Lightbridge Corp (LTBR) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Lightbridge Corporation 2013 third-quarter business update and financial results call. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to turn the call over to Gary Sharpe. You may begin.

Thank you, Michelle. Good morning and welcome to the Lightbridge 2013 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 Lightbridge's website at ltbridge.com.

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

Of course, 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 the 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. 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.

Now, today you can participate in the call two ways. First, you can submit questions for management in writing to ir@ltrbridge.com. If you have already submitted a question, we thank you. You can also submit them at any time during the prepared remarks or during the Q&A period.

Second, after the prepared remarks, the telephone lines will be open for live questions. Now, let's get started. Here is Seth Grae, CEO of Lightbridge.

Thank you, Gary. Good morning, everyone. Lightbridge is better positioned today than even one quarter ago. Two strategic milestones we achieved during the third quarter are especially encouraging. First, the feasibility study we are conducting with Babcock & Wilcox for a pilot facility for nuclear fuel fabrication; and, second, our advisory services contract with Lloyd's Register in Korea.

First is the feasibility study we are performing with Babcock & Wilcox Nuclear Energy. Babcock & Wilcox is one of the finest large nuclear companies in the world and has the capacity to make nuclear fuel for the US and world markets. Together we are studying the joint development of a pilot-scale facility to demonstrate fabrication of Lightbridge's metallic nuclear fuel in the United States. We expect to sign a definitive agreement in early 2014.

The pilot-scale facility could produce Lightbridge metallic fuel for lead test assemblies for the first uses in existing commercial reactors in the United States. The operation could later be expanded for larger-scale commercial production for US and international markets.

This fuel will provide the crucial safety and economic benefits that nuclear utilities tell us they need. Lightbridge has the world-leading nuclear fuel design team. Their work is informed by the major nuclear utilities that advise us, to make sure that the fuel we are developing will solve their problems and will work well in existing nuclear power plants.

In addition to being advised by the end-user utilities, our fuel design team is also advised by leading experts who come to us from the major nuclear fabricating companies, who make sure that our fuel can be commercially produced; and that team now includes Babcock & Wilcox. And our work in Russia remains on track.

Second, Lightbridge was selected for very important consulting work in South Korea. We are working as a subcontractor to Lloyd's Register. Our tasks in Korea focus on key safety issues including seismic qualification. It was very important in Korea to bring in the best expertise, and we are honored that Lightbridge experts have been selected.

We also have additional outstanding consulting proposals before governmental and private entities in Europe, Asia, and the Middle East, with plans to create or expand nuclear electricity generation. We expect new contracts during the remaining months of 2013 and into 2014.

The consulting work is of strategic importance to Lightbridge and provides revenue that we use toward completing development and deployment of the nuclear fuel technology. Everything we do, both in nuclear fuel development and in consulting, is geared towards meeting the important commercial needs of our customers and meeting or exceeding the highest of international safety standards.

We see our new arrangement with Babcock & Wilcox on fuel and our new consulting work in South Korea as both demonstrating Lightbridge's unique leading ability to improve nuclear safety in ways that also improve the economics of nuclear power.

While our preference is to bring capital into the Company through our consulting work and commercial arrangements with major nuclear fuel companies, in the third quarter we also demonstrated Lightbridge's ability to raise needed capital from institutional financial investors. On October 25 we received a net of $3.9 million from a registered direct offering to institutional investors. William Blair served as placement agent for the offering.

Awareness of Lightbridge's fuel technology and consulting services is increasing at the same time as the focus is sharpening on climate change and the carbon-free nature of nuclear electricity. Last night, CNN broadcast the documentary film Pandora's Promise, an examination of how former leaders of the antinuclear movement have recently become convinced that nuclear power is essential.

James Hansen is perhaps the world's leading climate scientist. He is a professor at Columbia University and was the leading climate scientist at NASA. On November 3, James Hansen and other leading climate scientists issued an open letter calling for development of safer nuclear power and recognition that renewable energy alone cannot prevent catastrophic climate change. This is what Lightbridge is doing.

And as China's cities are setting new records in toxic air pollution, the fastest-growing energy markets are accelerating their switch to nuclear power. But it needs to have an even more enhanced safety and significantly improved economics focus to compete against and beat coal and hydrofrac natural gas that emit so much carbon dioxide. And only Lightbridge's nuclear fuel technology can do that.

Like leading climate scientist James Hansen, we acknowledge that existing nuclear power systems are not perfect. However, at Lightbridge we are working to improve our global industry with innovative fuel technology that allows existing and newbuild reactors to operate with increased economic efficiency as well as with greater safety.

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

(Operator Instructions)

While we're waiting for the call to -- the queue to materialize, let's answer a question that came in from an investor in the Midwest. He is asking -- can you give us an exact timeline for work at the Idaho National Lab and the Russian test reactor? Is either one ahead of the other in respect to different types of testing? That is his first question.

All right, I will ask Andrey Mushakov to answer that question.

Sure. Our current plan is to begin irradiation testing in the MIR research reactor in 2015; and the ATR irradiation test is likely going to happen a little bit after that. So we expect the MIR irradiation test to begin before the ATR irradiation test can commence.

This is due to the fact that fuel samples will have to be fabricated in Russia and then shipped over to the US, and they have to go through very rigorous approvals both in Russia and then the United States, for export in Russia as well as for import here in the US. So it is going to take a little bit more time for those samples to be ready for irradiation testing at the ATR.

But the MIR irradiation testing can begin relatively quickly once the fuel samples have been fabricated in Russia, because you can avoid all of those cross-border shipment considerations and requirements you have to comply with.

All right, operator, Michelle, could you go ahead with the other questions in the queue now?

Paulenne Kirschenbaum, Chapin Associates.

Good morning, Seth.

Good morning, Paulenne.

I have a question. I noticed on a site discussing Areva that they had a strategic agreement with Japan Nuclear Fuels and ATOX for the development of civilian nuclear power. I just wondered; I noticed that we had had a past arrangement with Areva. And the fact that they mentioned civilian nuclear, are we involved in any way with Areva at this juncture?

Well, Areva is one of the largest global nuclear fuel fabricators, and they compete for fabricating nuclear fuel the world over, including in Japan, which is of course a much smaller market now than it used to be, while they are still slowly reopening their reactors after Fukushima. Our relationship with Areva has been primarily based on thorium fuel. We are not involved in their strategic relationship in Japan, but we do maintain contact with Areva.

Our focus right now is with Babcock & Wilcox and with our Russian partners on our metallic fuel.

Thank you.

All right. We have another question via the Internet. This investor is asking -- do you have an estimate of the total amount of dollars that are going to be needed over the next three years to continue the research and development of Lightbridge's fuel technology?

The total all-in cost, not over three years but over a longer period of everything for us and our partners, through full commercialization starting in commercial reactors, with what is called lead test assemblies of our fuel running in commercial reactors, is a bit over $90 million. Now, that is not money that Lightbridge will pay. We expect that strategic partners working in nuclear fuel fabrication would cover just about all of that cost.

So Lightbridge's budget we don't see as materially increasing above what it has been. We develop the technology; we don't make the hardware.

All right, the next question that came in over the Internet -- when will Lightbridge's metallic fuel technology begin to generate revenues?

Well, we expect over the coming year and following year to have commercial arrangements in place with the major nuclear fabricating companies, with major strategic partners. Based on the discussions we are in, we expect these arrangements will include revenue to Lightbridge as we are hitting the major milestones, including over the relatively near term.

That could include what is called technology access fees to Lightbridge based on our intellectual property, as well as engineering supporting services as we are going to be working on the fuel design. We expect that will be paid for through these major partners. So I would think over the next year you would start to see those revenues coming into Lightbridge, actually.

All right. Next from the Internet -- will potential fabrication partners need to change their tooling to manufacture Lightbridge fuel? If so, what is the range on retooling capital expenditure?

Okay. First, to go back in the supply chain, before you get to fabrication, uranium mining and milling will be unchanged. Uranium conversion, which is a chemical process that allows the uranium to be enriched, will be unchanged. Uranium enrichment itself, those processes will be unchanged in how you enrich the uranium.

The fabrication of the extruded or casted metallic rod will be different from the fabrication of these current pellets stacked inside a tube. So, yes, that is new machinery, but it is not very large or very expensive machinery that does that casting or that extrusion of the metallic rods.

We are right now in the midst of a feasibility study with Babcock & Wilcox, which has experience in making metallic fuels for government use and is quite expert at this. And we expect this feasibility study, which will be finished in the first quarter of 2014, to have the exact answers on the retooling capital cost and the requirements of what that machinery would be.

But at least thus far it does not look like it will be anything that would materially affect the ability to fabricate this fuel. In fact, we expect tremendous economic advantages of switching to providing and using this fuel.

Okay. Operator, Michelle, would you please remind the callers of the Q&A procedure?

(Operator Instructions)

Our next question comes from the Internet as well, and it is -- are negotiations with potential Russian fabricators still on track?

Yes, they are. We have some meetings with them this month in Moscow, and things are very much on track.

As Andrey mentioned they will be producing the fuel in Russia both for the test in the MIR test reactor in Russia, at Dimitrovgrad, and the Advanced Test Reactor, the ATR, at Idaho Falls in the United States, where it will run under commercial pressurized water reactor type conditions in those reactors. Those results will be usable by the Nuclear Regulatory Commission in the US and other regulators around the world for licensing the fuel for initial commercial use.

This will be going on in parallel with our joint venture with Babcock & Wilcox for making the pilot plant to make commercial fuel in the United States -- not for test reactors but actually for the initial uses in commercial reactors, so that as we get the results and licensing coming from the test of the Russian-made fuel in the research reactors in the US and Russia, we could have the commercial fuel that could be made in that Babcock & Wilcox fuel then used in actual power reactors.

Here is another question that has just come in over the Internet. Do the safety benefits of Lightbridge's fuel reduce the cost for a reactor to comply with safety regulations?

Potentially they can. Basically the fuel will add significant, what is called operating margin and safety margin to the reactors. This partly comes from the fuel operating almost 1,000 degrees Celsius cooler in the core of the reactor, even with the power uprate and longer fuel cycle that the fuel provides.

The fuel will -- in the event of a loss-of-coolant accident, losing the water to the core in the reactor in what is called a design basis loss-of-coolant accident -- will not reach the temperatures at which the current fuels and reactors generate hydrogen gas, which is what exploded at Fukushima. And that is one of the tremendous safety advantages of Lightbridge fuel. It is one of the key reasons why utilities are interested.

Utilities, to deal with hydrogen gas production use what's called hydrogen recombiners in the plants. They use venting systems to try to vent the hydrogen if it is produced -- that our fuel won't produce in these same circumstances.

These are what are called active safety systems, meaning they could actually fail themselves in an accident. And this is what happened at Fukushima, where the venting did not work properly, and the hydrogen stayed in the building and blew up.

So, my personal feeling is that utilities should do all of the above. How regulators will treat what they have to do we don't know yet. But our fuel will bring tremendous advantages in these areas.

Okay, operator, I see that we have another question in the queue. So would you please have --?

Paulenne Kirschenbaum, Chapin Associates.

As a follow-up, Seth, the world clearly went through a rather devastating economic downturn, and the central banks around the globe have done their best to be able to provide economic help in these circumstances. We need desperately a new business environment. What role do you think that the nuclear renaissance well play in the creation of jobs and global business opportunities?

I mentioned Pandora's Promise, the documentary that aired on CNN last night, I believe is now available on line or will be soon and certainly on pay-per-view, etc. One of the points in that documentary is that the healthiest people in the world, the people with the longest lives, the greatest health, the best education, the best quality of life, are the people who live in the most energy-intensive places.

And it is just not possible to move people from Western provinces of China without electricity to cities, where they use a lot of energy, without massive new amounts of energy. Even though compact fluorescent bulbs and conservation will be a big part of dealing with energy production in places that already have a lot of it, the biggest parts of the renaissance in nuclear power are happening in places that don't have power yet. And they are getting it by adding a lot of nuclear reactors in parts of China, Russia, India, other places across the developing world.

I think nuclear power has to be a crucial part of the baseload electricity in these places -- and is, we have about 70 reactors under construction as we speak -- or else, we're not going to meet our climate change goals and we are going to have toxic air, as we see China now trying to replace coal plants with nuclear as part of a way to clean up their air and improve their health. So I do think nuclear is a big part of the Renaissance.

I really see the world as falling into two different groups of countries when we talk about nuclear power. One is countries that already have reactors or were committed to building reactors, like the UAE, where they all took a pause after Fukushima -- China, the UAE, the US, these countries that have reactors -- and then decided to go forward and in many cases actually accelerated their move towards nuclear power. The Energy Information Agency in the United States within the Department of Energy put out projections of growth in nuclear power in the world three months ago that actually show an acceleration since Fukushima and more nuclear demand total because of these countries that already have nuclear power took a pause and are actually mostly more committed to it now than ever.

The second group of countries is those that don't have reactors but are thinking about it, looking into it -- Turkey, Poland, Vietnam, Bangladesh, Kuwait, many others. They have been slower, I think, than they would have been had Fukushima not happened.

Many of them are taking key material steps. Many of them are talking to us, are included when I talk about contracts I think we will be announcing in Europe and in the Middle East and in Asia. But they really slowed down because of Fukushima.

But overall, net-net, there is more nuclear power than before Fukushima and it is growing at a more rapid rate in the world. So I do think it will be a part of powering business, Paulenne, and I do think that the world cannot possibly meet its energy needs without over-reliance on fossil fuels if we don't include nuclear as a major part of baseload electricity. And that is what is happening.

Well, I thank you, Seth, for what you and your team are doing on behalf of the shareholders to advance our opportunities. A sincere vote of gratitude. Thank you.

Well, thank you, and there is no greater vote of gratitude -- I know you have bought stock in the Company, so thank you for that vote.

You are very welcome.

All right. Here is the last question for today's call. It comes from an investor in Texas. Please comment on the Company's current efforts and activities relating to advancing thorium as a nuclear fuel.

There has been interest in thorium for many decades, both in new reactor designs, or adapting old reactor designs, or in Lightbridge's case a thorium fuel design that will work in the existing reactors and the new ones that would be built of the existing type. We do have people in our Company and involved with our Company who are involved with thorium fuel. Just last week Hans Blix, who is a senior advisor to Lightbridge, spoke at a major thorium conference.

However, the advantages of our thorium fuel design, which are predominantly less waste, less toxic waste, significantly enhanced proliferation resistance, are not what the utilities are willing to pay for now. They are looking for two other things, which are dramatically enhancing the safety of reactors after Fukushima and lowering the cost, improving the economics of nuclear generation, particularly in the face of hydrofracking for natural gas, lowering gas prices and the competition.

Our metallic fuel does that, and the utilities that are advising us are helping us with that. They are not helping us with the thorium fuel.

The major nuclear fuel manufacturers we are working within Russia, with Babcock & Wilcox in the United States, are doing so for our metallic fuel because their utility customers and potential customers want the benefits of that.

So we still have the thorium fuel designs. We still have people involved with the Company, participating in conferences and discussing the importance of it. But we don't have utilities willing to order it or major companies willing to manufacture it, which we do on the metallic fuel. And that is why our focus is on that.

We just received another call -- or written question from an investor. He is asking a somewhat technical question. He says -- with Lightbridge metallic fuel that enables a 30% power uprate for newbuild reactors, does this mean that an EPR could be slightly redesigned for a 2.1-gigawatt output?

Yes. We have actually done modeling specifically for an EPR actually, and we have quite a bit of data on exactly doing that to an EPR, among other reactors as well. But an EPR -- which has stood for a few things; it started as a European pressurized water reactor, and then as they wanted to market it in other places of the world they started making the E stand for some other things, like environmentally enhanced and different things. And now they just call it an EPR.

But in any event it is about a 1,600- to 1,650-megawatt electric pressurized water reactor using what would be thought of as Westinghouse-type technology, designed by Areva in France. It is under construction in France and in Finland and in China, and it looks like soon starting in India. They are also looking at sites in the United States and in several other countries.

And, part of our discussions in China have been about where they have small sites where they can only fit three reactors but need the power of four near some of the cities. If you built three reactors with a 30% power uprate, you could get almost the power of four reactors but only have to build three. So there is tremendous savings in doing that and tremendous advantages when you look at it as sort of getting four reactors with only building three in terms of electric output, in addition to the other specific benefits if you looked at it as only one reactor at a time that our fuel brings.

So the answer to your question is yes, absolutely, that is right. You would need a higher-power turbine to handle the added electricity. You would need higher power steam generators.

But in terms of the core of the reactor, the reactor itself, no; it is no change other than just use our fuel instead of regular uranium dioxide fuel in a reactor. Our fuel would change the core of an EPR to make 30% more electricity.

Here is a follow-up question. If your fuel operates at 1,000 degrees Celsius less than today's fuel, does this mean that if coolant was lost the heat of the fission products undergoing decay in the rods would be insufficient to melt the fuel? In other words, are meltdowns not possible?

Well, look, I never use the term not possible. It is possible to go beyond the design basis incident with almost any kind of industrial facility in the world where something becomes possible.

It is very unlikely. Our fuel is much more forgiving, would buy much more time, has tremendous benefits.

Fission products are a separate issue that over time start to heat up fuel again. One of the additional benefits, in addition to what we have spoken with on this call, are something that some of the engineers working on this fuel and other companies that have looked at it have called -- well, even if you ultimately could drive it to go over the cliff, we give you a parachute.

And part of what that parachute is, is that this fuel retains what is called a cooolable geometry, whereas the current uranium dioxide fuel rods melt, and start looking like limp spaghetti, and then coagulating down in a clump at the bottom of the reactor core and even burning through the bottom. Our fuel, the metal fuel has much better properties of transferring heat or coolness up and down the rod, because it is a metal rod and it keeps its shape.

And even with just some water at the bottom of that reactor, you are taking that coolant and transferring it up the rod. And you are retaining this shape, this geometry of the rod that, as you later get water back into that reactor, this is much more forgiving. I will ask our Chief Nuclear Fuel Design Officer, Jim Malone, to chime in on this point as well.

Yes, I think you captured it, Seth. The forgiveness of the fuel is related to the fact that it does remain coolable. And if there is any part of a fuel, the distinction between the metallic fuel and the uranium dioxide fuel is the ability to transfer heat up and down the rod, which the metallic fuel does very well, that the oxide fuel really does little if any at all.

So there is a significant advantage to our fuel of being coolable. And you are quite right by the way, about not saying it is not possible. We need to make that clear all the time, and you did a good job of clarifying that issue for the person that asked the question.

Here is a follow-up question from the same investor, who is asking -- does the 30% uprate possibility reduce reactor design costs and reduce the necessity for safety redundancies?

Well, I would say that is not what we are pushing our customers to do. This is designed to work in the reactor designs as they exist, without changing the reactor. Some of what is called the balance of plant outside the reactor, to take the 30% power uprate, you would have to change. And this affects everything from piping to pumps and valves to the turbine to steam generators if it is pressurized water reactor, and steam systems if it's a boiling water reactor.

So the reactor itself would be exactly the same but get a 30% power uprate by switching to our fuel. These ancillary systems, which are not that much different than you would see in a coal plant or a natural gas plant, like the turbine, would need to be designed to take added power.

They have some margin in them, which is why we say you could switch a current reactor to our 10% power uprate fuel in some reactors with hardly changing a thing, because they already have 10% margin less than the plant. But they don't have 30%, so you'd have to build a new reactor for that.

And one of the reasons we don't want to change the reactor, just the ancillary systems around it, is that it is a much lighter regulatory burden to build essentially the same nuclear part, the same reactor, but just switching to a new fuel.

And what was the second part of that question, Gary?

Cost. Does the 30% uprate fuel lead to reactor design cost reductions?

No, it is not going to lower the cost of designing or building a reactor. It is going to lower the whole cost of the project, though, and make it more profitable. And the whole point you're building the reactor is to sell the electricity, and you are going to sell 30% more electricity than you would have if our fuel hadn't been used.

So the profitability of that reactor, the reason why you are raising capital and building it and operating it, is going to be improved. I will ask Andrey Mushakov, our Executive Vice President for International Nuclear Operations, to comment on this.

Yes, with respect to the cost for a 30% power uprate fuel variant for newbuild nuclear power plants, as Seth pointed out, there's going to be some additional incremental capital costs associated with higher-capacity steam generators, turbines. And also you have to basically enlarge the containment structure to be able to accommodate this 30% power uprate.

So there will be some additional capital costs. But since it is a newbuild reactor, those costs are not going to be 30% greater. They are going to be just on top of the cost of standard equipment that that plant would use without the power uprate.

So that incremental capital cost is going to be less than 30%, according to our in-house economic modeling, and you are going to end up with reduced cost of what is called total levelized cost of electricity generated, which is basically all of the capital, O&M, operating and maintenance, and fuel costs on a per-kilowatt-hour basis. So there is going to be a reduction in that cost, but basically the reduction is going to be probably a little bit less than 30% because there are some -- fuel costs will go up somewhat because of the -- a 30% power uprate requires more fuel or higher enriched fuel, etc.

So overall, there is going to be a reduction in total levelized cost. It is just going to be somewhat less than 30% reduction.

This investor's follow-up question, the last question we have in today's call, is -- does safer fuel mean it costs -- does safer fuel mean lower safety redundancy costs?

I hope not. We are giving the reactors a fuel design that gives them a greater safety margin, that gives them a greater operating margin, that is much more forgiving that if there is an incident -- be it anything from an earthquake to a tsunami to an attack on the plant -- that this is a fuel designed to avoid having an incident, or if something happens, making it much less severe and much more forgiving.

I would not argue for lessening the defenses they now have in terms of redundancy of generators that can power water circulation through the core, etc. We have never argued that Lightbridge should be a reason for lowering the guard on existing safety systems. But given existing safety systems, this makes it quite dramatically safer.

There is a follow-up question now from another shareholder on the topic of 30% uprates. Are any of the reactors under construction being designed to accommodate 30% uprates? Or are they capable of being converted?

The reactors under construction could accommodate our 10% uprate fuel and, with some modification to some key systems, could accommodate our 17% uprate fuel. None of the reactors under construction could accommodate our 30% uprate fuel. That reactor would be -- in a sense the ancillary systems in that reactor, the balance of plant would be designed to take 30% more power, which as Andrey said is in a sense not a big deal. To build a turbine that can handle 1,300 megawatts instead of 1,000 megawatts, for example, is not rocket science. To handle these systems, these are things that are already done in the world, making higher-capacity systems.

So these are reactors that would be ordered to include the 30% uprate fuel. One of the benefits of our 10% and 17% uprate fuel is that there's hundreds of reactors in the world and more under construction on order that could use them as is.

That was the last question for today's call. I will turn it over to Seth for his closing remarks.

Well, thank you, Gary, and thank you, Michelle. Everybody, our lines are always open here at ir@ltbridge.com, not just during these calls. So please send us your questions, comments at any time. Our phone number is 1-571-730-1213; if we don't pick up, leave a voicemail. We get calls from all over the world and we will get back to you or post it on FAQs on our website, our frequently asked questions.

Lightbridge is well positioned to serve the rapidly expanding global nuclear power market with our fuel designs and our expert independent advisory services. We expect to have significant news to report to you in the coming quarters. Until our fourth-quarter business update, goodbye.

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