Ur-Energy Inc.
Q2 2023 Earnings Call Transcript

Published: 15 Aug 2023

[Operator:]

Greetings. Welcome to Ur-Energy Inc. Second Quarter Earnings and Company Update Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Ms. Penne Goplerud. You may begin.

[Penne Goplerud:]

Thank you for joining us for our teleconference and webcast this afternoon. We are required to draw the attention of all of our participants to the legal disclaimers contained in this afternoon's slide presentation, which apply equally to our oral presentation today. At slide two, you will find legal disclaimers with regard to forward-looking statements, risk factors and projections, as well as other cautionary notes to investors. We ask that you read and consider these disclaimers carefully before investing in our shares. As well, risk factors inherent in forward-looking statements and projections are set forth and discussed in the company's annual report on Form 10-K, filed on March 6, 2023, with the U.S. Securities and Exchange on EDGAR and with the Securities Regulatory Authorities in Canada on SEDAR. I would now like to introduce and turn the webcast presentation over to our Chairman and CEO, John Cash.

[John Cash:]

Good afternoon, everyone, and welcome to Ur-Energy’s second quarter 2023 earnings call. It has been an exciting quarter for the company, as we have successfully initiated ramp up in our second mine unit at Lost Creek and as demand for nuclear fuel and global geopolitical uncertainty continue to support the uranium price. We have revamped our corporate presentation for the purposes of this call to focus more on our finances and geopolitical risk. I hope you find it informative and useful. The photos here are of the ion exchange portion of Lost Creek plant and the first shipment of yellowcake in the fall of 2013. We expect to get back to shipping uranium this fall. We encourage participants to review the disclaimer presented here and our filings, so you are aware of the risks associated with investing in the uranium industry and uranium mining in general and our projects. UR-Energy has two flagship properties that are our primary focus

[Operator:]

At this time we’ll be conducting a question-and-answer session. [Operator Instructions] Your first question is coming from Heiko Ihle from H.C. Wainwright. Your line is live.

[Heiko Ihle:]

Thanks for taking my question. Hope you guys are doing well.

[John Cash:]

Hey, Heiko. That’s good to hear from you.

[Heiko Ihle:]

Always a pleasure. You went through this 10 gently in your prepared remarks a little bit ago, but I'll try to take this a step further. There was a sentence in your release that intrigued me and may be pretty happy, and I'm just going to call it here real quick. You state that your energy continues growing our long-term sales book as the market continues to improve, ramp-up production at Lost Creek and ultimately Shirley Basin. None of it is a particular surprise. But given that a lot of uranium sales stem from places that have meaningfully, meaningfully increased geopolitical risk factors over the last two years. We at least anticipate there to be a dual market in the longer term or North American uranium cells for a very meaningful premium. And at least when looking at company valuations, that trend appears to have started already. Now building on all of that, what are your thoughts on how all this will play out over the next few years? And what measures such as long-term offtake similar agreements, you think the firm will undergo to benefit from these factors, please?

[John Cash:]

Heiko, it's a good question. Certainly, something that is in the front of our thoughts. And we're seeing that. We're seeing a bifurcated market already. I mean we've already to a limited degree out of the sales price on those contracts that we've gotten. And you can see that the average well above existing spot or long-term prices. So we're already seeing that bifurcation in the market. And it looks like Western production, U.S. production is worth several dollars a pound more than production from areas that may be exposed to more geopolitical risk. And so we look forward to seeing that more as we go forward. And I would comment, too, Heiko, that not only are we getting a lot of inbounds from U.S. utilities we are seeing increasing interest from other global players because it's not just an issue for the U.S. Everyone around the world recognizes the geopolitical risk, and they're looking for diversification. For many years, the price of uranium was very low utilities. We're struggling with profitability. And so they were willing to go for the lowest price, no matter the geopolitical risk. They felt like they had to do that. But now, especially the U.S. utilities are moving into profitability because of the Inflation Reduction Act and other actions that Congress has taken. And as they move into that profitability, they are much more interested in diversifying that portfolio of offtake agreements to reduce the risk. So yes, Heiko, I think we're going to continue to see that and maybe increasingly so. We'll see what happens in Niger. We'll see what happens with Russia, Ukraine. We'll see if Kazakhstan gets embroiled in that in any way via sanctions or Russia, strong arming that nation as well. So we'll see what happens.

[Heiko Ihle:]

Fair enough. Next question is a lot shorter. Looking at the U.S. DOE uranium reserve, how scalable is this? Given -- I assume that there is going to be some sort of import restrictions in some capacity, at least for some originations. How much do you think your firm could ultimately sell into this program over the next five or 10 years? I mean you gave some shorter-term estimates, but walk with me through the next decade, if you could?

[John Cash:]

Yes. Let's start with the legislation itself. The previous uranium reserve that was approved by -- during the Trump administration passed by Congress signed into law by Trump. The funding of that has expired. That was $75 million. We were able to grab a good piece of that. We sold 100,000 pounds into that uranium reserve for $64.47 a pound made delivery early this year and have been paid for that. But at this point, funding under that program has -- is done. There is no more funding. Having said all of that, Senator Barrasso, Senator Mansion, Senator Risch, they all work together, Republicans and Democrats alike to get legislation passed as an amendment to the NDAA, the National Defense Authorization Act that called for combining the uranium reserve with the American Assured Fuel Supply. And so that was passed by a very large margin. It still needs to go through a couple of more layers of approval through Congress and across the desk at the White House. But if that's passed, it will combine those two. We're hopeful that the DOE will get additional funding and that we'll be able to participate in that. So until funding is allocated and that program has stood up, it's hard to really speculate about our abilities to participate in it. But having said all that, if it is passed and funded, we would love to be able to sell more pounds into the uranium reserve. We have a lot of capacity remaining at Lost Creek, and 100% of our capacity remaining at Shirley Basin that is not spoken for. So we have significant ability to continue to ramp up production at Lost Price and especially at Shirley Basin going forward. we would love to sell a portion of those pounds to the U.S. government.

[Heiko Ihle:]

That’s helpful. Thank you so much. I’ll get back in queue.

[John Cash:]

All right, thank you, Ihle.

[Operator:]

Your next question is coming from Mike Kozak from Cantor Fitzgerald. Your line is live.

[Mike Kozak:]

Hey, John. Thanks for hosting the call. Just a couple of questions for me. First, do you think commercial production -- and when I say that, I mean at the, call it, 600,000 per year run rate, do you think that's an achievable milestone at Lost Creek by year-end this year?

[John Cash:]

So we're definitely working towards that. Our objective for this calendar year is to produce enough to sell into our contracts, and we're moving toward that. We still have a ways to go to ramp up to get to 600,000 pounds for next year. But is it possible? Yes, absolutely possible. We're not there yet, and we got a little ways to go, but it's only August. We have a lot of summer left and moving into fall, and we're keeping Steve Hatten, our Chief Operating Officer, very busy ramping up. So yes, it's absolutely possible for us to do that. But again, our goal is not to produce 600,000 this year. Our goal is to produce roughly 180,000 this year. But moving into next year, moving to that 600,000 pound a year range. It's important for us to get to economies of scale, and that's why we want to ramp up to that level and continue to move north of that as we were able to sign in additional sales contracts.

[Mike Kozak:]

That's great. And that kind of dovetails into my second question, which was you added the 100,000 a year to the contract book in Q2. So my question was what level of contract coverage would you want to see before you kind of fully commit to the, call it, 1 million to 1.2 million pound per year of full licensed run rate at Lost Creek? Do you want to get like the fully 1 million a year contracted or 75% of that, 80% of that, how should I think about that coverage?

[John Cash:]

Yes. So it's always our objective to match production at Lost Creek and ultimately at Shirley Basin with our contract book. So if we're contracted out at 900,000, that's what we want to hit. We'll probably try to give ourselves a little bit of buffer there, maybe 5%, 10%, 15% buffer. That way if we run into any challenges, regulatory, wildlife, you name it, that we've got a little bit of inventory that we can rely on, and we like having that overage. But really, we're going to try to hit that contract number fairly closely going forward. And that's also true as we move into Shirley Basin. We'd like to sell effectively max out production at Lost Creek and then begin to contract out for production at Shirley and justify the ramp-up there as well.

[Mike Kozak:]

Okay, very good. Thanks for that. I’ll hope back in queue.

[John Cash:]

All right. Good to hear from you.

[Operator:]

Thank you. Your next question is coming from Joseph Reagor from ROTH MKM. Your line is live.

[Joseph Reagor:]

Hey, John and team. Thanks for taking the questions. Most of what I wanted to touch on was already hit on by the previous two callers. But there's news out about Biden administration making basically a moratorium on mining on a massive amount of land in Arizona. How do you guys look at decisions like that by the U.S. government where on one hand, they want this clean energy transition, but on the other hand, they don't want conventional mining? And does it not benefit you because you're not a conventional miner in your mind? Or does it harm you because they're anti-mining?

[John Cash:]

Well, certainly, it was the wrong move. The area that's been removed from uranium mining is not in the Grand Canyon. I think that is a -- it's a complete misstatement that you hear a lot in the news that it's Grand Canyon. It's not Grand Canyon. It's an area outside the Grand Canyon. But I would also point out that existing claims will have to be honored, they're grandfathered in. So the companies that are there and have well-established claims, it won't affect their rights directly. However, I suspect it will make things a little more challenging trying to work within an area like that and with that designation. So -- but certainly the wrong move. It is frustrating where we have such tremendous support for nuclear energy from Republicans and Democrats in the White House. But when it comes to the fuel end of things, there tends to be less support because it involves mining. Glad to say we're not working in that area. We have never worked in that area. It's not our intention to move into that vicinity where there is such opposition. And I would further add that we're utilizing the in-situ technology. So the impact to the land that we have is minimal, and it's 100% reversible. And so we just throw those two items out there. But no, it is really frustrating that the White House took that step. Certainly, it's not good for some of our U.S. competitors in the long run. But hopefully, with additional education and time, maybe we can bring the White House around to supporting mining more robustly. But Joe, I appreciate that question. It's a very appropriate question, given that just happened a few days ago.

[Joseph Reagor:]

Thanks for the color there. Kind of building on the back of that. you got a lot on your plate with the ramp-up at Lost Creek. You've got Shirley Basin after that. Looking further out, would you guys move on to more U.S. potential expansion, maybe lost soldiers, something like that? Or would you guys look to maybe potentially acquire something, but not in the U.S., maybe in Canada, where it seems like there's a little bit more understanding that you need the mining, too?

[John Cash:]

Yes. No, I think the answer on both is yes. We are looking to expand operations beyond Lost Creek and Shirley Basin. We do have a number of exploration properties and development properties that we hold in our portfolio. I think it would behoove us to continue to take a hard look at Lost Creek. We have a number of properties surrounding it where we have known mineralization and resource and tremendous opportunity to grow that resource. Over the years, we've done a lot of exploration in those areas. Every program we've been successful at finding significant additional resources and bringing them into compliance. So before we go too far away from Lost Creek and spend a lot of money buying another project in the U.S., especially an exploration project. I think we have a lot of green pasture in our immediate vicinity that we need to work on. Having said that, we control that already. That's not going to go anywhere. So if and when opportunities come up to grow resources in the U.S., Canada or other first world countries where they are safe jurisdictions, where they have well-established regulatory regimes to regulate mining, and they have quality resources that we believe we can mine profitably now or in the near-term. Then we're certainly interested in that, and that's certainly on the table, and we'll take a hard look at that. We've been very disciplined since the beginning of this company. Our Board has been very disciplined when it comes to M&A. The only properties we've ever picked up are the ones that we felt like we could progress to economic production, and we're going to remain disciplined when it comes to that. So hopefully, that answers your question, Joe.

[Joseph Reagor:]

Yes. Thank you for the well thought out answer there. That covers my questions. I'll turn it over.

[John Cash:]

All right, thank you.

[Operator:]

Thank you. Your next question is coming from Chris Thompson from PI Financial.

[John Cash:]

Hey, Chris, you can go ahead.

[Operator:]

And Chris Thompson, your line is live. [Operator Instructions] I will now hand the floor over to our host for the webcast questions.

[John Cash:]

All right. We must have done a good job in the presentation. I'm not seeing any questions come up on the web portion. We can give it another few seconds here to see if anybody wants to type in any questions there. Okay. I've got a question here. Are you open to market-related contracts as well? That's an interesting question, and it's something that we struggle with internally all the time. The first three contracts that we have in place are effectively base price with an escalation in each of them that essentially attempts to mimic inflation. We're really happy with those contracts, because they've locked in some good revenues going forward, and we know exactly what they're going to be or very close. There is a flex in Vogtle, but we know very close to what the revenue is going to be. So we like those. However, going forward, we recognize that the market prices are improving. We're a little bit hesitant to lock in long-term contracts in a rising market. So yes, we would be very interested to entertain contracts that have a market-related provision going forward. And so our conversations with utilities, some of them like the base escalated, some like market-related, some like combinations of them. So it depends on the utility we're in discussions with. But really to more directly answer your question, yes, we are interested in market-related contracts going forward. All right. Are there any other questions out there? All right. I'm operating the system correctly, I'm not seeing any additional questions. So with that, we'll just begin to wrap things up here. I appreciate everyone listening in. And as you guys all know, I'm very easy to get a hold of. So feel free to e-mail me or give me a call directly if you have any further questions that you didn't think of during the conference call here, we'd be glad to pick up the conversation. But just would like to highlight right now that we are extremely well positioned. We're happy with where we are in the ramp up. Things are progressing. We have a ways to go before we get to that 600,000 pound mark that we've talked about, but we are well on our way and moving forward. and just so many catalysts right now in the uranium space and Ur-Energy, we're cashed up. We're ready to seize on those catalysts as they evolve. So with that, I'll return the balance of the afternoon to everyone. I hope you enjoy the rest of your day, and thank you again for participating.

[Operator:]

Thank you. This concludes today's conference, and you may disconnect your lines at this time, thank you for your participation.