Westwater Resources Inc (WWR) 2007 Q4 法說會逐字稿

Greetings and welcome to the Uranium Resources Incorporated fourth quarter and year-end 2007 earnings release conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded.

It's now my pleasure to introduce your host, Ms. Deborah Pawlowski, Investor Relations for Uranium Resources.

Thank you and good afternoon, everyone. We certainly appreciate your time and interest in Uranium Resources. On the call today we have President and CEO, Dave Clark; Tom Ehrlich, the Chief Financial Officer; and Rick Van Horn, Executive Vice President and Chief Operating Officer. Dave and Tom are going to review the year-end results and update you on the Company and we'll follow with a Q&A. If you don't have the press release discussing our financial results, you should be able to get it on our website at Uranium Resources.Com.

As you are aware we may make forward-looking statements during the formal presentation and the Q&A portion of the teleconference. Statements apply to future events which are subject to risks and uncertainties as well as other factors that could cause the actual results to differ materially from where we are today. These factors are outlined in our earnings release as well as in documents filed by the Company with the Securities and Exchange Commission and you can find them at our website or the SECs website which is SEC.gov. So please please review our forward-looking statements in conjunction with these precautionary factors. With that let me turn it over to Dave to begin the discussion.

Thanks, Debbie. Good afternoon, everybody. Thanks again for your interest and time in listening to this call and your interest in the Company. I especially want to thank any of my Irish brothers that are out there that are delaying their celebration of St. Patrick's Day to actually listen to this. We sent out the K this morning and the press release and there's a lot of information there, I think it is going to take a lot of time and effort for people to absorb but what I want to do is give you an overview of the three major headings of hopefully put our Company and our strategy in proper perspective for you. I'd like to talk about, first, I'm going to talk about market observations and particularly something that happened last week that has turned me very bullish on uranium. Second I'd like to see positive developments we're seeing in Texas I believe will help us realize our goal longer term to produce 1 million to 2 million pounds per year. And third I want to talk about the solid progress we're making in New Mexico which I think will lead to the first production in New Mexico in the next couple of years since 1999, and will leave us as a leader in that state, and that has the potential to produce 15 million to 20 million pounds per year.

So everything I'm going to discuss really all comes together in the form of our strategic goals and our strategic plan which is to be a 10 million pound producer by 2014 and to build our reserve base up to 200 million to 300 million pounds of uranium and as always, it's not just a plan that's important but how we plan to get there and that's kind of what I'd like to address today.

As far as market developments, it's pretty rare that I come across a piece of information that changes my views on things. Last time that happened and I talked about this often when I'm on one on ones or speaking on calls was the demand for a primary production chart that was in the WNA report which their upper case scenario showed by 2030 a demand for primary production 360 million pounds per year and it's not just that level in that year, at that point in time they showed an increase, rate of increase of 13 million pounds per year and the question I always ask is where is this going to come from? That is a story we all know the long term fundamentals for uranium are there, we all see the long term market is strong and yet, I ask the same questions everybody else is asking is if you have these long or strong long term fundamentals why has the spot market been so weak? If the fundamentals are there, what is happening here?

Basically the way I look at it over the last five years there's been three phases to this market. The first one was, call it the nuclear renaissance phase, the threat of global warming, nuclear power coming back, rising demand, the reality that existing production could not meet that demand, it's what fueled this, has been the underlying fuel for this market for quite a long time. They got a further leg up in 2006, 2007 when there was supply disruptions from Segall lake coming on from Ranger and all those things combined help drive the spot price up to $138. At that point, it was a question of was that too far too fast and some kind of retrenchment wasn't out of the norm.

What's happened since is theres a lot of speculation is will the nuclear renaissance be delayed, be deferred, will it take a lot longer for reactors to come online in the U.S., is the infrastructure in place for reactor manufacturers to bring on these reactors? And with that is a feeling of if the demand is delayed, does that give supply enough time to catch up? These are all legitimate answers and legitimate questions, questions I've been asking myself as well.

But last week there was something that happened and you probably all caught it, but it was not just our market, it is every market that expected the same way and that's the news that came out of China. China, the country, I think is a poster child for what the world could look like without nuclear power. Every time I talk to businessmen coming back from China, they talk about the choking pollution, you read every day in the newspaper about athletes threatening to stay home from the Olympics because they're worried about their health. It is a Company that is not part of the accord, so they've been bringing on coal plants at a rapid rate. If there is one country in the world that actually needs nuclear power, it's China and it's not really a question of cost, it's a question of need. They should be building these plants and they are.

In the WNA report issued in September, the upper case scenario for China by the year 2020 was 36 gigawatts. China's official forecast was 40 gigawatts, what they came out with last week is they now expect to have 60 gigawatts in place by 2020 and that is significant. That is what's changing the outlook on many fronts. The latest UX showed 47 gigawatts by the year 2030 so now if it's going to be 60 gigawatts by 2020 what will the actual installed capacity be 10 years after that? That brings in a possibility of these way out predictions that some of you may have run across last year that you just kind of discount when you hear them that eventually China could have installed capacity of 300 to 600 gigawatts. I think the way they're moving and with the pollutions they have, it's something that definitely can come. This not only adds to annual reload demand, it brings in first core demand which can be considerable when you talk about a first core being -- the 1,000 megawatt plant being 1.5 million, 2 million pounds, you do your own math.

Now, China knows what its plans are and they know what the demand for uranium is going to be and they've been actively picking up pounds in Kazakhstan and Namibia and Australia, basically I think as the Western utilities sit around waiting for prices to go lower which is the industry and analyst perspective that the prices will stay high the next couple of years and then drop. I don't know that China will believe that given what their demand can be. I think the other thing that's very important for me is if the renaissance is going to be delayed in the West, principally in the U.S., would the reactor manufacturers make these investments to bring on the infrastructure for these reactors? The fact is the demand is there, right now, to do that in China and I think that gives the manufacturers the pipeline demand they need to bring on the infrastructure to advance nuclear renaissance and I think all that together is very bullish for me.

Now, where does the spot market go from here? I don't know. I think the Uranium Participation Corporation purchase of 900,000 pounds a couple weeks ago was very interesting, it showed a lot more demand than they raised, so there's still investor interest and ultimately for me it is not just the uranium price cycle that's important, it's the investor cycle as well and there, I think, any near term weakness or this feeling that maybe there might be time here before the next leg up comes in uranium, if investors leave it will hurt future supply coming online because it will hurt the financing for uranium suppliers, so any slowdown I think is only going to hasten the next major move up in the long term bull market. So bottom line I'm pretty bullish on uranium long term and whether its a gap or in the middle, I think that can be closed and any weakness can go towards inventory buying, Chinese buying, whatever, I think that's the right move forward.

I think what we see in investors is a flight to quality. They want advanced assets. They want to know that you have limited challenges bringing new production. They want to see strong management in place. They want to see near term production and I believe in all of these things that URI fits the bill.

As for Texas, we are a producer in Texas. That mine generates cash first to fund Company growth. It's also very important for me, as we're generating or training a new generation of geologists and engineers and management, I think that's crucial. It's been no secret, at least it hasn't been for my part that we are reserve limited in Texas. We've been talking about previously 400,000 to 500,000 pounds a year, we lowered the guidance for the third quarter and we now see 400,000 to 450,000 pounds for this year and next, and as I said in the past, our ability to increase or extend that is going to based on an exploration.

And what we've done in the last 18 months, first we had launched a drill out program of all our properties surrounding Kingsville and Rosita. Not just to see what was there but to allow us to develop the efficient economic manner. I think what we discovered along the way or certainly what I discovered is we as a Company were very good at making very bad assumptions. What we've learned from that is a question of every function we had moving forward. We have not finished that drill out program, there's still properties remaining but I think of those properties that were destined for the drill out program, they will add marginally to the reserve base.

We then moved into looking at acquiring properties, we acquired two last year, the Marshall property has shown some promise, it's going to need further drilling in 2008. The [Mosier] property is a pure exploration play and it's something we want to drill out this year. All these things together, it is -- everybody knows what we're doing in New Mexico, the almost cliche is then Texas will be our bridge to New Mexico. I have been spending a lot of time figuring out what is the future of Texas, given its reserve limited base and given the capital and talent needs of this Company, do we spend time developing New Mexico or do we spend time bringing on Texas? I think what's changed in the last several months is I've been in the industry long enough, or industry long enough to know that when markets rise, it brings opportunities and when markets fall, it also brings opportunities and when prices were rising not just us competing for properties but everybody else out there and the mineral holders would see everybody looking for these things and the prices going up and they were really slow to lease new properties. I think as prices fall and we're now seeing far better opportunities to obtain leases and I think that's a very positive event and I think it's going to our Texas Operations.

There's two areas that we're focused on. Our known reserves and some of these we've been chasing for years, the elusive mineral holders, again as prices go up they get a little reluctant to do anything quickly and the competition was chasing these as well. We expect to announce over the next day or two an acquisition with some of these, so it is not just something that we're talking about doing. It's something we're actually in the process of completing. And there's many opportunities beyond these as well.

Another area for anybody familiar with the Company is, and Texas in particular is there are some large blocks of land in Texas that are primarily the large ranches that were never explored for uranium, that were tied up with oil and gas leases. We're now seeing some of these free up and some of these coming into play, and all this to me is very positive, it doesn't eliminate the strategic question of where do we apply our capital and talent moving forward but I think Texas is on much better footing these days to be able to achieve our long term strategic plan producing 1 million to million pounds a year there.

Turning to New Mexico, as I opined earlier with the long term fundamentals of the business, there's no question in my mind, New Mexico is vital not only for the industry but the U.S. supply base, there's known indicated measured, inferred, whatever you want to call it of 600 million pounds plus in New Mexico, when you bag that with the 340 million pounds that have been produced in the past, this was a reserve base that was 1 billion pounds more and there's a lot more exploration potential for large discoveries in New Mexico. Now, we have raised our asset base to 101 million pounds, that's a solid base to achieve our goal, which is expanded to 300 million pounds which would primarily be in New Mexico. As those of you who are familiar with New Mexico, there's been two major hurdles which I'll discuss here. The one has been the Navajo ban which is something that has on the forefront for URI and the second is there was no uranium mill in New Mexico. I think we're making a lot of progress on both fronts. From everything we're doing across-the-board.

If you look at where we were a year ago, we were just beginning or working on a pre-feasibility study to see if we wanted to get engaged in conventional mining in New Mexico, the biggest problem there, there was no mill. We're now working to close the Rio Algom deal which everybody in the district basically sees my perspective is the place for the mill, conventional mill in New Mexico, but we've helped resolve that issue and it helps us rise as a leader in the industry. A year ago our focus was on Church Rock as our nearest term production facility and there was a lot of discussion on EPA decision, how that would affect us and it was the only project we had going. We learned last week that the oral arguments for -- in the Tenth Circuit Court of Appeals for the the Indian country issue are no scheduled for May 22. We have some movement there, we would expect after those oral arguments it would take anywhere from a few months to a year to get that decision.

We also have, working on the closing of the Rio Algom deal which will allow for conventional mining to come back into New Mexico in four or five years. We also announced in the release in the 10-K the discussion of open slope leaching and Ambrosia-Like ISR which we call ALISR. Both of these projects we feel will be in production two or three years. Our focus has been on bringing in production as quickly as possible in New Mexico so with the prospect of open slope leaching and ALISR and convention mining have come back, it has given rise in the state to a lot of interest in uranium, not just from a job standpoint, from a tax standpoint, it's been a very positive event.

And last here, we're just beginning our data evaluation. So far, we've digitized 16,000 logs which was 23 million feet of hole. Our calculation of replacement value is $700 million. The important part of that is also we've secured this data. It's all been paper data, and being able to digitize allows us to work for the better and secure.

We've also a year ago, we really had no large public relations program in New Mexico. We hired DW Turner, we've hired a government affairs personnel , we've developed strategy and we have a team in place to start to work on all these issues and I think that's crucial. We also had very little, or limited contact, let me put it that way, with elected officials both local, state, and federal. And now we're fully engaged meeting with all of these elected officials and I think it's important we're meeting with not just reporters of the industry but opposition because ultimately we think it's about education of the process. I think the best example of how we've made progress here is the Company and the capability of this Company, where something happened over the last 60 days, it was something that put forward in the New Mexico legislature that got the title of a legacy bill, it was not something we raised, it was something that was raised in the legislature as a way to help clean up whatever mine and mill environmental problems there were in the past and part of this has been in answer to the Navajos, who have been saying until you can clean up the past, we're against all future mining. So the legislature was interested seeing if they could tax new production at a rate of 2%. We were initially opposed to that but legislature asked us what we could do to help that or get on Board. We said if you can do it at $0.05 a pound, that's something we will back. So we were able to work with the House, with the Senate, with the leadership, the Bill passed the House and the Senate with two minutes left to go in the legislative session with wide support, not only was there a $0.50 tax but they also included half of the 0.75% excise tax that would be used to go into the fund to clean up whatever past legacy problems there were.

This came to Governor Richardson's desk last week, he vetoed it. That part of course got some press. I don't think it's a negative event that he vetoed it. First he wasn't involved in the process, but he didn't have input on it. He was out running for president and that's the problem. His principal objection was it's not enough money. Nobody in this whole process has disagreed on principal which is tying future production to help resolve the past which is why we are backing this legislation. It is something I think will pass next year. I think it's something that's very good for the industry. We've taken heat from others in the mining industry, not uranium industry, but it's something that helps resolve our problem. There's another thing that we've been doing in the state is the industry is funding through the state a study to look at what the problem is in the past, so cataloging all the remaining reclamation that needs to be done in the State of New Mexico including the Navajo Reservation so this will help us quantify the problem and then help us tie the fixing of the past to the future so I think that's all very positive and again, that's something that this Company is developing the capability of doing.

I think the move towards Rio Algom has been very much supported in the states. I think it will help lead us in gaining support from ISR mining. I think all these developments are based on one concept and that is education. Educating the public that any mining of uranium, either conventional or ISR is safe and environmental friendly. And I think that's ultimately what helped us resolve the issues with Navajo. For anybody who hasn't heard about this book, I suggest you get one of Cravens' book Power to Save the World, Chapter 3 is entitled Ambrosia Lake, it gives you a good overview of the uranium story in New Mexico, the past, present, and hopefully the future and she was an environmentalist who was against nuclear power she was from Albuquerque, she decided to take a fresh look seeing what global warming is doing like a lot of environmentalists, came back and basically investigated the whole fuel cycle and came away saying nuclear power is the answer. The things that she ended up researching and studying for New Mexico I think were important. Things that I didn't know that there's decades long studies on the effects uranium mining on -- or expected uranium minings on health of miners. What they basically discovered it really is a very very close tie between cancer from lung cancer which has been primary cancer, tied to non-ventilated mines and people who smoked, if you worked in a surface mine you didn't get cancer and if you didn't smoke it was a much lower incidence of it. So I would suggest you get that book. It gives you a good overview of the issues, it goes in the Navajo issue as well. That was Gwyneth Cravens' Power to Save the World.

Bottom line in New Mexico, I believe we are making great strides on all fronts, and the most important thing we can do is close the Rio Algom deal. I think there's three parts to that. One, we need to finish our negotiations on five deals which we talked about in the past. We are working on additional financing that will be needed, and then meeting the proper regulatory approvals.

As far as deals we're engaged with all the companies interested in New Mexico. I'm not going to say a lot about those other than everybody really sees the interest or is very interested in this asset. They see its value. They know it's needed to bring on New Mexico industry so we're getting strong support and interest in working these deals.

As far as moving toward financing, it has been a longer process than anticipated and the market weakness both in uranium and stock market certainly hasn't helped. The preliminary or main reason for any delay we've encountered really was the Company had to be reaudited, and so far BHP's the auditor they had would not stand behind the audit for the purposes that we needed it for. So the decision was made by us and BHP to reaudit Rio Algom for 2006 and 2007. That's a process that took three months. While in that process, we were also given a review letter by the SEC for our 2006 10-K which was refiled last week, all issues resolved and they were not major issues to begin with. They wanted for us to provide a lot more information on our properties, I think it's good information. There's maps included. We feel this whole process has been very positive because it means that the SEC has recently looked at our 10-K and reviewed it and that helps us certainly.

The last area is regulatory approval. What will be required is we're not acquiring the NRC license for the mill. We're acquiring Rio Algom itself, that will take a concurrence of the NRC. We are working closely with BHP to make that happen. We do believe that all these things will take place by the June 1, closing, I believe we will close it by June 1, we're working towards that way and with all parties involved, and there's no -- but there's no indication at all there's a regulatory delay that we will not continue to work closely with BHP to close the deal. I think it's in the interest of all parties and everybody has been working hard to get it done.

In conclusion, I think the long term market is very bullish. I think for the time frame we're bringing on our production is going to be very good for the Company. We are looking to take advantage of the opportunities now present us in Texas and we're looking at bringing on production in the next several years from open slope leaching and ALISR, in New Mexico looking to close the [(Ramble) deal, and we're working hard to resolve the Navajo issue. We are looking for avenues and making progress on communicating, and that is the important part where there's no communication before, we believe there's ways to communicate and help resolve this issue. For those that have heard me speak before, I think the legal avenue is a tactic, it's not a strategy, it's something that I believe we can resolve and negotiate installment. Bottom line, I think the URI is well positioned in Mexico, again would be the leader of an industry that can provide 15 million to 20 million pounds a year, and we're ready to do just that and we have the pieces in place to do just that. So with that I'll turn it over to Tom to review the fourth quarter and 2007 results.

Thanks, Dave. I'll be going over production, our sales costs we've incurred, other financial highlights for both the year-ended 2007 and fourth quarter of '07, starting with production, we with had just over 68,000 pounds that were produced in the fourth quarter. The bulk of which or 60,000 pounds came from Kingsville, and the balance was produced from Vasquez. This compares to about 104,000 pounds that we produced in the third quarter of '07. Because of the reduced production that we saw in the fourth quarter, our production costs rose into the $45 a pound range, with operating costs in the mid 30s, depreciation and depletion roughly $11.25 a pound. Production costs for the third quarter were in the $28 to $29 a pound range. The production change we saw in the fourth quarter compared to the Q3 '07 resulted again from the natural decline of the well fields that we've had on and the delay in timing from bringing on new well fields. On the bright side at the end of December, of '07, we did bring on a new well field at Kingsville. We brought on another well field this one at Vasquez in February of '08, and we are planning on bringing on another well for Kingsville expected before the end of this month. So we're bringing some of those new ones on to replace some of the well fields for an extended period.

Our annual costs for 2007 were $32.61 a pound for the nearly 417,000 pounds we produced. Our operating costs were in the $18 a pound range, DD&A was around 1460. These compare to our production costs in '06 for the full year of around $46.50 a pound for the roughly 260,000 pounds we produced. At year-end '07, we had just under 21,000 pounds of inventory and the carrying cost on those pounds was just under $36. Looking to our sales and revenues, fourth quarter sales were $8.2 million compared to our third quarter '07 of $10.4 million a reduction of $2.2 million. The decrease from the prior quarter was caused by both reduced sales volumes, we sold about 113,000 pounds in the fourth quarter compared to 128,000 in the third quarter and our average cost, sales prices that we realized also went down in the fourth quarter from $81.25 we received in the third quarter of '07 down to $72.72 for the fourth quarter of '07. The sales we've made so far in '07 have been at an average sales price of between 71 and $72 a pound. Looking at the total sales for '07, we were just over $31 million on 435,000 pounds. Sales in '06 were $8.6 million on deliveries, of 263,000. Again the average sales price for the year was 71.61, average price for the 2006 time frame was $32.63.

Moving over to our cost side, our direct costs for uranium sold in the fourth quarter made up of operating expenses and depreciation depletion was $38.72 a pound. This compares to a similar cost in the third quarter of $26.80 a pound. Our 2007 full year cost of sales were just over $33 a pound comparing that to 2006 costs which was just over $43 a pound so again we saw some considerable savings in '07 for the full year from what we achieved or saw in 2006. Royalties and Commissions expense for the year was about $3 million. This breaks down to just under $7 a pound or as a percentage of sales, approximately 9.7%. The amount in '06 was just under $800,000, again was to be broken down into just under $3 a pound, or just under 9% of sales.

Looking at some of our general administrative costs, the fourth quarter G&A costs totaled $3.4 million compared to about 3.6 in the third quarter this year. Total G&A costs for the year were $11.7 million compared to a similar cost in '06 of 6.8. The significant increases that we saw from full year '07 compared to the 2006 year related to our non-cash stock compensation expense which went up by about 1.6 million, increases related to adding staff and personnel of about 1.3. We had G&A costs related to consulting and professional service, services to evaluate our New Mexico database as Dave said, we enhanced our public government and investment relations and that went up by just about $1 million. Our other public Company expenses, we listed on NASDAQ this year, the continued SOX 404 compliance that we have, the addition of two new directors during the year increases costs by about $300,000, other office expenses related to the opening of an Albuquerque regional office, the increase in size of our DSW corporate office and increases in personnel also contributed for about a $250,000.

Looking over to our cash and cash flows, our cash balance at the end of the year was $9.3 million down from almost 14 at the end of the third quarter. During the quarter we generated positive cash flow from Operations of $1 million. Year-to-date, our cash flow provided by operations was a positive $11.3 million whereas in 2006 we consumed cash from Operations of $2.2 million. Other sources and uses of cash including our investing activities, our fourth quarter capital expenditures for uranium properties, plant and equipment totaled about $5 million compared to just under $6 million for the third quarter of '07. These expenditures were primarily for additional well fields at Kingsville of about 2.4 million, land acquisition well field development plant upgrades of about $1 million at our Rosita project, continuing well field development to bring Vasquez production on at about $700,000, costs associated with as Dave said the Rio Algom acquisition is was about $300,000 and then the acquisition evaluation of some of those new uranium projects and prospects in South Texas is about 200,000. Initially we used about $700,000 during the quarter for collateral to back financial surety obligation changes that we have related to our South Texas projects. The final area related to cash flows relates to our financing activities and these remained essentially cash neutral for the quarter from what we've seen at the beginning or at the end of the third quarter. So, that concludes the financial and operating aspect.

Operator? We can take questions now.

Thank you. (OPERATOR INSTRUCTIONS) Our first question comes from [Peter Holmans] with [Parkman]. Please proceed with with your question.

I have two sort of single word answer-type questions and one other. Where's contract to the extent the contract deals are being made versus spot, and my understanding as a non-lawyer is the only court that can overrule a Supreme Court ruling is the Supreme Court itself, the EPA definition of Indian Country which basically sent the case back to Tenth Circuit whose rule in the (inaudible) case unanimously overruled in '98, (inaudible) the face of the '98 ruling. So it seems to me given the ability of lower courts to -- the inability of lower courts to overrule Supreme, there's no way that the Tenth Circuit can affirm the EPA definition of Indian Country, is that your view? And final question is even though the governor did veto the legislation of the $0.50, am I correct in believing there's nothing impeding you or the industry from negotiating directly with the Navajos, absent any legislation once this study is done and when would that be done? A higher price which would be acceptable to them and they could without any legislation drop the moratorium.

Let me go back to your first question was between spot and long term.

Yes.

I didn't quite catch that.

Are you asking, Peter, what our current selling price that we're getting now or?

No. Sort of market wide, not just you guys, but sort of wide, is there a generic or industry wide contract price per pound which is different than from spot and what is that?

Well, the long term price is 95 and all I can tell you from my market experience is there's very few contracts are the same. They're all different.

But long term is something on the order of $20 above where spot is?

That is correct.

Okay.

And that is either based off good contracts or which apparently is also using a base escalated component and a market related component.

Right, okay.

As for your second on the--.

Supreme Court.

Supreme Court. That's my understanding as well, what the Supreme Court will hear cases 60 to 70 cases out of 8,000 that comes in basically on constitutional issues and whether they want to expand this certainly if it comes to them and they're going to overturn it they will hear it.

But the Tenth Circuit ruled in '96 the rule that made this six part definition of Indian country which the '98 Supreme Court ruling unanimously overturned.

I understand.

And the EPA use the Tenth Circuits '96 definition, so if the Tenth Circuit gets it back, wouldn't they in order to rule in favor of the EPA, have to be overruling the Supreme Court? And my understanding is that the only court that can can overrule the Supreme Court is the Supreme Court itself.

That's correct but I'm not a lawyer but generally things that get there, you grade them up just enough so it is a slightly different interpretation. The Supreme Court can certainly say there's no difference here, this is what it is.

And then finally, when is the study--?

The study will be done by the end of April is my understanding. It does not preclude and it is not being done just for the Navajo. It's being done from a statewide basis, a grassroots up effort to bring this industry back to the state.

But there is nothing--?

No, there's nothing at all.

You don't need legislation to negotiate with the Navajos with with respect to dropping their moratorium if you were to account for the higher price after the study?

No, we don't but I think it is what helps bring more people on board, the fact that we're engaged with the legislature to help resolve this issue, gain support and the more support there is that includes the conventional milling itself.

But you wouldn't be trying to try and negotiate with the Navajos without having legislation in hand?

Correct. That was not the reason for backing legislation, but it certainly helps.

Okay, thank you.

You're welcome.

Thank you. Our next went comes from [Jimmy Gilbert] with Rice Voelker.

Hi, it's Jimmy Gilbert, Dave, how are you?

Hi, Jimmy, how you doing?

I'm fine. I notice that you gave a number for in place mineralized material at new ISR site at Ambrosia Lake at 2.4 million pounds but I didn't see a number in the press release for the OSO project you plan to reopen at Ambrosia Lake. Do you have a number there and also, what was it producing prior to being shut down?

Well, there's a separation here. We have sections where we own the old mines. The process was done by both Rio Algom and Home Stake in the '90s so there's not just our section, certainly it's something that can be extended with the acquisition of Rio Algom but we would only be looking at our two sections and what we know we can can get out of there and additional sections after closing would be with (inaudible).

Okay. Thank you very much.

I'm not sure that's a total answer to your question. Again there's a lot of sections, I think it's an eight mile trend. Rick, you might want to elaborate on that.

Hi, Rick.

How's it going? Most of the 300 plus million pounds that came out of the district came out of the Ambrosia Lake area, and there's a trend, Rio Algom holds but we also have a checker board of where Santa Fe lands in the middle of this, that are our own sections and the two sections in particular produced 50 million pounds between the two of them. They consist now of old open stokes that are flooded and that's how the open slope leach works. The estimated reserve on these is almost impossible, however.

Okay. And could you just kind of talk just for a second, Rick, I didn't realize you were there. Could you talk for a little bit about the open slope process and how that works? I mean I've never heard of that before so I just wonder if you could tell me a little bit about it.

The uranium in the mines contains, or excuse me, the water in the mines contains uranium and basically what we do we pump the water out of the mine. We run it over resin much like we do in an ISR process.

Right.

And recover the uranium and then return the water back to the mines, and then so all we're doing is recovering the uranium that's basically in the waters, in the old workings already and in fact what we're doing is we're cleaning it up, but we're recovering uranium as we go.

All right

The process on service is basically the same as ISR.

Okay. Well, thank you very much, guys. That answers my questions.

Thank you. Our next question comes from Jack Salzman with Kings Point. Please proceed with your question. Your line is live.

Yes, I'm sorry, thank you. Hi, guys. I wonder if you could discuss a little bit about the needs on cash flow, if you expect to be cash flow positive this year, X'ing out the acquisition and a little bit of how you plan of financing this acquisition if you have a certain amount of dilution in mind, that kind of thought process? Thanks.

We're working on all fronts so just stripping out the Rio Algom acquisition is, we believe we're going to close that and I'm not sure we've looked at it without doing that so we're building up the expense to take over this Company and run this Company once we acquire it. From that aspect, we're not building cash. We're investing our cash. That would include -- Rio Algom as acquisition would includes acquisitions in Texas as well. So as the operations generated cash, we have been spending it. I'm not sure if that fully answers your question or not if you're still there.

Yes, I guess I'm curious if you can give us an order of magnitude in what you guys expect in terms of cash flow going in, cash flow going out, the financing or dilution if you're looking at equity, if you had something in mind in terms of what the overall total impact will be this year?

Part of what we're looking at is, I think I've got a better feeling for your question, as we said since we announced this acquisition, there is a lot of interest in New Mexico with other companies that also need this mill. We are in active negotiations with them, and it's what can we do with them not only for helping us finance the purchase of the mill but also financing the next year or two for gaining an operating license for the mill, so there's two things we're looking for. The cash we need to generate to close this deal and to advance these assets. So the major part, there's two major parts. What can we do and what will that cost to work with other companies and there's strategic and tactical considerations there and then what is available and what can be done in financing, it's working the two against each other. And that's all taking place at the same time.

Okay, thanks.

(OPERATOR INSTRUCTIONS) Our next question comes from David Snow with Energy Equity. Please proceed with your question.

Yes, good morning or good afternoon. I'm trying to find on my desk which is always an impossibility, an article that indicated that all the pressure vessels in the world are coming from one plant in Japan, an old sword factory that made cannons and is the only one that can make the single piece pressure walls and I'm wondering if the Chinese are going to not use pressure vessels or what? So how are they going to get around that constraint?

Well, the pressure vessel is what a reactor is so it's not a containment vessel, it's a pressure vessel so that's something that you need and that is something that has been one of the choke points that people have been looking at. I know some of the U.S. Utilities have been buying the essential pieces for reactors that they haven't ordered yet in anticipation that they will and they just want to be in line for this. I think my main point is that the way I see it is once there's sufficient demand for that, you build that infrastructure and you build the pressure vessel and everything else.

I'm seeing in the article would take five years and a if these people are hoping to get 60,000 gigawatts by whenever 2020, it's pretty difficult unless it's a different design of reactors that they're talking about.

It's not a different design but it's also, they're buying from the French, they're buying from the Russians, they're building their own, the Chinese method in the past is buy enough from the West until they figure out the technology themselves and then go for technology transfer and build their own. I don't think long term 300 to 600 megawatts long term they could essentially buy, they are going to all buy it from us, they're going to build their own.

I'm wondering if you could give me the I thought slope leaching was a marginal recovery process and how does, how many pounds per ton do you get out of that or what type of a recovery do you get there versus ISR and of what kind of cost per pound is it versus ISR might be another way to look at it.

It was -- Rio Algom demand there was up through 1999 and when prices dropped below $10, that gives you a relative idea, it was just the cash cost. All they were doing was circulating water and you get a certain part per million from the water you circulate and bring to the surface, and you want all the resin as long as that is economic to do it.

Is there any way to quantify the amount of recovery you get in terms of pounds for the effort? Is it a very small amount or what?

It is, I mean they were produced in the order of 200,000, 300,000 pounds per year. For most of the 90s.

Okay, so that was from a number of sections I guess.

Correct. You can elaborate on this, Rick, that you work on different shafts, different vent holes whatever and you produce from each one of those as long as it's got a high enough concentration, that's economic.

Then you move on to the next.

Thank you. Our next question comes from Peter Holmans with Parkman. Please from seed with your question.

Just Dave, you and I both know a consultant who follows the utility industry and is living in France and that person's view of why the spot market became soft in the latter quarter of last year was the first manages for utilities basically walking around money at the beginning of every year, and that allowed them to, allows them to respond to auctions that might be announced one day and be effective five days later, but that by September or October, that walking around money gets used up and so they have to, they still buy but they have to go get Board approval, so they can't respond to auctions, therefore there were fewer people at auctions but they should have all reloaded, if that analysis is correct, at the beginning of this year. Do you agree with that analysis as to why spot started to fall off last year and is it true that the purchasing managers for the utilities are in a position of having walking around money again and should that lead to more people at auctions and possibly more higher prices?

Knowing the utility budgeting process they will put in there what they expect to purchase during the year and question whether they buy it as part of a long term contract or a spot purchase is a decision they make through the year. I think when you get to the third quarter that's when the activity traditionally dropped off because people particularly in Europe go on Summer vacations then you get that strengthening in the Fall but I think ultimately the underlying part, at least from the utility part of the demand side is what is their uncovered demand, what do they need to purchase. They uncover a lot of that under a lot of long term contracts with spot purchase the last several years so the total demand by utilities I think is down. That simply makes it much more important, the question what are traders buying? What are the physical guys buying? What are producers buying?

Yes.

When the total volume is down it's not a question of how much demand is or how much supply is. It is a relative balance between the two and at certain periods of time it can get liquid. I think the market on the way up got way over extended, it was an extreme sellers market. Sellers were actually afraid to sell because they didn't want a delivery three months down the road way below market and then when it rolled over and turned down, buyers were the same way.

Okay. And how do you see demand, overall utility demand next year versus this year if you had, I know there's no crystal ball, but in conversations you must have gotten some anecdotal sense?

I think, and it's confirmed by what U.S., they put out a uncovered demand when they do a survey of utilities and what is their uncovered demand. I think the utility view, especially U.S. utilities is similar to the industry price view which will stay high for the next several years and then drop, so when you get out beyond the next couple of years a lot of U.S. utilities become uncovered because they expect the price to drop, why contract now when it will go down.

Uncovered meaning not contracted?

That's correct, and as I've said often markets prove the majority wrong a majority of the time and I think the consensus view is the opposite of the way it seems to be playing out.

Right. Okay, thank you very much.

Thank you. We have a follow-up question from David Snow with Energy Equity. Please proceed.

Yes, hi. I guess you had talks with the Indians in Washington last Summer. Has that progress of sorts of ending the Indian talk ban and does that mean you're inching forward and that you're able to open dialogue with them at this point or can you tell us anything about what transpired?

I can't give you great detail. I mean part of the Navajo ban is you're not allowed to talk to uranium companies if you're a Navajo or on the reservation, certainly as a member of the Navajo government. We respect that, so it's for us, it's a matter of finding avenues of communication. We've had direct contact with the Navajo on several issues so we see openings there. Again I think their issue is still about safety. We need to demonstrate that, we're working on that front, probably everything else we're doing in speeds so I'm encouraged. Where a year ago was when I got into this position I was talking about finding a way for negotiated settlement versus legal only means, and I think we've now had the team in place where that the now personified and moving forward and I'm very satisfied with the direction we've taken and the progress we've made and beyond that I am not going to get into details.

Wonderful. Now is the closing obligation 110 plus 35 and the pre-paid up front for reclamation?

Correct.

Okay, and then when you mention 200,000 to 300,000 pounds a year by Rio, you're going to do the same amount of sections or less sections, how would you compare in terms of that type of number?

We have a couple of sections we know we can do that immediately as far as how long we can do it would depend on whether we close the Rio Algom deal or not because they have, again, mines in the same area that would use the same process.

So it could go on for a number of years if you close the deal at that level I guess?

Yes.

Okay, and then I guess well okay that's it. Very much appreciate it.

Thank you. I'd now like to turn the floor back over to David Clark for any closing comments.

Again, thank you for your time and interest in the Company. Hopefully we answered your questions, again there's a lot of information in the 10-K that will take to absorb, so I'm sure Debbie will appreciate this if you have questions give her a call and if I can help she will put you in contact with me so again thank you for your interest and have a good day, thanks.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.