Lightbridge Corp (LTBR) 2012 Q3 法說會逐字稿

Hello and welcome to the Lightbridge Corporation 2012 third-quarter results conference call. All participants will be in listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note that this event is being recorded. I now would like to turn the conference over to Gary Sharpe. Mr. Sharpe, please go ahead.

Thank you, Keith. Good morning, ladies and gentlemen, and welcome to the Lightbridge 2012 third-quarter business update. Our earnings news release was distributed after the market closed yesterday and can be viewed on the investor relations page of the Lightbridge website at LTBridge.com.

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

Before Seth begins, of course, we need to remind you that today's presentation includes forward-looking statements about our competitive position, 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 a certain risks and uncertainties that may cause actual results to differ significantly from these estimates. The risks include, but are not limited to, the degree of market adoption of the Company's products and services, market competition, dependence on strategic partners and 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's filings with the Securities and Exchange Commission. The Company does not assume any obligation to update or revise these 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 have them answered by the senior management. If you have already submitted a question, thank you. But if not, or if you have more questions, you can submit than at any time during the prepared remarks or doing the Q&A session at, again, ir@ltbridge.com. Now I'll turn the call over to Seth Grae, President and CEO of Lightbridge.

Thank you, Gary, and good morning , everyone, and thank you for joining us on our 2012 third-quarter conference call.

The Company is achieving key strategic milestones in the development of our next-generation fuel technology. Moreover, Lightbridge is involved in new bidding opportunities that could result in domestic and international contracts for our advisory services division. All of these developments are occurring at a time when there is solid positive momentum in the commercial nuclear energy market globally. Nuclear energy is increasingly recognized as a source of long-term, efficient base load and carbon-free electric power.

In short, we believe Lightbridge is very well-positioned for success in 2013 and beyond. In the near term, Lightbridge's pipeline is filling with opportunities to provide comprehensive and integrated counsel to commercial and governmental entities that are developing nuclear power programs. The prospect for increased consulting revenues is real, even though the sales cycles for these multimillion-dollar contracts takes time. Most of these high-potential opportunities are in Europe and in the Middle East where Lightbridge is already a highly regarded expert resource on nuclear reactor site selection, procurement and deployment, reactor and fuel technology and international relations and regulatory affairs.

The success of Lightbridge's advisory services division speaks for itself. Beginning in 2008, our expert structured a program for entities within the United Arab Emirates. Construction of this $40 billion numeral four-reactor project is underway and remains on time and budget. In addition, Lightbridge's consulting contract with the nuclear regulatory authority in the United Arab Emirates was recently renewed and extended to the end of 2014.

Slightly longer term, Lightbridge is developing, patented next-generation nuclear fuel technology that addresses the major strategic issues that confront nuclear utilities the world over, falling prices for electricity at a time of rising construction costs for new generation capacity. How do we know the challenges faced by nuclear utilities? We asked them. Through the Lightbridge utility -- Lightbridge Nuclear Utility Fuel Advisory Board, we are working closely with representatives from four of the largest nuclear utilities in the United States. Their fuel managers counsel us on how our fuel can enhance the economics of plant operation.

Based on projections by the US Energy Information Administration, electricity from natural gas and coal-fired plants in 2015 would cost more than twice as much per unit of electricity as the incremental electricity generated by an existing reactor after implementing a 10% power up rate and a 24-month cycle using Lightbridge's metallic fuel. That differential is even larger if power costs are compared with renewable sources, solar and wind. Of course, both natural gas and coal-fired generation discharge substantial amounts of carbon dioxide into the atmosphere, compared to almost zero CO2 emissions from nuclear energy.

The other indicated benefits of Lightbridge's nuclear fuel technologies are numerous and compelling. First, our patented technologies can help nuclear utilities generate more electricity from existing or new build plants without increasing the reactor pressure vessel dimensions. 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 up rates and by expanding operating cycles from 18 months to 24 months in the case of a 10% up rate in existing plants. This means that the plants will be shut down for refueling less frequently so they can sell electricity more often. 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 fuel rods in a 1600-megawatt EPR reactor with a 30% increase in power output would be approximately 380 degrees Celsius, nearly 1000 degrees cooler than the average operating temperature of conventional uranium oxide fuels. We believe that the lower operating temperature and improved heat transfer characteristics of our metallic fuel will increase reactor design margin and reactor safety during normal operation and design base of accidents.

Let's turn to key fuel developments achieved during the third quarter. The Company has completed what we understand to be the last key step in obtaining Part 810 export authorization prior to that authorization been granted by the US Department of Energy for proposed collaborative work in Russia with Rosatom entities. The last step in this export authorization review process was achieved when Rosatom recently provided nonproliferation assurances to DOE.

Lightbridge also secured final approval from Russian fuel fabricator TVEL relating to fabrication of Lightbridge designed metallic fuel samples for irradiation testing in the MIR research reactor in Dimitrovgrad, Russia, and the Advanced Test Reactor at Idaho National Laboratory. We are in advanced stages of contract negotiations with TVEL and its subsidiary companies. We expect these negotiations to be completed in the next few months.

Lightbridge remains on track to begin loop irradiation in 2013 of the Company's metallic fuel samples at the MIR reactor. Research discussions on irradiation plans continue with authorities as at the Dimitrovgrad test facility. These irradiations will be performed under prototypic pressurized water reactor operating conditions and will provide data needed for regulatory licensing and demonstration of Lightbridge designed lead test assemblies in a commercial pressurized water reactor. Irradiated samples from this program at the MIR reactor will also be used for additional out-of-reactor tests to demonstrate the metallic fuel's behavior during severe accident scenarios and provide proof of the safety benefits of Lightbridge designed fuel.

Advances have been made in experiment planning and aside design for irradiation testing of Lightbridge metallic fuel samples in the Advanced Test Reactor at Idaho National Laboratory. The teams have agreed on a single fuel rod design that is compatible with both a capsule irradiation rig and a loop irradiation rig design that addresses uncertainty around reactor availability between now and when fuel samples are delivered to the laboratory.

Lightbridge has also made progress in ongoing negotiations with fuel fabrication partners relating to metal fuel fabrication and demonstration work in the US. We believe these negotiations will conclude in early 2013. Having our fuel fabricated in the US would streamline production for major segment of the fuels addressable market. As we disclosed earlier, we expect to enter into commercial arrangements with major nuclear fuel fabricator companies by 2015.

To reiterate, our projected time line for testing our fuel for Western pressurized water reactors is four primary components -- irradiation testing and test reactors in 2013 to 2016; and secondly, additional testing on irradiated fuel samples in 2016 to 2017; and then out-of-reactor testing in 2013 to 2015 and lead test assemblies in commercial pressurized water reactors beginning in the 2017 to 2018 time frame.

Subsequent to the end of the third quarter, you may have seen our recent announcement that a peer-reviewed article on the Company's fuel technology will be published in the December 2012 issue of the prestigious journal, Nuclear Technology. The article, which is available through the American Nuclear Society website, ANS.org, highlights how our fuel is capable of increasing the power output and extending the fuel length of current generation light water reactors. The paper also reviews the unique geometry and composition of our metallic fuel and its application to power uprates in light water reactors which include pressurized water reactors. Submitted in 2011, the paper was subject to rigorous peer review by top industry scholars. Its publication provides further validation of a Lightbridge fuel technology at an important stage in Company negotiations on fuel fabrication for 2013 tests at research reactors in Russia and the US.

In the meantime, the addressable market for Lightbridge fuel technology continues to grow. Electricity generation from nuclear power worldwide has reached a record level. The World Nuclear Association estimates that at least 73 gigawatts in new capacity will be added by 2020, bringing global operating capacity to around 450 gigawatts, up from around 372 gigawatts of electricity before the Fukushima incident in March 2011.

We now have a better understanding of Fukushima. In addition to the earthquake and tsunami, human error contributed to the plant's destruction. Yet, Japan has brought other reactors back online because its utility industry incurred billions of dollars of losses from importing fossil fuel to keep the lights on. The economies of long-term, efficient, baseload and carbon-free electricity from nuclear power are undeniable. According to the Nuclear Energy Agency, there are more nuclear reactors under construction now than before the Fukushima accident, and hundreds more are planned to go into operation by 2035. Today, there are approximately 435 active nuclear power reactors operating in 30 countries, based on data compiled by the World Nuclear Association. That number is expected to grow steadily with more than 80 reactors under construction right now around the world.

In all, more than 150 new reactors will be completed by the end of 2016 with another 330 proposals pending approval, mostly in China and India. In the United States, 20 proposals for reactors are pending and four are planned in the United Kingdom. The Czech Republic, Poland, Slovakia, Romania, Ukraine, Finland and Sweden also have plans to build new reactors within the next decade.

Now let's move onto the Company's financial performance during the quarter. Our financial results were summarized in the news release that was distributed after the markets closed yesterday. The results are also posted on the Lightbridge website. I won't recite all the details now, except to report that at September 30, 2012, Lightbridge had $5.7 million in cash, cash equivalents and marketable securities. Working capital totaled $5.6 million with no long-term debt. In fact, the Company has never incurred long-term debt in its history.

We are sometimes asked if Lightbridge needs additional debt or equity capital to continue to support R&D of our fuel technology. The short answer is no, not now. Furthermore, we are reluctant to dilute shareholder value or encumber the balance sheet, particularly when we expect significantly increasing revenue from a new consulting contract in the coming months.

Now let us open the call to your questions. Gary has shown me a few of these questions that have come in during the call that look very interesting. We look forward to answering them. Remember, if you want to ask a question, please submit it now to IR@LTBridge.com, and Gary Sharpe, who is in charge of investor relations here, has collected several questions and will read the first question.

Sure. Seth will assign the question -- the answer to these questions as we go forward. Let me start with this one.

You report positive news and progress towards strategic milestones and active participation in investor events, yet the price of Lightbridge shares has sunk to a new 52-week low. Should I be worried?

We have been consistent in outlining our strategic milestones. We believe the key to the Company's future will be to score success at each specific stage of development. On this call, we have discussed steps the Company has recently achieved relating to the peer-reviewed article, Rosatom approval to DoE relating to Part 810 export license, work towards making the fuel for the US and Russia reactor tests, and there are important steps to come up.

One thing Gary showed me earlier this morning -- there was an erroneous report on the Internet that said LTBR missed estimates by $0.10, which is mistaken. That is an incorrect report and might explain some of the stock movement that happened earlier this morning. We are stockholders, too. There are very important milestones coming up, and we are very confident.

Thank you, Seth. Okay. Next question. As long-term shareholders, we know that it takes time to develop and commercialize Lightbridge's next-generation nuclear fuel. The consulting business at Lightbridge historically has funded the R&D side of the business over the past few quarters, but investors have seen revenues and cash balance decline. Regarding the consulting business, please provide revenue projections for the consulting business and what countries or regions you are targeting for consulting work and any other ways you plan to boost the consulting business or generate more revenue.

This is a multi-part question, clearly, and then there are some -- two-faceted question about the Company's cash position. But, let's take the first half of the question first, about the consulting business. Seth?

Okay, well, there is a lot there. We have not put out revenue projections for the consulting business. What we do hope to have in the first quarter could start to match what were peaking revenues before Fukushima with the new contracts that we are working on and hoping to land.

As for countries, regions we are targeting, as I have said on previous calls, countries don't want us to announce their nuclear power programs for them, but as we said in the script, the focus right now is on countries in Europe and in the Middle East. There are also some contracts that could be a bit longer term until they are done that we are talking about in Asia, and then longer-term beyond that in South America and in Africa. But mostly right now, it's Europe and Middle East.

We also have some new small consulting revenues in the United States from a couple of clients and in the Middle East, but those are small new clients that could grow in the future.

On the question on plans to boost consulting revenues and generate, in addition to what I have just said, there is also for potential expanding work with our existing clients.

Alright, now let's move on to the questions about the cash position. Lightbridge -- the caller is asking, Lightbridge has used about $3 million in cash this year. If this trend continues, Lightbridge will be able to fund itself into -- sometime in 2013. How will Lightbridge continue to fund itself? Would you contemplate an equity raise with the stock trading at a 52-week lows?

No, we are not contemplating an equity raise at 52-week lows, and even if the stock price were significantly higher right now, we would have to really think before we decided we would do an equity raise. That is not in our planning right now. What we are expecting is higher cash balances through new and increasing consulting revenues. There really was a hit to our business from Fukushima from countries that were about to sign with us that stopped their planning for nuclear power after that March 11, 2011, disaster at Fukushima that really are back now, and we think that is the way to go. The purpose of our consulting business is manifold, including important strategic advantages. But, mostly, it is for the revenue to pay the overhead of the Company and for our nuclear fuel development, and we expect to be hitting that purpose again.

Okay. Next question. From a caller, how or why did you have such a huge decrease in revenue in the third quarter, compared with the third quarter of 2011?

Well, I gave a little more specific answer than just the drop-off from Fukushima. Two answers, one sort of a quarter-to-quarter answer and one sort of a year-to-year answer on why the drop-off in the third quarter this year as compared to the immediate quarters preceding it. Our contract with the Nuclear Regulatory Authority in the UAE, as I mentioned during the call, was -- during the script -- was extended to the end of 2014 with new provisions that can keep it being extended year-by-year in the future beyond that, which we expect will happen. But the contract change also required new approvals for our work before we could do the work and start billing again. And that took a few months to receive, so our revenue dropped off a cliff while we were waiting for those approvals to come and our work could pick up, but those approvals are now done and the revenue is now back.

The third quarter is during the summer in the Middle East and it is hard to get some things done there, approvals, particularly with so many key people on vacation, which I think was part of that, too. On a year-to-year basis, when you look at the third quarter to third quarter, a lot of the revenue that was peaking in the third quarter last year was from our work for the Gulf Cooperation Council, which consists of Saudi Arabia, Kuwaiti, the United Arab Emirates, Qatar, Oman and Bahrain, and that work went very well. We had good revenue from that, and then that stopped after -- again, as an effect of Fukushima, but that is one of the that they are coming back now to looking at getting back into nuclear power that we are now talking to and talking about new revenues with.

Okay, here is the question that just came in. Is the Company open to an acquisition of its patents by companies including Westinghouse, GE, or Areva? Is that any way part of the business strategy?

The Company's plan is to operate as a Company and on the fuel side as a licensing Company, licensing these patents to those companies and their competitors. And certainly at these stock prices, we would not even consider an equity sale pegged at today's stock prices, and we are today not contemplating an asset sale, which would effectively be selling the main upside of the economics of the Company.

We would, in the future, as an acquisition offer were made at what we thought was reasonable pricing for the stockholders, which would have to be enormously higher than today's pricing, of course, take that to the Board of Directors with a recommendation from management. We would then go to the stockholders with a recommendation from the Company, and that would be up to the stockholders. They would decide. And when and if that ever happens, we will get to it.

Okay. Here is another question. What happens after Part 810 export authority has been granted?

Well, our work with Rosatom requires Part 810 authorization from its US counterpart, the US Department of Energy. That work will include fabrication of our metallic fuel for testing in the US and Russian reactors next year. Those tests will provide data, including a power uprate, longer fuel cycles and safety improvements, and then that data is what the regulatory authorities like the NRC and the US need to see that they can approve the fuel for use in commercial reactors, and that data is also what the industry needs to see to then decide to use the fuel commercially, and then we will start licensing the fuel into the industry.

All right. Another question. What is the outlook for nuclear energy policy in the next Congress? Are there any concerns or if you know industry initiatives that investors should know about?

Well, yes. First, there is overall bipartisan support for nuclear power in Congress -- not everybody in Congress but overall in both parties -- and I expect that will continue. The House and Senate have a few more Democrats that are probably -- or will have a few new Democrats in January with the results of the election -- that are probably at least a bit more concerned about climate change than who they are replacing, and that is good for nuclear, which emits no carbon dioxide.

A main area of focus will probably be on the Blue Ribbon Commission's reports on recommendations to how to finally store spent fuel in the United States and we expect Congress will be taking that up. Industry is also paying attention to the administration's negotiations for 123 agreements for nuclear cooperation between the US and Saudi Arabia, Vietnam and others and a renewal of a 123 agreement with South Korea, all of which would need to go through Congress before US firms could sell reactors to those countries. And for Lightbridge, our work is mostly in the private sector. Our work with government is mostly with the administration and is going well, particularly for Part 810 export authorization, and I see no red flags in Congress for what we are doing.

Okay, here is a question that just came in over the Internet. It speaks to loop irradiation tests at the Advanced Test Reactor. I am not sure this wording is correct, but the caller is questioning why did the ATR reject Lightbridge for loop irradiation?

The ATR did not reject Lightbridge for loop irradiation; the ATR accepted Lightbridge for loop irradiation. Reactors have certain fuel cycles when they are stopped and they're opened up to put fuel tests into them. Some of these sometimes are where you can do what is called a loop irradiation, and sometimes it what's called a capsule irradiation. So we are preparing fuel for both. And depending on the timing of when the fuel gets there, we start to go into what we can get into first, but we will have loop irradiation. It is absolutely untrue -- if anyone told you we were rejected from loop irradiation, that is completely false.

There is a related question about what happened to the safety analysis. The caller's questions are a little vague, but I think that is related to his previous question.

Okay, there are safety analyses of the fuel, and let me ask Andrey Mushakov and then Jim Malone, who are working on those, to answer that. First, Andrey?

Yes, sure. I assume that the question relates to the ATR safety analysis for using our fuel for irradiation test at Idaho National Laboratory. As we have previously communicated, we have -- the team decided to select one single fuel rod design that can be used either for capsule loop irradiation testing on the ATR, and basically all of the preliminary safety analyses for that particular design so far have been completed and haven't produced any sort of showstoppers or any technical issues that would prevent our fuel from being tested in the Advanced Test Reactor at the Idaho National Laboratory.

Jim Malone, our Chief Nuclear Fuel Development Officer, is on by phone from travel. Jim, do you want to add to that?

I think Andrey has accurately presented the situation with the test reactors. If the question is stated to the larger scale safety analysis, those will be completed when we have the data from the test reactor work, so I don't see any problems, nor do I anticipate any problems at all with respect to the area of safety analysis.

Yes, and so from what we've seen on the safety analysis, there is nothing about it that goes against what we have been saying on the 1000 degrees cooler, on the metallurgically bonded cladding, on the rather significant safety advances, we expect the test in the reactors and on the post-irradiation reactor examination after the tests will show.

The caller is also asking about the DOE independent verification study. What is the status there? And then also, what is the status of Reid-Hatch?

The -- first of all, the analysis I think the caller is referring to, was on thorium-based fuel; that was done, but then the government decided not to publicly release. Having seen some of this, I could tell you there was nothing negative about it, in fact, after we got the approvals to go into the largest test reactor owned by the government in the United States. But Andrey, I don't know if you want to add to that?

Well, I think what you have described is pretty accurate. As far as we know, that particular study that was on our thorium-based blanket fuel design for thorium fuel cycle was never made public by the US Department of Energy and we have not seen anything since then. The study was done back in 2011, I believe, last year, but they never made it public. They only circulated it within the US national labs.

And while I think they should make it public, it has gotten harder, particularly with new regulations and concerns that are still coming out following 9/11, to have certain nuclear data made public. I think this might be caught up relating to that, even though there is nothing that we see that specifically could relate to it, other than just nuclear reports from government take a long time to get through approvals processes sometimes.

Then, the last facet of this caller's question is -- what happened to Reid-Hatch?

Reid-Hatch was a bill that was specifically referring to thorium fuel. They had introduced it in the Senate more than once and it was at a time when literally nothing was getting through final passage in the U.S. Senate. Virtually everything was being blocked. Harry Reid had said to us, he thought his mother's day resolution might get blocked. And I think that also it is tied up in -- a smaller bill like that could be attached to a bigger bill in the end, and no bigger bills got through like an overall energy policy for the United States.

So, I don't think that bill will be reintroduced in the new Congress because we won't want it to be, because our main focus isn't on thorium fuel; it is on the metallic fuel which doesn't have thorium. And although we still have the thorium fuel, are still developing and are still promoting it, the main focus is the utilities are telling us they want power up rates, they want longer fuel cycles and the dramatically enhanced safety, and that is what they want to pay for. So that is what we are focusing on.

The thorium fuel, which does even more so on nonproliferation and reducing spent fuel and reducing toxicity of spent fuel is not what they are telling us they want to pay for, so that is not the kind of thing we are pushing for added government support. But as I said also on an earlier question, our main work with government is with the administration. It's within law that already exists, appropriations that are already made, authorizations that are already made, budgets already made for national labs and their reactors, the Part 810 export authorization, and none of that requires any bills to get introduced in Congress. None of that requires any congressional action. That is all within the administration and that is where our focus is and that is where part of the success of the metal fuel will come from.

All right. Here is a follow-up question from an earlier caller. With the share price at this level, does anyone in management plan on buying shares on the open market?

Well, first of all, I don't think we in management are going to say in advance of what would be a public disclosure under Form 4. And certainly, there are blackout periods leading up to this very phone call that can be ending after this call, but certainly, management has bought stock over the years. In fact, everyone in senior management has six-figure buys over the years, and no sales other than some that were corresponding to cover taxes at the same moment. But, basically, that is a possibility, and many of us in management do an equivalent, which is elect to take some of our compensation in equity.

Okay, this looks like this could be the last question. Since we have recently announced the publication of the peer-reviewed journal article in Nuclear Technology, we have gotten several questions asking us about the availability of the full article. And so that relates to this caller's question. It says - can I get a copy of this article?

Okay. At the ans.org website, the American Nuclear Society website, you can go to Nuclear Technology, which is the most prestigious nuclear technology journal that is peer-reviewed, and in the December 2012 issue see the link to our article. And when you click on it, what it will say is that you can buy it if you are not an ANS member and download it, or you can buy it at a discount if you are in an ANS member or get it for free if you subscribe to that journal. There will also be a hard copy of the physical journal published in December that you can also buy on that website or go to scientific libraries that have it and see it for free in the libraries. We want to put it on our website. We want to send it out to our stockholders. However, the American Nuclear Society rules are that we are allowed to do that six months after the December publication date.

So, between now and June, you have to buy it or go read it in a library or from a friend that subscribes, and we will make it publicly available for free six months after that December publication date.

Okay, operator, I see no additional questions in our queue, so I think we can move to the final segment of today's call. Seth?

Well, I'll just say on wrapping up the call that momentum is building globally throughout the commercial nuclear power market. Lightbridge is well positioned to serve this growth with next-generation fuel designs and expert advisory services. My Lightbridge colleagues and I work every day to translate that opportunity into shareholder value.

If we can elaborate on any aspects of Lightbridge's operations, financial performance or strategic direction, our lines are always open at ir@ltbridge.com, or call 571-730-1213. Thank you. We look forward to our next quarterly business update in early March 2013. Goodbye.

Thank you. This concludes today's teleconference. You may now disconnect your phone lines. Thank you for participating and have a nice day.