Lightbridge Corporation
Q2 2013 Earnings Call Transcript

Published: 2 Aug 2013

[Operator:]

Good day, ladies and gentlemen. And welcome to the Lightbridge Corporation 2013 Second Quarter Business Update and Financial Results. At this time all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) I would now like to introduce your host for today’s conference, Gary Sharpe, Head of Investor Relations. Please go ahead, sir.

[Gary Sharpe:]

Thank you, Charlotte, and good morning, ladies and gentlemen. Welcome to our second quarter business update. The earnings news release was distributed after the market closed yesterday and you can view that on the Investor Relations page of the Lightbridge website at ltbridge.com. Seth Grae, President and Chief Executive Officer will lead today’s call. In addition, the following executives will be available to answer your questions. Jim Malone, the company’s Chief Nuclear Fuel Development Officer; and Andrey Mushakov, Lightbridge’s Executive VP for International Nuclear Operations. Before Seth begins, I must remind you that today’s presentation includes forward-looking statements about the company's competitive position and product and service offerings. During the course of today’s call, words such as expect, anticipate, believe and intend will be used in our discussion of goals or events in the future. These statements are based on our current expectations and involve certain risks and uncertainties that may cause actual results to differ significantly from such estimates. The risks include but are not limited to the degree of market adoption of the company’s product and services offerings, market competition, dependence on strategic partners and the company’s ability to manage its business effectively in a rapidly evolving market. Certain of these and other risks are set forth in more detail in Lightbridge’s filings with the Securities and Exchange Commission. Lightbridge does not assume any obligation to update or revise any such forward-looking statements whether as the result of new development or otherwise. You can participate in today's call two ways. First, you can submit questions for management in writing to [e-mail]. If you have already submitted a question, we thank you. If not, or if you have more questions, you can submit them at any time during the prepared remarks or doing the Q&A period. Next, after the prepared remarks, as you’ve just heard telephone line we'll open for live questions. The telephone numbers and other details were distributed in two news releases that are posted on the Lightbridge Investor Relations website, ir.ltbridge.com. Now let’s get started, here is Seth Grae, President and Chief Executive Officer of Lightbridge.

[Seth Grae:]

Thank you very much. Good -- thank you very much, Gary, and good morning, everybody. Thank you for joining our conference call for today’s business update. Lightbridge continues to gain traction in developing and commercializing innovative nuclear fuel technology with benefits of improving safety, increasing reactor output, reducing nuclear waste and enhancing proliferation resistant spent fuel. Our comprehensive independent advisory services are helping international clients with on time, on budget development and regulation of nuclear power plants to expand electricity generation. The quarter and six months ended June 30th were periods of exceptional activity and progress for Lightbridge. As a result, we remain confident and on track, to meet development milestones for our next-generation nuclear fuel technology and to secure new consulting contract with overseas government entities interested in establishing civil nuclear energy programs. We believe Lightbridge technology and services remain well-positioned to help answer the most pressing questions facing the commercial nuclear energy industry. As the industry works to deliver safer, long-term efficient based load and carbon-free electric power. In our Fuel Technology Business unit, we are currently negotiating with fuel fabricators to produce fuel samples that will allow us to complete the critical testing necessary to demonstrate the technological and commercial feasibilities of our design. Our goal is to complete these negotiations by year end. At this point, we have been encouraged by their interest and enthusiasm to engage in the process. Success in these negotiations will be necessary to complement any capital increases the company -- in the company and to further extend liquidity. During the second quarter, Lightbridge also completed an important technical enhancement of our fuel offerings for existing pressurized water reactors or PWRs. Currently operating PWRs are the largest segment of our initial target market. The enhancement to our fuel made it possible to replace the outer blanket row of oxide fuel rods in our fuel assembly design with metallic fuel rods, while maintaining mechanical compatibility with reactor internals of existing PWRs. This change makes the entire assembly metallic and that’s new. As a result, we believe that nuclear utilities using our metallic fuel and existing PWRs can realize improved safety and operating benefits, including power uprate and longer fuel cycles without the fuel performance constraints imposed by the oxide fuel rods currently used in reactors and which we used to have as an outer part of our fuel assembly design and no longer do. We arrived at this important enhancement through close collaboration with Lightbridge’s nuclear utility fuel advisory board, which is comprised of the senior fuel managers at Exelon, Duke, Dominion, and Southern Company, together these utilities generate approximately 50% of the nuclear electricity in the United States. The voice of the customer is and will remain integral to our fuel development. We believe this collaboration distinguishes Lightbridge commercialization strategy, ensures value for end customers and will accelerate market acceptance. Our Services business, our Advisory Services Business unit expects to begin receiving responses to our pending proposals during the remaining months of 2013 and into 2014. During the quarter, our team met with representatives of government entities in Europe, Asia and the Middle East to explore nuclear power advisory opportunities. While the bidding process for this contract is competitive and some governments are delaying decisions on nuclear program development. We remain confident of Lightbridge’s value-added domain expertise and encouraged by our prospects. As a delegate on the U.S. Department of Commerce Trade Mission in May to China and Vietnam. I met with representatives of those national nuclear power agencies. I was invited to join the trade mission partly because of my membership on the Commerce Department Civil Nuclear Trade Advisory Committee on which I’ve served since 2010. The committee’s goal is to promote business opportunities between the U.S. nuclear power industry and the rest of the world. I came away from the trade mission with expanded enthusiasm for our industry's growth prospects. According to the World Nuclear Association data 68 nuclear reactors are under construction around the world as of July 2013. An additional 162 reactors are in order or plan. Between now and 2030 a further 316 reactors have been proposed in 48 countries and all nuclear new build investment is projected to exceed $1.5 trillion between now and 2030 according to industry reports. Data compiled by the Energy Information Administration an arm of the U.S. Department of Energy confirms our industry’s growth trajectory. The EIAs international energy outlook for 2013 says that nuclear energy is among the world's two fastest growing energy sources and is projected to grow at 2.5% annually through 2040. In China, where the air in cities is brown with the emissions from coal-fired power plants, 17 reactors are operating today, 28 nuclear power plants are under construction in China with 53 on order or planned and 118 units in addition to that proposed through the year 2030. Vietnam is working to create a civil nuclear industry over the coming years. The Vietnamese government has ordered or planned four reactors and has proposed six additional units to power its projected growth. The nuclear energy program in the United Arab Emirates is more advanced. As you know, the Lightbridge advisory services team developed a roadmap that was used to establish that country’s nuclear regulatory agency and nuclear generating company, including construction plants for the $40 billion four reactor complex at Baraka. Initial concrete was poured for the first reactor in July 2012 and the project remains on schedule to generate electricity beginning in 2017. In May 2013, concrete was poured for the foundation of the second reactor at Baraka. And in Japan where the nation’s 50 nuclear reactors were shutdown after the March 2011 tsunami that damaged four of six units at Fukushima, the coalition government recently voted to restart the reactors as soon as possible. Moreover, Japan has three reactors under construction with nine planned and three more proposed by the end of 2030. During the shutdown, Japan spent billions of dollars to import liquefied natural gas to generate base load electricity greatly increasing energy cost and carbon emissions. The outlook for nuclear energy is bolstered by recent data from the Red Book, a publication of the International Atomic Energy Agency or IAEA. The current Red Book report say uranium resources and production are on the rise with the security of uranium supply insured for the long-term. Demand for uranium is expected to continue to rise for the foreseeable future. Although the Fukushima nuclear accident has affected nuclear power projects and policies in some countries, nuclear power remains a growing key part of the global energy mix. These developments and more like them around the world are the foundation for optimism about the growing momentum in the nuclear industry and Lightbridge’s position in it. In the wake of the 2011 tsunami, the damaged reactors at Fukushima, public and regulatory demands for increased nuclear safety seldom it ever been more prominent. Proposals for additional safety measures are expected to drive up nuclear power plant construction in operating costs. Here in the U.S. Dominion alone expect to spend $20 million to $30 million per unit on safety enhancements and hazard evaluations of its nuclear fleet in response to the Fukushima accident. Earlier this year two independent studies a peer-reviewed article and analytical models were completed and published to validate the safety, proliferation resistance and economic benefits of Lightbridge’s fuel designs compared with conventional uranium oxide fuel. The studies and article are available for download from the Investor Relations page of the Lightbridge website ltbridge.com. Preliminary data from analytical modeling of our fuel in a large break loss-of-coolant accident is especially encouraging. At Fukushima, the tsunami inundated backup generators preventing them from circulating coolant water. Without coolant water the cladding of the conventional oxide fuel rods quickly overheated reaching temperatures in excess of 1300-degree Celsius and interacting with steam to generate hydrogen gas that hydrogen gas exploded destroying the power plants. Lightbridge metallic fuel rods, however, operate in an average temperature of approximately 350-degree Celsius to 370-degree Celsius. This is nearly a 1000 degrees cooler than conventional nuclear fuel. Preliminary analytical modeling indicates that in a design basis loss-of-coolant accident Lightbridge fuel will dissipate heat quickly remaining well under the 900-degree level at which hydrogen gas is formed. We expect the planned radiation test in the near reactor and subsequent additional tests that irradiated fuel samples will confirm the safety properties of our fuel rods. We also believe that nuclear utilities around the world will be keenly interested in these test results as they grapple with post-Fukushima’s safety requirements and other factors that are increasing power plant operating and construction costs. Now, let’s move on to the company's financial performance during the second quarter. Our financial results were summarized in the new release that was distributed after the market closed yesterday. In addition, our Form 10-Q was filed with the SEC last night. Results for the quarter and six months are also posted on Lightbridge website. I won’t say all of the details now, except to report, that at June 30, 2012, Lightbridge had $2.2 million in cash and cash equivalents restricted cash and marketable securities, working capital total $3 million with no long-term debt. The company has never incurred long-term debt in its history. Previously we've disclosed that we expect to seek new financing or additional sources of capital in the next six months to support ongoing R&D required to continue to advance Lightbridge’s fuel products to a commercial stage. Year-to-date, the Lightbridge team has been very active in reviewing potential sources of cash. Before year-end, we anticipate strategic financial developments in one or more of the three -- of the following three categories. First, equity investments by institutional or retail investors early in 2013 we updated our self-registration documents and filed Form S3 with the SEC to facilitate that option. With regard to shelf as one of the benefits of being listed on the NASDAQ Exchange and it is a good fuel efficient way to ensure the company's financial flexibility. We would carefully consider any dilutive effect of potential equity rates as compared to the enhanced balance sheet strength and liquidity needed to support our R&D activities. Second, strategic investment or fuel development costs sharing through alliances with major fuel vendors, fuel fabricators and/or other major strategic partners. We began discussions in 2012 with potential partners relating to the U.S.-based fabrication which we believe could streamline production of Lightbridge fuel and enhance access to a major segment of the fuels addressable market. We expect these discussions will be completed later this year. And third, new consulting contract, as I mentioned, Lightbridge has submitted advisory services proposals to appropriate governmental entities in several countries in Europe, Asia and the Middle East where there are plans to create or expand electricity generation using nuclear power. We expect responses to our outstanding advisory proposals during the remaining months of 2013 and into 2014. Now, let’s open the call to your questions. Remember in addition to asking live questions by telephone, you can submit questions in writing now to [e-mail]. We will pause while Charlotte reviews the procedure for asking live questions.

[Operator:]

(Operator Instructions)

[Gary Sharpe:]

Charlotte, while we’re waiting, let me proceed with the question that’s coming over, actually two questions that have come in via email. The investor asks the process of development of a completely new fuel is a long one that seems predictably paced. I’d like to know how politics might be affecting this predictable pace. My first question in your estimation has the current frosty state of political relations between the U.S. and Russia, or domestic politics changed your fuel development timeline and will it do so in the future? And the second question will political difficulties or the perception of such affect Lightbridge’s ability to price shares favorably in a capital raise?

[Seth Grae:]

Well, I will start, I’ll ask if Andrey or Jim want to jump in. The United State does what’s in the United States interest and Russia does what’s in Russia’s interest. And it’s always been in both countries interest to cooperate in the nuclear area. Both on civil nuclear as well as proliferation issues, even at the height of the cold war, there was continuous nuclear cooperation between the two countries. This has not been interrupted. This has not been interrupted. If your question is whether Eric Snowden having temporary asylum within Russia is going to hurt Lightbridge’s work relating to Russia, I can tell you it has not. We've even been in touch with Russian authorities today in normal course of business, which is proceeding as normal course of business. There is no hint or whiff of that being interrupted. And one of the reasons, it’s in both countries interest, is as bad for business any other way. Both countries are trying to have their civil nuclear industries expand into the other spheres of interest. As you know, Russian down blended uranium comprises half of the uranium enrichment used in U.S. reactors today. Russia has been trying to enter and succeeding in European markets and in other ways in U.S. markets. And the U.S. has been expanding into other traditionally Russian markets. And that cooperation is good for business and it’s good for cooperation between the countries. Eric Snowden, other issues may have their effects. There will be talk of boycotting the Olympics. I don't think that will happen. There has been no talk of affecting the 123 agreement or A10 licensing process or anything like that and I'm sure there won’t be. There have been worse problems between the U.S. and Russia than this that have never interrupted Lightbridge’s work or nuclear work in general between the countries. Andrey, do you have anything to add?

[Andrey Mushakov:]

I think you’ve addressed it pretty well. Obviously, depending on what’s happens in the future, things could change but as Seth pointed out that in the past, even at the height of the Cold War, cooperation in nuclear energy sector was always strong and wasn’t affected by -- difficulties in other areas. So I think that should be the case here also. But again you can never know what might happen in the future, you can speculate, but at this point in the foreseeable future we don’t expect any.

[Seth Grae:]

In fact the outlook - we’ll just say this that with our communications today and yesterday, since Snowden [inaudible] yesterday, it is certainly not affected life, we just worked there and we have the ball moving forward there. Jim, do you have anything to add.

[Jim Malone:]

Yeah. This is just from my personal experience basically back in the middle 1980’s, the early part of 80’s[inaudible]. Russia actually entered the U.S. market for fuel service, not for fuel itself but for the uranium enriching services happened to be at a place where we are one of first customers at that time. And you can imagine all of the different things that have happened between them and now and Russia has never ever missed a delivery, there has never been a commercial question. They have been very good trading partner. And if that’s the case then, then I see nothing that's going to change it now. I think Eric Snowden thing is actually just kind of a bump in the road. Seth?

[Seth Grae:]

Okay. And then the second question Gary.

[Gary Sharpe:]

Let me repeat the second question. Will political difficulties over the perception of such, affect Lightbridge’s ability to price shares favorably in a capital raise.

[Seth Grae:]

I really won’t see that. First of all because we are dealing with very strategic, very sophisticated parties. Secondly, we’re in a global industry with global parties. We used to get this question whether Iran’s nuclear program will affect the nuclear industry and Lightbridge’s utility to operate and whether North Korea and other things and it just haven’t. So I don’t see that. As Andrey said, you never know what’s going to happen in the future. But I certainly don’t see that. And the U.S. is equal to our program at least to Russia. We have test reactors in each country, we've programs in parallel in each country. We intend to complete these in both countries and certainly don’t see anything that should change that.

[Gary Sharpe:]

We just received additional question. I will read it via email. It says MIT recently announced positive results in research and development for silicon cladding of uranium oxide fuel rods. There is work ongoing for adding, I believe, that’s beryllium oxide to uranium oxide in fuel to enhance thermal connectivity. Is this considered a competitive product to your all metallic rod for existing and future pressurized water reactors? And do you have an opinion on this technology.

[Seth Grae:]

Well, I’ll start. The silicon carbide cladding is a fuel technology idea that could be used for new kinds of reactors, could potentially be used for existing reactors. People within the utilities that we’re looking at see the Lightbridge fuel as the only and best real viable commercial alternative to what is being used today. And for among other reasons, the economic benefits that Lightbridge’s fuel adds that other idea such as silicon carbine just can’t, would not have the power uprates to longer fuel cycles, which is sort of a gating factor with utilities, are we helping them deal with their economics. As I said in the opening on the call, the added regulatory costs to capital costs to meet the safety and security requirements that reactors have to meet after 9/11, after Fukushima are very expensive and hurt the competitiveness of nuclear. Lightbridge’s fuel gets that back and enhances it, silicon carbide doesn't. Jim?

[Jim Malone:]

Yeah. The silicone carbide is an intriguing technology for the market and because of response of the emotional aspect of the hydrogen explosion that Seth mentioned earlier at Fukushima. The industry is working on a series of what I refer to as accident tolerance fuels and silicone carbide cladding with the BeO is considered to be hard of that efforts. The thermal conductivity is improved in that fuel but it cannot support longer operation cycles. And it had some technical problems to be solved which are mentioned in MIT news release, especially with respect to the end plugs for the fuel, which will be tested, I guess, probably in the next six months in the MIT test reactor. But it is an interesting technology. It is not right now targeted toward pressurized water reactors. It’s focused on boiling water reactors. And I don’t see it has a huge competitor to our efforts here as Seth pointed out. We were trying to answer more questions than simply eliminating the threat from hydrogen on a case of severe accident. We’re trying to offer the utilities more than that.

[Andrey Mushakov:]

And it’s not targeted at pressurized water reactors.

[Gary Sharpe:]

Yeah. There was a question -- related question about beryllium oxide adding beryllium oxide to uranium oxide to enhance thermal conductivity. Is that something we view as a competitor?

[Seth Grae:]

Let me just say that that’s in the context of the silicon carbide cladding fuel. And it’s intended to reduce the centralized temperature of that fuel palate and enable the silicon carbide to operate as the utilities wanted to get the proper surface heat flux to the silicon carbide cladding.

[Gary Sharpe:]

Okay. Operator, Charlotte, any other questions from your end?

[Operator:]

(Operator Instructions) And at this time, I’m not showing any questions. I would like to turn the call back over to CEO, Seth Grae.

[Seth Grae:]

Well, thanks Charlotte. If we can elaborate on any aspect of Lightbridge’s operations, financial performance or strategic directions, our lines are always open here at [e-mail], not just during the conference calls or give us a call at 571-730-1213. I’ll close by reiterating three key numbers I mentioned, 68, 162, 316. Respectively, those are the current worldwide totals for nuclear reactors under construction, 68; on order or planned, 162; an additional proposed reactors between now and 2030, 316. There is no doubt momentum is building throughout the global nuclear power market. And Lightbridge is well positioned to serve this growth with next-generation fuel designs and expert independent advisory services. I also want to remind you that our professional and personal interests will always be closely aligned with yours as Lightbridge investors. We’re working everyday to advance Lightbridge strategies for success and to enhance shareholder value. Thank you for your continuing confidence and support until our next quarterly business update. Goodbye.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect.