Westwater Resources Inc (WWR) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the first quarter 2009 financial results for Uranium Resources. (Operator Instructions) A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Deborah Pawlowski, IR for Uranium Resources. Thank you, you may begin.

Thanks, Jen. And good afternoon, everyone. We appreciate your time today and your interest in Uranium Resources. On the call today is President and CEO, Dave Clark; Executive Vice President and Chief Operating Officer, Rick Van Horn; and Tom Ehrlich, the Chief Financial Officer. Dave is going to provide some comments regarding the Company and today's release, as well as the outlook. And Tom, will then do a brief review of the financials. After that, we will open it for Q&A. If you don't have the news 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 news release, as well as in documents filed by the Company with the Securities & Exchange Commission. You can find those at our Website where we regularly post information, as well as the SEC's Website, which is sec.gov. So, 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. Dave?

Thanks, Debbie. Good afternoon, everybody. I hope you're enjoying a nice spring day. It is definitely one here in the east. On the March call, which was only a couple of months ago, I made the statement that I think that 2009 has the chance to be a very good year. Even though that was only a couple of months ago, there's been a lot of positive developments, which at least for me, reinforces that confidence that indeed, this can be a very good year.

On that call -- and I view this as an extension of that conversation, so, I'm not going to go back and revisit anything or very much of it. But what we discussed is basically our overall strategic plan, which has been for the last couple of years, to become a 10 million pound producer. We talked about the need to really focus on our Crownpoint uranium project, which is an NRC licensed project to produce up to 3 million pounds per year and then, we want to build our reserve base to 200 million to 300 million pounds overall to feed through that plant.

It is also, obviously, a time of stressed economy and the uranium market was under a lot of pressure. What I want to do over the next couple of minutes is really add clarity to that plan. Talk about how we plan to increase our reserve base and how we plan to resolve the issues that really brings New Mexico into production. I'll talk about that in three areas. First, market observations. Second, New Mexico developments. And then third, I'll talk about Texas.

As far as the market and the economy as a whole, the rally over the last couple of months would suggest, anyway, that the economy may be firming if not heading for recovery. That certainly is subject to beat but it's far better than the freefall, which we're at the bottom of in March. I think the uranium market has also been in -- forming a bottoming process here. I think there's reasons for that. At $40 a pound, which is where it bottomed out, there is economic incentives for producers to go out and buy and support this market. Not just because it supports the spot but you're now getting to cost of production issues. And before, when the market was extremely high or extremely low, the $40 over the last couple of years, it didn't make sense for a lot of producers to step in and buy to cover on the spot market, since they gained more economic benefit by selling their own production. There's also the items benefit that the long-term price came down $5 at the end of last month. So, it's because of that as well.

The other big development in the last couple of months is there's been a number of Asian utility investments in the mining industry, in both Uranium One and Dennison. I think this is confirmation that, at least from the demand side of the market, they're concerned about long-term supply. And the Asians certainly are locking up supplies more than US utilities are. I think it's confirmation that overall, the long-term fundamentals of the uranium market are very strong. And at current prices, it's just going to be reloading of the spring and lead the next price cycle.

We also talked last time about the affect of the economy on the nuclear renaissance; Would that hinder reactors' growth? We've seen a little bit of that in the US but certainly not as much as could have happened. We haven't seen a slow down in Asia at all. And as far as coal itself, since that last call, the EPA has come out and suggested they're going to put carbon dioxide on as a pollutant, which will give them the ability to regulate that. There was the Fly Ash still in Tennessee, which promises new regulation and higher costs for coal there. There's the suggestion that cap and trade will come under reconciliation. which will make it easier to get through Congress. And there's still the Obama statement from the past that go ahead and build coal, it will bankrupt you.

So, everything seems to be moving still very much against coal. And that's important for you or I, not just because it's promising for nuclear over coal. But it affects us in New Mexico, as well because the Navajo's biggest economic project on the books is Desert Rock. And they're having issues themselves, as well, with the anti-coal movement. So, long-term, the fundamentals are strong. Again, I think this is just setting the spring, pushing down the spring for the next price cycle. And we as a Company are trying to use these current market conditions to implement our plan, which is basically to increase our reserve base and resolve the issues. It's strategically far better to acquire reserves when they're cheaper versus when they're higher.

In New Mexico, again our long-term plan really is to increase our reserves from the 101 million pounds, we currently have up to that 200 million, 300 million pound level and become that 10 million pound a year producer, mainly through New Mexico production. Which would suggest we need to resolve the issues that have blocked it so far. So I'll first, look at the building of the reserve base and how we're doing that. And then, look at the -- how we plan to resolve the problems in New Mexico. Again, we have a 3 million pound a year license from the NRC to produce at Crownpoint. That gives us a great competitive advantage as far as acquiring reserves. We are years ahead of anybody else who, if they plan to ISR mine in New Mexico, will have to go through their own NRC process. It took us seven years to get that license.

We spent the last couple of years also spending a lot of time and effort and money evaluating our database at Crownpoint, information that's been acquired over the last 20 years by all of the mining companies out there. And now, is really becoming the time when we can get the value out of that database. We know where the reserves are, we're evaluating the best prospects. Ones that will build our reserve base, with low cost ISR reserves that can be fed through the -- or processed through the Crownpoint project. Currently, we're engaged with a lot of companies in New Mexico, just looking at varying options we'll have to acquire reserves. All I can at this point, the environment is very favorable to implement this part of our plan.

As far as; How do we become a major New Mexico producer? Again, obviously, we need to resolve the issues with the opposition, as well as the Navajo. The primary one in the past has been the legacy problems from past mining. The Navajo has said in the past that, "We won't be for any new mining until you clean up the problems with past mining." This really is two separate issues. There is old problems of legacy mining that were done before environmental laws were passed, nobody denies these. It's simply a question of; How much needs to be cleaned up and how do you clean it up?

But then, there's the safety of future mining. Again, you hear a lot of people talking about, we certainly make the case that with environmental laws, with ISR mining in particular, it can be done in a much more environmentally safe manner than it was in the past. What the downturn in the economy has done for us is, it is making a distinction between these two in allowing us to [complete] those. So, there is no -- there's a recognition of the legacy problems and its environmental -- future mining can be done in an environmentally safe way. Future mining can be also part of the resolution to the legacy problems.

What we are seeing in New Mexico is not just movement behind the scenes anymore. We're seeing a lot that's taking place publicly. Last week, there was a task force in New Mexico. Everybody was at the table, from Native Americans, the industry, legislators, environmental groups that are in opposition, state and federal regulators, local officials. Again, everybody was at the table. And you really can't resolve issues until you get everybody to sit down and talk about them. It was a very constructive meeting. It may have suggested the political sands are shifting.

Another evidence of that is Governor Richardson was in [Grants] for a public meeting a couple of weeks ago. He made a public statement. He said he is in favor of uranium mining, as long as it can be done in an environmentally safe manner. That's certainly something we agree with. Governor Richardson in the past, has been, when he was a Congressman, supportive of uranium mining. He has really not been in the forefront lately. For him to come out and say that, suggests that it's not just hearsay or us saying that the political sands are shifting. We are seeing evidence of that.

And really, safety is the issue. It has to be done right. And we certainly believe that is the case. In the past, a statement like Governor Richardson's would be one that would block mining. "And we agree, I am for uranium mining, as long as it can be done safely but we don't agree that it can be done safely." With the current economy, we think that's back on the table and there's serious discussion on all sides on; How can this be done safely? Because the economic benefits are important to us.

We are seeing a lot of interest by government agencies. I talked last time in March about what Sandia National Laboratories was doing. They're looking at using monitored natural attenuation, to see if it could be applied to solution mining, ISR mining. We're working with Los Alamos Labs to look at some of our mine reserves, to evaluate the effectiveness of the current baseline evaluation process. We're working with the United States Geological Survey on giving them data and cores from a mobile test pilot that was ISR in the early 1980's. So, they can look and evaluate and see what the effectiveness is over a 30-year period after it has been cleaned up.

There's a lot of work and study being done on the federal level. And we're taking the lead as far as helping make sure that that's pointed in a way that not only advances the science but can be done in a way that also helps us verify the science and be able to communicate that to the public. Certainly, the task force helps. The changing political landscape also helps. As does the work we've been doing with the Navajo. We are doing a characterization of our Section 17 at Churchrock. It is a property that was extensively studied as part of our NRC licensing process. We think it will verify what we already know but it will demonstrate to the Navajo that we're not trying to hide anything from them. And that's the manner and the spirit we've engaged with this.

It also gives us a chance to work with them, as does the recent decision by the 10th Circuit Court that affects our UIC, underground injection, permit process. What this decision really means is, it states that the EPA and not the state has jurisdiction to issue this permit. It's something that's been important to us because we already have a state permit. So, it was a case that could be made that if we won, we could get the permit sooner. If we recognize the EPA, we have to go through their process, which could be later. Where this stands, is we have until June 1 to file for what's called an en ban review, instead of just a three judge panel. You throw it back to the full court.

The opinion, as it was written, suggests to us, that that's what the three judge panel suggests that we do. We have 90 days from that issuance date to take it directly to the Supreme Court, as well and that would be a mid July date. Our interest really is just to acquire that UIC permit, from either the state or the EPA and hopefully, in a manner that is acceptable to Navajo. And why is that important? This decision really affects only Section 8, which I have 8 million pounds on it. A large percentage of our reserves are on Indian country. And the vast majority of reserves that we would acquire through low cost ISR mining are also affected by Indian country issues.

So, we want really to resolve this issue in a way that benefits us both, not just you or I and our shareholders but the Navajo as well. They've had their own problems with the EPA. As I said earlier, they had the Desert Rock coal plant, the EPA has filed -- they had issued a permit for the Desert Rock plant. They filed with the court asking if they can rescind that permit, basically study it some more. That is certainly not a positive development for the Navajo. It is something they're relying for, for jobs, for revenue. It's an important consideration from them. They've been basically making the same arguments for Desert Rock, as we've been making for uranium, which is this is not coal mining in the past. It can be done in an environmentally safe way. That the economic benefits from this outweigh the environmental issues. And we've been making the same argument with uranium and it resonates back to them, as far as what they're trying to do with coal.

With the current economy, I'd say that we're moving more towards having common interests with the Navajo versus moving the other way. We want to mine uranium in an environmentally safe way. And they certainly want to get the economic benefits from uranium mining their own reserves, if it can be done in a safe way. As for the UIC permit, we will advance in a manner that -- with the courts or directly by filing for permits, that can get us that permit. And we also want to do that in a way that doesn't handicap the process in the future, not just for us but for the Navajo down the road. If they change their mind and they want to develop their own reserves, since they do come under Indian country, it will be part of the EPA's jurisdiction. But we'll work with them, as far as something that can benefit both of us.

As for Texas, on the March call, we thought we'd have 25,000 to 30,000 pounds of remaining production at Kingsville Dome. We produced over 31,000 pounds in the first quarter. Through April and May, we've already produced about 5,000 pounds. We don't expect it to continue much longer. But as long as it's economically viable and gives us profit, we'll continue to do so. We've really shifted our focus to restoration activity, which I talked about extensively on the March call. We can be far more efficient and cost effective when it is our full-time focus and not divided attention with producing pounds.

We've also mentioned, briefly in the release, that we have the ability to process the by-product material. This is really sludge that's built up in our evaporation ponds over the last 20 years of production. We know there's uranium in the pond. Whether it can be commercially profitable to produce that, is one consideration. What we do know is, there's probably enough value in there to at least cut the cost of reclamation on cleaning up those ponds. So, that will help us lower our reclamation obligation ponds or possibly give us profitable operations, if we can do it in a commercially viable manner.

We have -- we're getting close to the end of the injection phase of the hydrogen project, which is what we're doing with Texas A&M at Kingsville. Part of this process was to look at the technical considerations of injecting hydrogen into groundwater. Generally, we've been successful in that. We do have evidence of reduction around the injection well. But the main part of this experiment is really to see if we can enhance natural bioremediation by adding hydrogen to the aquifer, which allows bacteria in the aquifer to grow and they're the ones who do the reduction. So, this is an over time experiment, not just a result of direct injection.

Over the next two months, we'll be doing water samples out on the Kennedy Ranch, which is a large ranch, that's been an exploration target for UR for a long period of time. The industry released results of the NURE, National Uranium Resource Evaluation Study, which was in the early 1970's within the past month or so. What that study showed was there was a lot of uranium in well water back before there was mining in south Texas. This survey was done back when looking for uranium anywhere in the United States was a priority. Thousands of wells were analyzed. Kennedy Ranch was not one of them but it is a good exploration tool, so we're basically replicating what NURE did in the 1970's on the Kennedy Ranch. I believe it's 165 wells. And if there is uranium on the property or in any of these wells, we should get some indication of that, which is a very low cost, efficient way to do exploration.

As far as Texas itself, I said on the March call, there's many valuable pieces that can be brought together to build a profitable production Company in Texas. We've been engaged in all of the parties in south Texas, that have those pieces. We're currently evaluating all of the information we've gained in the -- what is the best course of action for us. And as I said earlier; Do we want to rebuild our Texas assets, if that opportunity is there? Do we want to monetize the assets? Are we a buyer or a seller? The process itself has been lot of interesting options for us but I'd say at this point, it's too early to conclude which way we want to go.

In conclusion, there's a lot of promising developments in New Mexico. I think, again, this year could be a very, very good year for us. Not only build our reserve base but to head towards resolution of this problem. As far as Texas, we will be able to find out this year whether we want to rebuild Texas or monetize some assets there. The focus of the Company really is New Mexico. That is the opportunity but there's also economic benefits to be gained from Texas. So, with that, I'll turn it over to Tom for the financial results review. Tom?

Thanks, Dave. Our production in the first quarter of 2009 totaled 31,600 pounds. Since October of last year, our sole production source has been from our Kingsville Dome project. As we previously announced we had shut down our Rosita and our Vasquez sites. So our production costs for the quarter came in at $25.23 a pound. And these are made up of operating costs of just over $20 a pound and our DD&A costs of over $5 a pound. Our DD&A costs are down dramatically from prior production years, as a result of the write-downs of uranium properties we saw in the third and fourth quarters of last year. Taking those costs and running through the income statement last year, eliminated the base for which we're using to -- use for a depletion base for our production.

At the end of the first quarter, we had just over 40,000 pounds of uranium inventory, which was proud at an average cost of $22.64 a pound. We utilized this inventory by making uranium sale at the end of April of about 36,600 pounds. The average price of the deliveries, again made at the end of April, were $48.85. Resulting in revenues of approximately $1.8 million, which will be recorded in the second quarter of this year. Our sales revenues in the first quarter of '09 were $1.4 million. We sold 27,600 pounds, with an average sales price of $51.51 a pound.

Looking at our costs of produced uranium sales for the quarter, the direct cost of uranium sold for Q1 '09 was $1.1 million or just under $40 a pound. The direct operating costs of sales were $31.50 a pound. And the depletion and depreciation costs of sales for the quarter came in at $8.38 a pound. Our royalties and commissions expense for the quarter was about $140,000 or $5.03 a pound, representing about 9.75% of our sales for the quarter. Our cost of sales also included $182,000 of impairment provision, related to the write-down of the carrying value of the Company's uranium properties during the first quarter.

Our corporate expenses, including general and administrative costs, were $1.5 million for the first quarter, representing a $1.3 million reduction from the same quarter last year. As we've announced, we've implemented significant cost cutting measures that began the fourth quarter of 2008, which have been realized in reducing our G&A costs this year when compared to last year.

Moving on to our sources and uses of cash. Our cash balance at the end of March was $10.1 million. During the quarter, we used $1.6 million of cash and operations. Our uranium sale in January brought an operating cash in the beginning of the quarter. And for the balance of the quarter, our operating activities include the building of inventory and work towards restoration and reclamation activities in our south Texas projects, which consumed about $0.5 million dollars worth of cash.

Our first quarter 2009 CapEx for uranium property, plant and equipment was significantly reduced from where it was last year. We spent about $200,000, down from the $4.8 million in the first quarter of 2008. The reduced level of capital costs incurred for our uranium projects, again, corresponds with our decision in the fourth quarter of 2008 to defer future wellfield development at both our Kingsville and our Rosita projects. During the quarter, we also increased our restricted cash by $43,000 to back the collateral for our south Texas financial surety obligations. And we also paid $42,000 in financing and capital leases during the quarter.

Our operating cash, as I said at the end of the quarter, was $10.1 million. At the end of April 30, our operating cash was about $9.4 million. Since the end of the quarter, we've again continued to -- with our production activities and we expect to do so, provided that our production rates continue at or above our break even targets. As I noted earlier, our uranium sale at the end of April generated $1.8 million in receivable, which will be converted to cash in the second quarter. Upon the cessation of our production activities, our monthly expenditures are currently projected in the $500,000 range. We are continuing to review additional cost reductions, as well as revenue generating strategies as Dave had mentioned, in order to minimize our monthly net cash outflows.

The only other thing is that during the month, we had mailed out to all of our shareholders, the proxy statements for our annual general meeting, held June 3. I'd encourage everybody to get their votes in and call in if there's any question on those. Dave?

So, questions.

Your line is live.

Yes, we're opening for questions.

(Operator Instructions) Our first question comes from the line of Charles Smith with SG Management. Please proceed with your question.

Hi, Mr. Clark. I have a few questions that are related to the 10th Circuit decision. Considering that the Supreme Court only takes about 1% of all cases that are applied for it, for review from a lower court, why don't you -- is there a reason why you're not going to apply for the EPA permit right away?

As I said, we're going to proceed in a manner that will get us that permit as quickly as we can. And that's certainly not out of the question. There's a consideration that if you apply for the permit, you may lose standing in the court case but we're evaluating, again, the best manner to move forward. There's a lot of considerations involved.

And how expensive is it to apply for an EPA permit and what's the duration of time that the EPA generally takes in order to resolve these issues?

It's a one to two year process. We have actually filed -- filled out the application and filed for Section 17. And pretty much in position to do that for Section 8, as well, at Churchrock, before the court ruled last time in 2007. But it's not a -- this part of the process is not time consuming to file the permit application. The EPA will then go through, ask questions to verify everything in the application is correct. And then you enter a public process, which is where it gets more expensive.

So basically, you'll wait until the judicial process is done, the application to the Supreme Court on everything else. And then, at that point, apply to the EPA?

No, I'm not saying that at all. What I'm saying is, we will produce in a manner that get us -- we think, will get us the UIC permit in the shortest period of time. So, I'm not ruling out anything at this point in time. Again, part of what we're trying to do is build a relationship with the Navajo, to communicate with them. We have until June 1 to make a decision on whether to apply for en banc or not. Your initial comment was that the Supreme Court only takes 1%. That is correct but they tend to take a high percentage of Indian country issues. And this is -- and part of the reason for carrying it en banc, in the opinion itself, if you read the opinion -- if you read the dissent, the other Circuit Courts disagree with the 10th Circuit ruling on this and other cases. And when you have a disagreement between Circuit Courts, that's an area where the Supreme Court gets involved.

Thank you very much.

Thank you. Our next question comes from the line of David Snow. Please proceed with your question.

Could you bring us up to date on what you are seeing for the outlook for the uranium price?

Again, I think we're in a bottoming process, David. It's been pronounced just lately by Cameco and Denison that they think the price is moving higher. I think that's certainly a possibility. What we were facing in 2009, not just from liquidation in the fall of investor physical inventory, we've got the Lehman Brother panel out there, as well now. But you had a time period where US utilities and foreign utilities were pretty much covered for 2009 and 2010. We'll we're moving through 2009. We see it, as I said, at $40, increased producer interest in buying pounds. So, I think you can certainly continue to move up from here. It is still a thin market. It wouldn't take a lot of demand to drive it higher. But that's just the state. It can do anything.

Okay. And that you said that this decision affects only Section 8?

It is a -- again, Section 8 is land that we privately own. It's a question of this Indian being country or not. If it is Indian country, then the US Government, EPA issues the permit. If it's not Indian country, then the state of New Mexico issues it. It's simply a jurisdictional dispute. Section 17 at Churchrock was one where the Company had to give up the fight on whether that was Indian country or not several years ago. So, that's deemed to be Indian country. So, that would come under the EPA. For Section 8, if we won the case, in the end, it would come under the state.

Okay, all right. And so, you're really trying to fast track a lot of the in situ development. The two years that you've spent in doing the study has -- what percentage of your potential pounds out there are amenable at this point, do you think, to ISR?

Good question. When you get to the west side of the district, most of it's ISR. So certainly, Churchrock, Crownpoint, Unit 1 where we had license of 27 million pounds, we don't have it leased because the BIA recognizes the Indian -- or the Navajo ban. So, everything to the western side tends to be ISR amenable. Everything to the eastern side, will be conventional mining.

And so, the western is about 50% of the total?

I would have to get a breakdown on that. West Largo, which is west of Roca Honda, appears to be ISR amenable. Certainly, anything you can conventionally mine. So, 50% is probably a good number or more.

Okay. And so, you think that you can bring the Indians on board with this ISR technology, is what I'm hearing you say and jointly pursue that as a way to move the logjam forward?

I think it's -- we're not saying -- we can conventionally mine as well. And again, there was no regulation for it when conventional mining was mostly done in the '50s and '60s and even the early '70s. The EPA wasn't formed until 1971. But it's an education process, uranium mining in the future is a lot different than it was in the past. Certainly, when you look at the environmental footprint and effect of ISR mining, you don't end up with tailings piles. And part of that is a concern, once you bring it to the surface and it's there, then you have to safeguard it for a period of time. So, there's issues with old conventional tailings as well. But it is all about safety and demonstrating to the Navajos that future mining can be done safely. Be it ISR, be it conventional mining. We have the NRC license for ISR, so that's why that's what we're pursuing at the Crownpoint project, as well as Churchrock.

Okay. Thank you very much.

You're welcome.

Thank you. Our next question comes from the line of Lynn [Hedagart], private investor. Please proceed with your question. Lynn, your line is now live.

Operator, let's go on to Paul Stouse.

Paul Stouse from Rice Voelker, your line is live.

Hi, Dave. I just had one quick question on the work that you guys are doing at the Kennedy Ranch. I may have missed some of it but I think you guys said that you guys were testing some wells there to see if they are -- if there's sufficient uranium there. And I wanted to know how long that would take to test the wells? And who's paying for that testing? Is that something you guys are doing for your own account or is that sort of contract work?

It's -- what we propose at the Kennedy Ranch, because again, as I said on the last call, if you have uranium in your groundwater, you want to know it. So, they've never done the survey. Is it safe or is it not? If it certainly has a lot of uranium in it, it's economic value to us and they need to know about it. So, what we proposed at the Kennedy Ranch was; we'll go in there and we'll pay for the survey. So basically what you're doing is you're testing for uranium, the best indicator of uranium ore is Radon. So, you test the Radon, which has a [halfway between these] so the results are pretty quickly known as far -- as how you're doing this. And it's a very inexpensive way to get a survey of that Ranch to see if there's uranium close to their wells. And it hasn't been done before. So, that's the first way that you would do exploration but it's very cost-effective versus drilling.

Okay. Thank you.

Thank you. Lynn Hedagart, your line is now live.

Yes, I would like to know if you have any idea how much inventory is left in the Lehman holdings?

I probably know as much as you do. The public statement was 500,000 pounds. Hold it for market recovery. As I've noticed in the past, when things like that are out there, that it's a target people know about it. If the market is weak, it can overhang the market but it's certainly a size that can be swept off the market. Just like the Iraq was swept off a year ago by Cameco. So, it won't overhand.

How do we know when it's sold?

I think that is -- it's certainly -- they're in bankruptcy so it is a question of the courts and getting court permission to sell the assets.

Thank you.

Thank you. (Operator Instructions) It appears there are no further questions at this time.

Okay, thank you, everybody for taking time out today. I hope that you have a greater understanding of what our strategic plan is, which is how we plan to increase our reserve base to 200 million to 300 million pounds. And how we intend to resolve the problems. And hopefully, it gives you a little bit better view of the big picture for developments as they come -- as we move through the year. Again, thank you very much and have a good one. Thanks.

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