Lightbridge Corp (LTBR) 2014 Q4 法說會逐字稿

Welcome to the Lightbridge Corporation business update and 2014 financial results conference call. My name is Vanessa and I will be your operator for today's call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

I will now turn the call over to Mr. Gary Sharpe, head of Investor Relations. Sir, you may begin.

Thank you, Vanessa, and good morning everyone. Welcome to the conference call for Lightbridge's business update and 2014 financial results.

Our earnings news release was distributed after the market close yesterday and can be viewed on the Investor Relations page of the Lightbridge website at ltbridge.com. We also filed the Company's Form 10-K with the Securities and Exchange Commission. Seth Grae, our CEO, will lead today's call.

In addition the following executives are available to answer your questions. Linda Zwobota, our Chief Financial Officer, Jim Malone, Chief Nuclear Fuel Development Officer, and Andrey Mushakov, Lightbridge's Executive Vice President for International Nuclear Operations.

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 our goals and 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 a 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 -- let me say that again. It's IR@ltbridge.com. If you have already submitted a question and we do have several, we thank you. You can submit them at any time during the prepared remarks or during the Q&A period. And then secondly, after the prepared remarks, the telephone lines will be opened for live questions.

Now let's get started. Here is Lightbridge CEO Seth Grae.

Thank , Gary. Good morning, everybody. Lightbridge's success in 2014 and now in early 2015 in achieving strategic milestones, is keeping development of our proprietary metallic nuclear fuel technology squarely on track.

By addressing the most important safety and economic issues facing the commercial nuclear energy issue, Lightbridge is well-positioned to realize high-margin revenue streams from technology licensing fees and royalties from a large international market for nuclear fuel. The Company is entering the seminal three-year period in its development with technology-driven competitive advantages, strong interest from key potential customers, financial stability and liquidity from the November 2014 equity offering, and accelerating momentum as pre-Fukushima activity resumes throughout the commercial nuclear energy industry.

We believe that Lightbridge, with our patented metallic nuclear fuel design, is much closer to commercialization than new reactor technologies and is far superior to fuel concepts involving some safety-related adjustments to conventional uranium oxide fuel rods. Lightbridge's unique fuel design addresses the key challenges facing the nuclear utility industry today by one, improving reactor offering economics, two, increasing power output from existing and new build reactors, three, advancing reactor safety due to dramatically lower operating temperatures which increases safety margins, and four, enhancing proliferation resistance.

I urge all of you to visit the Lightbridge website, ltbridge.com, for more details, including information on US and international patents, to protect our intellectual property, our projected future cash flows for licensing of our nuclear fuel, and the published independent validation of our technology as well as other sustainable competitive advantages of our innovative metallic fuel design.

The Lightbridge team is keenly focused on building on these advantages and momentum. Here's how we expect the process to advance in the near term.

Our fuel technology continues to attract strong interest from its initial customers, US nuclear utilities. At the most recent meeting in early March, just a few weeks ago, of our Nuclear Utility Fuel Advisory Board, comprised of senior fuel managers at four large nuclear utilities, Dominion Resources, Duke Energy, Exelon and Southern Company, which operate nearly half of the nation's nuclear electricity generation, we saw the strongest indication yet of enthusiasm and support expressed by these top fuel managers for our metallic nuclear fuel and its indicated benefits of more power over longer fuel cycles, with increased safety margins.

We remain committed to securing a letter from at least one US nuclear utility to the US Nuclear Regulatory Commission by the first quarter of 2016, expressing their interest in our metallic nuclear fuel. We understand that a letter or letters would set in motion a series of staffing and budgeting decisions at the NRC to support technical reviews of our fuel in advance of its commercial use.

Another important outcome of the March meeting is the fact that these four utilities have expressed their willingness to participate with Lightbridge in meetings with the Nuclear Regulatory Commission and the US Department of Energy. In fact, three utilities will join Lightbridge for our mid-April meeting with US Department of Energy officials to support our [metallic] nuclear fuel.

Expressions of commercial interest in Lightbridge fuel by the ultimate customers is key -- with our key stakeholders are essential to driving our business to revenue generation, first from technology access fees, and then from royalty payments. According to an economic study performed by Siemens, nuclear utilities can generate approximately $[60] million in incremental revenue per year for a typical 1100 megawatt electric pressurized water reactor by using our metallic fuel with a 10% power up rate and a 24-month operating cycle.

Nuclear power plants can generate a 30% to 52% return on an investment by switching existing reactors to Lightbridge design [field], assuming wholesale electricity price is in the range of $45 to $65 per megawatt hour.

Our upfront capital and regulatory licensing costs to accommodate one-time upfront capital and regulatory licensing costs, to accommodate Lightbridge fuel in an existing pressurized water reactor have been estimated by Siemens at approximately $85 million. If Lightbridge can capture 10% of our initial target market of pressurized water reactors larger than 900 megawatts with more than 20 years of license life at 2025 then we expect royalty payments to Lightbridge to be about $340 million per year.

Now moving on to progress and other critical path activities relating to our metallic nuclear fuel. In October, we announced an initial cooperation agreement with Canadian Nuclear Laboratories to fabricate Lightbridge metallic fuel samples at CNL facilities at Chalk River, Ontario, Canada. This work is poised to begin later in 2015 and continue through 2016, culminating in fabrication of enriched uranium fuel samples for test reactor irradiation under prototypic commercial reactor operating conditions.

The Lightbridge CNL agreement is important for several reasons. Working at Chalk River keeps our fuel development on track in a nearby friendly country, at facilities that are recognized throughout our industry for excellence in nuclear science and technology. Shifting this work to Canada reduces essentially all geopolitical risk that we face when this stage was planned at facilities in Russia.

To underscore the importance of derisking our R&D, in November we received export control approval from the US Department of Energy for all of the planned work in Canada. We anticipate in the coming weeks that Lightbridge's work with CNL will advance to the next level with our signing of a comprehensive nuclear services agreement. This collaboration will cement the framework for activities in 2015 and 2016 and combine in one single agreement what was previously envisioned last year as two separate agreements.

This agreement will be different from the October announcement. It will cover fabrication activities only, not fabrication and irradiation testing.

In February, CNL disclosed that the operating license for its national research universal reactor had been extended through March 2018 which is not long enough for our planned irradiation testing. As a result, our current plan is to perform irradiation of our metallic fuel samples and a pressurized water loop at the 25 megawatt research reactor operated by the Institute of Energy Technology at Halden, Norway. The operating license for the Halden reactor was recently renewed through December 2020, a timeframe that fits well with our anticipated schedule.

The Halden research reactor is a world-renowned test facility that has been widely used by the commercial nuclear power industry for irradiation testing of fuel samples, or nuclear materials. All major Western fuel vendors including GE, Westinghouse and Arriba, have conducted irradiation testing of fuel samples in the Halden research reactor facilities.

The expected shift of our irradiation tests from Canada to Norway keeps our R&D on track. We expect the major -- the first major results in late 2017 through early 2018 from irradiation testing under commercial reactor operating conditions. We believe these test results will allow us to enter into a commercial arrangement with one or more major fuel fabricators or development partners in the 2017 to 2018 timeframe.

Now it's my pleasure to introduce Lightbridge's CFO, Linda Zwobota.

Thanks, Seth. In November 2014, we raised $5 million in gross proceeds from the sale of about 2.9 million units of common stock in foreign currency to a single institutional investor. In 2015, we will continue implementing cost reduction program we began in late 2014, aimed at significantly reducing our corporate overhead. We intend to use the resulting cost savings for investment in our research and development operations that are expected to increase over the next 12 to 18 months.

Among the cuts was the closing of our Moscow office, domestic and international staff, also were reduced. In addition, we reduced cash compensation to replace equity compensation. We believe these initiatives underscore the alignment of Lightbridge's interest with our Board of Directors, management and staff, and with those of our shareholders. For the quarter ended December 31, 2014, Lightbridge's net loss was $1.0 million, or a loss of $0.05 per share on revenue of $0.4 million compared to a net loss of $1.2 million or a loss of $0.12 per share on revenue of $0.6 million in the fourth-quarter 2013.

For the year, the Company's net loss was $4.8 million, or a loss of $0.31 per share on revenue of $1.3 million. In 2013, the net loss was $4.9 million, or a loss of $0.37 per share on revenue of $1.9 million. Lightbridge's revenues are derived from consulting and strategic advisory (technical difficulty) for foreign government planning to create or expand electricity generation capabilities using nuclear power plants.

We successfully accessed equity capital markets in 2014 and we anticipate that additional equity capital was needed to propel Lightbridge's fuel technology commercialization. Back to Seth to wrap up.

Thank you, Linda. Momentum is building in the commercial nuclear energy industry, including at Lightbridge. On a weekly basis, more nuclear power plant construction projects and plans are announced around the world. Nuclear development in China, India and Europe is particularly robust. The global commercial nuclear energy industry is projected to grow rapidly as demand for reliable carbon-free baseload electric power increases.

There are currently 435 operating civil nuclear reactors in 32 countries around the world with more than 70 reactors under construction according to the World Nuclear Association. By 2035 the International Energy Agency of the Organization For Economic Cooperation and Development projects a 60% increase in nuclear capacity from the combination of power uprights and reactor construction.

Increased activity in the commercial nuclear power industry coincides with heightened awareness of nuclear's role in addressing global climate change. Unlike fossil fuel energy resources, nuclear is the only clean, sustainable and reliable source that addresses increasing demand for baseload power.

Lightbridge's fuel technology remains well-positioned domestically and internationally for more progress in 2015. Our near-term catalysts and long-term growth opportunities are clearly identified. We believe that our progress with these milestones will create tremendous value for Lightbridge shareholders and help solve key economic and safety challenges that the commercial nuclear -- face the commercial nuclear energy industry.

Now let's open the call to your questions. Remember, in addition to asking live questions by telephone, you can submit questions in writing to IR@ltbridge.com.

We will pause while the operator reviews the procedures for asking live questions. Vanessa?

Thank you. (Operator Instructions).

Thanks, Vanessa, and while we are waiting for the queue to build, there have been several questions that have come in via email to IR@ltbridge.com. Several investors have asked about industry support for Lightbridge fuel technology. I'll paraphrase it.

So how is industry interest or support likely to manifest itself at this point in the fuel technologies development?

I'll ask Jim Malone, Lightbridge's Chief Nuclear Fuel Development Officer, to take the question.

Thanks, Seth. As you heard in the presentation and the opening remarks, the Nuclear Utility Fuel Advisory Board comprising Duke Energy, Dominion Resources, Exelon and Southern Company has taken a very active role in working with us to support the fuel. They represent collectively 47% of the nuclear generation in the United States. That's a very significant number. They are actively engaged with us, suggesting things that might improve the fuel from their perspective which we always appreciate, and they are willing to take the time and the money and effort to do things like attend meetings with us as indicated with the Nuclear Regulatory Commission and with the Department of Energy.

The Department of Energy meeting will be coming up next month, and keep an eye out on our investor page to see the summary of that meeting which is going to be significant.

Thanks, Jim. The next question that's come in via email. Lightbridge has acknowledged that its fuel technology is valuable and that M&A overtures are probable at some point in the future.

How can the Company signal to the industry that Lightbridge is ready? How would that -- such a transaction be structured?

The nuclear power industry is a relatively small industry in terms of the numbers of companies. I don't think Lightbridge or any other participant in this industry needs to do much to signal to let everyone else in the industry know what we are doing. They do know. And many of us serve on advisory boards and other committees around the industry to bring us in direct contact with pretty much every major player in the world in nuclear power.

What we are doing is going through our plan, where we are going to have a letter from utilities to the NRC that we believe will be made public by the NRC showing industry support and interest in our technology, the NRC will begin licensing activities, the Department of Energy is also showing interest in becoming involved with us which would be very public. And we expect as we said that with the first commercial type result of our fuel samples at the reactor in Halden, Norway, operating under prototypical pressurized water reactor conditions coming out in 2017 and 2018. And at that point the industry can see confirmation of results of fuel operating under those conditions, will be a triggering event for when we will have a major commercial arrangement with at least one major global player in the nuclear industry.

Now that might not be the M&A overture as alluded to in your question, that could be a cost-sharing arrangement, that could be some other type arrangement with Lightbridge that ultimately potentially could lead to M&A type activity. But in the end, we are preparing to be a licensing company. We do intend to operate this company and bring in very large recurring annual revenues from licensing this technology to the reactors around the world.

Here's a question that's just come in from an institutional investor. It's related to that last question. It's what is the status of potential financial support from a nuclear fuel fabricator?

Well, right now, what we have as we mentioned in the opening remarks is support from utilities, which buy the fuel from the nuclear fuel fabricators, and these utilities are starting to contribute in-kind to the effort. Including sending experts to our offices to assist us that we are not paying for, including sending experts to meeting with US government officials, particularly at the Department of Energy next month.

We don't think this is the right time, and we don't have offers from fabricators for financial support of a project. The fabricators will sell fuel to utilities, and the more utilities express their interest in the fuel, the more that interests the fabricators. We are already seeing that in some tangible ways. But in the end we expect to be and plan to be a non-exclusive licensor to multiple fabricators around the world, so we need to be careful that we don't create conflicts of interest in how we structure arrangements with any one fabricator.

All right. Here's a question from an individual investor. Has Canadian Nuclear Laboratories signed the Phase II agreement?

Canadian Nuclear Laboratories signed the Phase I agreement in October, and that work has all been completed successfully. What was regarded as the Phase II agreement to be followed by the Phase III agreement by around the middle of this year are instead being combined into one agreement for that work, which we expect to sign most likely within weeks. We are very close to the final signature on that, and that will cover the nuclear fuel fabrication in Canada and then we will have the testing and the reactor of that fuel in Norway. And as we said the Department of Energy in the US has already granted the nuclear export control approvals for all of that work in Canada as well now for that work in Norway.

All right. The email questions are focused on the work in Canada, here's another. What can be done to demonstrate progress in Canada, preferably sooner than later, and the related question, are there any risks that that work won't be finished?

I'll start and I'll ask Jim Malone then to pick up. I think first sign of progress you'll see is the announcement of the signing of the combination of Phase II and III agreements. You'll see starting fabrication of fuel without uranium enrichment, then with uranium enrichment, that will be transported to Norway for irradiation in the reactor.

There will be several intervening steps that will be quite material and quite public, and I'll ask Jim to comment on that.

There are several steps as Seth indicated to the entire program of fuel sample fabrication at the Canadian Nuclear Labs. They will basically pilot the process to develop the right capability in the right settings if you will to tune their presses and their extrusion processes to make sure that the samples are going to be truly representative of the fuel that would be placed into a power reactor.

So that will take some time. In the world of engineering, there's a little bit patients required, as you work through the concept to get it to the repeatability stage. And by that I mean the samples will come out consistent with all of the properties as expected and we will be developing some measurement techniques to verify those properties on the pre-irradiated fuels that we know what's going into the test reactor is the right stuff and therefore the results we get from the test reactor will be accurate.

Thank you, Jim. Here's another question from an institutional investor. Please review the status of the prior ongoing and future work in Russia. Are any additional Russian scientists being brought on staff by Lightbridge?

The short answer to that last part is no. But I'll start and then I'll ask Andrey to add more color to the question.

Lightbridge over the course of many years had a very good and very productive relationship in Russia. And the work that was done in Russia was very valuable to our Company. We were originally taken to and guided to Russia by the US government which had programs with Russia to help encourage cooperation in the nuclear energy areas between the two countries, and we've worked with US National Labs and with the Department of Energy and with the State Department to -- under their cooperation programs.

I would say our work in Russia was a world-class quality icing that was superior to that which we could have obtained elsewhere, and very much moved forward with the program. When it came time to move this multi-year commitment to fabricate fuel now, not just for research reactors and testing research reactors as we had done in Russia, but for a much larger research reactor that could operate under commercial reactor conditions, we made a decision to move the project out of Russia. And this was before the worst -- worsening relations relating to Crimea and Ukraine.

This was a decision we made partly sort of seeing the writing on the wall, committing this Company to a multi-year multimillion dollar program in Russia would be too fraught with risk of relations between the countries, potentially interrupting it. So, we are going forward in Canada and Norway, which as we've said, have virtually zero political risk, including with each other. And they work very well together and with the United States. We've already received the US government approvals.

It turns out that had we decided to go forward in Russia, it wouldn't have worked. That our export license application relating to the work in Russia has had all the approvals from the US side except the final signature of the Secretary of Energy which he cannot give because Russia, for over a year now, has not given what's called the nonproliferation assurances needed from a foreign government for any nuclear export control application relating to Russia from the United States. Not one, from any company at all.

And we don't know when or if those will be forthcoming, I think that is a political issue between the countries. So even had we decided to go forward in Russia we would now be coming to a standstill in the work there.

So let me turned it over to Andre to comment a little more detail than what was done in Russia and perhaps what we would've done there and why we shifted the work.

I think what I want to add here is that -- the technology that we currently are developing the nuclear fuel designs are derived or based on the Russian very successful experience in the Russian icebreaker reactors that use similar type of metallic fuel for many decades.

Similar composition of the metal (multiple speakers) --

But also the different designs we currently have on those are different from the ones that they used, but the material composition was very similar. So we have a lot of confidence in the performance of our metallic fuel because of that Russian icebreaker reactor experience that we have seen. So the political -- geopolitical risks associated with Russia that started really manifesting themselves to the fullest extent last year really accelerated our decision to move away as quickly as possible out of Russia because we couldn't really risk our entire critical path program on any potential delays, political risks, etc., associated with deteriorating political relationship with the United States and Russia.

So as Seth mentioned, we started looking at other sites and facilities before 2014 before all the events that unfolded in Crimea and Ukraine, but those events really kind of signaled our strategy was correct and a switch to alternative facilities was the right strategy for Lightbridge moving forward (inaudible) critical path activities.

In terms of path in Moscow or in Russia consultant etc., we still utilize a handful of highly experienced, valuable technical consultants, they're just consultants. So we pay them upon deliverables they provide, they do some fuel performance modeling work for us. It's very valuable that they have actually been doing for the last five or seven years.

So they're still continuing to dose individual and in contractors, and the best extent of the work that is still ongoing with respect to Russia. Do not currently have any plans to do any kind of tests or experiments or any significant amount of R&D work in Russia.

Thank you, Andrey.

Here's a question related to ongoing development in fuel from an individual investor. It says, will new or additional licenses or permissions be needed to send or release first fuel samples Norway for testing? If so, what is the process and timing to achieve these permissions?

The fuel samples will not be sent from the United States. They will be sent from Canada to Norway. And this type of thing is done frequently.

You have to remember now with the reactor coming toward the end of its license in Canada, the Chalk River site will be a place that fabricates nuclear fuel samples, but won't have a reactor. And at Norway, they have a reactor, but they don't fabricate nuclear fuel samples. So these two actually go together very well.

In terms of US export control under what's volume 10 of the Code of Federal Regulations under part 810 which is the Department of Energy regulations, we've already received all export clearances for everything. From Canada and for Norway. And that's done. From 10 code of federal agents part 110, that's Nuclear Regulatory Commission regulations, there is a need for an NRC license under part 110 for any shipment that includes US content.

So the plan in Canada is that they are actually going to be using Canadian content or non-US content in the fuel that would include uranium enrichment from Europe, and as a fallback they also have uranium enrichment from Russia in Canada as we do in the United States. There's also a possibility of using US uranium enrichment, so for that we are going to go ahead and obtain a license under part 110 from the NRC. Just in case by the time they start shipping fuel to late 2016, there is a need to use any US enrichment.

But it's very unlikely that that will even happen, it will even be required but we are going to get that, I think, as potentially longer-term it's a good asset for our Company to get.

Okay. Here are some other questions that have come in over the Internet via IR@ltbridge.com. First one, what is the annualized burn rate for your research and development expense?

Andrey, do you want to take that?

Sure. For 2014, our R&D expenditures amounted to $1.5 million. For 2015, as we mentioned earlier, our R&D expenses are expected to increase and right now we estimate those R&D expenses to be over $2 million. Somewhere around $2.2 million, $2.5 million.

Actually it'll be more than half of the Company's overall budget.

That's correct. R&D expenses and (technical difficulty) costs would account for more than 50% of the overall cash expenditures. (technical difficulty)

Next question. Similar line. How much have SG&A expenses been reduced in 2015?

That seems like a logical follow-on, Andrey, if you want to take that.

Yes. Compared to 2014, the projected amount of corporate overhead expenditures in 2015 is expected to be reduced by at least 35% on a cash basis.

Over $1 million.

Right, over $41 million.

(multiple speakers) million.

Operator, Vanessa, would you please remind our participants how to ask live questions, if they have any, one more time, please?

(Operator Instructions).

It doesn't appear there are any additional questions in the queue.

I do not have any questions over the phone either.

All right, then. Let's turn it back to Seth for a few closing remarks.

Thank you. Those were very thorough and excellent questions, we appreciate your sending them in. Until the next conference call our lines are always open at IR@ltbridge.com and 1-571-730-1213.

We hope you share our optimism for Lightbridge's improving position in the rapidly expanding mobile nuclear power market and the opportunity to serve that market with our fuel. And thank you very much, everybody, and goodbye.

Thank you, ladies and gentlemen, this concludes today's conference. We thank you for participating. You may now disconnect.