Westwater Resources Inc (WWR) 2011 Q4 法說會逐字稿

Greetings, and welcome to the Uranium Resources, Inc. fourth-quarter and year-end 2011 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, Deborah Pawlowski, Investor Relations for Uranium Resources, Inc. Thank you. Ms. Pawlowski, you may begin.

Thank you very much, Amelia, and good morning, everyone. We certainly appreciate your time today and your interest in Uranium Resources.

On the call I have with me President and CEO, Don Ewigleben, who will review the recent events of the last year and the great strides that we've made in 2011 and the first part of this year, and what our focus and strategic initiatives are for the Company as we move forward. He will be joined by Tom Ehrlich, Chief Financial Officer, and Rick Van Horn, Senior Vice President of Operations and Exploration -- whom, by the way, I should point out, is in the boondoggles of New Mexico, so we may lose him off and on; but he will do his best to stay on the line -- as well as Mark Pelizza, the Senior Vice President of Environment, Safety and Public Affairs. Everyone should know also Matt Lueras, our Vice President of Corporate Development.

We'll conclude the call with an opportunity for questions and answers. If you don't have today's news release, it 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 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. The risk 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 SEC's website at SEC.gov. So, please review our forward-looking statements in conjunction with these precautionary factors.

With that, I'd like to turn the call over to Don to begin the discussion. Don?

Thanks, Debbie. And I too want to thank everyone for joining today's call -- particularly just the fact that we all met, I think, about a week ago, or many of you did, enjoying the conversation that we had about our Neutron discussion.

But today, before I open it up for Q&A, I'm going to review the progress and objectives in Texas and New Mexico. I'll briefly hit on the Neutron announcement that we made last week, and I'll provide some information on the feasibility study. However, I will not be able to get into the complete details, as it is still being reviewed by our management and by our Board. We have not made it public at this point.

2011 is going to be remembered for the tragic events that took place in Japan and led to the events at the Fukushima Nuclear Power Facility. We saw a lot of negative sentiment toward nuclear energy. Some countries, such as Germany and Italy and Switzerland, made decisions to decommission nuclear power. It also led many countries to review their stance on nuclear energy, as well as the safety of their plants and guidelines to be followed for future reactors.

Over the course of the year, and on into 2012, we've seen a gradual improvement in that sentiment. Uranium stocks within the nuclear sector generally are faring better. However, thus far, the uranium spot prices have remained relatively flat. The reported weekly spot price this past Monday was $51.75 and the long-term contract price is currently hovering around $60.

Going forward, we believe there's still a number of drivers to support the growth in demand for uranium. For example, Germany, Italy and Switzerland, who have decided to decommission their power plants, combined for less than 6% of global demand for uranium. The current and future growth in China and India will more than offset this impact. In China alone, there are 26 reactors under construction, with an additional 171 planned or proposed.

While the China Nuclear Energy Association has announced that some projects may be scaled back, they still are anticipating installing capacity for 60,000 to 70,000 megawatts. India, second only to China as far as new reactors being built, plans to have capacity for 63,000 megawatts of nuclear power generation in the next 20 years. This is a 14-fold expansion, and the expectation is that India alone will need some 40 million pounds of uranium annually by 2030.

Also, as we've noted on other calls, the Russian HEU contract comes to an end at the end of 2013, removing around 24 million pounds annually from the US market. Russia has its own needs for uranium to address its nuclear facilities and those it supports.

With the HEU agreement coming to an end and the increasing demand for cleaner energy sources, there is going to be greater demand for new deposits and greater production, which ultimately should drive prices to a level that will support exploration and development. We also think that some of the announcements in prior years for new development projects may not make it. But we expect to capitalize on the trend for an increasing demand, and our actions today are positioning us to be the leader in the future market demand for uranium, certainly in the United States.

Let me move to Texas. In Texas, we achieved several objectives throughout last year and have laid out specific plans for the coming year, with the goal being to develop sufficient in-place, mineralized uranium material to support long-term production, and capitalize on the processing assets that we have in place at Kingsville Dome in Rosita. There are a number of markers that must be reached before we move to production in 2012, but having two already permitted processing facilities there gives us a leg up on the competition.

Los Finados exploration project that you know we've been working on back in January of last year when we completed a lease agreement to explore one of the largest ranches in Texas, it's over 53,500 acres in Kennedy County, Texas. The lease is for three years with a drilling investment requirement, and includes an option to lease the acreage for uranium production.

Shortly thereafter, we entered into a joint venture three-phase exploration agreement, which commenced in June 2011. Phase I exploratory work was completed in November of 2011, and used a widely and evenly spaced drilling program covering a grid designed to test the potential for uranium mineralization over the entire area. At completion, a total of 19 holes had been drilled at an average depth of 1,300 feet for a total cost of approximately $1 million.

Phase II work started in December 2011 and it is scheduled to be completed this November. Cameco will fund about $1 million of the total $1.5 million that was committed by URI to the leaseholders for Phase II activities. To date, under Phase II, 10 holes at an average depth of 1,300 feet have been drilled. Cameco has earned a 40% interest in the project to date, and at the completion of Phase II, will have approximately 50%.

Two other areas we plan to focus on, advancing our current leased properties in Texas through licensing and permitting, and we will continue to look to lease additional targeted properties. In addition to that, we will seek to further our discussions with Itochu and UG U.S.A., with whom we have sales contracts for any production from our existing properties other than Los Finados.

We would like to redefine the terms so as to enable better margins, which would enhance the likelihood of returning production in Texas on a sooner basis. We're going to start activities at Kingsville Dome, where our holding ponds at the two locations require -- excuse me -- our two holding ponds in the second quarter will be made -- excuse me -- to make improvements to increase the usable capacity of the ponds, and to recover uranium that has been collected over the various production cycles of the project.

That effort is expected to last through the end of the year at a cost of approximately $3 million. We do estimate that we may be able to generate up to 40,000 to 50,000 pounds of U308 as a by-product of this activity. This is a necessary step which positions us for uranium production in Texas, as well as the potential of processing future uranium projects in Texas and New Mexico.

We will also be upgrading our Kingsville Dome processing plant, which we plan to begin toward the end of 2012. This activity is also needed for our future production plans in Texas.

We continued to focus our time and resources on our other reclamation activities. To date, we've processed approximately 4.2 billion gallons of water associated with those activities. Two restored production areas at Rosita are expected to complete their final closure in the latter part of this year.

Let me move on to New Mexico. One of our primary focuses in 2011 was on the completion of our feasibility study for Churchrock Section 8. This area contains 6.5 million pounds of in-place mineralized uranium material, and is covered by our underground injection control permit and our reactivated NRC license. We did complete the study at the end of the year as planned, then we decided it had to be reviewed by an independent engineering firm in order to validate the economic determinations and engineering plans.

As I mentioned earlier, the report is currently being reviewed by our management and our Board, as it was a certified by the third party. At this time, I can pass on some of the highlights from the report as follows.

We are initiating infrastructure construction, and core and definition drilling, which will be planned to begin in the second quarter of 2012. And we are evaluating the best approach to raising the needed capital for the total project, which is looking to be at the higher end of that $30 million to $50 million that we had been estimating over the course of the past two years.

Current plans are to initially transport uranium-loaded resin to either our Kingsville Dome or Rosita processing facility. This will allow us to accelerate production, reduce capital costs, and ultimately advance cash flow from the project, while for completion of the Crownpoint facility. Production is targeted for the second half of 2013.

Well, I'll move back for just a moment and talk a little bit about our Neutron Energy acquisition announcement from last week. For those of you who didn't see our announcement, we signed a definitive agreement to acquire Neutron Energy, a privately held uranium exploration and development company with significant assets located in the Grants Mineral Belt in New Mexico.

We also executed a financing agreement in conjunction with the transaction. This would represent the first major consolidation in New Mexico, and will position URI as one of the largest uranium development companies in the US. The acquisition would add 18.6 million tons of mineralized material at a weighted average grade of 0.15%. The combined companies will have over 206,000 acres of uranium holdings. The merger agreement has been unanimously approved by the Board of Directors of both URI and Neutron, and is subject to shareholder approval, and is expected to close no later than the third quarter of 2012.

I'm going to move to our liquidity position. Our cash position at the year-end was $2.9 million compared with $5.4 million at September 30, 2011. Decrease was -- from sequential third-quarter reflects ongoing reclamation activities in Texas; the costs associated with the feasibility study and the Neutron acquisition; and $500,000 of funding to collateralize URI's financial surety obligations.

We entered into an at-the-market sales agreement last October, enabling us to sell up to $15 million in shares as we needed it. Between November and January, approximately 2.3 million shares were sold for net proceeds of approximately $1.8 million. Importantly, in conjunction with the acquisition definitive agreements, we executed a financing agreement with Resource Capital Fund, which focuses on resource companies. The Fund is quite large, with over $1 billion invested in the industry.

We expect to receive $10 million under this agreement today. In addition, we can, at our option, receive an additional $5 million at the closing of the merger.

With that overview, I'd like to open it up for some questions. And I do have available the management team of the Company, so we can answer your questions.

Amelia, if you'll help us with those questions.

(Operator Instructions). David Snow, Energy Equities.

First of all, last week, you folks were able to send over a nominal breakout of the Neutron acquisition. It had a grade of 0.143%; and today, it has a grade of 0.15%. Which is accurate?

The [0.15%] is accurate David. We've been evaluating the numbers -- and remember, we're talking about average grade here across all of them. The sublet to property is 11.2 million tons of mineralized material at a weighted average grade of about 1.4% U308; [1 to 40] property is 4.2 million tons of mineralized material at a weighted average grade of 1.5% U308. Ambrosia Lake is 3.2 million tons of mineralized material at a grade of around 0.15% U3O8, and the general average actually is closer to [15] than [14]. That's the only difference.

Yes, David, the difference was in the third decimal place of 3 or a 5, so.

At the third decimal place?

At the third, yes. (laughter) So, that's the rounding.

The numbers that you have are still accurate.

Yes.

You keep referring to 43-101 compliant. Are these Neutron measures indicated as yours are or are they 43-101 compliant or historical? Or what is their status?

Rick, are you available to answer that question?

Yes, I am. David, the resources that we have there are not 43-101 compliant. They are historic reserves for the most part. They've been reworked by the Neutron staff, and they've done an excellent job of taking the known data and working it up in the block diagrams to come up with the order reserves. But until -- really, until we are listed on the Toronto Exchange or someone is listed on the Toronto Exchange, they are not 43-101 compliant.

(Operator Instructions). George Walsh, Gilford Securities.

Don, do you have any data as regards the cash burn of Neutron Energy historically?

We have reviewed that information. It would be inappropriate for us to release it under our confidentiality agreement. But, George, we do have an arrangement under the merger agreements to provide interim funding until close. That has an approved budget where all the parties agreed to, and Neutron Energy will be working under that approved budget. So we do understand the expenditures going forward.

Okay. But I guess -- so we won't see that data until the closing and then going forward?

Well, it will be (multiple speakers) --

(multiple speakers) -- pro forma?

It will be as appropriately provided. What I mean by that is, we're back in the reviewing session, if you will, about what they've done. You heard Rick mention the work that was done by the Neutron staff was really stupendous work. And what I mean by that is, in all of the activities that we've had looking at various other assets, these projects were probably brought forward from a development standpoint more than any others that we had seen.

There is a great deal of detail that needs to be reviewed. So, what we'll be doing over the course of the time between now and closure of the deal is working with our technical staff to determine how they got to where they did and what expenditures. One of the things we did notice is that they had strong technical staff for doing certain things, but they needed to go outside for consultants for some other things. We typically have lesser consulting activities on the outside, so the budgets are less relevant as much as the actual review going forward.

Okay. And given the $10 million you expect to close on here, do you expect less reliance on the at-the-market sales agreement?

Well, at this stage of the game, it is not being used. It was used at a particular time to support the functional needs to get to the transaction that we just announced with Neutron. We don't have that need today. And while it is available to us, there are no immediate reasons to go back to the market at this point, having the available cash necessary to meet our budget as well as the Neutron funding budget between now and closure.

That said, market conditions can change. It is a tool and nothing more than a tool. And we'll be very judicious about how we use it. We only put it in place for the purpose of having the funding that we needed to move forward and do the due diligence on this transaction, at a time when we weren't going to be able to go to the markets. Unfortunately, we were in the possession of non-material public information, so we couldn't do other things. But the ATM provided an ability for us to do that, as we previously stated. That's why we raised the $1.8 million to meet those needs.

Okay. And that 143 million shares that you mentioned in the previous call, which would be the post-deal number of shares outstanding, I guess that includes the at-market sales that were done in November and January?

It does.

Okay, great. All right. Thanks a lot.

David Snow, Energy Equities.

Was the Neutron reserves measured and indicated?

Rick?

Yes, they are.

Oh, they are. So you're in (multiple speakers) --?

(multiple speakers) We're not allowed to report in for the reserve.

Right.

Pardon me?

Go ahead, Rick.

We are not allowed to report inferred reserves.

Oh, okay. So they're really on the same quality as your own reported reserves?

Yes, they are.

Oh, terrific. And then I'm wondering how much will it cost per-pound to ship from New Mexico to Texas?

You mean -- to ship what, the resin?

Whatever you're planning -- yes, I guess you're going to ship resin from Churchrock to Texas.

David, I'd rather not talk about that because it's part of the ongoing feasibility study. But it is economic to do it.

Can you give a ballpark as to what the overall operating costs would be?

(multiple speakers) It's under $5.00 a pound.

The total operating cost?

Oh, the operating cost?

Oh, okay.

Hey, Rick?

I'm sorry. Go ahead, David.

Yes. What would be the total operating cost for the (multiple speakers) --?

Unfortunately, David, we're not in a position to release that public information. It's simply a matter that the third-party qualified person that was doing the work on that report has just come to a final version of that report. We have not been able to review it and get it approved by our Board for public dissemination. And the numbers you're asking are in that document, so I'm afraid we can't speak to that one today.

Would that document be available on the website?

Once we release it and everything, David, we'll be able to provide you all of the details. It's just going to be a few more weeks. But obviously, we're going to give you everything that you need to know. We just can't do it yet.

And what will the Phase II in Texas do, as compared to Phase I?

That we can talk about, and I'll ask Rick to respond.

I guess I need more clarification on the question, David (multiple speakers) --

How much are we going to drill in Phase II, Rick?

No, not how much are you going to drill; what is it (multiple speakers) --

Oh. You mean as far as Los Finados?

Yes.

Okay. Los Finados, we've completed, I think, as we've said 10 holes in this study. We're going for a 40-hole program there.

And you're looking (multiple speakers) --

Some of the holes will be shallow. Some will be at the 1,300-foot level.

Are you looking to follow up on any leads that you got on Phase I?

That's the reason for the shallow holes, basically. We'll be offsetting some of the deep holes that we put in.

Okay. And I'm wondering what is the cost of your feasibility study, roughly?

A lot of it -- including our cost --

Yes.

-- of everything, I think we're probably in the range of $750,000, something like that.

Oh, that's not too bad. Just on a macro question, the slippage in demand that did occur over the past year must have increased the inventories in the market. And the coverage going forward -- I understood they were pretty well covered through 2016. Now, can you give a little color on the inventory overhang in the market as a result of the slowdowns in Germany and Europe and Japan?

Well, actually David, we're not -- we don't hold ourselves out as experts. We've been reviewing the recent document that was presented by UX Consulting, the uranium market outlook, in trying to get a better handle on that situation. But here's where we come down on it.

We have always assumed that any of that secondary source comes in from HEU, and is put into the DOE inventory, will be coming out at the end of 2013. So, we've targeted our production schedule to be for a full year's production in 2014, to ensure that that overhang -- if it still exists in the marketplace -- and I only say that from the standpoint that we think that some of it's already baked in to the marketplace price, will change the nature of that pricing for uranium by 2014, when we're in production for full-time.

Well, my question is the amount of material in the demand reduction is just about the amount that's coming off of the market from HEU in '14. And I believe, in the near-term, it adds to the inventories. So, I'm just trying to get an idea of how much the inventories in the meantime have built up.

Yes, and I wouldn't argue with you about that point. I don't have an answer to give you today.

Okay. I'll get back in queue. Thanks.

George Walsh, Gilford Securities.

Don, exclusive of Neutron Energy, just Uranium Resources -- do you expect your burn rate for 2012 to be pretty much the same as this year?

No. We actually expect it to be reduced, absent the cost of the actual Churchrock construction. The reason for that is we spent a great deal of dollars on a monthly burn rate last year, related to the feasibility study that we had going on in-house, and with an outside provider. That increased our burn rate considerably above our normal burn rate, which had been at $650,000 to $750,000 range. And we went up well over [$850,000] on some months as a result of the needs. We also had increased costs for the due diligence activities with regard to Neutron.

So, going forward, what will have our closing costs related to the transaction, a lot of legal work, et cetera. There will be new personnel who will be coming on from Neutron over to URI in the course of the year, and that will increase our overall burn rate, et cetera. But likely to be offset by the expenditures that we have with regard to feasibility study.

So, are you in the range of that $650,000 to $750,000 for this year? Or is it a little bit higher than that?

It's going to be a little bit higher than that, George, primarily because of the continued nature of this closure. It's a little harder to describe, because we contemplate the closing of the agreement somewhere at the early part of the summer, but it could go on as long as the end of the summer. So we're sort of estimating at this stage of the game that we'll still have a higher burn rate through August as a result, and that things will level off back to a normal operating activity. Now, that, of course, doesn't include any contractor that we'll bring on for the construction activities in 3Q and 4Q.

Right. So, it will be close to that $850,000 for a while and then kind of come back down?

I really -- I believe so and I don't have an exact number to offer you today.

Okay. It's just a ballpark I'm just going for. Okay. Thanks, Don.

Thank you, George.

David Snow, Energy Equities.

I forgot to ask -- will the shipment of pounds from New Mexico to Texas be subject to the two Texas contracts?

No.

No.

Okay. Thank you.

Yes. The only production that are subject to that, David, is what we have been producing on the properties we have been producing on. So Kingsville Dome, Rosita, Vasquez -- Rick?

Have you got any feedback (multiple speakers) with regard to today's meeting with the people in New Mexico that are complaining?

I'm sorry, David. You'll have to ask that question again. (multiple speakers)

Well, there was some sort of a court hearing or alluded to that you went to yesterday to make a statement about your New Mexico activity. I'm wondering if you could give us any (multiple speakers) --?

Of the inbound?

Yes.

Mark, are you available?

Yes, I'm available.

Okay. (multiple speakers)

Simply put, that whole hearing was deferred.

Oh.

And you know, the -- I did not attend, but what I was told by our attorney is because there had been no activity on the ground yet, that decision was deferred. It was pounds -- I won't say it was moved, but the Judge saw no reason to hear the arguments yesterday. So it's deferred for some undetermined time in the future.

And that doesn't seem to propose a major risk in your judgment? Or it does?

Our attorneys don't believe that the claim has merit. So, we're not treating it lightly, but we don't see that the risk is significant.

Oh, okay. Thank you very much.

That's it, Don, if you want to close.

Okay. Any other questions?

There are no further questions at this time. I would like to turn the floor back over to management.

Thank you, Amelia. Well, I appreciate all of the questions, and we do hope to have some information available with regard to the feasibility study in the future. A direct question was asked would it be on the website? That has not been determined at this point.

Well, just finishing for an overview look. In a year where the nuclear industry was obviously out of favor for many, we continued with our strategy to advance our assets toward production and grow our asset base. We will continue to move forward on this path, and expect the Company to be in a position to take advantage of the future growth of the industry, by providing a constant and reliable supply of uranium in politically stable countries.

Thank you for your time today, and we always appreciate the interest in URI. As always, you can contact us through the website or make calls directly to me or any of the management staff at any time. Thank you for your patience today and my stumbling when I can't read my own writing. Thank you so much.

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