Westwater Resources Inc (WWR) 2008 Q3 法說會逐字稿

Greetings, and welcome to the Uranium Resources Inc. third-quarter 2008 earnings 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 is now my pleasure to introduce your host, Ms. Deborah Pawlowski, Investor Relations for Uranium Resources. Thank you, Ms. Pawlowski. You may begin.

Thank you, Doug, and good morning, everyone. We certainly appreciate your time today and your interest in Uranium Resources. on today's call, we have President and CEO, Dave Clark; Rick Van Horn, Executive Vice President and Chief Operating Officer; and Tom Ehrlich, Chief Financial Officer.

Dave is going to cover some comments regarding the beliefs in the Company's outlook and Tom Ehrlich then will do a brief review of the financials. Then we will open it up for Q&A. If you don't have the release, it can be found on our website, which is UraniumResources.com.

As you are aware, we may make some forward-looking statements during the formal presentation and the Q&A portion of this teleconference. Those 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 the release as well as in documents filed by the Company with the Securities and Exchange Commission. You can find those on our website where we regularly post information and at the SEC's website, SEC.gov. Please review our forward-looking statements in conjunction with these cautionary factors. With that, let me turn it over to Dave to begin the discussion. Dave?

Thanks, Debbie. Given all that's happened in the world in the last few weeks, months, not just the world but the uranium market in particular, I'm just going to try to give everybody an overview of what we've been doing in the past few months and, more importantly, where we go from here.

As I said on the August call, I believe we need to make do with what we have. And that includes our cash, our production, our people, and our assets. We also said at that time we don't need to be investing in new wellfields or putting money in the ground if we yet [receive there is] significant margin for it, given market risk, technical risk and geologic risk.

As far as what we have, obviously, we have cash at this point in time. We're doing everything we can to slash all nonessential spending, between the expense that is not common to us. We will make new investments only as they come to advance the Company strategy. Our initial goal is to make it through at least the end of 2010 on the cash we have on hand.

For production, we have been reducing capital expenditure, but we have not been putting money in the ground and taking that market and project risk. In all projects, be it Kingsville Dome or Rosita or Vasquez, you tend to end up with an average recovery of a project. Some of those wellfields end up being a lot better. Some of them end up being worse. At this point in time, you don't know that until you really put the money in the ground. We're not willing to take that risk. So we're not going to develop new wellfields. We will continue to produce existing wellfields to the degree that they generate positive cash.

The people of this Company have always been considered the strength, given their expertise. This Company has been in business for 31 years. We have very good, young talented middle managers.

Mining uranium is not easy. We've certainly proven that over the last several years as have most other companies. But we need to maintain moving forward that closed loop of expertise so that we can be a viable company down the line.

This Company also has considerable assets, not only pounds in the ground, 100 million pounds plus in New Mexico, and an NRC license. We have license plants in Texas, but we also have limited reserves in Texas. Part of what we need to be doing and we are working on is how do we monetize noncore assets. And I think that calls on seeking business solutions that doesn't require diluting shareholders. That is a guiding principle of this Company at this point.

As far as strategy, it remains the same. It's rebuild our resource base in Texas, where we can utilize our licensed plants and realize the value of those plants. There are other companies in Texas who are trying to develop resources without licensed plants. I think there needs to be again a business solution in Texas where there's a consolidation of our business there.

In New Mexico, we need to continue advancing towards production in that state. The oral arguments for the Tenth Circuit Court were heard on May 12. The window we were expecting at that time was two to six months, so it's now been six months. We have still not heard word. Don't know how long that takes. It's not really indicative of what that means, with the delay means. But certainly it is something we are looking forward to prevailing on, as we've discussed on past calls.

We're also still waiting on a drill permit to investigate or evaluate whether we have some ISR reserves on non-Indian country. We think we are close to that. We've received a draft permit for that and we are expecting that any day.

The election also is going to cause political changes in New Mexico. We don't know if Governor Richardson, who is a supporter of President-elect Obama will leave New Mexico. That seems to be the indication of the state. That would bring on the lieutenant governor, who we had seen as far more pro-business.

There's also federal elected officials in New Mexico who are term-limited, who could also remove some of the opposition that we've been facing. We need to continue to look to build political support in New Mexico.

One of the biggest issues in New Mexico, like every other state in this economy, is jobs, revenue. I think this is an easier time to address uranium because it can be part of the solution, not just part of the problem.

As we've stated in the past, part of our strategic plan is to acquire and build our reserves. So to build our 100 million pounds up to 200 million, 300 million pounds. And that's done in a bear market, not in a bull market.

Obviously, the October credit crisis affected the general market, affected the economy. It forced additional uranium sales to drive down spot prices. And that downward price has put downward pressure on long-term prices as well.

In the spot, long-term prices are crucial to us. We sell half our production under a spot contract to Itochu and the other half under long-term price indicator to UG. We're now getting in the mid to upper 30s from Itochu. We are getting in the low 60s, low to mid 60s from UG.

The problem is it squeezes our margins. We have to make investment decisions 12 to 18 months before we recognize the final production from a wellfield. So wellfields that were brought online this year has been developed or the money was starting to be put in the ground way before the market declined. So that part of the risk we have of the existing contract mix we have.

So again, that's one of the reasons why we stopped putting money in the ground. We do expect at some point the uranium market to turn around. I will talk about that a little bit later. But at this point, don't put any more money at risk unless we have substantial margin. You can expect a substantial margin.

Recent actions taken, we have stopped again new wellfield developments. The existing wellfields not only will continue to produce as long as they produce cash. If they don't produce cash, if they are near depleted reserves, we will shut them down. If they still have sufficient reserves, we will shut them in, bring them back later.

We are slashing all nonessential costs. We have closed our Corpus office. We closed our Albuquerque office. We have reduced salary and hourly workforce from 190 to 86. We are in the midst of reorganizing the senior management. We're going to take this Company down to its bare essentials and everything is on the table, including a salary reduction program.

Our objective is to maintain the core assets that we have, not just reserves in the ground, license facilities, but the core people that we need to move forward so that we can position this Company for the next bull market.

As far as the uranium market, the best I can say is the invisible hand is still at work these days. Demand-side fundamentals continue to improve even with this economy. And it certainly in the US, where President-elect Obama made the famous statement or revealed last week that if you want to build a coal plant, go ahead but it will bankrupt you.

At the same time, the supply side of the industry is facing a lot of serious challenges, not just technically, politically, economically. So as the demand side of the market continues to improve, the supply side of the market appears to be contracting. And I think, at least in my opinion, that sets us up for the next bull market. Not a question of if that happen; it will be when.

From the demand side the market, concerns over the last year or so, maybe longer, initially was the speed of the renaissance will that be delayed, will there be regulatory hurdles? There was new construction risk. Nobody wanted to be first. There was concerns about infrastructure bottlenecks. And certainly recently in this economy, what about cost. Are these investments too big to make?

As far as the speed of the renaissance, I make a couple of comments. What I was sensing from utilities for a long period of time was a reluctance to be the guinea pig. We are going to be building reactors in this country that have never been built, so we need to finish the certification process for the GE and Westinghouse designs and then somebody has to be first.

The industry, to its credit, has been addressing -- and government as well has been addressing this issue. New Start is an organization that was organized to work together, along with the DoE's Nuclear Power 2010 program, to get these two reactor designs certified and to see the construction of the first two plants. So instead of one company taking the risk, all the companies would be involved to get these plants certified and built.

I also sense that the fear is gone and that's giving way to pride. I was at the NEI meeting a couple weeks ago. And I hear anecdotal evidence that instead of people fearing to be first they want to be the leader in the industry. And the economy has changed, but where everybody was reluctant to be that guinea pig, now there seems to be a race to get those loan guarantees that the government set up, and to bring the plants online.

Outside the US, it was announced that last week by China, which I think continues to be the driver of this industry, they announced that they now expect to have 70,000 megawatts installed capacity by 2020. This is a further increase of past pronouncements. The last one was 45,000 gigawatts. Now that's a big number compared to the current installed capacity of 8500 megawatts. So in the next eleven years, they expect to raise almost 8/9 fold their installed capacity.

And part of that announcement they've said is not just the problem they're having with pollution from coal. It's also infrastructure problems. Last winter, they had a much colder winter than normal and you had transportation problems with coal and freezing coal piles and they lost capacity with coal because of cold weather. Interesting in a world of global warming concerns.

India has also announced last week that they plan to have 40,000 megawatts installed capacity by 2020. And they currently have 6100 megawatts of installed capacity. So that's a substantial increase in both China and India by 2020. In 11 years, their fleet will be larger than the current US fleet. And they will not stop there or they will continue to build to 2030.

Now with all those demand requests for reactors, again becomes a question of infrastructure. I think I announced or discussed on the last call, Mitsubishi Heavy metals or any heavy industries doubling their capacity, making the commitment, spending $0.5 billion to increase or double their capacity. We just announced in the last few weeks that Arriva and Northrop Grumman are going to use Northrop's Newport News facilities to build reactor heavy equipment in the US. So it will not only be additional capacity, but it will be home-grown so we don't have to import the large components for a new nuclear reactor. And it's been long my contention that if the demand is there the infrastructure will be built, and the supply-side industry seems to be doing that.

With all that positive on the uranium side, it's still a very negative environment for coal in my opinion. Vice President-elect Biden came out and said there will be no new coal plants built. President-elect Obama said you can build a coal plant, but it will bankrupt you. The problem that utilities face on the coal side is similar to the cost on the nuclear side.

The majority of the investment decision for nuclear, the rule used to be 80/20, is the upfront capital to build a plant, and then 20% is operating and maintenance and fuel. It's the exact opposite for coal, where the 80% of the cost is the operation of the plant and 20% of it is capital.

Moving forward, I think that gives nuclear a distinct advantage because it caps off what the capital will be moving forward. It may be expensive up front, but at least you know what your capital investment will be, and then you have a much lower operating and maintenance and fuel cost moving forward.

The problem with coal these days is you don't know what that capital investment is going to be if you have to go back and retrofit for clean coal technology. You have an uncertainty as to the capital investment. You also have an uncertainty to the cost of the coal.

Coal had doubled in price on the spot market over a year. It's also -- a large part of the cost of coal is the transportation from the mine site to the utility. So there's uncertainty on all sides for coal, which again, is the advantage of nuclear.

I also think there has been a response to the cost factor from a nuclear development standpoint. There's certainly an economy of scale for people wanting to bring on more than 1500 megawatt reactors, the largest reactors there are.

There's been a significant move also to midrange, midsize reactors, 500, 600, 700 megawatts, not only for developed countries, but for developing countries who don't need a large multi-billion dollar reactor. And that's not the only thing moving forward. There's also mini reactors. And the one that gets the most press these days is Hyperion, who has a 25 MW reactor that cost $25 million to $30 million. It operates for like six to ten years, you can transport on the back of an 18-wheeler.

Their intent is to build 4,000 of these initially and then an ultimately long-term 400,000. It runs on 10% enriched uranium hydrides. So that is something that will address the major cost component of building nuclear power plants, which, when you build a plant that's $3 million, $4 million, $5 million, it's a significant investment compared to the utilities market cap. But these smaller reactors, new technologies could be a significant player in the future.

Toshiba also has a much smaller reactor, which is a 200 kilowatt reactor, which is basically 2,000 100 watt light bulbs. Again, as the reactor -- as the [industry by] reactor manufacturers look at the factors facing nuclear power, certainly making small reactors with less costly investment is something that will allow nuclear to exploit its advantages over coal.

On the supply side, there remains a lot of technical risk, not just Cigar Lakes, Dominion of uranium won. There's certainly technical considerations for Olympic Dam, which came out with a new plan with no cost attached to it last week. But it would be a five stage development of Olympic Dam, starting in 2015 and ending in 2025. Part of their problem is if they buy product, it's not just uranium projects. It's also copper. The price of copper has come down more than 50% over the last couple of months as well.

Other aspects of the supply side is prices go up, costs go up. So the cost structure of the industry has increased substantially because a lot of it is labor, equipment, supplies, energy, costs have gone higher. We see that anecdotal evidence coming out of Kazakhstan, where their cost is not in the teens or the 20s anymore. It could be significantly higher than that.

Part of that is because of the 1100% increase in sulfuric acid last year. Not just the shortage, just the cost of sulfuric acid anywhere. Obviously, as the economy slows, the prices come down and that helps those factors, but there's certain things that just don't disappear and costs do remain high.

There's also a heavy debt load by a lot of companies in this industry, that took on the debt to develop projects that could face technical risks. And many of these are companies that are unhedged so in a falling market they have to service debt. So there's a lot of problems on the supply side of the industry. Obviously, I don't believe the problem will come on as quickly as in the past because of lower prices and because of these technical risks.

That said, the demand for primary production under the 2007 WA report, the uppercase scenario, [then get listed] before the Chinese and India additions to their plant capacity. Called for 3 times primary production by 2030, and that's not all that far away and that's a lot of demand in a demand side of the market that is only increasing, not decreasing.

So how do we position URI with all this? I think there's advantages and disadvantages when markets are in bull market phases and bear market phases that in order when prices go up, costs go up. We were facing, if you listen to these calls over the last couple of years, competition for people, supply, pipe. We deal in Texas where we're dealing with the oil and gas industry. Other competitors, the cost of leases went up, the cost of equipment went up. We had shortage of drill rigs and PFM logging tools. There were shortages everywhere, which drove our costs up. And frankly [there were few] business deals to be had because everybody was trying to advance what they had without very much cooperation in an industry.

When you have a bear market as we have and have had, those shortages are basically eliminated. The costs start to come down. Of course the asset values come down with that also. But I think it improves the environment for lower-cost business solutions to advance the Company strategy. We can acquire assets at lower prices. We can monetize noncore assets to continue our business.

Our objective is these. We want to position the Company as best we can for the restart that will come with the next bull market. We have remaining wellfields to be developed. We have not talked about the Rosita. We have obviously had a lot of technical problems with Rosita wellfield 8.

Part of the problem, it is a shallow deposit so we don't get the hydrostatic head-to-head oxygen solution. We tried various oxygens. We were able to double the parts per million recovery from that. But as prices started to go down and further techniques would have been applied, we did not think it was wise at this point in time to spend cash to continue working with Rosita wellfield 8.

There are other technical solutions. You can artificially raise the order table to increase oxygen absorption and uranium recovery. So there are avenues left, but not in this price environment, not with this uncertainty. And one of the guiding principles is to conserve cash, not to use cash to burn it and putting it into the ground.

We have limited reserves at Kingsville Dome, but a couple of wellfields that can be developed with additional license and permitting activities. We've been drilling at Marshall. We've had promising results there. It will take time to evaluate the ISR amenability of that deposit, but it is certainly something we think if it is ISR amenable and technically feasible, it is something that we can bring home in a couple year timeframe.

We are also looking for business solutions again in Texas, either joint venturing or acquiring reserves, utilizing our plants, recognizing the value in those plants. They are licensed facilities and that adds value. And where parties were less amenable to discuss, again, common solutions in the past, I think we all face the same problems and there will be ways to work together in Texas.

We also need to advance our New Mexico resources towards development. I do think that is easier in a bad economy. New Mexico has the same problems as everybody else. The number one issue is jobs. They are facing losses of revenues and taxes. Politicians are looking for solutions. The argument against uranium -- your argument for uranium is being heard. The argument against it becomes harder to make because people want to know the facts. Is this a possible way to increase jobs, increase revenues to the state.

So the arguments are being heard. There was a workshop a couple of weeks ago at Sandia Labs to look at the reclamation of ISR projects, which is one of the major concerns in New Mexico. It wasn't only Sandia but at Los Alamos Labs, which carry a high integrity in the state of New Mexico amongst the people there. They provide a lot of jobs. They want to and they believe that ISR mining is not only technically feasibly, but environmentally sound along the lines we've discussed in the past.

And then we see a lot of movement in New Mexico to build the support we need to bring New Mexico reserves online. Bottom line, when the market returns, we plan to be ready by continuing our strategy to rebuild Texas reserves and bring on New Mexico. That's basically where we are and where we're going at this point in time. And at this point, I'll turn it over to Tom to review the financials.

Thank you, Dave. In going over our third-quarter 2008 production cost and financial statement information, I will begin with production. We produced 62,700 pounds in the third quarter. The majority of that was produced from the Kingsville Dome project, which was about 45,200 pounds. We also had just under 10,000 pounds from Vasquez, and just under 8,000 pounds produced during the quarter from our Rosita project.

Production costs during the quarter were $68.52 a pound. Operating costs and DD&A were roughly split equally between that. Our operating costs were $34.78 a pound. Our depreciation and depletion were in the $33.74 a pound range.

At the end of the quarter, we had 33,600 pounds of inventory. The average cost of that inventory on the books at September 30th was $57.35.

Our sales revenue for the third quarter of '08 was $4 million on 66,300 pounds, (technical difficulty) an average sales price of $60.71. As Dave said, our most recent sales, we have had sales in the month of October. An average price on those sales was 56.76 -- I'm sorry, 56.76 pounds. The sales were 38,700 pounds, generating about $2.2 million of revenue, again, which will be recorded in the third quarter.

Looking at our cost of uranium sales for the quarter, our direct cost of uranium sold was $3.6 million, just under $55 a pound. Our direct operating cost was $26.42 a pound and our DD&A costs were $28.47.

Also during the quarter, we incurred exploration costs of just under $1 million, specifically, $962,000. Again, these activities were primarily related to exploration work done on the Marshall project in south Texas that Dave had mentioned earlier.

The largest component of our cost of sales for the quarter was a $10.9 million expense related to an impairment provision recorded this quarter. The charge resulted from our quarter-end termination that our net book value of our uranium properties were in excess of their estimated fair market values at the end of the quarter.

Now the fair value of each project was calculated by projecting the estimated future cash flows based upon projections for current and future production costs, sales prices, and the full-cycle economic estimates, taking into consideration the full life of the project. Based on this analysis, the net property values at Kingsville Dome and Rosita's were written down by $4.6 million and $6.3 million, respectively, at September 30th of '08.

The biggest or significant driving factor for the impairment in Kingsville was, as Dave said, the declining uranium prices that occurred between the second and third quarters. Of the $4.6 million of that write-down for Kingsville Dome, around 60% of that was directly attributable to the drop in uranium prices. As uranium prices dropped, obviously the projected cash flows related to the future production drops with that, and it resulted in a lower net present value of those cash flows. The balance of the write-down resulted from changes in future production costs and uranium production.

The impairment provision at Rosita resulted primarily from the changes that we saw in production cost estimates from that project based upon the experience that we had of bringing that production on during the quarter.

Royalties and commissions expense was $369,000 for the quarter, which equates to a $5.56 a pound charge or approximately 8.7% of sales. Our corporate expenses, including G&A for the third quarter totaled about $2 million. The breakdown of those major categories were non-cash stock compensation expense of about $300,000. Personnel costs, i.e. salary and burdens, of about $750,000. Consulting and professional fees of about $250,000. And then legal, accounting and other public company expenses of $250,000.

Moving on to our sources and uses of cash during the quarter, our balance at the end of September was about $13 million. This is down $3 million from what we had at the end of June of '08. During the quarter, we used cash flow from operations of $1.7 million.

We also had capitals expenditures of about $1.4 million during the quarter, the majority of these being at Kingsville Dome for wellfield development evaluation of about $200,000. And again, development costs at our Rosita and south Rosita projects of about $870,000.

Finally, our last bit of investing activities were related to the continuing financial -- for surety obligations that we have at our south Texas projects and that resulted in a loss of about $100,000 during the quarter. Dave?

I think we're ready for questions.

(Operator Instructions). David Talbot, Dundee Securities.

Good morning, gentlemen. I'm just wondering what sort of arrangements you've made as far as delivering into contracts at this point.

We have what are basically production-based contracts, so what we produce we deliver and it's sold. There's not a production quantity limitation or obligation. It's simply whatever we produce is sold.

Okay. And then you talked about monetizing noncore assets. Do you have a breakdown of what you would consider a core or noncore asset at this point? Are you going to try to keep that close to -- close at hand?

I think it's close at hand. There's multiples and it's not just from a negotiating standpoint. There's multiple considerations in there. As we [carefully] monitor the environment moving forward which way do we want to go, there's going to be certain strategic decisions based on how we want to move forward.

Okay. And I guess as far as potentially starting up operations again, is there a certain threshold that you're looking for? I would imagine you're not going to start up again just to breakeven, but you would be hoping for significantly higher prices going forward. Can you perhaps comment on that?

Well, I think, as mentioned earlier, the breakdown of our existing contracts. Obviously one is very favorable and one is very not. And part of what we need to do I think is getting a better contract mix.

Okay.

That is part of it so that we don't have to produce again for half our production at a substantial discount to spot market. So that is a consideration. What the realized price is, and this also affects us as far as leasing and buying reserves because it's based -- generally, royalties are based on what your sales contract is.

So one of the things we would like to get done in this period is just better our contract base and basically marketing has not been a major factor in this Company. It simply -- it's unhedged. It's gotten to these contracts to negotiate out of base [let's go to] contracts.

But to the degree that we can improve ourselves and protect ourselves do a down market to some degree. We simply take what the market gives us, and again, that has led to operational decisions that only pan out that you don't how they come out till about 12 to 18 months down the line. When prices were going higher, obviously, we were benefiting from higher prices. As prices went lower, decisions we had made all of a sudden looked more risky because of falling prices.

So the correct answer to your question, I think, and as I said on the August call, we need a significant return and not just 10% or 20%, I think it's a multiple, to take on the technical or geologic and market risk. But part of that is also again being what we can do with our contract base to remove some of that market risk.

Okay. And I guess just last question, taking a look at Rosita, it looks like there's, I guess this is a leach issue that you're having. And what do you see that you could do to turn that around should you bring it back into production?

Rick, would you like to handle that one?

Yes, we have several things we could do. We tested, as we have said, liquid base oxidants. They work. However, they're more expensive. We have looked at well spacing. Obviously, you put more wells in to cut the spacing down, that's going to be an increase in costs.

And as Dave mentioned, we have the possibility of artificially increasing the water level in the aquifer, which will increase the amount of oxygen that can be dissolved in the water, thus increasing the mining rate. All of these take money and increase the cost somewhat.

Right. Okay, thank you very much, gentlemen. Tough times. Hang in there.

Just to add to that, it's not a question of are the reserves there. It's a couple hundred thousand pound ore body reserve in the ground and we expect that it's not that it's not there. We just have to be able to put it in solution and get it serviced.

Right, okay, great. Thank you very much.

Paul Stouse, Rice Voelker.

Good morning, guys. I was wondering, can you guys comment on any developments that there are at Ambrosia Lake? I guess last I recall you guys were waiting on an exploration permit there. And given that you do get that permit, is that something that you will proceed with given the capital constraints and given what you know about the geology there?

I will give you an update because I just got the e-mail that we just got the permit this morning. We're heading into the winter months in New Mexico. It's already there, so it's something that would be deferred till spring anyway. Just because we don't want to be drilling in the snow. It's difficult enough. So I think we need to see what the environment is at that point in time. But again, it is something that we like.

There were several reasons to go after this permit. One, because we think it could be ISR amenable, so we need to test that. It will go non-Indian country, so that will certainly help. But it's also an environment where we wanted to prove to the state and local state to get this permit.

Other companies have applied for permits and not got them. We've had a very good relationship with the state. So it is as much an effort to work with the state and educate them, the regulators as well to move forward on this. So it took considerably longer than we were planning. If it happened sooner, we probably would have drilled it before the onset of winter. But it's a decision we made in the spring.

Is it a project that you guys would proceed with on your own or would you seek to attract partners to develop it, assuming that -- in order to explore it, actually, and test it, assuming that you do get that project?

It's something that -- it's a -- it's not a project that's big enough to bring on its own. It's one to test ISR amenable on non-Indian country land. So there's -- we go into different sections of Ambrosia Lake. Those deposits, it was always seen as a pilot somehow tied to the Crownpoint license.

Again, all options on the table. We need to make an assessment of that's where we want to apply our capital.

Okay, very good. Thank you very much.

Frankly in New Mexico right now, again, the speculation in New Mexico is, while Governor Richardson is there, will he go with the Obama administration if he goes? He has not been a vocal opponent of uranium mining, but he has not come out in support of it either. So it's basically been a, we're going to do nothing approach. And we do -- that gets us nowhere. So a changing political environment will also help us. That would change how we might be able to do business in New Mexico.

All right. Well, very good. Thanks a lot and good luck with things.

Peter [Homans], Parkman.

I know it's sort of a rough environment and I think you are doing exactly the right thing to make sure that when the market recovers, it 100% will. They're not going to stop using 190 million pounds of uranium a year. So I think you're doing a great job.

I had three questions. One is, is your -- was the cash usage this quarter reflective of what it's likely to be in the coming quarter? Or were you still in the process of cutting so that this quarter will be perhaps $0.5 million to $1 million less; that's one question.

Second question is if you wait until spring with Ambrosia, dos spring mean I've been in Santa Fe in March, are we talking spring March? Are we talking spring May?

And from the moment you put a bit into the ground, how long do you think, conservatively, it takes your engineers to assess the amenability of that property to in situ?

And I guess then the final question, and I can ask them again if this is too many at once. (technical difficulty) you did say that the utility companies and you guys are playing a game of chicken. If I understand correctly last year there was 230 million pounds or 240 million pounds contracted for against a background of 190 million of usage.

What do you think the actual, if you will overhang that, has to clear is? Is it simply the difference between 250 million and 190 million? Or is it bigger or smaller? And how are you looking at when the natural attrition of that excess purchasing works itself off?

I'll go in reverse order here. What I've heard from UX and other suppliers who monitor this far closer than I do is you start getting substantial uncovered demand in the year 2010, 2011.

There's another caveat to that, that a lot of what utilities think is cover demand could be with suppliers who will not be bringing on those mines.

Right.

So as part of BHP's announcement, they said that they are signing ten supply contracts mostly with European but some US utilities for the initial Phase I expansion of Olympic dams. If that is delayed, then the utility thinks they have a supply base and they actually don't, because it's going to be tied to production.

So there's those kind of considerations. But I think certainly all I've seen when you get to 2010, 2011, the uncovered supply base is significantly improved.

As far as (multiple speakers) on utilities, I've been in this business for 31 years. And it's always been the doors opening for one is slamming in the face of the other. And what I sense in this industry now is the price is down and I hear a lot of mining companies saying if you don't help us, we're not going to be around for you. That argument just never has worked for me.

I think we need to be working together and I sense real supply concerns amongst utilities. We don't need to tell them that. We don't need to whine. There are a number of utilities including some of the larger US utilities whose interest, and they've demonstrated this interest, is to do whatever they can to increase the supply base. No just enrichment, where you had three utilities step in and you get LES or three or four utilities step and get LES off line to increase the enrichment. I see the same desire in the uranium side of the business.

So they have the need. They have the money. I think you will see more utility involvement. Obviously, I don't [understand they degree install in the '70s] when they were buying up properties and they took on all kinds of risks in businesses there that wasn't their core business. I think there are business solutions that satisfy their needs and help us bring them the supplies they need.

Again, from a URI standpoint, New Mexico had 600 to 700 million pounds left, and it has a great exploration potential. Still it is the largest supply base and the largest uranium consuming country in the world. I think it is in the utilities' interest to get that online. That's certainly something that we're chasing.

As far as your second, how long does it take, I can let Rick comment on that. But basically the process is we're going to -- the permit is to drill up to 10 holes. We probably won't need all those holes. You then take core samples, send them to labs, and however long that takes. Rick?

Well, as Dave said, we have a 10-hole permit program. It may take less holes than that to do it. But then the core of the holes, send the core to labs and held leach tests on (technical difficulty) on the core, do mineralogical work on it. I would estimate sometime -- somewhere between four months to six months of actual testing of the core to come up with a final answer on where it was leaching from or not.

Okay.

As far as your first question, it happens in the fourth quarter or late in the first, or the third quarter. In the third quarter, we're still making investments in Rosita. We're still bringing on a couple of wellfields. So we were putting capital in the ground.

At this point we're not spending anything as far as new wellfield development. And we certainly -- the cost-cutting we're doing is going to be more significant in the fourth quarter than the third because of the [book] of three months versus a work in progress over the previous three months.

Okay, thanks very much. I apologize for the music. I'm in a Starbucks and I can't get them to turn the music down. But anyway, I think you are doing a great job and keep making the right decisions.

(Operator Instructions). There are no further questions in the queue at this time.

Dave, do you want to wrap it up?

Thanks for everybody's interest in listening in this morning. Again, I think it has been a very challenging year, to be sure, and last three months. We are trying to do everything we can to recognize that as a company. It has too many assets and too many good people to not get it right. And as I said earlier, uranium mining is not easy, but hopefully on the right track and we do appreciate the feedback that we get from investors and the suggestions they make, and hopefully will continue to have some faith in what we do.

Thank you very much and hope you have a good day.

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