Lightbridge Corp (LTBR) 2012 Q1 法說會逐字稿

Good morning and welcome to the Lightbridge Corporation 2012 first-quarter results conference call. All participants will be in listen-only mode. (Operator Instructions). Today, questions are being taken through e-mail. If you would like to ask a question, please address your e-mail to ir@ltbridge.com. I would now like to turn the conference over to Mr. Gary Sharpe, head of investor relations.

Thank you, Denise. And good morning, ladies and gentlemen, and welcome to the Lightbridge Corporation 2012 first-quarter business update. Our earnings news release was distributed earlier today, and that can be viewed on the Investor Relations page of the Lightbridge website at ltbridge.com.

Seth Grae, our President and Chief Executive Officer, will lead today's call. In addition, the following executives will be available to answer your questions -- Jim Malone, the Company's Chief Nuclear Fuel Development Officer, and Andrey Mushakov, Lightbridge Executive VP for International Nuclear Operations.

Jim Guerra, the Company's CFO and Chief Operating Officer, is traveling today so he can't join us. Before Seth begins, I should remind you that today's presentation contains forward-looking statements about the Company's competitive position in product and service offerings.

During the course of today's call, words such as expect, anticipate, believe and intend will be used in our discussion of goals or events in the future. These statements are based on our current expectations and involve certain risks and uncertainties that may cause actual results to differ significantly from estimates. The risks include but are not limited to the degree of market adoption of the Company's product and services, market competition, dependence on strategic partners in the Company's ability to manage its business effectively in a rapidly evolving market.

Certain of these and other risks are set forth in more detail in Lightbridge filings with the Securities and Exchange Commission. Lightbridge does not assume any obligation to update or revise any such forward-looking statements, whether as a result of new developments or otherwise.

As the operator indicated, please submit your questions in writing to ir@ltbridge.com. We will read your questions aloud, and they will be answered by senior management.

If you have already submitted a question, we thank you. If not, or if you have more questions, you can submit them at any time during the prepared remarks or during the Q&A period. Now, I will turn the call over to Seth Grae, President and CEO of Lightbridge.

Thank you, Gary. Good morning everyone and thank you for joining us for our 2012 first-quarter conference call. Not much time has passed since our last updating conference call in late February. However, there is meaningful progress to report about the development of Lightbridge's patented next-generation nuclear fuel technology.

In addition, we can report renewed global interest in commercial nuclear energy that is translating into new consulting opportunities for our advisory services division. We are pursuing an aggressive research, development and demonstration schedule to make Lightbridge-designed fuels available to the global market as quickly as possible.

During the quarter we made tremendous progress toward fabrication of metal fuel samples for irradiation testing at the MIR research reactor in Russia and at the advanced test reactor in the United States. In particular, we secured approvals from ROSATOM, which is the Russian equivalent of the US Department of Energy, for the proposed collaboration with ROSATOM. And we began contract negotiations with the Bochvar Institute, which is a major research and development arm of the Russian fuel fabricator TVEL relating to fabrication of our metallic fuel samples for the planned irradiation experiments in Russia and the United States.

We also continued discussions with the Dimitrovgrad test facility for preliminary planning of loop irradiations of Lightbridge-designed metallic fuel samples in the MIR research reactor. We expect this irradiation experiment to begin in 2013 and to generate fuel performance data over the ensuing 2.5 years, in a test reactor environment prototypic of operating conditions found in a commercial pressurized water reactor.

The data from these tests are key to regulatory licensing of our lead test assembly demonstrations in a commercial pressurized water reactor, planned to begin in 2017. Further, irradiated samples from this loop irradiation program at the MIR reactor will be used for additional out of reactor tests to demonstrate our metallic fuel's behavior during severe accident scenarios, and to provide quantitative verification of the safety benefits of Lightbridge-designed fuel.

To reiterate and summarize, our projected timeline for testing our fuel for Western pressurized water reactors has four primary components. One, irradiation testing and test reactors, 2013 to 2016; two, additional testing on the irradiated fuel samples, 2016 to 2017; three, out of reactor testing 2013 to 2015; and four, lead test assembly demonstration in a commercial pressurized water reactor in 2017, with tests that will go as long as till 2022.

Clearly these milestones are time-consuming and highly regulated. Availability of test reactors and other facilities also influences the pace of development and demonstration. Moreover, ensuring the safety of nuclear facilities and surrounding areas can never be overlooked. No corners can or will be cut when it comes to demonstrating the behavior of new nuclear fuel technology.

We expect to enter into commercial arrangements with major nuclear fuel fabricator and vendor companies in 2014 to 2015. These other developments, three other developments on our fuel technology side during the past quarter that are worth mentioning are, one, a senior nuclear fuel manager from Southern Company joined Lightbridge's nuclear utility fuel advisory board, or NUFAB. The other NUFAB members include senior fuel managers from Exelon, Duke, Entergy and Dominion -- sorry, Duke Energy and Dominion.

The four nuclear operators on the NUFAB represent nearly 40% of the total nuclear generating capacity in the United States.

Two, Lightbridge was granted a Eurasian patent which covers our thorium-based seed and blanket fuel assembly design for Russian type VVER-1000 reactors. Nine countries are signatories to the Eurasian Patent Convention including Russia and Kazakhstan, which are of key importance to Lightbridge and will be top priorities as far as patent maintenance is concerned. The new patent extends patent protection for our thorium-based seed and blanket fuel assembly designed to 2027.

And three, Lightbridge was granted a US patent covering locking mechanisms for our seed and blanket fuel assembly that provides protection for the locking mechanism invention in the United States from its issuance until December 2028. The Lightbridge team remains highly confident that our fuel designs will deliver the indicated benefits of increased power output from existing and new reactors, improve plant efficiencies, reduce nuclear waste and enhance proliferation resistance. Lightbridge is well-positioned to serve a growing market for next-generation fuel.

We are encouraged by the increased awareness that nuclear energy must be included in the mix of power sources for growing economies and populations worldwide. The causes and lessons from Fukushima are better understood, as is nuclear energy's role in diversifying power sources.

We recently updated our investor presentation on the Lightbridge website, ltbridge.com. On page 6 of that slide deck, we have illustrated nuclear energy's position on the menu of commercial power sources.

The message of that slide is nuclear power is less expensive than power from renewable sources of solar and wind. Moreover, we believe using Lightbridge's 10% uprate metallic fuel in an existing reactor would be even less expenses per megawatt of added electricity generation capacity than coal or gas, including gas from hydrofracked natural gas.

In short, nuclear energy remains a long-term efficient source of carbon free electric power. The world knows it, too. That is what nuclear power generation is projected to increase by more than 70% by 2035 according to the World Nuclear Association. Worldwide, the total number of reactors is projected to increase to more than 600 from 435 reactors today.

Growing demand for nuclear energy translates into growing demand for Lightbridge advisory services. During the quarter, our advisory services division met with governmental entities in several countries that are considering starting nuclear power programs.

For any newcomers on today's call, let me bring you up to speed on the indicated benefits of the nuclear fuel technology being developed by Lightbridge. First, our patented technologies could help nuclear utilities generate more electricity from the same power plants for longer periods before refueling. We believe that our fuel will allow currently operating and new build light water reactors to generate up to 17% and 30% of increased electricity output respectively.

Next, our fuel can dramatically improve the lifecycle economics of existing and new build nuclear power generation through power uprates, and by extending operating cycles from 18 to 24 months in the existing plants. This means that the plants will be shut down for refueling less frequently. In addition, Lightbridge's fuel technology can reduce the volume of nuclear waste per unit of electricity generated.

Finally, we believe our fuel designs will enhance operating safety through improved heat transfer and structural integrity of the metallic fuel rods, as well as reduced operating temperatures. For example, the average operating temperature of Lightbridge-designed metallic rods in a 1600 megawatt EPR reactor with a 30% increase in power output will be approximately 380 degrees Celsius -- nearly 1000 degrees colder than average operating temperature of commercial uranium oxide fuels.

We believe that the lower operating temperature for our metallic fuel will reduce the amount of heat that must be dissipated into the coolant at reactor shutdown, shortening the time required for shutdown.

Newcomers on today's call should know that Lightbridge is a highly regarded advisor to numerous global commercial and government entities, providing detailed counsel for safe, secure, efficient and cost-effective nuclear power. We engage only with enterprises and governments that are dedicated to safe, non-proliferative and transparent nuclear programs. We provide integrated strategic advice, including regulatory development, nuclear reactor site selection, procurement and deployment, reactor and fuel technology, and international relations and regulatory affairs.

Our pipeline of consulting opportunities includes proposals for entities in the early stages of adapting nuclear power programs.

Now let's move on to the Company's financial performance.

Our financial results were summarized in the news release that was distributed earlier. These results are also posted on the Lightbridge website. I won't recite the details now.

At March 31, Lightbridge had $7.8 million in cash and cash equivalents and $7.7 million in working capital with no long-term debt.

Now let's open the call to your questions. Remember, if you want to ask a question please submitted in writing now to ir@ltbridge.com. Gary Sharpe, who is in charge of our investor relations and who opened the call, has collected several questions already. Please keep sending them in to ir@ltbridge.com. And Gary will now read the first question. Gary?

Thanks, Seth. We've grouped the questions by subject matter, and I think Jim Malone will handle the first several.

Let me paraphrase the question that came in. It was -- but here's the first question. What is the earliest date that you can realistically project that sales of either the newly configured fuel assemblies or a thorium fuel assembly -- so what is the earliest date that you can project sales of your near generation fuel assemblies or the thorium, the 30% fuel rates -- variants using thorium? Jim, can you handle that please?

Yes, I will take care of that, Gary. Thank you. Our current project schedule envisions a start of full-scale lead test assembly demonstration in the commercial power reactor in 2017. The lead test assemblies will need to be irradiated to full burn up over a course of three 18-month cycles. As a result, the lead test assembly demonstration program is expected to be completed in 2022.

From my experience at Exelon, a US utility would likely want to see lead test assemblies operate for at least two 18-month cycles before placing an order for a batch reload with a fuel fabricator. For this reason, realistically speaking, the first order for a batch reload could come in and around 2020 to 2021 at the earliest.

At the same time, our current commercialization strategy is to enter into a commercial arrangement with one or more fuel fabricators within the next two to three years. The goal is to look for an opportunity to generate early revenue from our nuclear fuel technology, much sooner than the first order for a batch reload is placed by a utility.

The next question for Jim is -- are any of the new reactors planned or being developed in the world today able to use Lightbridge fuel assemblies?

Lightbridge's metallic fuel technology can be adapted for any light water cold reactor including PWRs, BWRs, small modular reactors and even heavy water reactors as those are designed in Canada and India. Our current strategy is to develop a fuel variant for pressurized water reactors first, because this is by far the largest market segment today.

All right, the next question for Jim, what is the projected timeline for completion of all testing on Western reactors?

In response to that question, what I can say is that we at Lightbridge are pursuing an aggressive research, development and demonstration schedule to make our products available to the global market as quickly as possible. Due to a highly regulated nature of the global nuclear power industry, the development of new nuclear technologies, especially fuel related technologies, is time-consuming.

Ensuring the safety of nuclear facilities and the surrounding public is a top concern for all members of the industry, and no corners will be cut when it comes to demonstrating the behavior of a new product. In addition to regulatory approvals for various testing and demonstration activities, another factor is the availability of facilities capable of performing the necessary testing on Lightbridge's fuel. Such facilities are limited around the world, and have their own time and availability schedules that must be dealt with, and may experience delays that cannot be foreseen.

Next question, what is management doing to speed up development of the Lightbridge fuel technologies? I think we've already answered that with Jim's last response.

Next, let's shift to questions for Andrey that fall into Andrey Mushakov bailiwick. Question is -- what stage is the review process of the peer-reviewed article that has been mentioned on other calls?

Thank you, Gary. In the fourth quarter of last year we submitted a technical overview article for publication in a major peer-reviewed journal. In the first quarter of this year, we were notified by the publication that the peer review process has been completed and that the article had been accepted for publication no later than March 2013.

Seeking a near term publication date, but the final decision at this point is out of our hands. We will provide an update once we know the specific publication date (inaudible) notified by the Journal.

Next question for Andrey is, we've been informed that testing will commence at the Idaho National Laboratory in the advanced test reactor when modeling is complete. At what stage is the team conducting the testing currently at? And when can we expect the loop irradiation tests to begin?

As a background, it is important to note that they're currently planning several experiments as part of our comprehensive fuel based on qualification program and generating experimental data necessary for regulatory approval for our nuclear fuel designs, the lead test assembly demonstration, and a commercial pressurized water reactor.

The irradiation experiment at Idaho National Laboratory is one of the two test reactor irradiation experiments we are presently pursuing. Experiments in the advanced test reactor at Idaho National Laboratory envisions irradiation of Lightbridge-designed metallic fuel samples on the specific experimental conditions, non-prototypic, to investigate certain fuel performance phenomenon.

The other experiment to be conducted in the MIR research reactor in Dimitrovgrad, Russia in irradiation of Lightbridge-designed metallic fuel samples in a pressurized group on the prototypic, again prototypic, operating conditions of a commercial pressurized water reactor. [Paul has] an update on the current status of each of the three irradiation experiments we are currently pursuing.

The first quarter of this year we continue discussions with the Dimitrovgrad test facility for preliminary planning of loop irradiations of our metallic fuel samples in the MIR research reactor. As mentioned earlier, these irradiations will be performed under prototypic pressurized water reactor operating conditions, and will provide data necessary for regulatory licensing of our lead test assemblies for demonstration on a commercial pressurized water reactor.

Irradiated samples from this loop irradiation program in the MIR research reactor will also be used for additional out-of-reactor tests that demonstrate the metallic fuels' behavior during severe accident scenarios, and for quantitative data analysis of the safety benefits of the Lightbridge-designed fuel. The loop irradiation program and the MIR research reactors are expected to begin next year.

Second, we also continued the experiment plan and design for irradiation tests of our metallic fuel samples and advanced test reactor at Idaho National Laboratory. In the first quarter of this year, the team was informed that due to changes in the advanced test reactor availability, the pressurized loop we were planning to use for our irradiation experiment would not be available for several years. After consultation with the team members from Idaho National Laboratory and Texas A&M University, the decision was made to continue the originally proposed capsule irradiation experiment that would allow us to generate the data sooner.

Capsule irradiation design has commenced and is expected to be completed this calendar year. The current capsule experiment design envisions irradiated Lightbridge-designed metallic fuel samples on specific experimental conditions, again non-prototypic, to investigate certain fuel performance (inaudible). We believe these changes in the advanced test reactor irradiation program will have no adverse impact on our fuel development and demonstration program, as the loop irradiation testing program on the MIR research reactor will demonstrate the fuel's performance on the prototypic pressurized water reactor conditions.

Okay. Another question for Andrey. Where's the Company with respect to fabricating the fuel rods for ATR, advanced test reactor testing?

In the first quarter of this year, we secured the approvals from ROSATOM for the proposed cooperation with ROSATOM's entity, and we begin contract negotiations with the giant stock company A. A. Bochvar High-technology Research Institute of Inorganic Materials, or Bochvar Institute, which is a subsidiary company of the Russian fuel fabricator TVEL.

Relating to fabrication of Lightbridge-designed metallic fuel samples for irradiation testing and the MIR research reactor in Dimitrovgrad, Russia, as well as the advanced test reactor at Idaho National Laboratory in the United States, the scope, schedule, and costs have not yet been finalized as contract negotiations are still ongoing. We're hopeful for contract negotiations to conclude at some point later this year.

Okay. Another question on the Part 810 license. Can the Company bring any political influence to bear to advance the Part 810 license? And a related question, what is the status of that initiative?

Just to make sure everyone understands, Part 810 license is a US export license that we applied for back in the summer of last year that would authorize our collaborative work with ROSATOM as well as ROSATOM entities in Russia. We have been informed by the US Department of Energy the only significant remaining issue is receipt by the Department of Energy of nonproliferation assurances from the Russian government.

They have heard from the Russian government that these nonproliferation assurances as a standard practice have been handled pursuant to their standard protocol. We do not know the exact date, but I am confident that the assurances will be provided by Russia and that the US Department of Energy will approve the Part 810 export license application.

Okay. Before we move on to another question on the advisory services, we've gotten a question that came in over the Internet. It's a little choppy, so I will try to do my best to ask it. What are the current prospects for retrofit -- retrofitting existing or decommissioned, I guess, Fukushima type reactors? And I believe what he is trying to say is, does the Lightbridge fuel work in existing or Fukushima-style reactors?

Well, this is Seth. I will start and then I'll turn it over to Jim.

But basically I will say that, one, at Fukushima is an old General Electric boiling water type reactor, the Mark I. And then there are others of those and some were newer designs of boiling water reactors that were built over time at Fukushima as well, and those are light water reactors. And as Jim mentioned earlier, our fuel could be used in all types of light water reactors, including those.

So those could be retrofitted using our fuel. But let me let Jim pick it up from there, who I know worked literally on twins of those reactors.

Thanks Seth. Seth's answer is quite right and concise. The reactors at Fukushima span several series of boiling water reactor designs developed by General Electric, Hitachi and Toshiba. They can all be adapted, all of those types, certainly. But the units at that site will probably not run again.

However, any boiling water reactor can be adapted to use our fuel. The reason we're focusing on the pressurized water units right now is simple market size. The worldwide market runs about 70% pressurized water reactor and about 30% boiling water reactor. So we're going after the more target-rich environment, if you will.

Okay, let's move on. We've gotten several questions about the status of the Company's advisory services division, and let's have Seth Grae answer those questions.

Well, I think that the year plus since Fukushima has given countries as an opportunity to see what they could do to provide baseload electricity other than nuclear power. And what they found is, in many countries, burn crude oil, which is very expensive and very polluting, and more natural gas; certainly nothing carbon-free that has taken over any material amount of baseload electricity generation.

With Fukushima, the incident beginning in March of last year, many of the countries we were talking to about starting nuclear power programs for the first time went away and stopped those discussions. But now, they are virtually all back, as well as some others that weren't talking to us back then.

Now we're in discussions with several of them, and some of them fairly advanced, serious discussions about advising them on new nuclear power programs. Nothing is signed yet, nothing is finalized. But those are progressing.

We do have some people right now overseas in some countries at some of those meetings. We certainly don't announce other countries' nuclear programs for them before they've issued anything publicly. But I do expect it will have deal flow from these clients in new countries later this year.

Here is another question that has come in from the Internet. What was the result of meetings of China that were discussed at the end of our conference call in February?

We have had a series of discussions in China including before that call in February. In October we presented, Jim Malone and I, at a major nuclear conference in China and were invited back to present at another major nuclear conference in China in November, which we did.

At both of those meetings and then since, we have been in discussions with some major Chinese nuclear entities. In particular, these are on the fuel fabrication and utility side about potential collaboration in China. I really don't think there's much I can say beyond that at this point, other than that we are continuing those discussions.

One of the points of those discussions relates to a term we really only hear in China in the nuclear sector, which is kilowatts per square meter, which is that the size of the sites for nuclear reactors in many places in China are small, which is a little bit counterintuitive. But they want the sites near the major cities so there's not a lot of line loss getting the electricity from the reactors to the cities.

They want their reactors to be cooled by water, so they are on rivers or on the sea, so the front of the site is bounded. And then the back of the site is generally bounded by the highway or railroad line, and then also to the left and right, there's also some industrial facilities. The sites are not big.

And if you use a 30% power uprate fuel that Lightbridge is designing, and you can build three reactors instead of four and get the power of four reactors on our site that can only hold three, that has meaning. And in a country looking to build many tens of reactors, if not much more than that, that is quite significant.

So we're in discussions about our fuel fabrication. We're in discussions about uprates to existing reactors. We're in discussions about uprate designs for new reactors.

These are at a very preliminary stage, but with the right entities, with the right people. Jim Malone has been really the key person in these discussions and in China. Jim, I will just ask if there is anything else you want to add to that.

No, I think it is a good answer Seth. Obviously, we are working pretty hard to strengthen our contacts with the Chinese nuclear industry and it's working.

I am very pleased with the reception we have received so far, and the expressed interest in our nuclear fuel products, especially, as you put it, on the basis of kilowatts per square meter. That is a big deal to them.

Yes, I will just say one other thing, which is I think an effect of Fukushima. And this is my own impression, necessarily; nothing official in China that has been announced along these lines. But my impression is that China has paused a little bit to take a very serious safety look at how they are deploying nuclear and has now ended that pause and is now going forward.

And they are handling it well, and that one of the -- I don't know if it is a change, but maybe more a continuation that prevents a change, is that the entities that are driving nuclear power in China, particularly the utilities that already operate nuclear reactors, will be the utilities to take nuclear power forward. The companies that fabricate fuel that make reactor fuel will be the companies who do that in the future. I don't think you will see much, if any, new entry.

I think part of the safety focus in China is to stick with the entities and the people that are doing it, that have the expertise and have them grow. So, in that sense, I think we're talking to the right people, if what I am saying pans out to be true. And from what I am seeing, I think it will.

Whereas, before Fukushima, I think there was much more a notion of potential new entry, perhaps by existing Chinese entities that are in energy but not in nuclear entering in a big way. And I think the way they will enter is more as investors in nuclear in China, not as new nuclear operators. Gary, next question?

With that, Seth, as far as I can tell we have come to the end of questions from the Internet. I'll give you one more chance to submit, but I see nothing in the queue now. So if you do want to submit additional questions send them to ir@ltbridge.com. There is nothing further, so with that, Seth, do you want to close?

Well, thank you very much. We appreciate your joining the call. We appreciate sending questions. We will look forward to speaking with you on next quarter's call and putting out news in the interim.

Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.