Denison Mines Corp (DNN) 2008 Q3 法說會逐字稿

Please be advised that this conference call is being recorded. Good morning, and welcome to the third quarter 2008 results conference call for Thursday, November 13, 2008. Your host for today will be Peter Farmer. Mr. Farmer, please go ahead.

Good morning, everyone, and thanks for participating. Participating with me here 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 the report on operations, and then we'll answer your 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 stated.

As you all know, the entire uranium sector has been hurt significantly in the equity markets and adversely affected by the world economic situation. But uranium is one of the few commodities that has seen an increase in value over the last few weeks.

At Denison, we've had a number of significant events. Uranium sales revenue increased by 116% over sales in the nine-month period in 2007. Denison sold 370,000 pounds U308 during the quarter from US production at an average price of $66.12 per pound, and 147,000 pounds U308 from its Canadian production under the existing long-term contracts at an average price of $61.35 per pound.

The spot price for U308 decreased from $59 per pound at June 30, 2008 to $53 per pound at September 30, 2008 and is currently $48 per pound this quarter by UX Consulting. The long-term price for U308 dropped from $80 per pound at June 30, 2008 to $75 per pound at September 30, 2008, and is currently $70 per pound, also as quoted by UX Consulting.

Denison Environmental Services, a division of Denison Mines Inc., was awarded a contract for care and maintenance at the Faro mine complex in the Yukon. The contract runs for three years at $7.2 million per year.

Exploration drilling at the Company's Mutanga uranium project in Zambia discovered three new zones of mineralization. Exploration drilling at the Wheeler River project, in which Denison has a 60% interest, confirmed a new unconformity hosted mineralized zone with 600 meters of untested strike length. Intersections were 1.4% to 1.75% U308. We believe we are onto something here.

Production during the quarter at the Company's White Mesa mill in Utah totaled 286,000 pounds U308 and 250,000 pounds V205. The Company's share production at the 22.5% owned McClean Lake totaled 184,000 pounds U308. The Company obtained the operation permit for its tailing Cell 4A at its White Mesa mill in Utah.

On the international scene, the demand for uranium is increasing and we are seeing a spot price increasing and increasing interest in long-term sales. During the quarter, Denison signed another long-term contract for the supply of uranium from the White Mesa mill. The contract is for 20% of the production from the White Mesa mill during the year's 2012 to 2017 inclusive, but not less than 200,000 pounds per year. Pricing under this contract is 95% of the long-term price at the time of delivery with an escalated floor price of $50 per pound.

We are in discussions with a number of utilities for sales next year and beyond. We have now determined that our vanadium production is of such high quality that it is of chemical grade. This results in an expanded market and potentially higher pricing. We will have vanadium sales this quarter.

Finally, on the liquidity issue, we have enough flexibility to fulfill all our cash requirements through the end of next year. While our bank covenants do not apply to the third quarter, we would comply based upon the third quarter results. Although we also believe that our uranium production will meet the 1.7 million pound production covenant, the bank has also agreed to equate vanadium production to uranium production on a 5-to-1 basis for the purposes of the uranium production covenant.

Now for the numbers. Jim?

Thank you, Peter. Good morning, everyone. Consolidated net income was $332,000 or basically breakeven per share for the three months ended September 30, 2008 compared with a consolidated net loss of $11,721,000 or $0.06 per share for the same period in 2007. For the nine months ended September 30, 2008, consolidated net loss was $23,886,000 or $0.13 per share compared with consolidated net income of $23,702,000 or $0.13 per share for the same period last year.

Revenue is $36,483,000 for the third quarter of 2008 compared with $9,411,000 for the third quarter of 2007; an increase of approximately 280%. For the nine months ended September 30, 2008, revenue was $86,377,000 compared with $39,939,000 for the same period in 2007. This was an increase of 116%.

Net cash used in operations during the quarter was $11,107,000 compared with net cash used in operations of $9,139,000 for the three months ended September 30, 2007. For the nine months ended September 30, 2008, net cash used in operations was $9,437,000 compared with net cash used in operations of $14,044,000 for the same period in 2007.

Uranium sales revenue for the third quarter totaled $34,600,000 compared with $7,395,000 for the third quarter of 2007. As Peter mentioned, we sold 370,000 pounds of U308 from US production at an average price of $66.12 per pound, and 147,000 pounds U308 from Canadian production at an average price of $61.35 per pound. Last year, during the same period, we sold 85,000 pounds of Canadian U308 at an average price of $85.41 per pound.

Revenue from Denison's Environmental Services division was $1,434,000 for the quarter compared with $1,443,000 during the same period last year. Revenue from the management contract with Uranium Participation Corporation was $425,000 compared to $505,000 in the third quarter of last year.

Turning to expenses, Denison is engaged in uranium exploration on its own and both as operator and non-operator of joint ventures. The Company expenses the exploration expenditures on mineral properties that are not sufficiently advanced to identify their development potential. Exploration expenditures totaled $7,682,000 for the three months ended September 30, 2008 compared with $8,385,000 during Q3 2007. For the nine-month period in 2008, exploration expenditures totaled $18,034,000 compared with $16,914,000 for the same period last year.

In Canada, Denison is involved in the McClean and Midwest joint ventures, both of which are operated by AREVA Resources, Canada. As well, we are involved in 33 other exploration projects in the Athabasca Basin. Denison's share of exploration spending on its Athabasca Basin properties totaled $3,042,000, of which $2,855,000 was expensed for the three months ended September 30, 2008. This compares to expenditures of $5,612,000, of which $5,547,000 was expensed in the quarter ended September 30, 2007.

For the nine-month period in 2008, Denison's share of exploration spending on its Canadian properties totaled $12,210,000, of which $11,329,000 was expensed compared with spending of $14,045,000, of which $13,441,000 was expensed in the nine months ended September 30, 2007.

In Mongolia, exploration expenditures totaled $2,099,000 for the third quarter compared with $2,716,000 in Q3 2007. For the nine months ended September 30, 2008, exploration expenditures in Mongolia totaled $3,520,000 compared with $3,177,000 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, hydrogeological drilling, plant design, and environmental studies have also been incurred.

In Zambia, the Company commenced exploration activities during the quarter, including an airborne geophysical survey, line cutting, and drilling. Exploration expenditures during the quarter totaled $2,465,000. Additional expenditures for development of the Mutanga project continue. This work included development and hydrogeological drilling, metallurgical test work, environmental studies, and engineering.

General and administrative expenses were $4,322,000 for the quarter compared with $3,138,000 for the same period in 2007. The increase was primarily the result of the increase in 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 non-stock compensation costs resulting from stock options granted in 2008.

Other income totaled $8,451,000 for the three months ended September 30, 2008 compared with net other expenses of $893,000 for the same period in 2007. For the nine months, net other expense totaled $65,000 compared with other income of $37,343,000 for the nine months ended September 30, 2007. This consisted primarily of interest expense and foreign exchange losses. Interest expense included interest on company indebtedness of $902,000 for the three months and $1,422,000 for the nine months ended September 30, 2008.

Gains on foreign currency exchange totaled $9,197,000 for the three months and $232,000 for the nine months ended September 30, this year. Substantially all of this gain resulted from translating the Zambian kwacha into US dollars at September 30, 2008. This was basically a reversal of the translation loss we recorded in the second quarter, due to the change in the value of the Zambian kwacha relative to the US dollar. In 2007, other income included gains on sales of portfolio investments of $39,751,000.

The Company continues to have a strong balance sheet with total assets of over $1 billion, bank debt of about $102 million, and shareholders' equity of about $706 million at September 30, 2007 -- sorry, '08. At the end of the third quarter, Denison had cash and cash equivalents of $15,879,000 compared with $19,680,000 at December 31, 2007. The $3.8 million decrease was due primarily to expenditures of $82,058,000 for property plant and equipment, and the purchase of long-term investments totaling $13,413,000. These expenditures in part were financed by an increase in debt obligations of over $101 million and the long-term investment was primarily the purchase of $5,465,000 common equity units of Uranerz Energy Corp.

The Company has in place $125 million revolving term credit facility with a term of three years. Details of the financial covenants related to the facility are included in the MD&A, along with a more detailed discussion of our financial results. Agreement has been reached with the lender to amend the production covenant to include vanadium production equivalent to uranium at a 5-to-1 ratio.

Recent turmoil in the world financial markets has severely curtailed access to debt and other capital. The Company's spending plans and budgets for 2009 are currently being completed, and are being tailored to fit within existing capital resources. This will result in decreased spending in all our exploration and development projects in 2009.

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

Thank you, Jim. Good morning, everyone. Uranium production at the White Mesa mill was 286,000 pounds for the three months ended September 30, 2008, and 400,000 pounds for the nine months ended September 30, 2008 as compared to 16,000 pounds and 153,000 pounds uranium for the same periods in 2007.

Processing of conventional ore commenced on April 28, 2008 and to September 30, 2008, production from conventional ore was 306,000 pounds U308. The Company also commenced producing vanadium during the third quarter and produced 250,000 pounds V205 to September 30, 2008.

Production at the White Mesa mill continues to increase, with over 166,000 pounds of uranium and 294,000 pounds of vanadium produced in October. Production costs for processing conventional ore totaled $61.93 per pound U308 and vanadium equivalent, including $24.38 per pound for amortization, depletion and depreciation. Inventory from US production at September 30, 2008 was 76,500 pounds U308 and 250,000 pounds V205.

As noted last quarter, the decision was 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 should be completed in the fourth quarter, with start-up expected by mid-2009 at an estimated capital cost of approximately $5 million. We currently have alternate feed material onsite that contains an estimated 364,000 pounds of U308, and we're expecting delivery by year-end of an additional material containing approximately 150,000 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 an annualized basis.

The McClean Lake joint venture produced 818,000 pounds U308 for the three months ended September 30, 2008, and 2,566,000 pounds U308 for the nine months ended September 30, 2008, compared to production of 385,000 and 1,169,000 during the same periods in 2007. Denison's 22.5% share of the 2008 production totaled 184,000 pounds during the three months and 577,000 pounds during the nine months ended September 30, 2008.

Production costs from Canadian operations for the quarter were $58.92 per pound U308, including $34.99 per pound U308 from amortization, depletion, and depreciation costs. For the nine months ended September 30, 2008, production costs were $55.94 per pound U308, including $33.89 per pound U308 for amortization, depletion, and depreciation costs. At September 30, inventory from Canadian production was 46,000 pounds U308. The total uranium production for the Company from its Canadian and US operations was 470,000 pounds for the three months and 977,000 pounds for the nine months ended September 30, 2008.

Mining of the Sue B deposit, which contains approximately 1.4 million pounds U308, is expected to be completed by year-end. Milling of the stockpiled Sue E, Sue B, and Sue A ore is ongoing, and U308 production at McClean Lake in 2008, which will be primarily ore from Sue E, is expected to be 3.2 million pounds, of which Denison's share is 720,000 pounds. Milling of Sue E, B and A ores will continue in 2009, and stripping of the Caribou deposit is expected to commence in March 2009, pending regulatory approval.

Denison's share of production in 2009 is expected to be 750,000 pounds U308. In the US, five mines are operating on the Colorado Plateau with production from the Sunday, Pandora, Topaz, West Sunday and Rim mines, running at about 400 tons per day.

At the Tony M Mine, within the Henry Mountains complex located in Utah, production is currently approximately 340 tons per day. In addition to the mined ore, historic stockpile ore from Tony M is being hauled to the mill at a rate of approximately 470 tons per day. There's an estimated 85,000 tons of this stockpiled material remaining at the mine site.

Production for the mines is being hauled to Denison's White Mesa mill. As of September 30, 2008, a total of 289,000 tons have been shipped to the mill, of which 140,500 tons have been fed to the mill, leaving 148,500 tons on the ore pad. US mining operations are running well. Head grades have risen significantly and production rates continue to improve.

Mine development work has begun at the Beaver Mine, located on the Colorado Plateau. Ore production from this mine is anticipated to begin in December 2008 and will ramp up to 150 tons per day by second quarter of 2009. At the Company's Arizona 1 mine on the Arizona Strip, located in Northeastern Arizona, the shaft rehabilitation and ventilation raises are complete. The air quality permitting process is underway, but the Company is unable to determine the length of time required to receive the permit.

Processing of conventional ore at the mill began on April 28, 2008. The mill processed uranium-only ore to June 30, 2008, and on July 1, 2008, processing of the uranium vanadium ores from the Company's Colorado Plateau mines commenced. Tony M ore was processed in August, as we worked through some commissioning issues on the back end of the vanadium circuit. The mill is anticipating processing Colorado Plateau ore for the remainder of the year. The relining of tailing Cell 4A is complete. Approval of the operating permit has been received and the cell is in use.

On October 30, we announced an update of our 2008 production estimate. The Company continues to expect to produce 1.7 million pounds of uranium in 2008. However, our vanadium production estimate was reduced to 1.5 million to 2 million pounds V205.

The primary reason for the reduction of the vanadium estimate is that 100% of our focus at the mill is on the production of uranium. As a result, when you have normal expected upsets or maintenance issues in the vanadium circuit, we would normally reduce throughput or potentially shut down to ensure maximum recoveries of both uranium and vanadium. However, given our focus on uranium production, we are foregoing vanadium recoveries and therefore reduced our 2008 forecasted production. In 2009, production is expected to be 1.4 million to 1.8 million pounds U308 and 2.6 million to 3.2 million pounds V205.

Turning now to exploration. In the Athabasca Basin, Denison is participating in a total of 35 exploration projects. Denison and its joint venture partner has carried out an extensive exploration program during this quarter, with drilling activity on eight of Denison's 35 projects.

On the 60% owned Wheeler River property, a new zone of unconformity-hosted uranium mineralization at a depth of less than 400 meters was discovered and reported in the second quarter. Preliminary results were reported based on equivalent U308 grades. Confirmatory split core assay results have now been received from these holes, and have substantially upgraded the intersections.

Drillhole WR249 graded 1.72% U308 over 1.35 meters as compared to the previously reported grade of 0.263% equivalent U308 over 2 meters. Drillhole 251 graded 0.775% U308 over 2.25 meters as compared to the previously reported grade of 0.248% equivalent U308 over 2.8 meters.

In addition, late in the summer, Drillhole 253 was spotted 15 meters to the southeast of 251 and intersected a target horizon at the unconformity, and returned the highest results to date of 1.4% U308 over 4 meters in the Sandstone, and 1.7% U308 over 0.5 meter in the basement. This new R zone has only been tested on two sections, with 600 meters of untested strike length between the two sections. A drillhole 30 meters to the northeast of 253 overshot the zone, and 255, the last hole of the season, located 30 meters southwest of 253, was lost in a void in an intensely altered zone above the unconformity.

The geophysical signature extends a further 300 meters to the southwest and 150 meters to the northeast of the current sections, indicating a potential 1 kilometer long zone. Infill and step-out drilling is scheduled for 2009. Denison's exploration spending in 2008 in the Athabasca Basin is expected to total $13.3 million.

In the US, drilling began early in the quarter on the Monogram Mesa project. While interesting, and low level mineralization was identified in several widely-spaced holes, no significant mineralization was noted. A drill program near the Company's Pandora mine is scheduled to begin this week.

Work in Mongolia was completed late in the quarter and consists of a total of over 72,000 meters of drilling and 474 holes on five projects. Three new discoveries were made this season -- at Hairhan, along trend of the known mineralization; at Haraat, parallel to known mineralization; and a new deep zone at Ulziit. All these new discoveries will require additional drilling.

On the development side, hydrogeological work continued to mid-September in support of baseline and monitoring test wells at Hairhan. A number of environmental radiological programs were initiated, and will continue in support of advancement to commercial ISR production at Hairhan. An updated 43-101 compliant resource estimate for the Hairhan deposit, which will incorporate the 2007 and 2008 drilling results, will be completed in the first quarter of 2009. A 43-101 compliant resource estimate on the Haraat deposit is scheduled to be completed in the second quarter.

At our Mutanga project in Zambia, site activities during the quarter consisted mainly of completion of a major airborne geophysical survey, detailed line cutting, and exploration drilling on selected areas outside of the two proposed pit sites, hydrogeological drilling to define baseline hydrogeological groundwater parameters and environmental baseline studies.

A total of three rigs continued to work during the quarter and completed over 55,000 meters of drilling year-to-date -- composed of 41,742 meters in support of development drilling; over 10,000 meters committed to exploration; and over 2,000 meters devoted to hydrogeological drilling.

As announced on September 18, three areas were classified as new uraniferous discoveries based on work during the quarter, and require further confirmatory and infill drilling in subsequent programs. All the new discoveries are located within 5 kilometers of the main Mutanga deposit, which is scheduled to be the first deposit mined.

In addition to the site activities, other project activities include a 43-101 report on the Mutanga and Dibwe deposits, which is scheduled to be completed in the fourth quarter; metallurgical test work, including a pilot plant test and heap leach test work; infrastructures studies; development of a relocation plan; and engineering in order to complete a detailed feasibility study by the end of the first quarter of 2009.

Now back to Peter.

Well, thank you, Ron and Jim. Are there any questions?

(Operator Instructions). Justin Reid, Cormark Securities.

You did a very good job on the operating costs. And I'm just wondering, maybe this one's for Ron -- what was the average grade that you ran through White Mesa in the quarter?

In the quarter, it was primarily Colorado Plateau and tailing mostly Pandora, so our grades weren't bad, running around 0.2 U308 and about 1.1 to 1.15 E205.

Okay, and of that 148,000 tons you have left on the round pad, how much of that is Colorado Plateau?

There is approximately -- I don't know the exact number, Justin, but there's approximately about 50,000 tons of that is Colorado Plateau and the remainder is Tony M.

Okay. And with regard to sulfuric acid -- and I mean, it's asked every single quarter -- kind of what prices are you seeing now?

Our prices at Kennicott is back up and running, so we're back in getting most of our acid from Kennicott at our contract prices in the neighborhood of -- between $225 and $250 per ton. Our historical for throughout the quarter, though, were primarily closer to $400 per ton.

Okay. And so you're taking delivery at that mid-$200 mark now?

Correct.

Okay, great. And Jim, maybe this one -- you could address this one. You had $23.8 million in depreciation in the quarter. Can you provide any details for that?

No, it's a variety of things -- those are depreciation/depletion/accretion numbers, so there's a variety of things in there. The majority of it is depletion on mineral properties. And there's some depreciation obviously on fixed assets and then there's some amortization of other deferred costs, et cetera, et cetera. But it's a variety of things, but the majority are the three things I talked about.

Okay, because -- that's up a lot obviously from last quarter. Any kind of vision forward we can see on maybe what's a more modelable number on a quarterly basis?

Well, it varies with production. So, it will, I guess, follow production. The reason it's up so much is obviously the production numbers are up. So it will follow production going into the future.

Okay, thanks very much.

Adam Schatzker, RBC Capital Markets.

A few questions for you, if I may. The first one is with respect to the debt and the debt covenants. I'm wondering if you guys have calculated for yourself what spot and term price you would need through 2009 to ensure that you would not reach those debt covenants?

We've done some calculations throughout, and our definitive statement is based on the last quarter -- we reached them and made them. And we also believe we'll be meeting them through the year.

Okay. And the next one is with respect to Midwest -- if you could just give us a little bit of an update on the progress on permitting there and when you start spending capital on that.

Midwest -- we've got joint venture meetings scheduled for the 21st with AREVA. We'll get our update at that time and be making some decisions on the capital and exactly where it is. I think our latest indication is the regulatory side may have slipped a little bit. But we have a new minister -- two new ministers involved on the federal side. So we'll be talking about that at length on the 21st.

Do you think there will be any CapEx next year? Or do you think that's going to be (multiple speakers) --?

There will be some CapEx next year.

Any idea kind of just magnitude? I'm just trying to look at the cash balances so that's equivalency item.

You know, it's a bit of a -- we've got a range, internal range. Wait till we come out of the meeting on the 21st and we'll sort through and be giving an update at that time.

Okay. Ron, did I hear correctly? You think the alternative feed circuit is $5 million CapEx?

That's correct, Adam.

Okay. I guess a little lower than I had expected, that's good. And lastly, the ore buying program -- any updates on that? And what that's like these days?

It's been tough these days. Obviously, everyone's seen the announcement of Blue Rock, who we were receiving ore from them. But there are three other mines that we continue to receive ore from and the grades are actually pretty good. A couple of the mines are running up at [30/100's] U308.

At what kind of tonnages?

Not big tonnages, though, Adam.

Okay, thank you very much.

Brian Christie, National Bank Financial.

Just a follow-up on Adam. Jim, what did we spend kind of year-to-date on CapEx at Midwest?

The numbers have not been huge. I think probably under $10 million.

Okay, thanks.

David Talbot, Dundee Securities.

I just had a question about the credit facility. You guys have drawn down $102 million. And that relates to about -- equates to about $101 million on the financial statements. Am I correct to assume that that is a Canadian-drawn facility in these fluctuations and --?

No, it's US.

It's a US facility?

Yes.

So that is $125 million US?

Yes.

Okay. So --

Everything we report, David, is US dollars.

Okay. I was looking back into previous quarters and I was sure it was -- said CAD125 million. So, okay. I'll double check that.

Okay, thank you very much. Oh, actually, perhaps exploration expenditures -- do you plan to trim these at all next year?

Yes.

You know, you've got quite a few projects going on in Canada. Obviously, you want to keep Wheeler going and perhaps your Mongolian projects going in Zambia, but what do you see trimming back here? [At what] levels?

We see trimming all of our exploration and development expenditures, David, I think, to say, quite significantly.

No guidance on that? Just significantly, then?

Yes. No, we're still going through the budgeting --

And joint venture meetings.

And we have joint venture meetings with the AREVA projects because they make up a significant portion of our exploration budget in Canada as well.

Okay. Thank you very much, guys.

Duncan McKeen, Macquarie Capital.

Thanks again for the increased disclosure, especially on the costs and with the breakout on depreciation. And also congratulations, it looks like October was really strong out of the US.

Had a question -- for the alternate feed circuit, if you're talking about 150,000 to 250,000 pounds a year annualized, when you guided for 2009, did you include that production level?

There's approximately 160,000 pounds included in the 2009 production there if -- about that level.

Okay, thanks. And then on the recoveries, what kind of uranium recoveries have you been seeing, Ron? And also you mentioned vanadium recoveries a little bit lower. What are you seeing there?

The uranium recoveries are -- overall, are up in the 90 -- plus 90% range. So those have not been too bad. But vanadium recoveries are dismally low.

Okay. Do you see vanadium recoveries improving as you get more comfortable with the circuit?

Well, part of it is we still have a few issues with some of our control that we've put in with the circuit. But a large part of it is, as I mentioned earlier, that it's just the way we're having to operate to stay focused on uranium. So, I think for the remainder of this year, I don't know if we'll be able to meet our targeted of 75% vanadium recoveries. And hence, that's why we had to reduce our production forecast.

Yes, okay. Are there any -- apart from Tony M, are there any other historical stockpiles out there that we should know about? The other mines?

Not that we're aware of.

Yes, okay. Just -- Jim, a quick question on the covenants. I saw that you -- obviously, you switched up the production covenant. Did you make any changes to the financial covenants at all?

No.

Okay. And just, Ron, to follow up on one other question -- you indicated in the quarter head grades 0.2% uranium and 1.1% to 1.5% for vanadium. Is that what you're just seeing for Colorado Plateau? Or was that sort of the blend for Q3 with a little bit from Henry Mountain?

That's the Colorado Plateau. Our Henry Mountain grades are running at about between [12 and 15/100].

Okay. Do you anticipate, as you move into 2009, staying in the Colorado Plateau as long as you can? Or processing that ore through the mills as long as you can?

Our current production schedules that we have for 2009 that the guidance was based on show, running primarily Colorado Plateau through first quarter and then sort of alternating as the year goes on.

Yes, move over to Henry Mountains and then back to CP?

Correct.

Okay. (multiple speakers)

It's the highest margin material, Duncan, because of the vanadium and the grade's a little higher, although the [beaching] is a little more expensive.

Okay. Yes, it makes sense. No, I appreciate that, guys. Thanks very much.

Lawrence Smith, Scotia Capital.

I guess a question for Jim. Just trying to figure out what the balance sheet is going to look like at year-end. And I noticed in the quarter, you drew down your line of credit by about $35 million. It looks ostensibly to fund build-up in inventory but also CapEx.

For modeling, I mean should I assume that the inventory is going to come down significantly in the fourth quarter and therefore the line of credit will be coming down? Thank you.

Well, the production will be continuing. We've also got some sales that we -- in December that we have given you details of in the material. So I think production will continue, increasing inventories, and we'll get those sales, sales revenues, in the period. And that will obviously reduce inventories and give us cash to repay down the revolver.

So on an inventory basis, I would say inventories will probably grow slightly. And the debt levels will probably remain roughly the same -- plus or minus a small amount.

And CapEx in Q4 -- I mean, would you expect it to be roughly at the same level, sort of (multiple speakers) [15]?

No, it's way down in Q4. CapEx was much higher earlier in the year as we refurbished the mill. And about the only CapEx that's really going as far as the US is concerned is kind of mineral property or mining-related CapEx.

Great. Thank you very much.

Bart Jaworski, Raymond James.

Yes, so, thanks again for the cash cost numbers here. So [the 61-93] out of the US, that includes depreciation. How much for the remainder will be the -- how much is the actual cash cost for that?

Well, you've got to just take the number and deduct the cash cost. I think if you do, the deduction is around $37 and change.

Okay, super. And then I guess there was a bit of confusion there as to -- with regard to the debt that you currently have versus the credit facility of $125 million. So how much more, I guess, credit line do you have right now?

We have the $125 million, Bart. That's it.

Okay. Super. That's it. Thanks.

Shawn Boyd, Westcliff Capital.

A couple follow-ups here. On the debt covenant, just making sure I've got my math right -- given that amendment that you got in the quarter, essentially if we bring in the vanadium, if you're producing -- if you hit the guidance that we're looking at, of 1.72 million on the uranium and then the ratio on the vanadium, we're going to be at about 2.1 million pounds equivalent versus the 1.7 million pound covenant?

If that's the number -- yes, that'd be right.

That sounds roughly right, yes.

Okay. We've got a question of about 400,000 pounds.

[It starts at one] on the vanadium.

Very good. Second question is on the vanadium recoveries, it sounds like we've got just some fairly short-term issues that are keeping us at the low levels right now. Going into '09, how quickly -- with a little bit more breathing room on that -- how quickly can we bring those recoveries up? Are we talking a couple quarters?

No, we're talking much less, Shawn, because it's primarily the way we're operating the mill. So, you know, we get through and we meet our covenant requirements next year. If we have issues with the vanadium circuit, we would adjust tonnage or shut down the mill in order to rectify those issues. So we anticipate the recoveries coming back up quite quickly.

So it's nothing we might even be able to see in the first quarter?

Correct.

Fantastic. Last question -- at this point, you've got two long-term contracts for White Mesa, so if I'm looking at this correctly, 37% of production is contracted. You're going out, contracting this at prices on delivery -- at long-term price at time of delivery -- where are we going on this? Do you think that at some point we'll be 100% contracted? What's the strategy here?

Yes. The issue really on long-term contracts is next year. We're lining up -- a number of the utilities have indicated the material they want for '10 and '11 and forward. Pricing is obviously an issue. But for next year, we'll be filling in with the fixed, the minimum on the one contract we have is 500,000 pounds out of the US. We have one Canadian contract, it's running up just a little less than 100,000 pounds a quarter. And then we'll be marketing up the rest.

And the question obviously is, is the price that we will be marketing it up at -- and selling it. We expect that we will achieve prices greater than the existing spot. Recall the utilities -- and this is one thing that's happening out there is that we anticipate this year's production will be at least a worldwide shortfall from mine production of somewhere in the order of 5 million to 7 million pounds.

We're getting back into -- and with this economic crisis, we're getting back into the kind of talk of -- well, we've had mines that are shutting down; we've got mines now that are going to have reduced guidance going forward. Clearly, whether or not we're getting into 2006/2005 kind of area, which none of us want.

So, we would expect that the utilities, certainly the utilities in the US who are concerned about security of supply, will be contracting up with us next year at prices -- and one of the reasons why we've pushed forward on our costs, you can see our costs; doesn't do us much good to be selling uranium at $50 a pound.

Understood. Very good. That's it for me. Thank you.

David Wargo, GMP Securities.

A couple of questions just on the US operations. What percentage of your transportation costs fallen by I guess quarter-over-quarter based on the oil price? That'd be the first question.

The second question is -- assets come off in price as well. What percent of your total operating costs in the US does sulfuric acid account for?

And then thirdly, what's the pricing differential between met vanadium and chemical vanadium?

I'll handle the first two and Peter can handle the third. Actually, interestingly enough, Dave, diesel prices are not really falling in the US yet. Petrol prices are; gas prices are; obviously, we all know the oil price. But diesel prices are coming off but have not come off near the rate that gas prices have. So we anticipate they will, but at the current time, we're not seeing much of a drop in our transportation rates.

With regards to sort of acid costs, about 65% of our milling costs are reagents. And of that, half of that is acid.

So 32% -- so can I say 32% of your operating costs are related to acid then?

I'd say, yes, about 35%, yes, in the US.

In the US.

So your operating costs quarter-over-quarter, all else left equal, will come down for sure then, significantly next quarter?

Correct.

So you're going to be sub-$30?

We hope so. I mean we don't (multiple speakers) --

With the higher economies, you should be even lower.

With the acid costs coming down, yes, we should see a direct correlation.

That's fantastic. And Peter --

On the vanadium -- the key for us is the discounts off the spot and much reduced. But the key really is that there are a number of users of metallurgical vanadium for catalyst purposes -- sulfuric acid production, for example -- refineries use it. So we've kind of opened up -- and they've been importing it from China. We've got now a domestic supply of this stuff. So, where it will end up, I think, is we'll get a better price depending upon where spot is. And we're also looking at arrangements -- if it's used for sulfuric acid, guess who uses sulfuric asset? Let's start doing some swap business.

Okay. Now, the chemical grade vanadium, it's not -- is it a function of the way you're running your circuit right now? So when you actually go back to realigning the circuit to get the increased throughput, will it go back to a met grade? Or will you keep the same kind of purity?

No, we'll keep the same kind of purity.

Okay. No, that's perfect. That's it for me. Thanks a lot, guys.

Adam Schatzker, RBC Capital Markets.

Just a few follow-ups. I'm wondering, looking at Tony M on the tonnages there, obviously supplemented quite a bit from stockpiles because that's your low-hanging fruit there. But I'm just wondering how the underground tonnage ramp-up is coming and how you see that going into '09 as well as grades there?

Adam, the ramp-up is going very well at Tony M. We've been able to get ourselves -- we're essentially well ahead of ourselves now with the dewatering. So we continue to see ramp-ups getting up into in excess of 500 ton per days based on the current plan at Tony M in 2009.

Okay. And back to vanadium -- wondering if you have any insights into the overall market. It's not a market that I know as well as other metals.

Well, you know, the markets come off, unlike in the last three, four weeks, it's -- I think [plats] are quoting at about $9.15 a pound. It wasn't too long ago we were $14 a pound.

Do you have any insight into what's driving it? Obviously, we know the demand is weak in almost everything.

Steel.

So, just steel? That's the main driver there?

Yes, steel is the main driver.

Okay. And last question for you is -- looking in sort of your documentation, there was some drop-dead dates for Mongolia. And I'm wondering if there's any update to that, if you've had any discussions with the Mongolian government regarding those?

We have and everything is looking pretty good.

Meaning the drop-dead dates are no longer an issue? Or you've got an extension? Or how do we interpret (multiple speakers) --?

I was in Mongolia last week, Adam, and I think just as Peter said, things are looking very good and we've had discussions with the government already regarding those dates and it looks positive.

All right. Very good then. Thank you.

(Operator Instructions). There are no further questions registered at this time. I'd like to turn the meeting back over to Mr. Farmer.

Well, thank you very much, everybody. Those of you that are shareholders, we certainly appreciate your continued support in spite of these markets. And we'll be moving forward as we always do, and for the next conference call, we'll probably have a call -- once we get our budgets more defined, have the joint venture meeting, we'll certainly keep the market updated and keep you updated on developments. Thanks, again.

Thank you. The conference has now ended. Please disconnect your lines. We thank you for your participation and have a great day.