Lightbridge Corp (LTBR) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Lightbridge Corporation 2013 second-quarter business update and financial results. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). I would now like to introduce your host for today's conference, Gary Sharpe, Head of Investor Relations. Please go ahead, sir.

Thank you, Charlotte and good morning, ladies and gentlemen. Welcome to our second-quarter business update. The earnings news release was distributed after the market closed yesterday and you can view that on the Investor Relations page of the Lightbridge website at LTbridge.com. Seth Grae, 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's Executive VP for International and Nuclear Operations.

Before Seth begins, I must remind you that today's presentation includes forward-looking statements about the Company's competitive position and 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 such estimates.

The risks include, but are not limited to, the degree of market adoption of the Company's product and service offerings, 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. Lightbridge does not assume any obligation to update or revise any such forward-looking statements whether as the result of new developments or otherwise.

You can participate in today's call two ways. First, you can submit questions for management in writing to IR@LTbridge.com. 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 doing the Q&A period. Next, after the prepared remarks, as you've just heard, telephone lines will be open for live questions. Telephone numbers and other details were distributed in two news releases that are posted on the Lightbridge Investor Relations website, IR.LTbridge.com. Now, let's get started. Here is Seth Grae, President and Chief Executive Officer of Lightbridge.

Thank you very much, Gary, and good morning, everybody. Thank you for joining our conference call for today's business update. Lightbridge continues to gain traction in developing and commercializing innovative nuclear fuel technology with benefits of improving safety, increasing reactor output, reducing nuclear waste and enhancing proliferation resistance of spent fuel.

Our comprehensive independent advisory services are helping international clients with on-time, on-budget development and regulation of nuclear power plants to expand electricity generation. The quarter and six months ended June 30 were periods of exceptional activity and progress for Lightbridge. As a result, we remain confident and on track to meet development milestones for our next-generation nuclear fuel technology and to secure new consulting contracts with overseas government entities interested in establishing civil nuclear energy programs. We believe Lightbridge technology and services remain well-positioned to help answer the most pressing questions facing the commercial nuclear energy industry as the industry works to deliver safer, long-term, efficient baseload and carbon free electric power.

In our Fuel Technology business unit, we are currently negotiating with fuel fabricators to produce fuel samples that will allow us to complete the critical testing necessary to demonstrate the technological and commercial feasibilities of our designs. Our goal is to complete these negotiations by year-end. At this point, we have been encouraged by their interest and enthusiasm to engage in the process. Success in these negotiations will be necessary to complement any capital increases in the Company and to further extend liquidity.

During the second quarter, Lightbridge also completed an important technical enhancement of our fuel offerings for existing pressurized water reactors or PWRs. Currently operating PWRs are the largest segment of our initial target market. The enhancements to our fuel made it possible to replace the outer blanket row of oxide fuel rods in our fuel assembly design with metallic fuel rods while maintaining mechanical compatibility with reactor internals of existing PWRs.

This change makes the entire assembly metallic and that is new. As a result, we believe that nuclear utilities using our metallic fuel and existing PWRs can realize improved safety and operating benefits, including power uprates and longer fuel cycles, without the fuel performance constraints imposed by the oxide fuel rods currently used in reactors and which we used to have as an outer part of our fuel assembly design and no longer do.

We arrived at this important enhancement through close collaboration with Lightbridge's Nuclear Utility Fuel Advisory Board, which is comprised of the senior fuel managers at Exxon, Duke, Dominion and Southern Company. Together, these utilities generate approximately 50% of the nuclear electricity in the United States. The voice of the customer is and will remain integral to our fuel development. We believe this collaboration distinguishes Lightbridge's commercialization strategies, ensures value for end customers and will accelerate market acceptance.

Our Services business, our Advisory Services business unit expects to begin receiving responses to our pending proposals during the remaining months of 2013 and into 2014. During the quarter, our team met with representatives of government entities in Europe, Asia and the Middle East to explore nuclear power advisory opportunities. While the bidding process for these contracts is competitive and some governments are delaying decisions on nuclear program development, we remain confident of Lightbridge's value-added domain expertise and encouraged by our prospects.

As a delegate on the US Department of Commerce Trade Mission in May to China and Vietnam, I met with representatives of those national nuclear power agencies. I was invited to join the trade mission partly because of my membership on the Commerce Department's Civil Nuclear Trade Advisory Committee on which I have served since 2010. The committee's goal is to promote business opportunities between the US nuclear power industry and the rest of the world. I came away from the Trade Mission with expanded enthusiasm for our industry's growth prospects.

According to the World Nuclear Association data, 68 nuclear reactors are under construction around the world as of July 2013. An additional 162 reactors are on order or planned. Between now and 2030, a further 316 reactors have been proposed in 48 countries. In all, nuclear newbuild investment is projected to exceed $1.5 trillion between now and 2030 according to industry reports.

Data compiled by the Energy Information Administration, an arm of the US Department of Energy, confirms our industry's growth trajectory. The EIA's international energy outlook for 2013 says that nuclear energy is among the world's two fastest-growing energy sources and is projected to grow at 2.5% annually through 2040.

In China, where the air in cities is brown with emissions from coal-fired power plants, 17 reactors are operating today. 28 nuclear power plants are under construction in China with 53 on order or planned and 118 units in addition to that proposed through the year 2030. Vietnam is working to create a civil nuclear industry over the coming years. The Vietnamese government has ordered or planned four reactors and has proposed six additional units to power its projected growth.

The nuclear energy program in the United Arab Emirates is more advanced. As you know, the Lightbridge Advisory Services team developed the roadmap that was used to establish that country's nuclear regulatory agency and nuclear generating company, including construction plans for the $40 billion, four reactor complex at Barakah.

Initial concrete was poured for the first reactor in July 2012 and the project remains on schedule to generate electricity beginning in 2017. In May 2013, concrete was poured for the foundation of the second reactor at Barakah. And in Japan, where the nation's 50 nuclear reactors were shut down after the March 2011 tsunami that damaged four of six units at Fukushima, the coalition government recently voted to restart the reactors as soon as possible. Moreover, Japan has three reactors under construction with nine planned and three more proposed by the end of 2030.

During the shutdown, Japan spent billions of dollars to import liquefied natural gas to generate baseload electricity, greatly increasing energy costs and carbon emissions. The outlook for nuclear energy is bolstered by recent data from the Redbook, a publication of the International Atomic Energy Agency or IAEA. The current Redbook reports that uranium resources and production are on the rise with the security of uranium supply ensured for the long term. Demand for uranium is expected to continue to rise for the foreseeable future. Although the Fukushima nuclear accident has affected nuclear power projects and policies in some countries, nuclear power remains a growing key part of the global energy mix. These developments and more like them around the world are the foundation for our optimism about the growing momentum in the nuclear industry and Lightbridge's position in it.

In the wake of the 2011 tsunami that damaged reactors at Fukushima, public and regulatory demands for increased nuclear safety have seldom if ever been more prominent. Proposals for additional safety measures are expected to drive up nuclear power plant construction and operating costs. Here in the US, Dominion alone expects to spend $20 million to $30 million per unit on safety enhancements and hazard evaluations of its nuclear fleet in response to the Fukushima accident.

Earlier this year, two independent studies, a peer-reviewed article and analytical models, were completed and published that validate the safety, proliferation resistance and economic benefits of Lightbridge's fuel designs compared with conventional uranium oxide fuel. The studies and article are available to download from the Investor Relations page of the Lightbridge website, LTbridge.com. Preliminary data from analytical modeling of our fuel and a large break loss of coolant accident is especially encouraging.

At Fukushima, the tsunami inundated backup generators, preventing them from circulating coolant water. Without coolant water, the cladding of the conventional oxide fuel rods quickly overheated, reaching temperatures in excess of 1300 degrees Celsius and interacting with steam to generate hydrogen gas. That hydrogen gas exploded, destroying the power plants.

Lightbridge metallic fuel rods, however, operate in an average temperature of approximately 350 to 370 degrees Celsius. This is nearly 1000 degrees cooler than conventional nuclear fuel. Preliminary analytical modeling indicates that, in a design basis loss of coolant accident, Lightbridge fuel will dissipate heat quickly, remaining well under the 900 degree level at which hydrogen gas is formed. We expect planned irradiation test in the mirror reactor and subsequent additional tests of irradiated fuel samples will confirm the safety properties of our fuel rods. We also believe that nuclear utilities around the world will be keenly interested in these test results as they grapple with post-Fukushima safety requirements and other factors that are increasing power plant operating and construction costs.

Now, let's move on to the Company's financial performance during the second quarter. Our financial results were summarized in a news release that was distributed after the market closed yesterday. In addition, our Form 10-Q was filed with the SEC last night. Results for the quarter and six months are also posted on the Lightbridge website. I won't recite all of the details now, except to report that at June 30, 2012, Lightbridge had $2.2 million in cash and cash equivalents, restricted cash and marketable securities. Working capital totaled $3 million with no long-term debt. The Company has never incurred long-term debt in its history.

Previously, we have disclosed that we expect to seek new financing or additional sources of capital in the next six months to support ongoing R&D required to continue to advance Lightbridge's fuel products to a commercial stage. Year to date, the Lightbridge team has been very active in reviewing potential sources of cash. Before year-end, we anticipate strategic financial developments in one or more of the following three categories.

First, equity investments by institutional or retail investors. Early in 2013, we updated our shelf registration documents and filed Form S-3 with the SEC to facilitate this option. We regard a shelf as one of the benefits of being listed on the NASDAQ exchange and it is a good fuel-efficient way to ensure the Company's financial flexibility. We would carefully consider any dilutive effects of a potential equity raise as compared to the enhanced balance sheet strength and liquidity needed to support our R&D activities.

Second, strategic investment or fuel development cost-sharing through alliances with major fuel vendors, fuel fabricators and/or other major strategic partners. We began discussions in 2012 with potential partners relating to the US-based fabrication, which we believe could streamline production of Lightbridge fuel and enhance access to a major segment of the fuels addressable market. We expect these discussions will be completed later this year.

And third, new consulting contracts. As I mentioned, Lightbridge has submitted Advisory Services proposals to appropriate governmental entities in several countries in Europe, Asia and the Middle East where there are plans to create or expand electricity generation using nuclear power. We expect responses to our outstanding advisory proposals during the remaining months of 2013 and into 2014.

Now let's open the call to your questions. Remember, in addition to asking live questions by telephone, you can submit questions in writing now to IR@LTbridge.com. We will pause while Charlotte reviews the procedure for asking live questions.

(Operator Instructions).

Charlotte, while we are waiting, let me proceed with a question that has come in over -- actually two questions that have come in via email. The investor asks -- the process of development of a completely new fuel is a long one, but seems predictably paced. I would like to know how politics might be affecting this predictable pace.

My first question. In your estimation, has the current frosty state of political relations between the US and Russia or domestic politics changed your fuel development timeline and will it do so in the future?

And the second question -- will political difficulties or the perception of such affect Lightbridge's ability to price shares favorably in a capital raise?

Well, I will start and I will ask if Andrey or Jim want to jump in. The United States does what is in the United States' interest. Russia does what is in Russia's interest. And it has always been in both countries' interest to cooperate in the nuclear area, both on civil nuclear, as well as proliferation issues. Even at the height of the Cold War, there was continuous nuclear cooperation between the two countries. This has not been interrupted. This has not been interrupted.

If your question is whether Eric Snowden having temporary asylum within Russia is going to hurt Lightbridge's work relating to Russia, I can tell you it has not and we have even been in touch with Russian authorities today in normal course of business, which is proceeding as normal course of business. There is no hint or whiff of that being interrupted.

And one of the reasons it is in both countries' interest is that is bad for business any other way. Both countries are trying to have their civil nuclear industries expand into the other's spheres of interest. As you know, Russian downblended uranium comprises half of the uranium enrichment used in US reactors today. Russia has been trying to enter and succeeding in European markets and in other ways in US markets. And the US has been expanding into what are traditionally Russian markets and that cooperation is good for business and it is good for cooperation between the countries.

Eric Snowden, other issues may have their effect. There will be talk of boycotting the Olympics. I don't think that will happen. There has been no talk of affecting the 123 agreement or A10 licensing process or anything like that and I am sure there won't be. There have been worse problems between the US and Russia than this that have never interrupted Lightbridge's work or nuclear work in general between the countries. Andrey, do you have anything to add?

I think you addressed it pretty well. Obviously, depending on what happens in the future, things could change. But as Seth pointed out that, in the past, even at the height of the Cold War, cooperation in the nuclear energy sector was always strong and wasn't affected by difficulties in other areas. So I think that that should be the case here also. But, again, you can never know what might happen in the future. You can speculate, but, at this point in the foreseeable future, we don't expect any.

We will just say this, that with our communications today and yesterday, since Snowden was released yesterday, has certainly not affected Lightbridge's work there and we have had the ball moving forward there. Jim, do you have anything to add?

Yes, this is just from my personal experience basically. Back in the middle 1980s, the early part of the '80s, (inaudible), Russia actually entered the US market for fuel services; not for fuel itself, but for uranium enriching services. I happened to be at a place where we were one of the first customers at that time and you can imagine all of the different things that have happened between then and now and Russia has never ever missed a delivery. There has never been a commercial question. They have been a very good trading partner. And if that is the case, then I see nothing that is going to change it now. I think the Eric Snowden thing is actually just kind of a bump in the road, if that.

Okay. And then the second question, Gary?

Let me repeat the second question. Will political difficulties or the perception of such affect Lightbridge's ability to price shares favorably in a capital raise?

I really want to say that, first of all, because we are dealing with very strategic, very sophisticated parties. Secondly, we are in a global industry with global parties. We used to get this question whether Iran's nuclear program will affect the nuclear industry and Lightbridge's ability to operate and whether North Korea and other things and it just happened. So I don't see that. As Andrey said, you never know what could happen in the future, but I certainly don't see that. And the US is equal to our program, at least to Russia. We have test reactors in each country. We have programs in parallel in each country. We intend to complete this in both countries and certainly don't see anything that should change that.

We just received an additional question. I will read it via email. It says MIT recently announced positive results in research and development for silicon cladding of uranium oxide fuel rods. There is work ongoing for adding I believe that is beryllium oxide to uranium oxide in fuel to enhance thermal conductivity. Is this considered a competitive product to your all-metallic rods for existing and future pressurized water reactors and do you have an opinion on this technology?

Well, I will start. These silicon carbide cladding is a fuel technology idea that could be used for new kinds of reactors. Could potentially be used for existing reactors. People within the utilities that we are looking at see the Lightbridge fuel as the only and best real viable commercial alternative to what is being used today. And for among other reasons, the economic benefits that Lightbridge's fuel adds that other ideas such as silicon carbide just can't would not have the power uprate for the longer fuel cycles, which is sort of a gating factor with utilities. Are we helping them deal with their economics?

As I said in the opening on the call, the added regulatory costs that add to capital costs to meet the safety and security requirements that reactors have to meet after 9/11, after Fukushima are very expensive and hurt the competitiveness of nuclear. Lightbridge's fuel gets that back and enhances it. Silicon carbide doesn't. Jim?

Yes, the silicon carbide is an intriguing technology for the market and because it responds to the emotional aspect of the hydrogen explosions that Seth mentioned earlier at Fukushima, the industry is working on a series of what are referred to as accident tolerant fuels and silicon carbide cladding with the BEO is considered to be a part of that effort.

The thermal conductivity is improved in that fuel, but it cannot support longer operation cycles and it has some technical problems to be solved, which are mentioned in the MIT news release, especially with respect to the end plugs for the fuel, which will be tested I guess probably in the next six months in the MIT test reactor. But it is an interesting technology. It is not right now targeted toward pressurized water reactors; it is focused on boiling water reactors and I don't see it as a huge competitor to our efforts here. As Seth pointed out, we are trying to answer more questions than simply eliminating the threat from hydrogen in the case of a severe accident. We are trying to offer the utilities more than that.

And it is not targeted at pressurized water reactors.

Right. Do you want to address the beryllium fuel?

Oh, yes. There was a question, a related question about beryllium oxide, adding beryllium oxide to uranium oxide to enhance thermal conductivity. Is that something we view as a competitor?

Let me just say that that is in the context of the silicon carbide cladding fuel and it is intended to reduce the centerline temperature of that fuel pellet and enable the silicon carbide to operate as the utilities want it to get the proper surface heat flux to the silicon carbide cladding.

Okay, operator, Charlotte, any other questions from your end?

(Operator Instructions). At this time, I am not showing any questions. I would like to turn the call back over to CEO, Seth Grae.

Well, thanks, Charlotte. If we can elaborate on any aspect of Lightbridge's operations, financial performance or strategic directions, our lines are always open here at IR@LTbridge.com, not just during the conference calls, or give us a call at 571-730-1213.

I will close by reiterating three key numbers I mentioned -- 68, 162 and 316. Respectively, those are the current worldwide totals for nuclear reactors under construction, 68; on order or planned, 162; and additional proposed reactors between now and 2030, 316. There is no doubt momentum is building throughout the global nuclear power market and Lightbridge is well-positioned to serve this growth with next-generation fuel designs and expert independent advisory services.

I also want to remind you that our professional and personal interests will always be closely aligned with yours as Lightbridge investors. We are working every day to advance Lightbridge's strategies for success and to enhance shareholder value. Thank you for your continuing confidence and support until our next quarterly business update. Goodbye.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect.