Denison Mines Corp (DNN) 2008 Q2 法說會逐字稿

Please be advised that this conference call is being recorded . Good afternoon, and welcome to the second quarter 2008 financial results conference call of Denison Mines Corp. Your host for today will be Mr Peter Farmer. Mr Farmer, please go ahead.

Thank you. Good afternoon, everybody, and thanks for participating. With me today are Ron Hochstein, President and Chief Operating Officer, and Jim Anderson, Executive Vice President and Chief Financial Officer. I will start off 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 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 US dollars unless otherwise indicated. As you all know, it was a volatile quarter for all uranium companies. The entire sector has been hurt significantly in the markets. At Denison we have had a number of significant events recently.

In April Denison announced the commencement of conventional ore processing at the White Mesa mill in Utah. The start-up of White Mesa went very well and we are currently experiencing throughput of approximately 1500-tons per day, right on target. We re-opened the Rim mine on the Colorado Plateau after several months of rehabilitation work. In Canada mining in the Sue B deposit commenced in the second quarter. Sue B contains approximately 1.4 million-pounds of U308. And the summer drilling program in the Athabasca Basin, we received favorable results on the 60% owned Wheeler River property. We received the long waited approvals for exploration drilling on some of Denison's Colorado Plateau properties and early in the third quarter commenced drilling. In Mongolia field work continues.

By the end of the quarter almost 34,000-meters of drilling had been completed at Hairhan, Gurvan Saihan and Ulziit. In Zambia drilling is ongoing and since the start of the year a total of 37,456-meters has been completed. Subsequent to the quarter, one of our exploration drill holes along the Mutanga Dibwe corridor returned one of the best intersects from any hole on the Mutanga project. In April we purchased approximately 9.9% of Uranerz Energy Corporation, a uranium development and exploration company with assets in Wyoming and Saskatchewan and specializing in the expertise in ISR mining techniques. Also in April we received a commitment letter from the Bank of Nova Scotia for $125 million revolving credit facility, which is now in place. Denison Environmental Services has been retained for the care and maintenance of the Farrow Mine complex in the Yukon. The three year $7.2 million contract was awarded to DES in July.

During the quarter we sold 100,000-pounds of U308 from US production at a average price of $83.13 per pound and 271,950-pounds of Canadian production at an average price of $50.96 per pound. During the quarter the spot price of uranium decreased from $71 per pound at March 31st to $59 per pound at the end of June, as quoted by UX Consulting. Subsequently, the spot price increased and is now trading at $64.50 per pound. Meanwhile the long-term price, which had remained stable at $95 since May 28, 2007, dropped to $90 at the end of April, where it remained until June 30th when it dropped a further $10 to the current price of $80 per pound. On the international scene the demand for uranium is increasing. India, for example, has been limited for decades in it's ability to import uranium for fuel.

As a result, its existing reactors are running under capacity. India is working towards agreements to permit it to receive US uranium to fill its shortfall. It also has six new reactors under construction and has set a goal of having nuclear power supply 25% of its electricity by 2050. We expect a significant new market for our uranium to open up sometime next year. I want to take a moment to address Denison's revised production estimate. We issued a press release on July 31st, in which we restated our production estimates for 2008. As we have discussed previously, we find ourselves, as do others in our sector, in a newer environment where permitting procedures are simply taking a lot longer than we had anticipated. During the last uranium boom in the late 70s, it typically took about one year to obtain a permit for a new uranium mine in the US. Now it takes three to five years.

Even the re-opening of existing mines, which is essentially what we are doing on the Colorado Plateau, the Arizona strip, and the Henry Mountains Complex, is taking a lot longer than anticipated. In particular, as stated in our press release, we are experiencing delays in obtaining a air quality permit for the Arizona 1 mine. This permit is the only remaining permit required before mining can commence. The Arizona Department of Environmental Quality has asked for further information, which we will be supplying over the next month. But we are unable to determine how long the additional analysis and evaluation will take place. Based upon prior feedback from the regulator staff in February and again in June, we do not foresee a problem and we are anticipating the opening of and production from Arizona 1 this year.

As result of the delay, we have reduced our 2008 production forecast by 340,000-pounds U308 we originally anticipated producing from Arizona 1. We have also experienced some lower head grades than planned on the Colorado Plateau and at Tony M. We are addressing this issue and expect to see increasing head grades at all our US operations. The end result of the Arizona 1 permitting delays and the lower head grades was our decision to lower our production estimate for 2008. We now expect to produce 1 to 1.2 million-pounds of U308 from US operations this year. Combined with the anticipated 720,000-pounds of U308 out of McClean Lake, this brings our total 2008 production to 1.7 million to 1.9 million-pounds of uranium. Canadian production from the Colorado Plateau is expected to be 2.9 million to 3.2 million-pounds. We expect to provide a 2009 production estimate from our operations by the end of the quarter.

In terms of sales, we still anticipate selling 1.6 million to 1.8 million-pounds of U308 before the end of 2008, including 900,000 to 1 million-pounds from US production. We also anticipate selling 2.9 million to 3.0 million-pounds of vanadium in 2000. The vanadium market remains good. Prices have risen from a average $7 to $8 per pound in 2007 to the current range of $14 to $15 per pound. Our marketing efforts are advancing and we will be providing a update before the end of the quarter. Now for the numbers, Jim.

Thank you, Peter. Good afternoon, everyone. Consolidated net loss was $13.756 million or $0.07 per share for the three months ended June 30, 2008 compared with a consolidated net income of $40.489 million or $0.21 per share for the same period in 2007. For the six months ended June 30, 2008 consolidated net loss was $24.218 million or $0.13 per share compared with consolidated net income of $35.423 million or $0.19 per share for the same period last year. Revenue was $31.713 million for the second quarter of 2008 compared with $18.809 million for the second quarter of 2007, an increase of approximately 69%. For the six month ended June 30, 2008, revenue was $49.894 million compared with $30.528 million for the same period in 2007. This was an increase of 63%. Net cash used in operations during the quarter was $5.952 million compared with net cash from operations of $537,000 for the three months ended June 30, 2007.

For the six months ended June 30, 2008 net cash from operations was $1.670 million compared with net cash used in operations of $4.905 million for the same period in 2007. Uranium sales revenue for the second quarter totaled $28.998 million compared with $15.243 million for the second quarter 2007. As Peter mentioned, we sold 100,000-pounds of U308 from US production at an average price of $83.13 per pound and 271,950-pounds U308 of Canadian production at an average price of $50.96 per pound. Last year during the same period we sold 70,000-pounds of Canadian U308 at an average price of $80.51 per pound and 75,000-pounds of US U308 at an average price of $130 per pound. Revenue from Denison's Environmental Services Division was $1.354 million for the quarter compared with $1.174 million during the same period last year.

Revenue from the management contract from Uranium Participation Corporation was $1.347 million compared to $2.129 million for the second quarter of last year. Denison is engaged in uranium exploration on its own as both operator and non-operator of joint ventures. The Company expenses exploration expenditures on mineral properties that are not sufficiently advanced to identify their development potential. Exploration expenditures totaled $3.787 million for the three months ended June 30, 2008 compared with $3.487 million during Q2 of 2007. For the six month period in 2008, exploration expenditures totaled $10.352 million compared with $8.529 million for the same period last year. In Canada Denison is involved in the McClain and Midwest joint ventures, both of which are operated by AREVA Resources Canada. As well, we are involved in 34 other exploration projects in the Athabasca Basin.

Denison's share of exploration spending on its Athabasca Basin properties totaled $2.758 million, of which $2.546 million was expensed for the three months ended June 30, 2008. This compares to expenditures of $3.279 million of which $3.059 million was expensed for the quarter ended June 30, 2007. For the six month period in 2008 Denison's share of exploration spending on its Canadian properties totaled $9.168 million, of which $8.474 million was expensed compared with a spending of $8.433 million of which $7.894 million was expensed in the six month ended June 30, 2007. In Mongolia expiration expenditures totaled $1.090 million for the second quarter compared with $319,000 in Q2 of '07. For the six month ended June 30, 2008 exploration expenditures in Mongolia totaled $1.421 million compared with $461,000 for the same period last year.

These expenditures were spent on the company's Gurvan Saihan joint venture, where it has a 70% interest. Additional development expenses for resource delineation drilling, hydrological drilling, plant design and environmental studies have also been incurred. General and administrative expenses were $4.674 million for the second quarter compared with $3.558 million for the same period 2007. 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 and an increase in noncash stock compensation costs resulting from stock options granted in 2008. During the quarter the company substantially completed the implementation of the Great Plains Financial System to support reporting of financial results and improving the company's internal controls over financial reporting.

Other expenses totaled $10.742 million for the three months ended June 30, 2008 compared with other income of $37.678 million for the same period in 2007. For the six months other expenses totaled $8.516 million compared with other income of $38.236 million for the six month ended June 30, 2007. The other expense figures consist primarily of net interest income, interest expense and foreign exchange losses. Interest expense included in the -- included interest on the company's indebtedness of $516,000 for the three months and $519,000 for the six months ended June 30, 2008. Losses on foreign currency exchange translation totaled $11.237 million for the three months and $12.766 million for the six month ended June 30th. Substantially all of this loss resulted from translating future income taxes payable related to the Mutanga project from the Zambian kwacha into US dollars at June 30 2008.

Much of this loss has already reversed itself as a result of strengthening of the US dollar in the past couple of weeks. In 2007, other income included gains on sales of portfolio investments totaling $38.643 million. The company continues to have a strong balance sheet with total assets of $1,000,056,000, bank debt of $65.5 million and shareholders equity of $772 million at June 30, 2008. At the end of the second quarter Denison had cash and cash equivalents of $7.388 million compared to $19.680 million at December 31, 2007. $12.292 million decrease was due primarily to expenditures of $64.964 million for property, plant and equipment and the purchase of long-term investments totaling $13.413 million. These expenditures in part were financed by an increase in bank indebtedness of $56.064 million.

The long-term investment was primarily the purchase of 5.465 million common equity units of Uranerz Corporation. In early July the company put in place $125 million revolving term credit facility with a term of three years. Details of the financial covenants related to this facility are in the MD&A along with a more detailed discussion of our financial results. Now I would like to turn the call over to Ron for a operations update.

Thank you, Jim. Good afternoon, everyone. Processing of conventional ore at the White Mesa mill began on April 28, 2008. The mill originally started up on uranium only ore from the Tony M mine. Average head grades for the Tony M ore were 0.15% compared with a estimated average of 0.2%. The Tony M ore processing continued until June 30, 2008. The next day, processing of uranium vanadium ore from the Company's Colorado Plateau mines commenced. Head grades for the Colorado Plateau ore have also been slightly lower than planned, averaging 0.18% uranium and 1.05% vanadium as compared to a plan of 0.2% U308 and 1.2% V205. The refurbishment of the mill and the relining of tailings cell 4A are essentially complete. Approval of the operating permit for cell 4A is expected by mid August. The start-up of the White Mesa mill has gone very well, with throughput currently averaging 1500-tons per day and recoveries averaging above 90%.

The decision has been made to add a parallel alternate feed circuit at White Mesa to run in conjunction with the conventional ore processing. The engineering of this circuit will be completed in the fourth quarter with start-up expect by mid 2009. We currently have alternate feed material on site that contains an estimated 175,000-pounds of U308 and we are expecting delivery later this year of additional material containing approximately 500,000-pounds U308. With the completion of the new circuit we expect to be able to produce 150,000 to 250,000-pounds of U308 from alternate feed material on a annualized basis. Uranium production at the White Mesa mill was 62,000-pounds for the three months ended June 30, 2008 and 114,000-pounds for the six months ended on June 30th, as compared to 56,000-pounds and 137,000-pounds for the same periods in 2007.

Processing of conventional ore commenced on April 28th and to June 30, 2008 production from conventional ore was 20,000-pounds. Uranium production at the mill has been increasing since the commencement of conventional ore processing, with approximately an additional 89,500-pounds of U308 produced in July. In Canada, the McClean Lake joint venture produced 1.157 million-pounds U308 for the three months ended June 30th. And 1.748 million-pounds U308 for the six months period, compared to production of 329,000-pounds and 784,000-pounds during the same periods in 2007. Denison's 22.5% share of the 2008 production totaled 260,000-pounds during the three months and 393,000-pounds during the six months ended June 30, 2008. Total uranium production for the company from its Canadian and US operations was 322,000-pounds for the three months ended June 30ths and 507,000-pounds for the six months ended June 30th.

This compares with 130,000-pounds and 313,000-pounds for the same respective periods in 2007. We expect the McClean Lake joint venture to produce 3.2 million-pounds of U308 in 2008, of which Denison's share will be approximately 720,000-pounds. US production at White Mesa for 2008 is now estimated at 1 million to 1.2 million-pounds of U308 and 2.9 million to 3.2 million-pounds of vanadium Mining of the Sue B deposit in northern Saskatchewan is underway. Sue B contains an estimated 1.4 million-pounds of uranium and mining of it will continue through to the end of the year. In 2009, subject to regulatory approval, we will move on to the Caribou deposit, which holds an estimated 2.7 million-pounds. In the US, we now have five mines operating on the Colorado Plateau, Sunday, Pandora, Topaz, West Sunday and the newly opened Rim mine. Rim is very attractive because of its vanadium to uranium ratio, which is much higher than at the other plateau mines.

Production from the Colorado Plateau mines is running at about 400-tons per day. And at the Tony M mine and the Henry Mountains Complex in Utah, production is currently about 300-tons per day and will ramp up to 450 tons by year-end. The ore from all six mines is being hauled to the White Mesa mill. As of June 30th a total of 191,000-pounds had been shipped to the mill, sorry, tons had been shipped to the mill, of which 49,000-tons have been processed. At the Arizona 1 mine, on the Arizona strip, we have completed the shaft rehabilitation and the installation of a ventilation raise. But as Peter mentioned, the air quality permitting process, which is the last permit needed, is taking considerably longer than anticipated. The Arizona Department of Environmental Quality has raised concern that dust emission on public roads from the ore trucks might contribute to the regional haze issue in the state.

They have requested additional regional analysis of all potential sources, including potential emissions from the mine, which we will be supplying to them over the next month. We cannot guarantee when this permitting process will be complete, but we won't likely see any production out of Arizona 1 until 2009. Turning now to exploration. In the Athabasca Basin during the quarter, Denison and its joint venture partners were actively drilling on eight of Denison's 36 projects. While we had good results from a number of properties, one property in particular returned some very interesting results. At the 60% owned Wheeler River property, the first hole of the summer, hole number 249, discovered a zone of unconformity mineralization in an area not previously tested, called the Millennium zone.

The drill hole intersected unknown but strongly anomalous mineralization of 0.263% U308 over two meters at a depth of approximately 400-meters. A further hole, hole number 251, 600-meters along strike returned similar intensely altered unconformity related mineralization at slightly shallower depth with a grade of 0.248% over 2.8 meters. Further investigation is required, but these two results are promising. In 2008, Denison exploration spending in the Athabasca Basin is expected to total $15.3 million. In the southwest US, we began to receive the long awaited exploration drilling approvals for some of our properties on the Colorado Plateau. Early in the third quarter drilling began on the Monogram Mesa project. We are expecting to spend about $2 million on US exploration in 2008, focused on exploring near our existing properties on the Colorado Plateau.

In Mongolia, field work is well underway and on schedule at six projects. 15 large diameter core holes were drilled at the main part of the Haraat deposit to provide samples for metallurgical test work, which is under way and has shown promising recoveries based on results to date. At the other projects, almost 34,000-meters of the exploration drilling were completed by the end of the quarter. This out of the 85,000-meters we have scheduled for the year. Hydrological drilling for baseline monitoring in test wells at the Hairhan deposit were also initiated in support of the planned ISR pilot plant test next year. We expect to spend $11.5 million in Mongolia in 2008.

In Zambia drilling has been ongoing since the beginning of the year, 37,456 meters of drilling has been completed, primarily on the Mutanga and Dibwe proposed pits and extensions. Drilling activity has shifted from development to exploration on the Mutanga Dibwe corridor. Of note are some results subsequent to the second quarter. A drill hole, testing a new area near the Mutanga deposit, returned an intersection of 69.1-meters of 436ppm U308, one of the best intercepts we have encountered on the Mutanga project. Following up from last quarter, the metallurgical test work on the 7-ton sample we shipped to Perth, Australia is underway. We anticipate spending $23.1 million on the Mutanga project in 2008. And again, we expect to release a new 43101 report on the Mutanga Dibwe resources by early fall. Now back to Peter. .

Thank you, Ron and Jim. We set out a number of corporate objectives for 2008. Because of the issues outlined earlier, we have had to update our two production objectives, but we fully expect to deliver on the new numbers and most importantly, the lower production figures will not impact our 2008 sales goal. Our objectives for 2008 are -- increase U308 production by more than 200% to 1.7 million to 1.9 million-pounds; produce 2.9 million to 3.2 million-pounds of vanadium; sell 1.7 million-pounds U308 and 3 million-pounds 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; attract and retain great people. Are there any questions?

(OPERATOR INSTRUCTIONS) Our first question is from Adam Schatzker from RBC Capital Markets. Please go ahead.

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Still can't hear him.

We are unable to hear you. (OPERATOR INSTRUCTIONS) Our following question is from Brian Christy from National Bank Financial, please go ahead.

I can't hear Brian either. We must have a technical problem. Hello.

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We couldn't hear Brian Christie. We are going to check on another phone. It's not our phone.

Mr. Christy, your line is now open you may proceed with your question.

I can't hear him.

We are unable to hear you, if you are on a speakerphone, please lift up your hand set or unmute your phone.

I think it must be a problem with you, operator. What a shame. Hello?

We do apologize for the delay, one moment please. The following question from Adam from rbc capital markets, please go ahead.

Still not working. Jenny, we can't hear anything here, just you.

We will proceed with the following questions from Justin Reid from Cormark Securities.

Jenny, you must have a technical problem.

Yes, we are unable to hear them.

Can you get a technician to help you out there?

Yes, one moment, please.

If you people can hear me, we apologize for this. We don't quite understand what is happening ourselves.

We do apologize for the delay. Justin Reed, your line is now open. You may proceed with your question.

Hi, guys. Can you hear me now. We can. Oh, great. Just two quick questions here. Peter on page five of the release, you said increased production to 2.1 million to 2.4 million-pounds, but on your comments you just said 1.7 million to 1.9 million, is that discrepancy the ore buying program?

No. On page five of the release the objective is to produce -- .

It printed 2.1 to 2.4, you just said 1.7 to 1.9.

That was the original objective, 2.1 to 2.7.

Got it, it is revised at the bottom.

It is revised at the bottom, that's right.

Secondly at McClean Lake, could you -- I'm assuming that essentially we are going to see all of Sue E ore run through this year, is that correct.

It runs into next year, Justin.

Would essentially if we take the 0.1 cut off in the technical report, at that point 77% head grade is that a fair grade to assume being run through or is it higher than that?

They're into the higher grade zone at the bottom of the pit. Of course, they are mixing with some of the lower grade that came out the top, but we operated out of the top for the first -- from last year, which is one of the reasons why the production was less last year. We are almost double production up in Saskatchewan this year. 650, 60% more. I don't -- can you wait until the next -- we are getting an update from AREVA on the scanning of what is in the ore stockpiles and the grades and then we are going to give you a production estimate for 2009.

Do you have head grade or tonnage in Q2 available.

Yes, we do.

I can follow up with you on that, Justin.

Okay. Then when do you hope, or when is it scheduled for the Sue B ore to start being processed.

They currently are processing a portion of the Sue B with Sue E right now.

Okay, they are mixing.

They are mixing it as well as there was some Sue A still remaining.

If you could follow up with what the tonnage would run, I would appreciate that. Thanks very much.

Thank you. The following question is from Brian Christie from National Bank Financial, please go ahead.

No, we can't hear Brian. I'm sorry, Brian. This is strange.

We will proceed with the following question from Adam Schatzker from RBC Capital Markets. Please go ahead.

Do I get third time lucky.

Yes, you did.

Oh, finally, thank you. Two questions for you. The first is with respect to uranium marketing, you've, I believe, stated previously your goal is to sell uranium in the future referencing the term market and I am wondering how that is coming and I guess you haven't really announced anything new, but if you can just sort of comment on what you see the state of the market for uranium sales and whether you will be selling in to term or spot pricing.

It's fair to say that this year, because we don't have term contracts, it's going to be spot or close to spot subject to our existing contracts or anything that we firm up. There is a whole series of meetings scheduled certainly at the WNA. We have had a whole series of meetings already. The bulk of our material, probably 80% plus of our material, I think I've even pushed it as high as 90, is going to be on the term market. That's going forward through 2009 subsequently.

You havent signed those yet, that's your expectation though?

Yes.

The other question is with respect to the Arizona air quality issue, from what you've said this is more of a not a uranium issue, more of a airborne particle issue. Is that correct?

Correct.

What kinds of things do you think you have available to mitigate that in order to get that permit?

Remember, Adam, we thought, based upon the discussions we had with the ADEQ staff, we thought we were going to get the permit in June. We are talking primarily about road dust. We are prepared to gravel, put stuff on the road to reduce the dust, but that leads to other issues and other studies that may or may not be required. There is a real question whether or not the road dust on county roads is our responsibility any way. But having said that, we are doing everything possible to get the permit signed.

Okay, well, good luck with that, hopefully that works out for you soon.

Thank you, the following question is from Brian Christie from National Bank Financial. Please go ahead.

Can you hear me, guys?

Nice to hear your voice, Brian. We apologize.

I thought I was going to have to increase your G&A --

Oh, you just cut out. Oh, boy. We can't hear Brian.

We have lost Brian Christie.

What a shame. We will find out what the problem is.

Mr Brian Christie, you may proceed.

Guys, can you hear me again?

Okay, good.

Just a few quick ones here, Peter. Notice that your investments increased significantly from last quarter -- .

He is cut out again.

Hello?

There you are. What investment in?

Your general investments looked like they basically doubled, then I realized that the private placement was in there, just wondering what other components may have increased significantly in that?

Go ahead, Jim.

It is market value of the, of all the investments that we have in there. We have some shares in options in a company that was associated with Omega.

Okay.

And that value was increased significantly.

I just wondered, Jim, because it looked like it went up quite a bit.

It is market values outlined at least in totals.

I saw the totals.

In note four, it's all market value of the investments.

Just on the vanadium sales, wondering if you have got a time line and kind of maybe volumes of how that's going to go out in 08? And then perhaps the cost of the alternate feed circuit and then just what was your physical inventory level at the end of the quarter?

Acquire all of our vanadium, we are hoping to do a term contract on that basis, we may do some spot sales early on in the process.

Sorry, Peter, you guys cut out. Am I looking for vanadium sales more into Q4 or will we see some in Q3?

We will see some in Q3. And the term market is what $15 I think this last week, so -- and that's a reasonable market for us. But what we would like to do is have a term contract put into place with one or two of the four companies that would like to acquire all of our vanadium. It's a fairly competitive process out there.

The cost of the alternate feed and then your inventory level at the end of the quarter.

We don't quite know it, the alternate feed that we are proposing to run through in the circuit?

No, the cost of the new circuit.

The cost of the new circuit. We are ballparking at about $5 million.

That wouldn't have been in this year's CapEx, would it?

No.

Okay. Then just your level of inventory at the end of the quarter.

Jim?

Ron?

Uranium inventory, Brian? It's about 210,000-pounds.

Okay. Then Ron, I noticed that looks like if I kind of do two months you were running the mill at roughly about 800-tons per day, was that just a function of you didn't have enough Tony M ore, because now you are talking you are at 1500 tons per day, so just wondered what was the difference between then and now?

The difference is a start-up, Brian, working through just starting the mill up, so you would run and then we would have to shut down for a day or two to fix certain pumps or we had some outages where we still had some replacement of transformers that had to be done. The main water system needed a bit of maintenance work after we got up and running, so things like that where we had a day of outage, it was just generally a ramp up! Okay, no problem. That's it for me, guys, thanks.

Thank you, Brian.

Thank you. The following question is from Bart Jaworski from Raymond James. Please go ahead.

Afternoon. Just a question, the stockpile at Tony M, have you guys done any work to determine how big that is and what grade that could be? We estimate those stockpiles to be approximately about 100,000-tons of material, grading between 0.1% and 0.12% U308. And will we have annual reports on that or anything tangible in print over the next few months or are you guys drilling that?

We are not drilling it. Essentially, we are just starting to haul it to the mill and we probe an area and if it probes into those grades it gets loaded onto the trucks and hauled to the mill.

And you think it is homogenous at that grade?

So far everything we are seeing, Bart, is it is fairly homogenous. We did do some -- that numbers that I quoted earlier was based on surveying of the piles and some preliminary trenching.

Okay, that is great. And also can you comment on the potential royalty in the US what is the latest on that.

You are referencing the mining, the potential amendments to the 1872 mining law?

Yes

That essentially nothing is going to happen on that now until, I would suspect, 2009. There is going to be a lame duck session prior to the election, but nothing of this substance of this issue is going to be tackled during that session. So this is something now that's well into 2009 before we will see any movement or any discussion on the amendment to the mining law.

And what do you think the goal posts are in terms of how big the royalty could be? Originally I think they were planning on 8%, but that would be fairly outrageous, so I think that -- is there any ideas how low that could go?

No, we don't have any projections at this point, Bart, but the industry is fully -- has said that 8% is unrealistic. And there has been sufficient support within both the house and the senate that that is a unrealistic number.

Okay. Lastly if you could, cash cost in Canada and the US to the extent you can comment on that.

Bart, cash costs in the US at this stage we really don't know. We are in ramp up, so the costs when we have a shut down -- give us another quarter or half a year and then we can come out with some pretty solid costs. In Canada, you know that our fixed operating costs are about $46 million, so our production, the McClean production is going to be 3.2-million pounds. There is your fixed operating costs and add on that reagents and that kind of stuff on top of that and then you got your mining costs, which you haven't been, you have been pretty accurate on in any of the material you produced.

Okay. And maybe I will leave it there. I will let someone else hop on.

Thanks, Bart.

(OPERATOR INSTRUCTIONS) The following question is from [Grif Bankey] from Gruber McBaine. Please go ahead.

Thank you

Hello?

Can you hear me?

Yes.

Thank you, my questions have been answered.

Okay. Thanks.

Thank you. (OPERATOR INSTRUCTIONS) 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 participating. We appreciate all the questions. Our phone lines are always open for any further questions that anybody might have. So those of you who are shareholders, we appreciate your support. Thank you.

This concludes today's conference call. Please disconnect your lines and thank you for your participation.