Denison Mines Corp (DNN) 2008 Q1 法說會逐字稿

Good morning and welcome to the first quarter conference call of Denison Mines Corp for Thursday, May 15, 2008. Your host for today will be Mr. Peter Farmer. Mr. Farmer, please go ahead.

Thanks, Melanie. Good morning and welcome to the first quarter 2008 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'll start with some of the highlights of the quarter, Jim will speak to the financial results followed by Ron with a report on operations. We will then answer questions. This discussion is 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.

As you may know from seeing our annual report, our goal in 2008 is to make it happen in terms of exploration, development, production and marketing and our first quarter was a good start. During the quarter a number of significant events occurred. Denison announced that it had received an independent resource estimate on the Midwest A deposit in the Athabasca Basin in northern Saskatchewan. The report, which is available on our website or SEDAR, estimated the Midwest A mineral resource at ten million pounds of U3O8. Mining of the Sue E pit was completed in March. After the quarter in April we commenced mining of the Sue B pit.

We reached the final stages of the refurbishment of the White Mesa Mill in Utah in anticipation of the commencement of conventional ore processing. As previously announced, we reached that milestone on April 28th when ore from the Tony M mine was fed into the leach circuit. In early January we signed ore purchase and toll milling agreements with Blue Rock Resources. The agreements call for the delivery to the White Mesa Mill of a total of 280,000 tons of uranium vanadium ore over a three-year period. We completed our winter exploration program. A total of 111 holes were drilled on 11 of Denison's 36 Athabasca Basin projects.

In Zambia development has been ongoing since the fall of last year and to date a total of 20,280 meters has been drilled. In March we also delivered a seven-ton shipment of metallurgical ore to a pilot plant in Australia. In Mongolia we began our 85,000-meter drilling program. We added to our management depth with the appointment of two new executives; Curt Steel, who is our new Vice President of marketing and sales, and Philip Buck, who is our new Vice President U.S. mining. We sold 50,000 pounds of U3O8 from our U.S. production at an average price of $90.25 per pound and 147,000 pounds of Canadian production under the existing long-term contracts at an average price of $71.54 per pound. During the quarter the spot price of uranium decreased from $90 per pound at December 31 to $71 per pound at the end of March as quoted by U.S. Consulting. Subsequently the spot prices decreased again and is now trading at $60 per pound. The fundamentals of the uranium market remain strong, probably stronger than they've ever been.

34 new reactor builds are underway and many more are planned. More and more countries and the people within them are accepting nuclear power generated electricity as an alternative for incremental base load power. We believe the spot price is at or near the bottom of the price cycle, although this is getting much more difficult to predict because of the involvement of hedge funds and the changing role of one of our large uranium trading companies. The long-term price of U3O8 remains strong at $90 per pound as of the end of April and we expect the spot price trading much closer to the near-term price later this year and believe the long-term price will remain near its current level.

In addition to uranium, Denison also has an interest in the vanadium market. Vanadium is used as an additive to stainless and carbon steel and to titanium alloy. Our Colorado Plateau mines are a rich source of vanadium. For every pound of vanadium that comes out of the -- for every pound of uranium that comes out of the Colorado Plateau ore, at least four pounds of vanadium pentoxide is recovered at the White Mesa Mill. Up until recently about 40% of the world's vanadium was produced in South Africa, but the recent power problems have resulted in the severe cut back in vanadium production. Currently vanadium is trading at about $13 to $14 per pound compared to $7 or $8 per pound through most of 2007. We anticipate the vanadium markets will continue to be strong for several years and we expect to produce between three and four million pounds at White Mesa this year. We're also evaluating the advantages and disadvantages of upgrading the vanadium to ferro vanadium with a third-party supplier. Ferro vanadium commands an even higher price than vanadium pentoxide.

In terms of marketing, currently Denison markets its entire share of production from the McClean Lake joint venture with the AREVA Resources Canada through a joint marketing company. Under this agreement legacy-based escalated contracts have pricing formulas that result in sales prices well below current market prices. All of our 2008 Canadian production is sold. It's anticipated that the joint marketing of Canadian uranium will cease at the end of the year with the exception of existing market-related contracts. We currently have one market-related contract for the sale of 17% of the White Mesa Mill production. The sales price is 95% of the published long-term price for the month prior to delivery with a floor price of $45. Future long-term sales agreements for the Company's uranium inventory and production are expected to be primarily market-related contracts with appropriate floor prices. We're talking to a number of the utilities and expect to have contracts in place before our third quarter conference call.

We're also talking to four possible buyers of our vanadium, whom all want to purchase all of our production. With the successful startup of the White Mesa Mill we are confident that we will produce sufficient U3O8 to beat our uranium sales target for the year by 100,000 to 200,000 pounds. In 2008 we now plan to sell between 1.8 and 1.9 million pounds, including 1.1 to 1.2 million pounds from the U.S. and three to four million pounds of vanadium at or near market prices, more than doubling our revenues. U.S. sales will be heavily weighted to the third and fourth quarters of the year.

Now for the numbers, Jim.

Thank you, Peter. Good morning, everyone. The Company recorded a consolidated net loss of $10.462 million, or $0.06 per share for the three months ended March 31, 2008, compared with a consolidated net loss of $5.066 million, or $0.03 per share for the same period in 2007. Revenue was $18.181 million for the first quarter of 2008 compared with the $11.719 million for the first quarter of 2007, an increase of 55%. Net cash from operations during the quarter was $7.622 million compared with net cash used in operations of $5.442 million for the three months ended March 31, 2007, a very positive increase.

Uranium sales revenue for the first quarter totaled $16.178 million compared to $80.313 million for the first quarter of 2007. As Peter mentioned, we sold 50,000 pounds from a U.S. production at an average price of $90.25, and 147,000 pounds from Canadian production at an average price of $71.54. Last year we sold 115,000 pounds at an average price of $62.27, all of it's from Canadian production. Revenue from Denison's environmental services division was $1.141 million for the quarter compared with $774,000 during the same period last year. And revenue from the management contract with Uranium Participation Corporation was $839,000 compared to $484,000 for the first quarter of last year. Other income, primarily interest and foreign exchange gains, totaled $2.226 million for the three months compared with $558,000 for Q1 last year.

On the expense side, 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 their development potential. Exploration expenditures expensed totaled $6.565 million for the three months ended March 31, 2008, compared with $5.049 million during Q1 last year. Denison's share of exploration sending on its Athabasca properties totaled $6.410 million, of which $5.928 million was expensed in the current quarter. This compares to expenditures of $5.154 million, of which $4.835 million was expensed in the quarter ended March 31, 2007. In Mongolia exploration expenditures totaled $329,000 for the first quarter compared to the $147,000 in Q1 last year. These expenditures were spent on the Company's Gurvan Saihan joint venture, where it has a 70% interest.

General and administrative expenses were $4.120 million for the quarter compared with $2.902 million for the same period last year. The increase was primarily the result of a ramping up of the Company's operations, the acquisition and implementation of new information and financial systems, and an increase in public company expenses due to additional compliance costs. The Company has provided for current tax expense of $1.169 million and a future tax expense of $5.413 million. In March 2008 the Zambian government enacted-previously announced legislation which increased the income tax rate for mining companies from 25% to 30%. As a result Denison recorded a future tax -- income tax expense of $10.740 million in the quarter, which was partially offset by the recognition of previously unrecognized Canadian tax assets of $5.195 million.

The Company continues to have a strong balance sheet, with total assets of $973 million and shareholders equity of $752 million at March 31, 2008. At the end of the first quarter Denison had cash and cash equivalence of $7.124 million and portfolio investments with a market value of $25.6 million. The Company has in place a temporary C$55 million uncommitted secured revolving credit facility of which C$9 million had been drawn by the end of the quarter. The Company is in the process of finalizing a previously-announced $125 million committed revolving term credit facility for a term of three years which will replace the temporary facility. For a more detailed discussion of our financial results, I refer you to our MD&A.

Now I'll turn the call over to Ron for an operations update.

Thank you, Jim. Good morning, everyone. Uranium production at the White Mesa Mill from alternate feed processing was 54,000 pounds for the quarter compared with 81,000 pounds for the same period last year. During the quarter the McClean Lake joint venture produced 591,000 pounds of U3O8 compared with 455,000 pounds in Q1 2007. Denison's 22.5% share of this production totaled 133,000 pounds compared with 102,000 pounds during the same period last year, an increase of 30%. We expect the McClean Lake joint venture to produce 3.2 million pounds of U3O8 in 2008, of which Denison's share will be approximately 720,000 pounds. U.S. production at White Mesa for 2008 is estimated at 1.4 to 1.7 million pounds of U3O8 and three to four million pounds of vanadium.

Peter already mentioned that we began open pit mining of Sue B deposit in northern Saskatchewan. Sue B contains an estimated 1.4 million pounds of U3O8, and mining of it will continue through to the end of 2008. In 2009, subject to regulatory approval, we'll move onto the Caribou deposit which holds an estimated 2.7 million pounds. In the U.S. we have five mines operating, four in the Colorado Plateau and the Tony M mine in the Henry Mountains complex in Utah. The fourth Colorado Plateau mines -- Sunday, Pandora, Topaz and West Sunday -- are producing about 350 tons per day. Production at Tony M is underway and will ramp up to about 300 tons per day by midyear and eventually 450 tons by year end. The ore is being hauled to the White Mesa Mill for stockpiling and as of March 31, 2008 a total of 133,000 tons had been shipped to the mill.

At the Arizona 1 mine, on the Arizona Strip, we've completed the shaft rehabilitation and the installation of a ventilation raise and the contractor has begun development work. We anticipate ore production from this mine to commence by mid 2008. Development is also begun at the Rim Mine on the Colorado Plateau. Rim is very attractive because of its vanadium to uranium ratio which is much higher than at the other Plateau mines. At White Mesa, the alternate feed processing campaign was completed in April and as previously announced, we have started conventional ore processing.

Currently we are in the commissioning phase, processing lower grade ore from Tony M. Commissioning is going very well and by early June the modernization of vanadium recovery circuit will be finished. We will then start processing the stockpiled uranium vanadium ore from the Colorado Plateau mines in order to take advantage of the higher vanadium prices. Later in the year we will process the higher grade Arizona 1 ore. The realigning of cell 4A is progressing on schedule and is anticipated to be completed by the end of May. We expect to receive the operating permit in July.

Turning now to exploration, in the Athabasca Basin, Denison is participating in 36 exploration projects, including 26 on which we are the operator. We have budgeted exploration spending of $15.3 million in the Athabasca basin in 2008. During the winter of 2008 Denison and its joint venture partners carried out extensive exploration programs. A total of 27,503 meters and 111 holes were drilled on 11 properties. Favorable results were returned from the 49%-owned Park Creek project, the 60%-owned Wheeler River project, and the 60%-owned Bell Lake project. Work by our operator AREVA on the Midwest deposit tested the northern extension of the deposit and intersected 10.7 meters of 1% U3O8 in an area approximately 500 meters north of the proposed pit bottom. Further drilling may generate additions to the Midwest resources which could be added to the open pit plan or may be mined by underground methods. In addition, there was further drilling on the significant Midwest A deposit, formerly the Mae Zone, which is three kilometers northeast of the proposed Midwest pit.

In the U.S., we're expecting to spend about $2 million on exploration once regulatory approval is obtained. Our 2008 plans include 45,000 meters of drilling on 245 holes, all near our existing operations on the Colorado Plateau. In Mongolia we have started field work on an 85,000-meter drill program on six projects. Our goal is to further upgrade the resources and to test high potential areas for additional resources. Drilling on two of these projects, at Hairhan and Haraat, is in support of ongoing development and prefeasibility work. At Hairhan we are working on the final design of base line wells, monitoring wells and ISR test site pump wells, all of which will be installed to support the planned ISR pilot plant in 2009. At Haraat, drilling of 15 large diameter cores to provide material for metallurgical test work on extensive known yet unclassified mineralization above the water table has been completed. We are planning to file the mining licenses within the next 18 months.

In Zambia development drilling is continuing and so far this year we have drilled a total of 15,281 meters, primarily at the proposed Mutanga pit. At this time 60% of the Mutanga deposit has been grid drilled and some of the rigs have been moved to Dibwe. Plans are also underway to perform a helicopter radiometric survey to aid exploration away from the Mutanga Dibwe corridor where the historic radiometric anomalies are known to exist. As Peter mentioned, in April we delivered a seven-ton shipment of metallurgical core to Australia for pilot plant test work. A draft of the updated scoping study has been received and we are currently reviewing it. Also, the Zambian government has announced that the IAEA has approved the proposed uranium mining legislation and the government anticipates enacting this legislation in June of this year. We plan on filing our mining license application within the next 18 months.

Now back to Peter.

Thank you, Ron and Jim. In 2008 we're 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 accomplish this we had set a number of corporate objectives for 2008. One, increase our U3O8 production by more than 200% to 2.1 to 2.4 million pounds; produce three to four million pounds of vanadium; sell 1.7 million pounds of U3O8 and three million pounds of vanadium at or near market prices, more than doubling our revenue; proceed with the development of three new near-term projects, Midwest, Mongolia, Mutanga; pursue an aggressive exploration program for long-term growth; and attract and retain great people. We are well on our way.

Are there any questions? Melanie?

Thank you. (OPERATOR INSTRUCTIONS) The first question is from Brian Christie of National Bank financial. Please go ahead.

Yes, morning, guys. Just a few easy ones. Peter, maybe you can give us what you're sitting on in inventory in U3O8? G&A on a go forward, should we be adjusting for slightly higher G&A? And then you alluded to some pretty interesting results out of the Athabasca. Just wondering if you're going to give us a broader exploration update any time soon?

First question was pounds or tons, we got 170,000 tons.

Pounds.

Pounds.

Pounds U3O8.

At the inventory.

Yes.

As far as the G&A is concerned, it's dramatically higher because of the IT conversion, but it will continue. I would expect, what, we'd have 20% higher over last year going forward year to year after we get rid of the ThinkNet thing, but also remember that we're hiring a lot of people up into operations so that'll affect it and increase it further, too.

I think also we've got -- all of Canada is adopting international financial reporting standards and I guess we don't want -- I can't -- I can't really estimate what those expenses are going to cost us or what that's going to cost us, but it's going to be some -- there's going to be some money involved in implementation of that and that's probably a two or three-year project. So that will probably replace some of the systems costs that we have, so I don't anticipate higher costs, but they won't go down either.

Okay. And the third question was?

Exploration, Peter, like you've alluded to some interesting results, just wondering if you're going to give us any more details.

We put some more details in our press release. I guess what's interesting is that we've hit uranium in, certainly Park Creek, for example, where it hadn't been found before, same with Bell. It's not great grades by any means but it is the first time it's been found on those properties.

Right.

So it's a question of proper follow-up drilling and pushing forward with more exploration on those specific properties. As far as Wheeler, it's not the first, it's just a little bit more, but we're hitting -- I think the grade was 0.85% something like that which certainly isn't economic in that area but it's -- could be indicative of a lot more being in the area where we're drilling, so we're going to be doing some follow-up drilling and hopefully run into some economic ore zones.

Okay. Thanks, guys.

You're welcome.

Thank you. The following question is from Adam Schatzker of RBC Capital Markets. Please go ahead.

Hi, guys, just a couple of questions. When you're talking about your future contracts being market related I'm wondering if you will be linking those to this future spot price or the term price or both? And the second question is with respect to White Mesa, I'm wondering where you guys are sourcing your assets from and if you have contracts and what the pricing is of those at this time?

I'll let Ron answer the asset question. As far as future contracts, these -- remember this business is all one-off contracts. How we price it will be dependent upon how the utility feels about pricing. I can tell you our view is that the spot price itself is becoming less relevant to pricing contracts. I think we're one of the first out there that came out last year with the price solely based on the long-term price, and that's what we will be pushing for. It's much less volatile. You lose maybe some upside in the crazy days but the crazy negative days you get a reasonable price. There will be reasonable floor prices with contracts. I think the -- it's pretty clear the U.S. utilities, certainly the big ones, have come out and said they don't want the industry to get put into the position it was five, six, seven years ago when we were hanging on by our fingertips. They need the production. So we'll have reasonable floors. They will be market related. My preference certainly is long-term market with maybe a small portion of it affected by spot.

On the asset, Adam, yes, we're fully -- we have contracts in place for all of our asset requirements for 2008 at prices ranging between $220 and $320. Current market prices that we're seeing in the area are $400 to $450 per ton.

So for 2009 can we expect that if the prices remain the same you'll be looking at that level?

No, I think -- we'll be able to contract but we're also seeing current market forecasts to show there could be some weakening in the asset price in the United States. Not necessarily worldwide, but in the United States there could be some softening of the asset price.

Okay. And just one last thing going back to the floor prices. Can you comment as to what level of floor pricing you need in order to make sure things keep going the way they are?

Well, that depends on where you're producing and based upon your cost of production, but you see we have one contract at a $45 floor. Don't be surprised to see contracts at higher prices with an escalated floor -- higher floor prices than that with an escalated floor.

Great. Thanks very much, guys.

You're welcome.

Thank you. The following question is from Lauren Smith of Scotia Capital. Please go ahead.

Good morning. A follow-up question on contracting of uranium sales. I think you made a comment, Peter, that you expect to have more contracts in place for White Mesa's output --

Yes.

-- before Q3, so can we make the assumption that you'll be selling essentially all the production there at the long-term price? Is that a reasonable assumption or is that overly optimistic?

That's a reasonable assumption for production 2009 going forward. This year -- although we will hold back some to play the spot. We won't be selling all of the production and you have to build up and maintain some inventory levels. 2008 you'll probably have a higher percentage of spot out of White Mesa.

Okay. Longer term 2009 and beyond order of magnitude, 75% would be contracted, 25% spot, is that a reasonable --?

Well, we'll probably want to maintain an inventory of somewhere around 10% to 20%.

Okay.

As a constant inventory. I'd like to market out 75%.

Great. And a quick question on --

It depends. It's all a function of what the appetite is on the utility side too. Let me put something to you. If a utility is prepared to give us even a reasonable contract with a high fixed price or escalated fixed price, shoot, I'd sign on.

Well, I guess that's a great point, Peter. If you went to a utility right now and said we want to contract out all of the expected -- or a large proportion of the expected output of White Mesa for ten years, what would be available in the market?

Well, what do you mean what would be? What kind of contracts?

Yes, what type of -- if you wanted to get a high fixed price contract, what could you get for essentially all the expected output from White Mesa for ten years?

That's a difficult question to answer until I get it.

Well, that's why I was asking because you're better qualified than me.

No. But until we get it I wouldn't want to speculate what I can get.

And then a quick question on the vanadium market. I don't really know how that market works. Is there any chance that you will sell all the offtake at a fixed price or is that referenced to a published monthly price (inaudible)?

There's a published price out of Platts monthly -- well, actually weekly and historically the market has been based upon that price with maybe a small discount to that price --

Yes.

-- 2% to 3%, but the market's changed dramatically there. We will be the only large source of vanadium in the U.S. and as I said, we've got three or four people want all our production, so we're going to try to do some reasonable contracting there.

Okay. Thanks, Peter.

You're welcome.

Thank you. The following question is from Justin Reid of Cormark Securities. Please go ahead.

Hi, good morning, guys. Just a follow up on Adam's question on the asset and the impact of pricing. We all know what's happening with oil. Ron, Peter, do you see the same kind of escalation in labor with contract mining and how is the availability and efficiency of the contract mining now?

So far, Justin, in the -- where we're at in the U.S., actually we're seeing more labor coming back into the area. Where we're at in Utah and Arizona, we don't have the same competition with oil and gas, in Colorado we have a little bit, but we're finding that now that the people see this uranium as something that's actually going to be around for a while, people are moving back into the Four Corners area and we have been actually getting more applications for miners in the last -- so far this year than what we saw all of last year.

Okay. And what would an average miner make at Topaz or at one of your operations?

Much more than they make flipping hamburgers, that's for sure. With the bonus structure and that that we have in place, the average the way some of these guys are pulling down is in the neighborhood of $60,000 to $80,000 a year.

Okay. And so this -- what are you budgeting for as an annual cost of inflation for total production costs coming out of the U.S. Are you looking for a 5% to 8% annual escalation or what -- are you going to see the dramatic increase we've seen over the last two years continue? What are you guys looking for?

Justin, actually in some respects we're not -- we don't see going forward like 2009, 2010 really much escalation because in some cases, such as acid, we anticipate -- right now everything that are suppliers are telling is we could see acid coming down back to historic prices next year, which would take us from $220 back to $90 a ton. Labor in the area is driven -- are we going to see standard prices of inflation? You know the U.S. economy better than I do. The U.S. economy's faltering. I don't see a lot of wage pressures in the U.S.

And what is the -- as a proportion of operating costs what is acid to you?

For the mill it's our largest reagent.

Okay. Thanks, guys.

You're welcome.

Thank you. (OPERATOR INSTRUCTIONS) The following question is from Adam Schatzker of RBC Capital Markets. Please go ahead.

Hi, I just wanted to come back to the spot market again. Peter, you said some interesting things in your opening commentary there regarding just spot becoming less relevant and it seems to be that -- I think, you're probably right with that, how it's being controlled by some very heavy selling pressure and you mentioned that the trader was a changing role. I was wondering if you might just comment a little bit on where you see the spot market going, if you see it perhaps maturing with time? And without naming names on that trader, I'm wondering in what do you see the changing role of that trader going from and towards what?

Well, to answer the last question, the trader, instead of being a trader, a buyer and a seller, they become almost a sole seller and they have sources of supply. As far as the spot market is concerned, you've had people in institutions get involved in the spot market that historically have never been involved in the uranium business and their drivers are different than the drivers of the folks that have been in the business. So that's had a positive effect, if you like, in last year. I think most of the producers didn't consider it all that positive, although certainly the financial community did because it pushed prices. Prices were increasing $3, $4, $5 a week during one period, which is crazy. You don't want that kind of volatility and the same thing has happened over the last six months. You've had a continued degradation of the spot price and historically we used to all use a lot of spot price quotes for a reference to part of our sales crisis in our contracts and a lot of the legacy contracts -- so-called legacy contracts -- still have those provisions in it. A lot of contracting was done on the basis of half spot, half long term, which was considered kind of a breakaway initially five -- four, five, six years ago. Way back it was basically the spot price because that was the incremental price.

So where do I see it going? Read the statements and follow the statements of some of the utilities, like Exelon made last week. I think there's getting a concern that the spot price drops down. And the reliance of the financial community on the spot price and how the spot price relates to the value of the producers is so significant and I think, frankly, so out of whack, that as the spot price drops it has this huge effect on all of us and on our ability to raise capital at reasonable prices that the utilities are now starting to get concerned about, again, the health of the producers or the near-term producers. You look at the companies that want to bring new projects on and the spot price at $60. Holy mackerel, it's getting -- how do you make a real profit after your costs and your capital costs, you won't find too many producers under $30, $40 a pound, add capital and you need to get a return on capital. So what kind of pressure does that put on new projects?

So because of all of that I think you're going to see a $60 floor. I hope that's what it is, but you never know. If ABC company decides they got a million pounds in there and they're going to liquidate it -- and in fact today there are no real buyers out there. The utilities are covered this year or basically covered, you're not -- they may come out at $60 and do some discretionary buying to keep it -- to add some demand side on this spot market, but having said that we've got -- I don't know, we're talking eight, ten utilities and they all want big contracts from us starting next year. So the demand's there, it's just not there today, so you could see some further weakening. I hope not, but -- and I think you'll see it strengthening through next -- the end of this year, September, October, November.

I guess that would lead me to a follow up there. Would you look at that price, you say $60 is weak and too low and you're saying that you probably sell it at term price higher, why would a company like Denison not step into the spot market where there are, as you say, no buyers right now with a desire, as you said, also to build an inventory and say, hey, here's cheap material let's just stock up?

Well, because I can produce the material at less than $60. Or do I want to make an incremental buy? I think the larger guys that's probably a question for Cameco or BHP that have large trading groups. You may find them coming in or you may find the utilities coming in for discretionary buying to build up their inventory. We just sold material at $90 and I think they -- they can do some incremental build up their inventories at 60. If their view -- utilities view of the price that they're going to have to pay is $70 plus, you'd expect them to start to come in too. So that's why I think we're at the low end of where we'll see spot.

But, again, you have a wild card producer selling stuff that nobody wants to get but a hedge fund will buy at low prices, you have some small producers out there who don't have any long-term contracts because that's been their strategy. They put stuff out. That's what drove it to $60 a pound, we estimate. They don't have any long-term contracts. They want to sell some stuff. It's going to go what it goes for. But I think you'll see it strengthening.

Thanks very much.

You're welcome.

Thank you. The following question is from Shawn Boyd of Westcliff Capital Management. Please go ahead.

Good morning, gentlemen, how are you?

Good, Shawn.

Just a quick question on the ramp in mining in the U.S. So right now from the four mines, we're at 350 tons per day. Can you remind us what we're looking at on the different grades here, in not the Tony M, but the current of Colorado Plateau mines?

The current Plateau mines, Shawn, are running at about 0.2% on average, U3O8, and 1% to 1.2% on V2O5.

Great. And on the 1% to 1.2% is that net of recoveries or is that before recoveries on the vanadium?

That's before recoveries.

So I should figure in what roughly on that?

Recoveries on vanadium average between 70% and 75%.

Great. Thank you. And on the Tony M grade there still around the 1,500's?

1,500's, although we're into some very good ore faces right now and we're seeing ore shipments actually in the 2,000's.

Okay.

But on average it's about -- I would use about 1,500.

Okay, good to hear. So as we move forward here, with 350 tons per day at the current mines, adding in 300 by midyear and then 450 on the Tony M we've got 650 and 800. Can you give us -- can you walk us through the additional that we might see and give us your kind of total target for, again, midyear and then end of '08?

For production -- total production you mean, Shawn?

For total -- yes, total -- excuse me, total mining.

Well, we're bringing on Rim and Beaver in the Plateau and each one of those will add in the neighborhood of about 100-ton per day or between the two of them. And then we've got the Tony M, which we are planning on bringing up to by year end 450-ton per day, And then Arizona 1 will also be coming on line mid 2008 and it'll produce -- for the Arizona mine it's best to look at it in terms of gross tons not ton per day because of the size of the mines and that will produce about 30,000 tons.

Okay. And again on Arizona 1?

Arizona 1 is about [50 hundreds].

Okay. On the quarter, in terms of the way you guys are running the first two campaigns through White Mesa, the question comes in on the other Colorado Plateau ore. Would you -- would part of that be from the ore buying program?

Yes.

And can you give us a feel for how much?

We are receiving -- actually we have -- in addition to the Blue Rock agreements that Peter mentioned, we have two other agreements and we're currently receiving ore under those two agreements. Our current production actually in 2008 does not assume any processing of purchased ore at the present time.

It does not? So that would be incremental to your current targets?

Correct.

Okay. Okay, good enough for now. Thank you.

Thank you. This concludes today's question-and-answer session. I would now like to turn the meeting over to Mr. Farmer.

Well, thanks very much, everybody, for participating and listening in and we look forward to the next conference call. Goodbye.

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