred by Lessor in granting
of rights to such a third party lessee or by reason of operations of such third party lessee. The reserved right to explore released deep strata specifically includes the right to conduct seismic operations on and through the non-released horizons covered by this Lease and to record, store and use the seismic information obtained by the seismic operations.
ARTICLE XIV
POOLING
14.1 No Pooling. Lessee has no right, during or after the Primary Term while this Lease is in effect, to pool the Leased Premises, or any portion thereof with other lands. If Lessee desires to form a pooled unit, it should present the reasons and justifications for forming such unit to Lessor so that Lessor can determine whether or not it desires to consent to any such pooled unit. However, Lessor may withhold consent to any pooling requested by Lessee for any or no reason in Lessors sole discretion.
ARTICLE XV
WARRANTIES
15.1 Warranty. This Lease is made without any warranties of title or any other representations or warranties of any kind or character, express or implied, except that Lessor represents and warrants that it has taken all steps and obtained all board of director and other approvals necessary to duly authorize Lessor to enter into this Lease and that the person executing this Lease on behalf of the Lessor is duly authorized to do so as the lawful and valid act of the Lessor. This Lease is expressly made subject to the following: (a) matters filed of record, to which reference is here made and to all terms thereof and (b) visible and apparent easements whether of record or not. LESSEE ACCEPTS THE CONDITION OF THE LEASED PREMISES AS IS WITHOUT WARRANTY OF TITLE, FITNESS OR ANY IMPLIED WARRANTIES. MOREOVER, LESSEE ACKNOWLEDGES THAT ALL OR A PORTION OF THE LEASED PREMISES IS, OR MAY BE, OR MAY BECOME SUBJECT TO THREATENED OR ENDANGERED SPECIES HABITAT DESIGNATIONS, JURISDICTIONAL WETLANDS AND OTHER ENVIRONMENTAL RESTRICTIONS AND BURDENS, AND LESSEE ACCEPTS THE LEASED PREMISES SUBJECT TO SUCH DESIGNATIONS, RESTRICTIONS, AND BURDENS, AS THEY NOW EXIST AND MAY HEREAFTER EXIST. Without impairment of Lessees rights under this Lease, it is agreed that if this Lease covers a less interest in the Leased Substances in all or any part of said Leased Premises than the entire and undivided fee simple interest in the Leased Substances (whether Lessors interest is herein specified or not), or no interest therein, then the royalties and other monies (except bonus, surface damages, permit fees and minimum royalties) accruing from any part as to which this Lease covers less than such fee interest in the Leased Substances shall be paid only in the proportion which in the interest in the Leased Substances, if any, covered by this Lease, bears to the whole and undivided fee simple interest in the Leased Substances. To the extent covered by this Lease, royalty interests attributable to Leased Substances produced and sold from the Leased Premises reserved by predecessors in title to Lessor or granted to third parties by Lessor or any predecessor in title to Lessor shall be payable by Lessee out of Lessors Production Royalty, but not in an amount in excess of Lessors Production Royalty.
ARTICLE XVI.
INDEMNITY, RELEASE, INSURANCE AND WAIVERS
16.1 INDEMNITY. LESSEE SHALL INDEMNIFY AND HOLD HARMLESS LESSOR, ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, REPRESENTATIVES, SUCCESSORS, AND ASSIGNS (THE INDEMNIFIED PERSONS), AGAINST ANY AND ALL EXPENSES, CLAIMS, DEMANDS, CAUSES OF ACTION, JUDGMENTS, LIABILITIES, FINES, LIENS, PENALTIES, AND CAUSES OF ACTION OF ANY NATURE OR INJURY TO OR DEATH OF PERSONS (INCLUDING DEATHS OF OR INJURIES TO EMPLOYEES, AGENTS, CONTRACTORS, SUBCONTRACTORS, INVITEES AND PERMITEES OF LESSEE) AND/OR LOSS OR DAMAGE TO PROPERTY INCLUDING, WITHOUT LIMITATION, ATTORNEYS FEES, EXPERTS FEES, AND COURT COSTS (INDEMNIFIED LIABILITIES) DIRECTLY OR INDIRECTLY ARISING OUT OF, CAUSED BY, OR RESULTING FROM (IN WHOLE OR IN PART) THE FOLLOWING ACTS OR OMISSIONS INCLUDING NEGLIGENCE AND WILLFUL MISCONDUCT, ON THE LESSORS PROPERTY DURING OR UNDER THE TERMS OF THIS AGREEMENT:
(A) THE CONDITION OF THE LEASED PREMISES,
(B) ANY ACTS OR OMISSIONS OF LESSEE, OR OF LESSEES SUCCESSORS OR ASSIGNS, OR OF EMPLOYEES, AGENTS, INVITEES, OR CONTRACTORS OF ANY OF SUCH PERSONS,
(C) ANY VIOLATION OF ANY LAWS, RULES OR REGULATIONS BY LESSEE, OR BY LESSEES SUCCESSORS OR ASSIGNS, OR BY EMPLOYEES, AGENTS, INVITEES, OR CONTRACTORS OF ANY OF SUCH PERSONS,
(D) THE VIOLATION BY LESSEE OF THE RIGHTS OF HOLDERS OF RIGHTS OR INTERESTS IN THE LEASED PREMISES, OR
(E) THE DISCLOSURE BY LESSEE OF DATA, ANALYSES OR INFORMATION PERTAINING TO THE LEASED PREMISES OBTAINED BY, THROUGH, OR UNDER LESSEE, OR OF INTERPRETATIONS THEREOF, BY, THROUGH OR UNDER LESSEE,
EVEN IF THE INDEMNIFIED LIABILITIES ARE CAUSED IN PART BY OR DUE TO THE PARTIAL OR CONCURRENT NEGLIGENCE OR STRICT LIABILITY OF AN INDEMNIFIED PERSON. LESSEES OBLIGATION TO INDEMNIFY THE INDEMNIFIED PERSONS DOES NOT COVER LIABILITIES RESULTING FROM THE SOLE NEGLIGENCE OR SOLE WILLFUL MISCONDUCT OF AN INDEMNIFIED PERSON. LESSOR SHALL ADVISE LESSEE IN WRITING OF ANY ACTION, ADMINISTRATIVE OR LEGAL PROCEEDING OR INVESTIGATION AS TO WHICH THIS INDEMNIFICATION MAY APPLY WITHIN 10 DAYS OF LESSORS RECEIPT OF NOTICE OF ANY SUCH ACTION, PROCEEDING OR INVESTIGATION. HOWEVER, THE INDEMNIFIED PERSONS FAILURE TO NOTIFY LESSEE WITHIN SUCH 10 DAY PERIOD WILL NOT AFFECT THE
INDEMNIFIED PERSONS RIGHTS, NOR THE LESSEES OBLIGATIONS, PROVIDED THE INDEMNIFIED PERSONS USE THEIR GOOD FAITH EFFORTS TO GIVE LESSEE NOTICE. LESSEE, AT LESSEES EXPENSE, SHALL ASSUME ON BEHALF OF THE INDEMNIFIED PERSONS AND CONDUCT WITH DUE DILIGENCE AND IN GOOD FAITH, THE DEFENSE THEREOF WITH COUNSEL SATISFACTORY TO LESSOR; PROVIDED, HOWEVER, THAT THE INDEMNIFIED PERSONS SHALL HAVE THE RIGHT, AT ITS OPTION, TO BE REPRESENTED THEREIN BY ADVISORY COUNSEL OF SUCH PERSONS SELECTION AND AT SUCH PERSONS OWN EXPENSE. IN THE EVENT OF THE FAILURE BY LESSEE TO FULLY PERFORM IN ACCORDANCE WITH THIS INDEMNIFICATION, THE INDEMNIFIED PERSONS MAY SO PERFORM, BUT ALL COSTS AND EXPENSES SO INCURRED BY THE INDEMNIFIED PERSONS IN THAT EVENT SHALL BE REIMBURSED BY LESSEE TO THE INDEMNIFIED PERSONS, TOGETHER WITH INTEREST ON THE SAME FROM THE DATE ANY SUCH EXPENSE WAS PAID BY AN INDEMNIFIED PERSON UNTIL REIMBURSED AT THE RATE OF 18% PER ANNUM OR THE MAXIMUM RATED PROVIDED BY LAW, WHICHEVER IS LESS. THIS INDEMNIFICATION SHALL NOT BE LIMITED TO DAMAGES, COMPENSATION OR BENEFITS PAYABLE UNDER INSURANCE POLICIES, WORKERS COMPENSATION ACTS, DISABILITY BENEFIT ACTS OR OTHER EMPLOYEES BENEFIT ACTS. THIS SECTION SHALL SURVIVE THE TERMINATION OR RELEASE OF THIS AGREEMENT IN WHOLE OR IN PART.
16.2 RELEASE.
A. LESSEE RELEASES LESSOR, ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, TENANTS, SUCCESSORS AND ASSIGNS (RELEASED PERSONS) FROM ALL LIABILITY FOR ANY DAMAGE OR INJURY LESSEE, LESSEES SUCCESSORS OR ASSIGNS, OR ANY EMPLOYEES, AGENTS, INVITEES, OR CONTRACTORS OF ANY OF SUCH PERSONS, MAY SUSTAIN FROM ANY AND ALL SOURCES OR CAUSES EXCEPT TO THE EXTENT, SUCH DAMAGE OR INJURY IS PROXIMATELY CAUSED BY THE SOLE GROSS NEGLIGENCE OR SOLE WILLFUL MISCONDUCT OF A RELEASED PERSON.
B. LESSEE WAIVES ALL RIGHT TO RECOVER FOR CONSEQUENTIAL, PUNITIVE AND/OR EXEMPLARY DAMAGES, UNLESS SUCH WAIVER IS SPECIFICALLY PROHIBITED BY STATUTE, WITH RESPECT TO ANY CAUSES OF ACTION WHICH MAY ARISE AGAINST A RELEASED PERSON ON OR AFTER THE DATE HEREOF. THIS SECTION SHALL SURVIVE THE TERMINATION OR RELEASE OF THIS AGREEMENT IN WHOLE OR IN PART.
16.3 ENVIRONMENTAL INDEMNITY. LESSEE SHALL COMPLY WITH ALL APPLICABLE LAWS NOW IN EFFECT OR HEREINAFTER ENACTED, INCLUDING ENVIRONMENTAL PROTECTION LAWS. LESSEE TAKES FULL RESPONSIBILITY FOR ALL CLEANUP COSTS AND DAMAGES AS A RESULT OF ANY AND ALL ADVERSE ENVIRONMENTAL EVENTS ARISING OUT OF THE ACTS OR OMISSIONS OF LESSEE, OR OF LESSEES SUCCESSORS OR ASSIGNS,
OR OF EMPLOYEES, AGENTS, INVITEES, CONTRACTORS OR SUBCONTRACTORS OF ANY SUCH PERSONS.
LESSEE SHALL BE RESPONSIBLE FOR AND SHALL INDEMNIFY AND HOLD THE INDEMNIFIED PERSONS HARMLESS FOR ALL COSTS, EXPENSES, AND LIABILITY RELATING OR ARISING IN ANY WAY WHATSOEVER FROM AN ADVERSE ENVIRONMENTAL EVENT AFFECTING THE LEASED PREMISES OR ADJACENT LAND ARISING OUT OF THE ACTS OR OMISSIONS OF LESSEE, OR OF LESSEES SUCCESSORS OR ASSIGNS, OR OF EMPLOYEES, AGENTS, INVITEES, CONTRACTORS OR SUBCONTRACTORS OF ANY SUCH PERSONS. SUCH INDEMNIFICATION INCLUDES ALL ACTIONS, LIABILITIES, CLAIMS, DAMAGES (INCLUDING CONSEQUENTIAL DAMAGES), FINES, LIENS, PENALTIES, FORFEITURES, ADMINISTRATIVE AND JUDICIAL PROCEEDINGS, AND THE COSTS AND EXPENSES INCIDENT THERETO (INCLUDING COSTS OF DEFENSE, SETTLEMENT, AND REASONABLE INVESTIGATION AND EXPERT WITNESS AND ATTORNEYS FEES), CHARGES, ORDERS, REMEDIAL ACTIONS, REQUIREMENTS, AND ENFORCEMENT ACTIONS OF ANY KIND, WHETHER FORESEEABLE OR UNFORESEEABLE, WHICH LESSOR MAY HEREINAFTER INCUR OR BE PARTY TO, BECOME RESPONSIBLE FOR OR PAY OUT AS A RESULT OF DEATH OR BODILY INJURY TO ANY PERSON, DESTRUCTION OR DAMAGE TO ANY PROPERTY, CONTAMINATION OF OR ADVERSE EFFECTS ON THE ENVIRONMENT, ANY VIOLATION OF ANY APPLICABLE LAW, RULE OR REGULATION PROMULGATED BY ANY LOCAL, STATE OR FEDERAL AGENCY OR ENTITY HAVING JURISDICTION OVER SUCH MATTERS, INCLUDING WITHOUT LIMITATION ENVIRONMENTAL PROTECTION LAWS.
THIS INDEMNITY SHALL FURTHER APPLY TO ANY RESIDUAL CONTAMINATION RESULTING FROM THE ACTIVITIES OF LESSEE, LESSEES SUCCESSORS OR ASSIGNS, OR OF EMPLOYEES, AGENTS, INVITEES, CONTRACTORS OR SUBCONTRACTORS OF ANY SUCH PERSONS, OR OTHER PERSONS ON THE LEASED PREMISES OR ADJACENT LANDS ACTING ON BEHALF OF LESSEE, OR AFFECTING ANY NATURAL RESOURCES THEREIN, AND TO ANY CONTAMINATION OF ANY PART OF THE LESSORS LAND, THE LEASED PREMISES, LANDS ADJACENT TO THE LEASED PREMISES, OR NATURAL RESOURCES.
LESSOR SHALL NOTIFY LESSEE OF ANY CLAIMS OR DEMANDS ASSERTED AGAINST LESSOR FOR WHICH LESSOR MAY SEEK INDEMNITY FROM LESSEE HEREUNDER WITHIN 10 DAYS OF LESSORS RECEIPT OF NOTICE OF ANY SUCH CLAIM OR DEMAND. HOWEVER, THE INDEMNIFIED PERSONS FAILURE TO NOTIFY LESSEE WITHIN SUCH 10 DAY PERIOD WILL NOT AFFECT THE INDEMNIFIED PERSONS RIGHTS, NOR THE LESSEES OBLIGATIONS, PROVIDED THE INDEMNIFIED PERSONS USE THEIR GOOD FAITH EFFORTS TO GIVE LESSEE SUCH NOTICE. THIS SECTION SHALL SURVIVE THE TERMINATION OR RELEASE OF THIS AGREEMENT IN WHOLE OR IN PART.
16.5 Insurance. Lessee agrees to obtain and maintain at Lessees sole cost and expense, commercial general liability insurance; business auto liability insurance; and workmans compensation insurance and employers liability insurance on its employees. Such commercial general liability insurance shall be written on an ISO occurrence most current form (or a substitute form providing equivalent coverage), and shall cover liability from premises, operations, independent contractors, products-completed operations, personal injury and advertising injury, and liability assumed under an insured contract; shall provide for insured limits for bodily injury or death of not less than $10,000,000 per occurrence limit (if such commercial general liability insurance contains a general aggregate limit, it shall apply separately to the Leased Premises); and shall name Lessor as an additional insured using an ISO additional insured endorsement (or a substitute providing equivalent coverage). Such business auto liability insurance shall cover liability arising out of any auto (including owned, hired, and non-owned autos) and shall be written on ISO form (or a substitute form providing equivalent liability coverage), and, if necessary shall be endorsed to provide contractual liability coverage equivalent to that provided in the 1990 and later editions of CA 00-01. Workmans compensation insurance shall be for the statutory limits.
Lessee shall furnish to Lessor, prior to conducting any activities on the Leased Premises certificates of such insurance issued by insurance companies reasonably acceptable to Lessor, which companies shall be licensed to do business in the State of Texas.
The policies shall contain severability of interest endorsements, state that the insurance is primary insurance as regards any other insurance carried by Lessor, and shall include a waiver of subrogation in favor of Lessor and its officers, directors, employees, tenants, and agents. Such insurance shall state that Lessor will be notified in writing 30 days prior to cancellation, material change, or non-renewal of insurance. Lessee shall provide to Lessor a certified copy of any and all applicable insurance policies upon request of Lessor. Timely renewal certificates will be provided as the coverage renews. Lessee agrees that if such insurance policies are not kept in force during the entire term of this Lease, Lessor may, but is not obligated to, procure the necessary insurance and pay the premiums therefor. Lessee agrees that such premiums shall be repaid to Lessor on demand.
All contractors hired by Lessee that will enter on the Leased Premises shall also provide insurance complying with these insurance coverage requirements, including providing Lessor with a certificate of insurance verifying coverages required hereby and naming Lessor as additional insured prior to entering upon the Leased Premises. Alternatively, Lessee shall provide Lessor with written evidence from its insurance carriers that Lessees required insurance adequately covers the actions and property of such contractors, and supports all of Lessees indemnification obligations with respect to the actions of such contractors.
16.6 Waiver of Subrogation. Lessee will have no right or claim against Lessor or its officers, directors, employees, tenants, for any matter covered by Lessees insurance (whether caused by negligence of any of such persons or the condition of the Leased Premises) by way of subrogation or assignment. Lessee hereby waives any such right. Lessee shall require its insurance carrier to endorse all applicable policies waiving the carriers right of recovery under
subrogation or other right or claim that might be asserted against Lessor, and to provide Lessor a certificate of insurance verifying this waiver.
ARTICLE XVII
INFORMATION
17.1 Tests and Logs. Lessor shall have the right, personally or by representative, at Lessors sole risk and expense, to have access to any Well actually drilled on the Leased Premises or on acreage pooled therewith, with the right to observe all operations and the right to witness the taking of all electrical and other logs, cores and other samples, and water quality analyses. Lessor agrees to comply with Lessees safety procedures and any applicable laws in connection with such inspections and observations. Any inspection of or observations on the Leased Premises shall be at Lessors sole risk. Lessee agrees, upon Lessors written request, to furnish Lessor with copies of all daily drilling reports, Well logs and other tests, promptly after taking the same; and Lessee agrees to divulge to Lessor true and correct information and data as to the Leased Premises and the production therefrom, as well as all such technical information concerning logs, tests, cores, samples, analysis, reports and summaries thereof as Lessee may acquire or already have acquired or obtained and which is readily available with respect to the sands and formations encountered or expected to be encountered in and under the Leased Premises. Lessee shall furnish to Lessor one true copy of logs, tests, information concerning cores and samples, analysis, reports and summaries thereof, mylar prints, paper prints, stacked prints, tapes, discs and other results of all seismic tests (and any reprocessing thereof), it has now or obtains in the future in connection with the Leased Premises and within one mile of the Leased Premises, including all analyses and summaries thereof. Lessee shall not furnish Lessor, its employees, agents, consultants, representatives or assigns with any seismic or associated data to the extent, if any; such data is subject to a contractual agreement which prohibits the dissemination, reproduction or review of such data to Lessor. However, when Lessee is negotiating any agreement with third parties regarding such seismic or associated data, it agrees to use its reasonable efforts to negotiate an agreement which allows the dissemination, reproduction and review of such data to Lessor, its employees, agents, consultants, representatives and assigns. Lessor acknowledges that Lessee makes no representation or warranty, other than as to production data relevant to calculation of Production Royalty, as to the completeness, accuracy or correctness of any data supplied to Lessor pursuant to this Section. All data and information obtained by or on behalf of Lessor pursuant to this Section shall be maintained as confidential pursuant to Section 17.2.
17.2 Confidential Information. To the extent any such information obtained by Lessor in connection with this Lease is Confidential Information as described herein, the Confidential Information will be kept confidential until termination of the Lease as to that portion of the Leased Premises to which such information pertains. Confidential Information shall not, without Lessees prior written consent, be disclosed by Lessor to third parties in any manner whatsoever, in whole or in part, other than by Lessor to its board of directors, officers, attorneys, agents, representatives, consultants or employees, except as specifically allowed or authorized under the terms of this Lease. Lessor shall be obligated to require authorized recipients of Confidential Information pursuant to the foregoing sentence to maintain such information as confidential in accordance with this Section.
The term Confidential Information shall include all information required to be delivered to Lessor under any provision of this Agreement that pertains to the Leased Premises or the Production Royalty, except it shall not include any information or any portion of the such information that (i) is now or hereafter becomes available to Lessor or anyone else on a non-confidential basis; (ii) is already in Lessors possession and not subject to a confidentiality agreement with Lessee or a third party; (iii) is not held as confidential by Lessee; (iv) is filed with or is required to be filed with a governmental or regulatory agency, commission or department; or (v) is obtained pursuant to discovery under the Texas or Federal Rules of Evidence in any future lawsuit.
In the event any third party requests Lessor to produce such Confidential Information pursuant to or as part of any judicial and/or administrative proceeding, Lessor agrees to use reasonable efforts to give Lessee notice of said third party request for production prior to the date said Confidential Information is to be produced in order to give Lessee the opportunity to file a motion for protective order or some similar objection to the requested production. In the event Lessee fails to timely file a motion for protective order or similar objection, Lessee agrees that Lessor may tender the requested Confidential Information to the requesting party or to the court or administrative agency without any liability for disclosure hereunder whatsoever. Otherwise, Lessee agrees that Lessor may abide by the order of the court or administrative agency without any risk of liability hereunder whatsoever. In any event, Lessor will only furnish that portion of the Confidential Information that Lessor is advised by opinion of counsel is legally compelled or required to be provided.
Notwithstanding anything to the contrary stated elsewhere herein, it is agreed and controllingly provided that this Section 17.2 does not restrict legal discovery under the Texas Rules of Civil Procedure or the Federal Rules of Civil Procedure, nor does it require the exclusion of any evidence otherwise discoverable or admissible under the Texas Rules of Evidence or the Federal Rules of Evidence in any subsequent proceeding merely because documents and/or information were obtained under the terms of this Sub-Section.
17.3 Production Meetings. From and after the date of first sales of production of Leased Substances produced and mined from the Leased Premises, Lessee will hold semi-annual production meetings with Lessor for the purposes of: a) summarizing activities and production data for the preceding six (6) months; b) reviewing data concerning the sale of Saleable Products, including quantities sold and prices obtained; c) apprising Lessor of planned operations for the next six (6) months, including without limitation production and mining activities, and where applicable, surface restoration, remediation and groundwater monitoring activities. All information and data disclosed pursuant to this Section shall be treated as Confidential Information pursuant to Section 17.2.
ARTICLE XVIII
NOTICES
18.1 Notices. All notices and documents required to be delivered hereunder shall be delivered in person, by reputable overnight courier service (such as FedEx or UPS) or by registered U.S. Mail, return receipt requested, postage prepaid, to the following addresses:
If to Lessor:
The John G. and Marie Stella Kenedy Memorial Foundation
555 North Carancahua, Suite 1700 Tower II
Corpus Christi, TX 78401
Attn.: Marc A. Cisneros, CEO/Executive Vice President
If to Lessee:
URI Inc.
641 East FM 1118
Kingsville, TX 78363
Attn: Richard A Van Horn, Senior Vice President-Operations
with a copy to:
Uranium Resources, Inc.
405 State Highway Bypass 121,
Building A, Suite 110
Lewisville, TX 75067
Attn: Corporate Secretary
or to such other address as the parties may designate by notice in accordance therewith; and such notices may be effective when received or five (5) days after mailing to the last known correct address, proper postage prepaid, whichever is earlier.
ARTICLE XIX
TITLE
19.1 Title Opinions. If Lessee shall have the title to the Leased Premises or any part thereof examined by an attorney, Lessee agrees to furnish Lessor with a copy of such attorneys Title Opinion upon receipt. If Lessee causes an Abstract of Title or Supplements thereto to be prepared, he shall notify Lessor of same, shall make same available at all reasonable times, and shall furnish same to Lessor free of charge upon termination of this Lease, or six (6) months after the first Well on the Leased Premises begins production, whichever date is the earlier. Lessor agrees, upon request from Lessee, to furnish to Lessee any Title Opinions and/or abstracts of title in Lessors possession, covering all or part of the Leased Premises. Lessor understands and
agrees that any title materials being delivered by Lessee pursuant to this Section are being supplied without any warranty as to their completeness, accuracy or correctness.
ARTICLE XX
PLUGGING AND ABANDONMENT
20.1 Plugging Requirements. Lessee agrees and obligates itself to properly plug any unplugged Well on the Leased Premises that it owns any interest in, in accordance with the regulations of any and all governmental agencies having jurisdiction; and, if this Lease is assigned, Assignee, by acceptance of said assignment, agrees and obligates itself to Lessor to also assume full and complete obligation to properly plug any Well drilled by any Lessee under this Lease on the part of the Leased Premises assigned to it, but no future assignments shall relieve Lessee or Assignee of this obligation. It is the intent of this provision that Lessee and each and every Assignee shall be obligated to Lessor to plug every Well drilled by any Lessee under this Lease on the acreage in which it at any time owns an interest (in accordance with the rules of any and all governmental agencies having jurisdiction or to see that the Well is properly plugged if such well is no longer used in connection with the production of Leased Substances or restoration of groundwater. If such holes are cased, the casing shall be cut off at least three (3) feet beneath the surface of the ground after plugging. When excavating the pit around the cased hole, top soil shall be scraped off and saved and shall be placed back on top of the fill after backfilling. Additionally, with respect to any such Well, Lessee will provide to Lessor copies of any reports filed with the RCT, TCEQ or other governmental agency having jurisdiction over such matters, such copy to be delivered within thirty (30) days of filing same. Lessor shall be entitled to enforce this obligation as against Lessee or any subsequent Assignee. Each Lessee and each subsequent Assignee shall jointly and severally indemnify and hold Lessor harmless from any and all plugging obligations. This contractual provision shall not in any way abrogate or relieve Lessee of any plugging obligations that may be imposed by law or by any and all governmental agencies having jurisdiction.
ARTICLE XXI.
SECURITY
21.1 Environment Protection Security. Prior to commencement of Drilling Operations under this Lease, and for so long thereafter until this Lease has terminated and Lessee has satisfied all of its obligations to restore and reclaim the Leased Premises and to remediate the results of any Adverse Environmental Event in the manner required by this Lease or otherwise as required by Environmental Protection Laws, Lessee shall deliver proof to Lessor that security, satisfactory to Lessor in order to secure Lessees performance of all surface, subsurface and groundwater restoration and reclamation obligations, remediation obligations, and obligations to remove facilities and equipment as provided for in this Lease or otherwise pursuant to Environmental Protection Laws has been posted with the TCEQ (the Security). The Security shall be form of bond or other form of security required by law. Prior to the initial posting of the Security, and annually thereafter while this Lease remains in effect, Lessee shall provide the Lessor with all correspondence, reports, modifications, data, analyses, requests for adjustments, and any other materials that are filed with the TCEQ as part of TCEQs process for determining the amount and type of Security to be maintained by Lessee (collectively the Security Data).
Lessor will have thirty (30) days to review all Security Data before such data is delivered to TCEQ or to any other agency having jurisdiction over such matters. From time to time while this Lease remains in effect, Lessor, in its discretion, may engage an Expert as defined in Article VIII to assess Lessees Security Data, and to evaluate the adequacy of the Security provided for herein in light of Lessees then current operations. In the event the Expert proposes that the amount of the Security needs to be increased, Lessor shall present such evaluation to Lessee and Lessee shall have the right to engage its own Lessee Expert to evaluate the conclusions. If the Lessors Expert and Lessees Expert cannot agree on the adequacy of the Security, the matter shall be resolved in the same manner as other environmental compliance issues under Article VIII.
ARTICLE XXII
DEFAULT TERMINATION
22.1 Termination. Lessor shall be entitled to terminate this Agreement by written notice to Lessee in addition to all of the remedies available at law or in equity as follows:
A. If Lessee fails to make any payments when due hereunder, Lessor may at Lessors option give Lessee written notice of such failure and Lessee shall have thirty (30) days from the date it receives notice to pay the amounts owed to Lessor. If Lessee fails to pay the past due amounts to Lessor within the thirty (30) day period, Lessor may at Lessors option declare Lessee in default and terminate this Lease.
B. If Lessee defaults in the performance of any obligation hereunder other than the obligation to make payments when due, Lessor may at Lessors option give written notice of such default to Lessee, and Lessee shall have sixty (60) days from the date it receives such notice to cure the default or such longer time as is reasonably required to effect a cure of the default if the nature of the default is such that cure cannot be effected in 60 days, provided that Lessor commences cure of the default within 60 days and thereafter pursues cure diligently. If Lessee fails to cure the default within the cure period, Lessor may at Lessors option terminate this Lease; provided, however, that if the default is minor and the default can be fully compensated for in damages, then such default shall not be a basis for cancellation or forfeiture of this Lease or any of Companys rights hereunder if Lessee pays the full amount of damages within thirty (30) days after demand by Lessor.
C. If Lessee in good faith disputes the existence of a default, then this Agreement shall not be terminated and Lessee shall not be barred from the Leased Premises until a final non-appealable judgment finding such a default is entered by a court of competent jurisdiction and Lessee shall not have cured such default within 60 days after the judgment becomes final and non-appealable. No good faith dispute between Lessor and Lessee shall be the basis for Lessor barring Lessee from conducting operations pursuant to this Lease until such dispute is resolved adversely to Lessee and Lessee fails to cure any default as allowed hereunder.
ARTICLE XXII
MISCELLANEOUS
23.1 Non-Renewal, Ratification or Amendment. Neither the acceptance of royalties, delay rentals, shut-in royalties or other payments by Lessor (regardless of any notation thereon or instrument accompanying same), nor Lessors execution of any division order or transfer order or similar instrument, shall ever constitute or be deemed to effect (a) a ratification, renewal or amendment of this Lease or of any pooled unit designation filed by Lessee purporting to exercise any pooling rights (if any) granted to Lessee in this Lease, or (b) a waiver of the rights granted to Lessor, or the obligations imposed upon Lessee, express or implied, by the terms of this Lease, or remedies for Lessees breach thereof, or (c) an estoppel against Lessor preventing Lessor from enforcing Lessors rights or Lessees obligations hereunder, express or implied, or from seeking damages for Lessees breach thereof. Lessors agreement to accept royalties from any purchaser shall not affect Lessees obligation to pay royalties pursuant to this Lease. No instrument executed by Lessor shall be effective to constitute a ratification, renewal, extension or amendment of this Lease unless the instrument is clearly titled to indicate its purpose and intent and the instrument contains an express representation that Lessee has informed Lessor of all relevant facts.
23.2 Binding Effect. By the acceptance of this Lease, Lessee agrees to all of its terms, provisions and conditions, which shall also inure to the benefit of and be jointly and severally binding upon Lessees heirs, successors and assigns. This Lease shall be binding upon the heirs, successors, administrators and assigns (as herein limited) of the parties hereto. Words of any gender used in this Lease shall be deemed to include either gender and words in the singular shall be deemed to include the plural, whenever required by this context.
23.3 Memorandum. In lieu of filing this Lease of record in Kenedy County, Texas, Lessor and Lessee agree that a Memorandum of this Lease, making appropriate reference hereto, shall be filed of record in said counties and that neither party shall file this Lease of record, and that the filing of said Memorandum shall fully bind Lessor and Lessee under the terms of this Lease the same as if this Lease was recorded in full.
23.4 Applicable Law/Attorneys Fees/Venue and Jurisdiction. This Lease shall be construed and interpreted in accordance with the laws of the State of Texas. Should either party be required to resort to legal action to enforce any of its rights under this lease, the prevailing party in any such dispute shall be entitled to reimbursement from the other party for reasonable attorneys fees actually incurred in enforcing such rights. Furthermore, Lessee shall also reimburse Lessor, if Lessor prevails in such dispute, for reasonable costs of accountants, geologists, engineers, biologists, environmental consultants and other experts actually employed by Lessor in investigating such claim, calculating the correct amount due, and/or testifying in any proceeding regarding such claim. The parties hereto contractually agree that for and in consideration of Ten and No/100ths Dollars ($10.00) and other sufficient consideration, the exclusive venue of any case involving this Lease or any matters related thereto shall be heard in a State District Court of Nueces County, Texas. For and in the same consideration, the parties also agree that (i) Lessee shall not attempt to have any case heard in or removed to any Federal
District Court and (ii) Lessee hereby waives any right to have any case involving or relating to this Lease heard in any Federal District Court without Lessors prior written consent.
23.5 Multiple Counterparts. This instrument may be executed in any number of counterparts and each counterpart shall be deemed to be an original instrument but all such counterparts shall constitute but one instrument.
23.6 Terminology. Wherever the context requires, the gender of all words used herein shall include the masculine, feminine and neuter, and the number of all words shall include the singular and the plural.
23.7 Time is of the Essence. Notwithstanding anything to the contrary stated herein, time is of the essence of all matters in this Lease.
23.8 Property Taxes. Lessor shall pay all ad valorem taxes and assessments on the Leased Premises attributable to its ownership or use of the Leased Premises and its operations and improvements thereon. Lessee shall pay all such taxes or any increases in taxes payable by the Lessor to the extent such taxes or increases are attributable to Lessees operations, improvements or equipment and materials on the Leased Premises, or to the exercise of Lessees rights under this Lease.
23.9 Permit Cooperation. Lessor agrees to reasonably cooperate with Lessee, at no cost to Lessor, with respect to any permits or applications by Lessee necessary for Lessees operations hereunder and Lessor shall not contest or oppose such applications and permits provided that they are consistent with the rights of and requirements imposed upon Lessee by this Lease.
23.10 Headings. All headings in this Agreement are for reference purposes only and have no binding effect on the terms, conditions or provisions of this Agreement.
23.11 Severability. If one or more provisions of this Agreement is for any reason held to be invalid, illegal or unenforceable, such invalidity, illegality or unenforceability does not affect any of the other provisions hereof in this Agreement and this Agreement will be construed as if such invalid, illegal or unenforceable provision had never been contained herein.
23.12 Entire Agreement. This Agreement contains the entire agreement between the parties hereto. This Agreement may not be modified or amended except by subsequent written agreements signed by all of the parties.
23.13 Limitations Tolling. In addition to, and not in substitution of, any other rights or defenses available to Lessor or Lessee, whether at law or in equity, and subject to the audit limitations of Section 5.8, Lessor and Lessee hereby covenant and agree that the running of the applicable statute(s) or period(s) of limitation(s), statutes or repose, or any other equitable or legal defense based on the passage of time, whether statutory, contractual or arising under common law, governing or affecting any claims concerning failure to timely pay, or the underpayment of royalty or other payments provided herein shall be suspended and shall not run
during the term of this lease, plus an additional two (2) years beginning at the expiration of the term of this lease (collectively, the Tolling Period). Lessor and Lessee also expressly stipulate, covenant, and agree that they will not assert as a defense to such claims that such claims are barred, in whole or in part, by the expiration of any applicable limitations period or by any other time-related defense, except to the extent that the alleged limitations or other defense is based on time periods that exclude, in their entirety, the Tolling Period. Further, Lessor and Lessee, as applicable, hereby waive any right to use, establish or assert such time-related defense, currently existing or which may arise in the future, against Lessor or Lessee, as applicable, concerning such claims during the Tolling Period and thereafter during the applicable limitations period. Lessor and Lessee expressly stipulate and agree that the foregoing provision does not operate to revive any potential causes of action on which any applicable statute(s) or period(s) of limitations have already expired, or for which any equitable defense may bar or may have already barred recovery, in whole or in part, prior to the Effective Date hereof; provided, however, that this provision shall not affect such parties right to assert the revival or survival of claims with respect to applicable statute(s) or period(s) of limitations arising under law or statute to the extent such right exists or existed apart from the foregoing provision.
23.14 Lessee Confidentiality. Except to the extent required by law, or as reflected in any instrument filed for record in the public records of the county in which the Leased Premises are situated, or filed as required by any applicable securities laws or the rules of any stock exchange, the Lessee agrees to refrain from disclosing the identity of Lessor or the identity of any officer, director, agent, or employee of Lessor to any person or entity other than Lessees employees, legal representatives, contractors performing work on the Leased Premises, and co-venturers who own rights in this Lease. Unless agreed to in writing by Lessor, Lessee will not issue any press release identifying any of such parties.
[Signatures on next page.]
EXECUTED effective the day of , , the Effective Date.
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LESSOR: | |
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The John G. and Marie Stella Kenedy Memorial Foundation | |
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By: |
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Marc A. Cisneros, CEO/Executive Vice President |
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LESSEE: | |
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URI, Inc. | |
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By: |
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President/ Chief Executive Officer |
Acknowledgements
STATE OF TEXAS |
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COUNTY OF NUECES |
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This instrument was acknowledged before me this the day of , 20 , by Marc A. Cisneros, CEO/Executive Vice President of The John G. and Marie Stella Kenedy Memorial Foundation, a Texas non-profit corporation, on behalf of said corporation.
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Notary Public, State of Texas |
STATE OF TEXAS |
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COUNTY OF |
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This instrument was acknowledged before me this the day of , 20 , by Richard A. Van Horn, Senior Vice President of Operations of URI, Inc, a Delaware corporation, on behalf of said corporation.
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Notary Public, State of Texas |
Exhibit A
To
In-Situ Uranium Mining Lease
ATTACHED TO AND MADE A PART OF THAT CERTAIN IN-SITU URANIUM MINING LEASE OPTION BY THE JOHN G. AND MARIE STELLA KENEDY MEMORIAL FOUNDATION, AS LESSOR, AND , AS LESSEE, DATED EFFECTIVE , 2010.
LEASED PREMISES DESCRIPTION
(Note: Insert Leased Premises Description)
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in Registration Statements on Form S-8 (No. 333-156433 and No. 333-119661) and Form S-3 (No. 333-151134) of Uranium Resources, Inc. of our report dated March 30, 2011, relating to our audit of the consolidated financial statements which appear in this Annual Report on Form 10-K of Uranium Resources, Inc. for the year ended December 31, 2010.
/s/ Hein & Associates, LLP |
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Dallas, Texas |
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March 30, 2011 |
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Exhibit 23.2
CONSENT OF BEHRE DOLBEAR & COMPANY (USA)
As independent geological consultants, we hereby consent to the use of our report (and to all references to our firm, including being named as experts) in the Annual Report on Form 10-K of Uranium Resources, Inc. for the year ended December 31, 2010 and to the incorporation by reference of such report in the Registration Statements on Form S-3 (Registration No. 333-151134) and on Form S-8 (Registration Nos. 333-156433 and 333-119661) of Uranium Resources, Inc.
BEHRE DOLBEAR & COMPANY (USA) |
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Denver, Colorado |
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March 30, 2011 |
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Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Donald C. Ewigleben, certify that:
1. I have reviewed this report on Form 10-K of Uranium Resources, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;
4. The issuers other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the issuers disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the issuers internal control over financial reporting that occurred during the issuers most recent fiscal quarter (the issuers fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the issuers internal control over financial reporting; and
5. The issuers other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuers auditors and the audit committee of issuers board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuers ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuers internal control over financial reporting.
Date: March 30, 2011
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/s/ Donald C. Ewigleben |
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Title: President and Chief Executive Officer |
Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Thomas H. Ehrlich, certify that:
1. I have reviewed this report on Form 10-K of Uranium Resources, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report.
4. The issuers other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the issuers disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the issuers internal control over financial reporting that occurred during the issuers most recent fiscal quarter (the issuers fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the issuers internal control over financial reporting; and
5. The issuers other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuers auditors and the audit committee of issuers board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuers ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuers internal control over financial reporting.
Date: March 30, 2011
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/s/ Thomas H. Ehrlich |
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Title: Vice President - Finance and Chief Financial Officer |
Exhibit 32.1
URANIUM RESOURCES, INC.
405 State Highway 121 Bypass, Building A, Suite 110, Lewisville, TX 75067
972.219.3330 Phone 972.219.3311 Fax
March 30, 2011
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Donald C. Ewigleben, President and Chief Executive Officer of Uranium Resources, Inc. (the Company), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Annual Report on Form 10-K of the Company for the period ended December 31, 2010 which this certification accompanies fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Donald C. Ewigleben |
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Donald C. Ewigleben |
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President, Chief Executive Officer and Chief Operating Officer | |
March 30, 2011 |
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Exhibit 32.2
URANIUM RESOURCES, INC.
405 State Highway 121 Bypass, Building A, Suite 110, Lewisville, TX 75067
972.219.3330 Phone 972.219.3311 Fax
March 30, 2011
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas H. Ehrlich, Vice President - Finance and Chief Financial Officer of Uranium Resources, Inc. (the Company), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Annual Report on Form 10-K of the Company for the period ended December 31, 2010 which this certification accompanies fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Thomas H. Ehrlich |
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Thomas H. Ehrlich |
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Vice President and Chief Financial Officer |
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March 30, 2011 |
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