Westwater Resources Inc (WWR) 2011 Q1 法說會逐字稿

Greetings and welcome to the Uranium Resources Incorporated first quarter 2011 quarterly update 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, IR for Uranium Resources, Incorporated. Thank you. Ms. Pawlowski, you may begin.

Thank you, Jackie, and good afternoon, everyone. We appreciate your time today and your interest in Uranium Resources. On the call I have with me President and CEO, Don Ewigleben, who will discuss the recent events of late. You should have the release that we just put out and you should have the release that went out last night regarding our joint venture in Texas. He'll also review our outlook and strategic initiatives for the Company as we move forward. On the call we also have Tom Ehrlich, Chief Financial Officer; Rick Van Horn, Senior Vice President of Operations and Exploration, as well as Mark Pelizza, Senior Vice President of Environment, Safety and Public Affairs. We'll conclude the call with an opportunity for questions and answers.

If you don't have today's release or last night's release, they both can be found on our website at www.uraniumResources.com. As you are aware, we may make some forward-looking statements during the formal presentation and the QA 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 and Exchange Commission. You can find those on our website where we regularly post information about the Company, as well as on the SEC's website at SEC.gov. So please review our forward-looking statements in conjunction with these precautionary factors. With that let me turn the call over to Don to begin the discussion. Don?

Thank you, Debbie, and thanks to all who have joined us this afternoon. I'd like to begin by reviewing what we believe were the significant events in the first quarter of 2011 for URI and then I'll discuss our plans for the remainder of the year and beyond. Without question, the leading issue of the quarter was the devastating tsunami in Japan that crippled the Fukushima Daiichi nuclear plant and frankly created unnecessary and uncertainty in the uranium market. On March 11, as all of you know, a 0.9 magnitude earthquake rattled Japan with a subsequent tsunami which caused massive destruction. The disaster that developed at Fukushima nuclear power plant has had and will continue to have an effect on public perception of the nuclear power for years to come. We recognize that. Many countries are conducting thorough safety checks of their own nuclear facilities and Germany has gone as far as to close several of their facilities.

Let's look specifically at the US. President Obama has stated that the United States will stay the course and continue to develop nuclear power as the President seeks to increase the country's clean energy supply. What had been a growing public support for nuclear power pre-Fukushima has now eroded sharply since the disaster. According to a recent CBS news poll, public support for building new nuclear power plants in the US has fallen to an all-time low. Even lower than immediately following the 1979 Three Mile Island incident. Yet, Japan's nuclear crisis won't prevent construction of the four to eight reactors planned for the construction in the US in 2020, according to the Nuclear Energy Institute. NEI doesn't expect the situation in Japan to have a major impact on nuclear plant licensing in the US.

While the crisis in Japan has added uncertainty, as we mentioned, to the outlook for US nuclear power, the Nuclear Regulatory Commission is still scheduled to vote on nuclear reactor licenses this year. Southern Company's plan for two reactors in Georgia may be approved by the end of the year. SCANA Corporation's proposal to build two reactors in South Carolina might win the NRC approval this year or in early 2012, according to the NEI. 104 US commercial reactors are getting closer scrutiny by regulators and lawmakers after the disaster and rightly so. Nuclear Regulatory Commission personnel are expected to submit a report this week on the safety of US reactors. The NRC will adopt the lessons learned from the Fukushima Daiiichi nuclear crisis and implement reforms if necessary, according to Chairman Gregory Jaczko.

I quote him, Where there are problems, we will identify them and we will work to fix them. Well, that's encouraging to those of us in the uranium industry. But let's take a look at the real drivers in the nuclear renaissance, China, India, Russia, and to a lesser extent, Turkey. Because of growing demand for inexpensive energy and a desire to reduce dependence on foreign oil, these countries have opted to continue their nuclear programs and are also moving forward with construction plans. Each country is using Fukushima as a learning experience and are updating their safety regulations accordingly. In China, there currently are 13 operational nuclear reactors, 27 under construction, 50 in the planning stages and another 110 proposed. India has 20 functioning nuclear plants, 5 are under construction, 18 planned and another 14 -- excuse me, 40 proposed.

The Indian government said it plans to spend $175 billion on nuclear generation, which makes it the second fastest growing nuclear industry in the world. In Russia, 32 plants are presently operating with 10 under construction. 14 are planned and 30 more are proposed. In a recent statement, the Prime Minister stated that, quote, Russia will not change its nuclear energy plans due to the disaster in Japan, end quote. Furthering the point, Russia just announced that it was reviving its plans to build a $9 billion facility in Belarus. Now in Turkey, just one year ago Turkey signed a deal with Russia to build the country's first nuclear power plant and the licensing process is presently under way. Turkey's Prime Minister likewise announced that after the Fukushima events, Turkey will continue to move forward with its plan.

On the other end of the spectrum is Germany. Amid extreme public pressure, politicians in Germany have opted to close 5 of their 17 nuclear power plants for intensive inspections and to close the two oldest facilities indefinitely. 23% of all the energy in Germany was produced by nuclear reactors last year, so it's still unknown how they will make up the gap that is left by closing plants. It's important to note, however, that in February of 2011, in a report by the World Nuclear Association on planned and proposed new nuclear reactors, Germany had none under construction and none planned or proposed. So the actual impact to global demand may be minimal in Germany. What about the impact on uranium resources? Well, the spot price has had an impact.

Prior to the devastating events, the spot price for uranium was $66.50. Immediately following the disaster in Japan, the spot price fell to $55 and then further declined over time to $49.25 as late as March 16. By the 18th of March, it had rebounded just a bit to $55.75 and has since fluctuated between $55 and $60. As many of you know, historically Uranium Resources stock has been closely tied to the spot price and we don't think that that will change much as prices recover. Capital raise. The ability to raise capital in the short-term is definitely affected by the public perception of nuclear power post-Fukushima. But URI was not planning to go to the equity markets in the near-term and we believe that this situation actually enhances our ability to meet one of our stated public objectives, that's toward consolidation of certain uranium districts.

And that's simply because other entities will be struggling in this near-term timeframe when they cannot go to the capital markets. In our opinion, it's obvious that this is more a perception issue than a fact-based phenomenon, with both the price of uranium, which can be driven by short-term traders, than supply and demand factors because of the limited number of actual physical commodity consumers, as well as the related pricing of uranium stocks. Ultimately, this industry must need -- excuse me, must meet the needs of the growing base of nuclear power and continue to develop projects around the world. We were pleased to see that the Ux Consulting Group recently remarked that the arguments for nuclear power continue to be compelling and nuclear power is still projected to grow, but not as fast as it did before.

They went on to say that uranium prices will at some point resume their upward trajectory and even if it does not grow as much as previously projected, uranium demand is still expected to grow notably, requiring a huge expansion of production. URI believes that because of our large base of assets, the largest in the US and among the top 10 largest in the world, that we must continue to pursue our projects as planned. We have continued to operate with this conviction and to move forward with our development, construction, and acquisition plans. The challenge, of course, will be the financing of our large project in New Mexico. But as we move forward in time, we would hope that market forces and general intelligence in the uranium industry will realign the expectations and correct the current pricing issue.

Let me turn to Texas and what occurred in the first quarter for URI. On January 3rd of this year, URI announced completion of a three year agreement to explore 54,867 acres in Kennedy County, known as the Los Finados project. The agreement also includes an option to lease the acreage for uranium production. Although a long time in coming due to some procedural challenges, yesterday we finally completed the joint venture agreement with Cameco, the world leader in uranium production, to explore the Los Finados property. The agreement provides for a three phase, three year project that will be funded by Cameco, who can earn up to a 70% of the property rights for that lease. The agreement also has a provision for operating and toll milling accords as we move to production. We expect to begin exploration operations this summer.

Due to the current high cost of drill rigs because of natural gas and oil development in the area, we may have to accelerate the program in order to drill sufficient holes to fully identify this opportunity. The exploration activities are being funded by Cameco, so we'll have appropriate revenue to cover the exploration costs as they relate to this project going forward. As to production plans in Texas, due to the current uranium pricing environment, existing unfavorable sales contracts at our two locations, not related to the lease, and of available remaining resources in our asset basket, URI does not expect to return to production in Texas this year. We will continue to evaluate the situation, but expect that our efforts in Texas will remain focused on our restoration activities and now this new exploration program until such time that uranium price returns. I'm very proud of the reclamation progress that's been managed by our team at Kingsville.

Kingsville Dome restoration in PA1 and PA2 is complete and we're currently polishing some wells. We plan to go to stabilization in quarter two, begin RO treatment in PA 3 in October of 2010 and have treated 115 million gallons through the end of the first quarter of this year. At Rosita, restoration is complete in PA1 and PA2 and we've completed stabilization. Requested restoration table amendment in first quarter has been made. At Vasquez, PAA2 restoration is complete and in stabilization, currently restoring in PA1 and have treated 31 million gallons during the first quarter. This is a great success story and proves to the world that we can restore our facility. Let's move to New Mexico. URI's focus in New Mexico was on the completion of its feasibility study that started in the fourth quarter of last year.

Our first priority is on the development of our Church Rock/Crownpoint project, specifically with Section 8, which is the property with approximately 6.5 million pounds of identified uranium. Section 8 Church Rock will be the first uranium production in New Mexico in 30 years. The feasibility study will provide parameters for human capital, financial requirements, equipment needs, and project timelines. Our feasibility study, which is more encompassing than just the ISR facility, will also evaluate the Company's conventional mining properties, so that it is able to better position itself to accept proposals and partnerships and capitalize on New Mexico's vast uranium resource base through consolidations. Assuming the necessary economic conditions have been met and the financial resources are in place, URI plans to begin construction of its Church Rock/Crownpoint ISR wellfield and processing facilities in 2012, aiming to be in full production by mid-2013.

Given the most recent projections, construction costs are likely to be on the higher end of the $35 million to $50 million spectrum that we've previously discussed. The NRC license and UIC permit are both currently under timely renewal status with the State of New Mexico, which allows us to pursue development of the project until the renewed license has been approved. URI currently holds the necessary aquifer exemption and the planned startup of in situ mining on Church Rock Section 8 property is scheduled for July 2013. We are particularly pleased with the new government in New Mexico and its strong support for resource development and new jobs in both the current legislature and the governor's administration. This has become a great place to do business.

On the acquisition front, we've been aggressively pursuing a variety of acquisition prospects, as we continue to believe that consolidating assets in New Mexico is necessary to truly unlock the value of the measurable uranium resource assets in this state. We expect to be a leader in this effort. Nonetheless, these efforts take time and given the present circumstances, I'm not sure you can emphasize -- I'm sure you can empathize with the challenges in valuation post-Fukushima. It's more difficult today to understand the value of an asset than it was just a few short months ago. As it were, the market itself is struggling significantly with this same issue. But we will not be deterred. Our stated objectives toward consolidation activities in 2011 is still on track. Now, I'd like to take a moment and ask Tom, our CFO, to speak to our liquidity position. Tom Ehrlich?

Thank you, Don. Our cash position at the end of the quarter was about $11.1 million, significantly higher than we were a year ago, we were just under $4 million. The difference there over the year to year period related to the offerings, the two offerings that we did in 2010 where we raised just over $19 million. Our cash balance at the end of 2010 was $15.4 million, which means we've reduced our cash by about $4 million during the quarter. The $4 million reduction is not representative of what our quarterly burn rate is expected to be. As Don pointed out, our primary activities in operations were the completion of the joint venture documentation for our Los Finados exploration projects, ground water restoration activities at both our Kingsville and our Vasquez projects, work towards completing our feasibility studies and the pursuit of potential acquisition targets in New Mexico. In addition to those ongoing activities, we had two large expenditures, significant expenditures that were of a non-core nature.

We settled a long-time legal action in South Texas by the payment of almost $1.4 million in January. Again, the settlement was arrived at and finalized in December with the payout and the final documentation being done in 2011. We also made a payment of $500,000 to fund certain collateral requirements under our existing financial surety obligations related to our South Texas restoration and reclamation activities. So those activities together are really what accounted for the cash outflow during the quarter. That covers the liquidity position aspect. One other area that I did want to cover was the recent mailing of our proxy material and, again, I just want to make sure that everyone is looking for that in the mail. Or if they've gotten their proxy material, reminding that our annual general meeting is going to be held here in the Dallas/Fort Worth area on June the 7th and we want to make sure everybody gets out there and votes and look forward to seeing you at our annual meeting. Don?

Thank you, Tom. We expect the price of uranium to begin to recover in the latter half of the year. The summer tends to be weak in any condition, but we're progressing as planned, despite the disruption from Fukushima, which we deem as temporary, albeit tragic for the many in Japan that must deal with the horrific challenges of rebuilding their lives after the unprecedented earthquake and tsunami and the multitude of aftershocks that dwarf significant earthquakes that we've dealt with in this country. We will continue to pursue our strategy to grow our asset base in New Mexico and Texas and should this effort expand our base geographically, given our outlook on the future of uranium, we're prepared for that challenge as well.

At the same time, we must be focused in our efforts as a relatively small Company with limited resources, but with great significant potential. We would rather be disciplined in our approach to growth than to haphazardly waste our time, energy and financial resources chasing a target. We expect that as conditions warrant, we will be in a position to raise sufficient capital to advance our New Mexico projects and we believe that our timeline for that endeavor is reasonable, given the true supply/demand situation for the nuclear power industry, specifically in the US. At this time, I'd like to open it up for questions and answers.

(Operator Instructions). David Snow of Energy Equities, Incorporated.

Are you making any progress or could you update us on what progress has been made in the royalty re-negotiations, your New Mexico royalty efforts?

Yes, David, and thanks for participating today. We have been in discussions with the royalty holders, but part of that is to be reviewed in our feasibility study. In other words, we need to be certain as to the true financial impact of those royalties before we begin the actual negotiation. So we have an open discussion line with the royalty holders to determine whether or not it is appropriate to either discuss a removal of those royalties or a buy down, but at this time it is too early to state what those financial impacts will be until we've completed the feasibility study.

Same question for the two contracts in Texas.

With regard to the contracts in Texas, and remember these are only related to the existing 600 plus thousand pounds that remain from our original 8 million to 9 million. It does not affect the existing lease that we just got. We have opened those lines of communication as well, David, and yet at this stage we haven't moved towards a true discussion about how to change that, because of the uncertainty in the marketplace. Remember that those contract holders would normally be buying our produced uranium for purchase and then resale in the marketplace on a global basis. They have some uncertainties at the moment. We have some uncertainties at the moment. We expect that as the year progresses, we will have a better understanding of their need for production and our need to go into production. That's why we've stated that we don't intend to go back into production on that resource base in 2011, but are looking towards a plan to do so in 2012.

And on the consolidation front, if I can continue.

Certainly. As we publicly stated many times, when you get beyond the ISR assets in the New Mexico district, and that trend as you know goes from the northwest to the southeast towards Albuquerque, when you get to the middle part of the district it begins to be all conventional resources and we hold a significant number of those conventional resources. We began to ask the question of ourselves, is it likely that four or five entities, several of which are junior companies, would be able to build a $300 million mill for their own asset base? And coming from a position that we publicly stated last year that we seek some form of consolidation in that district, whether it be a joint venture, just as we've done in Texas, or acquisition or some sharing of assets in another basket? The point is it would make much more sense to have one or two mills in that district and have some joint relationship, be it toll milling agreements, be it capital put in on proportionate basis.

So we've opened a line of communication with just about everyone in the district and I'm very pleased to say that there is a very positive discussion under way and sometimes that leads to the talk of what happens if you could put assets together. That moves towards that acquisition consolidation objective. While I'm not at liberty to talk about any specific companies or asset bases, I can say that I am very pleased with what has happened so far in the first quarter and I'm very confident that we will meet our objective toward consolidation in 2011.

And then I missed the -- you said something about the joint venture may accelerate this summer in Texas. What was it?

Well, that lease requires 100 holes to be drilled or $1 million to be expended in drilling by December 1 of this year. We have been looking at some delay as a result of getting the joint venture put in place. Now that, that is there, we'll begin the discussions with our joint venture partner on how to get those drill rigs up and running. But we would likely accelerate over the summer the number of holes being drilled because we're a bit behind.

Okay.

We don't have any question in our minds that we could meet the obligations of that lease before December 1 and the only issue at the moment is that we have noted, because of oil and gas drilling that's going on in southeast Texas, costs are increasing and it's simply a matter that diesel cost and, therefore, the drilling costs go up. So we'll determine how best to put those holes in the ground and under what locations as we move forward with the joint venture.

And then in terms of the -- I had one more question, I'm not sure if I can remember what it was. Let me get back in the queue.

Thanks, David.

(Operator Instructions). We have a follow-up question coming from David Snow of Energy Equities, Incorporated.

I remembered the question. What is the likely cost of the feasibility study?

We had initially budgeted $1.3 million for the feasibility study and we are on schedule and within budget. We have also looked at whether or not we would want to accelerate that study, which is to be completed at the end of the year, if we thought that uranium prices would recover sooner. So it could be up to as much as $1.5 million in our budgetary plans, but it was initially projected at $1.3 million and we're on target at the moment.

And you're really that hopeful that the prices could recover that soon?

At this stage of the game, we're hopeful. That's probably the best word, David. Practically speaking, it leaves us on the schedule that we had originally envisioned and that is having the feasibility completed by the end of the year, allowing us to make a construction decision in 1Q of 2012, raise the necessary capital to build the facility and get construction under way in 2012. With a very conservative estimate of a 16 to 18 month construction period, we still look forward to a mid-year production start-up in 2013. So under the present circumstances and pricing, we'll probably finish out the feasibility study on its present schedule.

Okay.

Thanks, David.

Thank you.

(Operator Instructions).

Jackie, it would seem that we have no further questions?

We do have a follow-up coming from David Snow of Energy Equities.

All right, thank you.

One more. Would your Texas partner have any interest in joining your New Mexico upward of $50 million project and additional consolidations?

There have been no indications to date from our Texas partner about that topic. Certainly any time you hold the ninth largest deposit in the world, we have an expectation that many people would be willing to discuss some form of a joint venture relationship, but like I would be if I were in their shoes, I'd be waiting to see what that feasibility study looks like and then have a serious discussion at that point in time. So we're not contemplating any serious conversations in that regard for the near-term, particularly because we believe in the return of the equity markets we'll be able to raise the necessary funds to build the project in the present schedule.

Great. Thank you very much.

Thank you, David.

Pete Williams, private investor.

Thanks. Don, have you had any expectations of interest on the part of either joint ventures or even an acquisition of the entire Company coming from Asia, specifically some of the companies you used to do business with in Japan, but also, obviously, there are companies in China and India who would like to get their hands on some secure supply. So, just can you speak about the level of contacts you already have, if any, with companies out of Asia.

I am limited by confidentiality agreements in some respect. But a general response, Pete, would be that prior to March, we had been contacted frequently by people interested, particularly in the fact that we'll be the next operator in the US and that we hold this large position in New Mexico. It did include Asian interest, but I must also say it included interest from Europe and interest from other locations including the US. We are open to those kinds of conversations, but in order for us to bring value to our respective URI shareholders, it's important to note that where we sit today, as a result of what happened at Fukushima, we believe the Company would be significantly undervalued if we looked at any sort of large scale picture in the M&A area for this Company. That said, it is our obligation and a fiduciary responsibility that if someone comes to the table with an offer that makes sense for consideration, we will take every step to make sure that we've considered those offers. At this time, we have no ongoing discussion with anybody from the Asian community.

Thanks.

(Operator Instructions). There are no further questions at this time. I'd like to hand the floor back over to management.

Thank you, Jackie. Thank you to all of you for your time and interest in URI. As we've discussed, we believe in the long-term future of the nuclear industry. We believe in the need for development of more uranium projects and we plan to fully capitalize the large resource base that we have in New Mexico and our future in Texas, as these market-driving factors converge. There will be a return to the nuclear Renaissance, we're sure of it. And we want to be standing there, ready to do it, particularly as the HEU agreement goes away in 2013. The timing for our ISR projects at Church Rock and Crownpoint could not be any better timed. We're very positive about the future and while we've had a tough March and a tough overall first quarter in the marketplace, it hasn't deterred us toward meeting our objectives. Thanks very much for your interest today. As always, you can submit questions through our website and we would like to get back to any shareholders at any point in time with direct conversation as necessary. Thanks for your time today.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you all for your participation.