Denison Mines Corp (DNN) 2007 Q4 法說會逐字稿

Good morning, and welcome to the year-end 2007 results conference call for Denison Mines Corp. Your host for today will be Mr. Peter Farmer. Mr. Farmer, please go ahead.

Good morning, and welcome to the year end 2007 financial results conference call of Denison Mines Corp. With me today are Ron Hochstein, President and Chief Operating Officer; and Jim Anderson, Executive Vice President and Chief Financial Officer. I will start with some of the highlights. Jim will speak to the financial results followed by Ron with a report on operations. We will then answer questions.

This discussion includes forward-looking information with respect to Denison's operations and financial results. Actual future results may differ from expected results for a variety of reasons described in the cautionary statements regarding forward-looking information section of our press release. All amounts are in U.S. dollars unless otherwise indicated.

It has been a good year. Our first complete year as Denison Mines Corp. Our two organizations have become one. We have made a significant acquisition buying OmegaCorp. and by doing so acquiring the Mutanga project in Zambia. We have six mines and two mills in operation. We commenced work in preparation for production this year from three new U.S. mines. We expanded our exploration development program, and we increased our sales revenues from both U.S. and Canadian production, resulting in very positive financial results, earnings of $0.25 per share which Jim will outline to you later.

During the quarter the spot price uranium increased from $75 per pound at October 1, to $90 per pound at December 31. Since then, it has dropped again and is now trading around the $74 range. We believe that it is at or near the bottom of the price cycle. Throughout this period, in fact, throughout most of 2007, the quoted long-term prices remain steady at $95 per pound. We expect the spot price to recover and see it trading much closer even above the long-term price later this year and believe the long-term price may increase also. Why?

The supply/demand cycle for uranium is under pressure. Future prices will be influenced by increased demand from new reactors. There are currently 34 reactors under construction in 12 countries and more than 90 are in the planning stages. As well, the incremental supply from inventories, HU feed supplies, other stockpiles in existing and new production is simply not keeping up with the yearly increase in demand. Over the past five years, supply has increased by just under 2% a year. Demand continues to outstrip supply. Though it hurt our third-quarter results, we deferred U.S. sales to the fourth quarter because we anticipated a price recovery. This worked well for us, and we ended up selling 250,000 pounds of U3O8 from U.S. production at an average price of $89.84 per pound. We also sold 150,000 of U3O8 from Canadian production under an existing long-term contract at an average price of $74.37 per pound.

Currently Denison markets its entire share of production from McClean and Midwest with AREVA Resources Canada through a joint marketing company. Agreements with AREVA call for production to be allocated first to the market-related contracts, with any surplus to be apportioned evenly over the legacy contracts. The legacy based escalated contracts have pricing formulas that result in sale prices well below current market prices. These lower price legacy contracts expire at the end of this year at which time Denison will cease marketing jointly with AREVA except for a single existing market-related contract and will do its own direct marketing of its share of Canadian production. This will be one of the responsibilities of our new Vice President of Sales and Marketing Curt Steel, an industry veteran who came to us from NewChem where he had been a senior trader since 1988. Curt is also mandated to market our vanadium output.

Our Colorado Plateau mines are a rich source of vanadium, a material that is used primarily as an additive to stainless steel and titanium alloys where it imparts strength, hardness, and wear resistance. It's used in jet engines, air frames and something you are all familiar with, golf clubs. For every pound of uranium that is produced out of the Colorado Plateau or the White Mesa Mills vanadium co-product recovery circuit produces about 4 pounds of vanadium in the form of vanadium oxide, V205 or black flake as it is commonly called. We are expecting to produce between 3 and 4 million pounds of vanadium in 2008 and are evaluating whether we can upgrade the product to ferrovanadium to increase our return. Throughout 2007, the price of vanadium was between $7 and $8 per pound but the market has heated up due to tight supplies as a result of power supply issues in South Africa which currently produces approximately 39% of the world's vanadium. In early 2008 vanadium prices increased significantly to 14 and $15 per pound. We know that prices will fluctuate, but we anticipate that the longer-term supply issues in South Africa will result in stronger vanadium markets.

In December, the joint venture partners for the Midwest project announced the formal decision to go ahead with the development of the Midwest deposit. The Midwest deposit is located 15 kilometers West of the McClean Lake mill within easy trucking distance. As currently designed the pit will produce an estimated 36 million pounds of U3O8 of which Denison's share is 25.17% or approximately 8 million pounds. There are also potential extensions to the North, South, and basement that could be developed once the pit is nearing completion. Subject to regulatory approvals, site construction, including the haul road water treatment and other facilities could begin in mid-2009 with stripping of the overburden in 2010 and ore removal by mid-2011.

Capital costs for the Midwest including the related McClean Lake mill expansion of about $100 million Canadian will be approximately Canadian $435 million, of which Denison's share will be approximately Canadian $109 million. Currently the environmental assessment is in progress with completion expected in the first half of 2009. An added benefit to the Midwest facilities is that the infrastructure developed for Midwest could also serve the future development of what we are now calling the Midwest A deposit, formerly the Mae Zone which is located 3 kilometers to the northeast.

Our 2008 production in Canada is still projected at 720,000 pounds. Our production in the U.S. is going to be a bit lower than we originally anticipated due to a short delay in the start-up of the White Mesa mill, and added focus on the production of the Colorado vanadium ores. Ron will talk later in more detail about some of the delays we've experienced in completing the refurbishment of the mill. We will now begin milling of -- begin the milling of conventional ore the first, of May this year. Production originally projected for December 2008 will now be pushed to January 2009. We now expect to produce 1.4 million to 1.7 million pounds of U3O8 in the U.S. instead of our previous guidance of 1.7 million to 2.1 million pounds. Our vanadium production is expected to be between 3 million and 4 million pounds. During 2008, we expect to sell 1.8 million to 1.9 million pounds of uranium and 3 million pounds of vanadium. In 2008, we will have a 200% increase in overall uranium production and a doubling of our revenue.

Finally, I am very pleased that we have taken advantage of the opportunity to acquire a 9.9% equity interest in Urinerts Energy Corporation as part of their $24 million financing announced last night. We intend to cultivate a mutually beneficial working relationship with Urinerts and its team of superb and talented individuals. Now for the numbers. Jim?

Thank you, Peter. Good morning, everyone. Before I start, I would like to remind that you the comparative 2006 numbers include only one month of activity for Denison Mines, Inc. which was acquired December the 1st, 2006, and (inaudible) for a 15-month period due to the change in the year-end in 2006.

Consolidated net income was $23,542,000 or $0.12 per share for the three months ended December 31, 2007 compared with a consolidated net loss of $2,407,000 or $0.02 per share for the same period in 2006. For the year ended December 31, 2007, the Company's consolidated net income was $47,244,000 or $0.25 per share compared with the consolidated net loss of $16,998,000 or $0.18 per share for the 15-month period ended December 31, 2006. Revenue was $36,825,000 for the fourth quarter of 2007 compared with $8,322,000 for the fourth quarter of 2006. Revenue for the full year in 2007 was $76,764,000 compared with $9,722,000 for the 15 months in 2006.

Next cash used in operations was $23,084,000 in 2007 compared with $27,494,000 for the 15 months in 2006. Uranium sales revenue for the fourth quarter totaled $34,173,000. As Peter mentioned we had sold 250,000 pounds of U3O8 of U.S. production at an average price of $89.84 per pound and 150,000 pounds of U3O8 of Canadian production at an average price of $74.37 per pound. Amortization related to the Denison Mines, Inc. sales contracts totaled another $906,000. Uranium sales revenue for all of 2007 totaled $65,125,000 compared with $7,575,000 for 2006.

The 2007 sales include 325,000 pounds U3O8 from U.S. production at an average price of $99.11 per pound and 420,000 pounds of U3O8 from Canadian production at an average price of $74.91 per pound. In 2006, there were no U.S. sales and 109,000 pounds of Canadian U3O8 was sold at an average price of $55.76 per pound.

During 2007, the White Mesa mill undertook a processing campaign of alternate feed materials on which a processing fee is paid. Recognition of the revenue from this processing campaign, as well as revenue from byproduct disposal totaled $2,526,000.

Revenue from DES, Denison's environmental services division was $4,723,000 and revenue from the management contracts with Uranium Participation Corporation was $4,390,000. Denison also had other income of $4,284,000 for the quarter and $41,627,000 for the year, primarily due to the disposition of portfolio investments. Denison is engaged in uranium exploration both on its own and as both operator and nonoperator of joint ventures. The Company expenses exploration expenditures on mineral properties that are not sufficiently advanced to identify the development potential. Exploration expenditures totaled $4,049,000 for the three months ended December 31, 2007, compared with $3,370,000 during Q4 2006. For the year in 2007, exploration expenditures expensed were $20,963,000 compared with $14,790,000 for the 2006 period.

Denison's share of exploration spending on its Canadian properties totaled $3,239,000 of which 3,036,000 was expensed in the statement of operations for the fourth quarter 2007 and totaled $17,445,000 of which $16,638,000 was expensed in the statement of operations for the year ended December 31, 2007.

In Mongolia, exploration expenditures totaled $1 million for the fourth quarter and $4,048,000 for year ended December 31, 2007, on the Company's Gurvan Saihan joint venture where it has a 70% interest and on its 100% owned properties. General and administrative expenses were $3,871,000 for the quarter compared with $7,286,000 for the same period in 2006. And were $13,469,000 for the year compared with $11,379,000 for the 15-months in 2006. The increase primarily was the result of the inclusion of Denison Mines, Inc. effective December 1, 2006, and a ramping up of the Company's operations. The acquisition and implementation of new information systems and an increase in public Company expenses due to additional compliance costs.

At December 31, 2007, Denison had cash and cash equivalents of $19,680,000 and portfolio investments with a market value of $34,437,000. Subsequent to the year end, we put in place a $25 million uncommitted secured revolving credit facility. Management is confident that we have sufficient financing opportunities which together with future cash flow will allow us to carry out our operational and development plans. For a more detailed discussion of our financial results, I refer you to our MD&A. Now I will turn the call over to Ron for an operations update.

Thank you, Jim. Good morning. Total uranium production for the Company for the year ended December 31, 2007, was approximately 680,000 pounds U3O8. 254,000 pounds came from processing of alternate feed material at White Mesa and about 429,000 pounds was Denison's 22.5% share of the 1,907,000 pounds of production from the McClean Lake joint venture, which was more than 5% above what was forecast. For 2008, we anticipate production of the McClean Lake mill to be approximately 3.2 million pounds U3O8 of which Denison's share will be 720,000 pounds.

Mining of the Sue E pit is still ongoing, the completion has been delayed due to cold winter conditions and finding an additional high grade ore at the bottom of the pit, the mining fleet will move to Sue B once Sue E is completed next month. The McClean Lake mill expansion is substantially complete, the expansion was undertaken to accommodate the processing of ore from Cigar Lake and was funded by the Cigar Lake joint venture. Given the delay in the start-up of Cigar Lake, McClean Lake joint venture benefits from the expansion which has turned McClean Lake into one of the most technologically advanced conventional uranium processing facilities in the world.

At White Mesa, we were hoping to have the 21 million modernization program completed by the end of March so that we could start processing conventional ore. Unfortunately, the completion of this project has been delayed by about a month due to a number of factors including delays in delivery of equipment such as drives and major pumps, contractor availability, and delays caused by the abnormal winter weather we experienced this year. The large amount of snow and long periods of cold weather affected a number of facets of the project. First of all, the cold weather hampered the processing of the alternate feed materials, which delayed us repairing key pieces of equipment, essentially we can't work on the equipment while it is being used to process the material. Also, the weather delayed us getting back into cell 4A to complete the relining of the cell. Although we don't need cell 4A to start up, we will need it after about three months of operation for its evaporation capacity. We only have about two months of work to complete the relining, but we also have to allow for some time for the State of Utah to reveal all of our QA QC data and give us an operating permit for the cell.

I wish to emphasize that these are minor delays that have caused some slippage in our schedule but they are not indicative of any long-term problems or technical issues. The ore is still being produced and stockpiled. We are just going to get to it a little later than anticipated.

As Peter mentioned, we now expect to start conventional ore processing in May and produce 1.4 million to 1.7 million pounds of U3O8 during 2008. We are going to start with the lower grade ore from Tony M which will allow for a commissioning period of the mill of about 30 to 45 days. By the third quarter we will be processing the stockpiled Colorado Plateau uranium vanadium ore so we can take advantage of the higher vanadium prices. We'll follow that with the higher grade Arizona one ore, the processing of which will continue through to the end of 2008 and potentially into 2009.

In the U.S., mining operations on the Colorado Plateau continue at a rate of about 350 tons per day at the four mines currently in operation. At the Tony M mine, within the Henry Mountains complex located in Utah, we continue to have some issues getting production up to expected levels but it is moving in the right direction and is currently running at about 170 tons per day. Production is planned to ramp up to 300 tons per day by midyear and 450 tons per day by year end. Production from these mines is being hauled to White Mesa and is currently being stockpiled. We expect to have approximately 160,000 tons of ore stockpiled before conventional ore production commences.

The shock rehabilitation work at the Arizona one mine on the Arizona Strip is essentially complete and the contractor has begun mine development. Ore production from this mine is anticipated by mid-2008. Rehab work is also underway at the Rim mine which is on the Colorado Plateau. This mine is expected to be producing ore within the next few weeks. This mine is very attractive for us at this time because the vanadium/uranium ratios are much higher at this mine than the others on the plateau. Originally we had mentioned bringing Van 4 onstream as well in 2008 but we have shifted to bring on the Beaver shaft instead as it has higher vanadium grades.

Turning now to exploration and development, in the Athabasca Basin, Denison is participating in 35 exploration projects. During the current winter season, we are involved in 14 drill programs, we're the operator on joint venture projects at Wheeler River, Park Creek, North Wedge, Bell Lake, Crawford Lake and Moore Lake. In addition we are drilling on our 100% owned properties at Bachman Lake, Jasper Lake, Stevenson River and Ahenakew. Our joint venture partner JNR Resources is also drilling at Pendleton Lake and Lazy Edward Bay and AREVA Resources, the operator on the joint ventures at Midwest, Wooly and McClean are drilling 72 holes totaling 17,800 meters. One of the targets is a long strike between Midwest and Midwest A, our significant discovery located about 3 kilometers northeast of the proposed Midwest open pit.

Last month AREVA completed a 43-101 report on Midwest A which was formally called the Mae Zone. This report outlined an indicated resource of 5.8 million pounds at an average grade of 0.48% U and then a third resource of 4.3 million pounds U3O8 at an average grade of 18% U at a cutoff grade of 0.05% U. The author of the technical report believes there is a very good chance to significantly increase the resources at Midwest A through further infill drilling. The report is available on our web site or on SEDAR. The Midwest joint venture plans to drill an additional 11,600 meters exploration drilling on the Midwest property in 2008.

Drilling is ongoing as we speak; however, we are experiencing problems meeting our goals on a few of our projects due to the difficulty of getting and maintaining drill crews. As a result a total of 34,000 meters of drilling is planned for this winter versus the original estimate of 40,000 meters. We should be able to pick up this deficit just by drilling this summer. Denison's 2008 exploration spending in the Athabasca basin is expected to reach 15.3 million and our goal is to spend 80% of that budget on exploration -- on drilling.

In the Southwest U.S., a significant exploration drilling program is planned for 2008 focused initially in the areas near the Company's mines in Utah and Colorado. 45,000 meters of drilling on 245 holes has been budgeted and drilling is expected to commence on six properties following the receipt of all the necessary regulatory approvals. The total U.S. exploration budget for 2008 is approximately 2 million. In Mongolia, Denison maintains the majority interest in the Haraat and Hairhan deposits through its 70% interest in the Gurvan Saihan joint venture. In 2007, Denison focused on development drilling at Hairhan and Haraat, a major 56,000 meter program was completed and the work was successful in confirming and enhancing the potential of the two properties. Including the discovery of a newer, deeper zone of mineralization at Hairhan. Over 85,000 meters of drilling is planned for Mongolia in 2008 and all the drilling and logging contracts are signed. Our goal is to upgrade resources and to test high potential areas for additional resources. A major hydrological drilling program will also be undertaken in Hairhan in preparation for ISR pilot plant test works slated for 2009.

Moving to the third continent where we are active, Africa. In Q4 we commenced field work in Zambia on the Mutanga project, formerly called the Kariba uranium project. For 2008 we're undertaking an intensive program of both reverse circulation and diamond drilling totaling 47,000 meters. In 2008 we are planning to spend about $20 million to upgrade resources, carry out a metallurgical pilot plant program and complete a feasibility study in support of making a production decision in 2009. Our drilling efforts will be focused on upgrading and expanding the resources of both the Mutanga and Dibwe deposits and additional resources along the Mutanga, Dibwe deposits and exploring for additional resources along the prospective Mutanga, Dibwe corridor. That is the conclusion of my report and now I will turn the call back over to Peter.

Thank you, Ron and Jim. We are expecting 2008 to be a year of making it happen, putting all of our resources, our assets, our prospects and our people to work finding and producing significantly greater quantities of uranium to sell and fuel the growing demand for nuclear energy. To do this, we have set out a number of Corporate objectives for 2008. One, increase U3O8 production by more than 200% to 2.1 million to 2.4 million pounds. Two, produce 3 million to 4 million pounds of vanadium. Three, sell 1.7 million pounds of U3O8 and 3 million pounds of vanadium at or near market prices. Four, develop three new near term deposits Midwest, Mongolia, Mutanga. Five, pursue an aggressive exploration program for long-term growth. And six, attract and retain great people. Are there any questions?

Thank you. (OPERATOR INSTRUCTIONS) The first question is from David Wargo of Cormark Securities. Please go ahead.

Hey, guys. A quick question on the U.S. operations. What do you expect the total percentage of purchase ore to be of the total ore process this year compared to what -- what you are going to mine?

Dave, actually it is going to be now with the delay -- a little bit of a delay in start-up, we are not as reliant on the purchased ore this year as we -- as the original schedule. We will have enough ore from the Colorado Plateau and Arizona Strip and Tony M to build a schedule. We do anticipate receiving some ore from Blue Rock, but now it is not as needed as much as it was before.

And, Ron, I guess one follow-up question. Where do you expect the mining rate to be at year end?

At year end?

Yes..

Between Colorado Plateau--.

Arizona.

Well, Arizona is difficult to put a ton per day. I would estimate -- we are going to be producing about 30,000 to 40,000 tons per year from the Arizona Strip operations in '08 and '09.

Okay.

And mining operations from the Plateau, about 500 ton per day and an additional 500 ton a day coming out of Tony M by year end.

Tony M. And if I can ask one more question. Is there -- I mean with what is happening with Uranium One, is there any chance that you might be able to pick up any of their properties down by your Tony M mine? Is that something the Company wants to do, I would imagine?

Well, we are always looking at strategic acquisitions. And we will continue to look, David.

Okay. All right, guys, thanks.

Thank you. The next question is from Brian Christie of National Bank Financial. Please go ahead.

Good morning, guys. Just a few quick ones. I noted that it looks like you had pretty good operating costs in Q4. I am just wondering is that a function that a lot of the U.S. pounds sold were really material in inventory so probably a lower cost based on that.

That's fair.

That's fair? Okay. Inventory. You are showing about $19.3 million. I assume that's inventory of ore both at White Mesa and McClean?

Inventory of -- yes -- the quick answer is, yes, it's both the White Mesa and McClean and of course as the (inaudible) is stockpiled, the dollar value goes up.

Okay. Maybe just an idea on the G&A for 2008, looked like it came in a little higher than I was anticipating in the fourth quarter. I just wonder what kind of inventory are you sitting with in the way of pounds of uranium currently?

Jim, on the G&A side--.

G&A I think will be roughly the same as it was this year, maybe a little bit, trifle less, but about the same. Inventory numbers, we have quite low inventory. The White Mesa mill inventories were--.

Less than 100,000 pounds.

Less than 100,000. And very little inventory is left at McClean as well.

Have you got an average grade of what is going to go through McClean this year from an ore perspective?

We have got some estimates Brian, but we are stepping up -- we are into some pretty high grade, much higher grade at the bottom of the pit. They are going to be blending that until we get all of it out of the pit. It is pretty tough to estimate but it has been running, what, about 0.7%.

0.7%.

And it will be a little higher than that. Can't tell the extent of how much higher.

That's fine. Thanks, guys.

You are welcome.

The next question is from Jay Turner of BMO Capital Markets.

Good morning, everyone. Just to follow-up on Dave's question, just on Tony M, what is the grade that's currently being delivered to the mill? Do you have a rough idea on that?

It's about 1400s, Jay, 0.14%.

I think it was going to be 0.16%?

Yes, we are working on -- we are working with the miners to get the grade up.

I noticed at 450 tons -- I think when we were down in October we talked about Tony M delivering about 10,000 tons a month.

Correct.

At 450 tons a month, even where you are at right now, it looks like you are even that the threshold a little early. Is that a function of the lower grade material? Are you just taking more material? Is this a dilution issue?

That's -- that's exactly it, Jay. What we are trying to just do is balance -- we are trying to get more tons through to keep the mill going and obviously we have a bit of a dilution issue but we still think we can get the grade back up with some better mining practices and as the guys get more familiar with operating in the salt wash deposits.

And in terms of Colorado, 350 tons a day. That appears a little light relative to what we had talked about last October at 12,000 to 13,000 tons a month. Is that correct? Are things going just a little slower? Is that like seasonality for the winter?

It's a little bit seasonality for the winter but also Topaz has been a bit disappointing in terms of what we -- where some of the ore that we thought it was -- it wasn't there. We're still -- we are doing long hole drilling and we think we will be able to pick that back up. It's a combination of winter and some disappointments at Topaz. But Wet Sunday and Pandora have been producing better than what we had anticipated in terms of both tons and grade.

Okay. And then just finally a vanadium question. I think back when we had talked back in the Fall when prices were up around 7 or 8 pounds. I think the thinking was that you were going to continue to use your 450 a pound planning number because you were concerned that if you tried to move a significant volume into the market the price would get knocked down. Now that the market has moved up to 14 or 15, what would be your feelings on how much -- if you are going to move 3 million pounds into the market how much of a discount to that headline price could we expect?

Very small. We've got two major users of the material who would like to buy all our long-term supply. We are just in the process of negotiating prices and terms.

I think the big difference Jay from when we were talking before is the issues in South Africa.

Right.

That has caused a major ripple and the market is much tighter now than it was when we were talking before about this.

Okay. Great. All right, thanks, guys.

You are welcome.

Thank you. (OPERATOR INSTRUCTIONS) The next question is from David Wargo of Cormark Securities.

A couple more questions. Sulfuric acid costs. What are they at right now and what percentage of your total operating costs does that equate to—in the U.S.?

We just are in the process of renegotiating a new contract. Our asset costs were on the average of $95 to $100 a ton. We anticipate them rising to between $200 and $225 a ton. We will be locking that in for a while. And that will have an impact on our milling cost of about $3, about $4 a pound.

$4 a pound. So kind of what -- excluding vanadium byproduct [credits] what are you forecasting internally. Is it like $45 or is it $50 a pound?

No, we don't give that kind of detail in our guidance.

Okay. All right. I guess one follow-up question as well on vanadium inventories. You had some vanadium liquor in inventory last year or I guess you probably still have it. Any plans on selling that into the market this quarter?

Not into the market, because as liquor, it is actually quite a discount to the black plate prices. So what we are planning on doing actually is bleeding that back into the process near the tail end of the process and converting it to black flake which is a much higher margin product for us.

Okay. And with regards to vanadium, you are looking at going right up the value chain into ferrovanadium. How do you propose to do that?

Well, we are starting, or will be starting discussions with a processor, I'll call it an enricher in the U.S. And we haven't gotten there yet but looks like it increases our margin significantly enough that we will go ahead and do it.

Okay. All right. Thank you very much.

Thank you, the next question is from Duncan McKeen of GMP Securities. Please go ahead.

Thanks very much, gentlemen. Just a question on the cash. I noticed it was down about $20 million and looks like you'll be using about $13 million in cash for this year end or it's acquisitions which looks interesting. Just wondering, how you are going to manage your cash going forward if you will expand that credibility facility maybe or you might look to unwind some of your equity investments?

Either or both.

Okay. How much can you expand that credit facility beyond 25 million?

Duncan, there's no question the credit facility is going to increase.

Yes.

We have got the capacity to do it. Our lender appears very willing. We are just in the process right now. So I think you will hear about that in the next few weeks.

Okay, perfect. Thanks, gentlemen.

Thank you. The next question is from Bart Jaworski of Raymond James Ltd. Please go ahead.

Good morning, guys. Most of my questions have been answered, but just getting back to the ferrovanadium, do you have a CapEx, a ballpark estimates to how much that would cost to go into ferrovanadium?

We don't do it. We would contract that out.

Okay.

And the cost, -- we haven't negotiated a final price, but it is in the dollars range. And then you have to look at the amount of black flake you need to convert into the Ferro. And you get a margin increase of $6 to $8 a pound, somewhere in that vicinity.

What kind of a time frame are we talking about here? In 12 to 18 months or?

Well, we expect to be selling it at least the black flake this year. So we will be looking at upgrading it during this year. But it's -- give us a little bit longer to put all that together.

All right. Okay. And the stockpile. Can you say how much is there right now in terms -- for the ore stockpile at White Mesa?

There's about between 110 -- there's about 120,000 tons as of the end of last month.

Got you.

We will have no issues meeting the 160.

And at McClean, we have got all the production stockpiled on the pads right now. But what we are going to be doing is doing some mixing as the higher grade comes out with the lower grade that is on the stockpile from the top of the pit.

And in terms of '08 cash costs, can you provide any color at all in terms of maybe the differences between Canadian cash cost versus the U.S. cash cost?

Well, we -- we have disclosed what the fixed operating costs are at McClean and you have got your production numbers so there is your operating cost there. You add on reagent costs. Obviously acids increased in price. Ron has given you some prices on the acid in the U.S. We are in negotiations on that. I guess I am a little more optimistic than Ron as to what we can get the acid for. You have a pretty good idea I think, don't you, of our cash cost in the U.S. based on all the detailed research you have done. It bounces around. You give a number and then all of a sudden you got acid pushing it up $3 to $4 a pound.

Okay. Well, that's great. Thanks very much and congratulations on a good quarter.

Thank you.

Thank you. (OPERATOR INSTRUCTIONS)

All right.

There are no further questions registered at this time. I would like to turn the meeting back over to Mr. Farmer.

Well, thank you very much, everybody, for attending. Thanks for the questions. all good questions. And you will hear from us I think very shortly on a number issues that you have raised. On the vanadium side, certainly on the marketing side as we move forward. Thank you.

Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.