Westwater Resources, Inc.
Q4 2007 Earnings Call Transcript

Published: 17 Mar 2008

[Operator:]

Greetings and welcome to the Uranium Resources Incorporated fourth quarter and year end 2007 earnings release conference call. (Operator instructions). It is now my pleasure to introduce your host, Ms. Deborah Pawlowski, Investor Relations for Uranium Resources. Thank you Ms. Pawlowski, you may begin.

[Deborah Pawlowski:]

Thank you Manny and good afternoon everyone. We certainly appreciate your time and interest in Uranium Resources. On the call today we have President and CEO Dave Clark, Tom Ehrlich the Chief Financial Officer and Rick Van Horn, Executive Vice President and Chief Operating Officer. Dave and Tom are going to review the year end results and update you on the company and we’ll follow with a Q&A. If you don’t have the press release discussing our financial results, you should be able to get it on our website at uraniumresources.com. As you are aware, we may make some forward looking statements during the formal presentation and the Q&A portion of the teleconference. 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 our earnings release as well as in documents filed by the company with the Securities and Exchange Commission and you can find them at our website or the SEC’s website which is sec.gov. Please review our forward looking statements in conjunction with these precautionary factors. With that, let me turn it over to Dave to begin the discussion.

[Dave Clark:]

Thanks Debbie and good afternoon everybody. Thanks again for your interest and time in, with this call and your interest in the company. I especially want to thank many of my Irish brothers that are out there that are delaying their celebration of St. Patrick’s Day to actually listen to this. We sent out the K this morning and the press release and there’s a lot of information there that I think is going to take a lot of time and effort for people to absorb. But I want to do is give you an overview with three major headings of hopefully put our company and our strategy in proper perspective for you. And I’d talk about first I’m going to talk about market observations and particularly something that happened last week that has turned me very bullish on uranium. Second I’d like to talk about positive developments we’re seeing in Texas that I believe will help us realize our goal longer term to produce a million to 2 million pounds per year and third I want to talk about some of our progress we’re making in New Mexico which I think will lead to the first production in New Mexico in the next couple of years since 1999 and will leave us in as a leader in that state that I think has the potential to produce 15-20 million pounds per year. So everything I’m going to discuss really all comes together in the form of our strategic goals and our strategic plan which is to be a 10 million pound producer by 2014 and to build our reserve base up to 2-300 million pounds of uranium. And as always it’s not just a plan that’s important but how we plan to get there and that’s kind of what I would like to address today. Now as far as market development, it’s pretty rare that I come across a piece of information that changes my views on things. Last time that happened and I’ve talked about this often when I’m on one-on-one’s or speaking on calls was the demand for primary production chart that was in the W&A report which their upper case scenario showed by 2030 demand for primary production of 360 million pounds per year. And it’s not just that level in that year at that point in time, they showed a rate of increase of 13 million pounds per year. And the question I always ask is where is this going to come from? And I think it’s a story we all know, the long term fundamentals for Uranium is there. We all see them, the long term market is strong. And yet I ask the same questions everybody else is asking, is you know if you have these long or strong long term fundamentals, why has the spot market been so weak? If the fundamentals are there, what is happening here? Basically the way I look at it over the last five years there has been three phases to this market. The first one was you know call it the nuclear renaissance phase. The threat of global warming, nuclear power coming back, rising demand, the reality that existing production could not meet that demand, it’s what fueled this, has been the underlying fuel for this market for quite a long time. It got a further leg up in 2006-2007 when there was supply disruptions from [Gar] Lake coming on, from Ranger and all those things combined to help drive the spot price up to $130.00, 138 dollars. At that point it was a question it was about too far, too fast and some kind of retrenchment wasn’t out of the norm. What’s happened since is there’s a lot of speculation is will the nuclear renaissance be delayed, be deferred, will it take longer for reactors to come online in the US, is the infrastructure in place for reactor manufacturers to bring on these reactors? And with that is a feeling of if the demand is delayed does that give supply enough time to catch up? These are legitimate analysis and legitimate questions, questions I’ve been asking myself as well. But last week there was something that happened and you’ve probably all caught it, but it was not just our market, it’s every market that is affected the same way and that’s the news that came out of China. China, the country I think is the poster child for what the world could look like without nuclear power. Every time I talk to business men coming back from China they talk about the choking pollution. You read it every day in the newspaper about athletes threatening to stay home from the Olympics because they’re worried about their health. It is a country that is not part of the Kyoto accords so they’ve been bringing on coal plants in a rapid rate. If there is one country in the world that actually needs nuclear power it’s China. It’s not really a question of cost, it’s a question of need. They should be building these plants and they are. In the W&A report that was issued in September the upper case scenario of China by the year 2020 was 36 gigawatts. China’s official forecast was 40 gigawatts. What they came out with last week is they now expect to have 60 gigawatts in place by 2020 and that is significant, that is what’s changing the outlook for me on many fronts. The latest UX showed 47 gigawatts by the year 2030. So now if it’s going to be 60 gigawatts by 2020, what will the actual installed capacity be in the years after that? That brings in the possibility these way out predictions that some of you may have run across last year that you just kind of discount when you hear them that eventually China could be have installed capacity of 300-600 gigawatts. I think the way they’re moving and with the pollution they have, it is something that definitely can come. This not only adds to annual reload demand, it brings in first core demand which can be conservative but when you talk about a first core being 1,000 megawatt plan being 1.5-2 million pounds, you can do your own math. Now China knows what the plans are and they know what the demand for the uranium is going to be and they have been actively picking up pounds in Kazakhstan and the Namibia and Australia, basically I think is the best from utilities, been around waiting for prices to go lower which is the industry and analyst perspective that the prices will stay high up in the next couple of years and then drop. I don’t know that China will believe that given what their demand could be. I think the other thing that’s very important for me is if the renaissance is going to be delayed in the west, principally in the US, would the reactor manufacturers make these investments to bring on the infrastructure for these reactors? The fact is the demand is there right now to do that in China and I think that gives the manufacturers the pipeline demand they need to bring on the infrastructure to advance the nuclear renaissance and I think all that together is very bullish for me. Now where does the spot market go from here? I don’t know, I think the Uranium Participation Corporation purchased 900,000 pounds a couple weeks ago was very interesting. It showed a lot more demand than they raised, so there’s still investor interest. And ultimately for me it is not just the uranium price cycle that’s important, it is the investor cycle as well. And there I think any near term weakness or this feeling that maybe there might be time here before the next leg up comes in uranium, if investors leave it will hurt future supply coming on line because it will hurt the financing environment for uranium suppliers. Any slow down I think is only going to hasten the next major move up in the long term bull market. So the bottom line is I’m pretty bullish on uranium long term and whether its gap was in the middle, I think that could be closed, any weakness can go towards inventory buying, Chinese buying, whatever, I think that is the reality of moving forward. I think you know what we’ve seen in investors is a flight to quality. They want the advanced assets, they want to know that you have limited challenges bringing the new production, they want to see strong management in place, they want to see near term production and I believe in all these things that URI fits the bill. As for Texas, we aren’t a producer in Texas, that [montery] generates cash for us to fund company growth. It’s also very important for me is that we’re generating or training a new generation of geologists and engineers and management, I think that’s crucial. It’s been no secret at least it hasn’t been from my part that we are reserve limited in Texas, we’ve been talking about a previously 4-500,000 pounds a year. We lowered the guidance in the third quarter. We now see 4-450,000 pounds through this year next and as I’ve said in the past, our ability to increase or extend that is going to be based on exploration. And what we’ve done in the last 18 months, first we had launched the drill out program of all our properties surrounding Kingsville and Rosita, not just to see what was there but to allow us to develop these in an efficient economic manner. I think what we discovered along the way or certainly what I discovered is we at the company were very good at making very bad assumptions. What was learned from that is to question every assumption we had moving forward. We have not finished that drill out program, there’s still properties remaining but I think of those properties that we’re investing in for the drill out program, they will add marginally to the reserve base. We them moved into looking at acquiring properties, we acquired two last year, the Marshal property has showed some promise that’s going to need further drilling in 2008. The [Mosure] property is a pure exploration play and it’s something we want to drill out this year. All these things together, it is, everybody knows what we’re doing in New Mexico, the almost cliché has been Texas will be our bridge to New Mexico. I have been spending a lot of time figuring out what is the future of Texas given its reserve limited base and given the capital and talent needs of this company, do we spend time developing New Mexico or do we spend time bringing on Texas. I think what’s changed in the last several months is, I’ve been in the industry long enough or in this industry long enough to know that when markets rise it brings opportunities and when markets fall it also brings opportunities. And when prices were rising, not just us competing for properties but everybody else out there and the mineral holders would see everybody looking for these things and the prices going up and they were really slow to lease new properties. I think as price has fallen we’re now seeing far better opportunities to obtain leases and I think that’s a very positive event and I think it’s going to enhance our Texas operations. There’s two areas that we’re focused on, there are known reserves and some of these we’ve been chasing for years. The elusive mineral holders, again as prices go up they get a little reluctant to do anything quickly and the competition was chasing these as well. We expect to announce over the next day or two acquisitions of some of these, so it is not just something that we’re talking about doing, it’s something we’re actually in the process of completing and there’s many opportunities beyond these as well. Another area for anybody familiar with the company is and Texas in particular is there’s some large blocks of land in Texas that are primarily the large ranches that were never explored for uranium, they were tied up with oil and gas leases. We’re now seeing some of these free up and some of these coming into play. And all this to me is very positive. It doesn’t eliminate the strategic question of where to we apply our capital and talent moving forward but I think Texas is on a much better footing these days to be able to achieve our long term strategic plan to produce 1-2 million pounds there. Now turning to New Mexico, as I opened earlier with the long term fundamentals of the business, you know there’s no question in my mind New Mexico is vital not only for the industry but the US supply base. There’s known indicated measured inferred, whatever you want to call it of 600 million pounds plus in New Mexico. When you bag that with the 340 million pounds that has been produced in the past, this is a reserve base that was 1 billion pounds more. And there’s a lot more exploration potential for large discoveries in New Mexico. Now we have raised our asset base to 101 million pounds. That’s a solid base to achieve our goal which is expanding to 300 million pounds which would primarily be in New Mexico. As those of you who are familiar with New Mexico, there’s been two major hurtles which I’ll discuss here. One has been the Navajo Band which is something that has been on the forefront for URI and the second was there was a no uranium mill in New Mexico. I think we’re making [unintelligible] progress on both fronts. From everything we’re doing across the board. If you look at where we were a year ago, we were just beginning or were working on a pre-feasibility study to see if we wanted to get engaged in conventional mining in New Mexico, the biggest problem is there was no mill. We’re now working to close the Rio Algom deal which everybody in the district basically sees from my perspective is, is the place for the mill, conventional mill in New Mexico. So we’ve helped resolved that issue and it helps us rise as a leader in the industry. A year ago our focus was on Church Rock as our near term or nearest term production facility and there was a lot of discussion on the EPA decision, how that would affect us and it was the only project we had going. We learned last week that the oral arguments for in the 10th Circuit Court of Appeals for the Indian country issue are now scheduled for May 22nd but we have some movement there. We would expect after those oral arguments it would take anywhere from a few months to a year to get that decision. We also have working on the closing of the Rio Algom deal which will allow for conventional mining to come back into New Mexico in as little as four or five years. We also announced in the release in the 10K discussions of open stope bleaching and ambrosia lake ISR which we call ALISR. Both these projects we feel could be in production in two or three years. Our focus has been on bringing in production as quickly as possible in New Mexico. So with the prospect of open soap bleaching and ALISR and convention mining come back, it has given rise in the state to a lot of interest in uranium, not just from a job standpoint but from a tax standpoint, it’s been a very positive event. And last year we’re just beginning our data evaluation. So far we’ve digitized 16,000 logs which is 23 million feet of hole. Our calculation for replacement value on those $700 million. The important part of that is also we’ve secured this data, it has all been paper data and being able to digitize allows us to work with it better and secure it. We’ve also a year ago we really had no large public relations program in New Mexico. We’ve hired DW Turner, we’ve hired a government affairs personnel, we’ve developed a strategy and we have a team in place to start to the work on all these issues and I think that’s crucial. We also had very little or limited contact let me put it that way with elected officials both local, state and Federal. Now we are fully engaged, meeting with all these elected officials and I think it’s important we’re meeting with not just supporters of the industry but opposition because ultimately we think it’s about education of the process. I think the best example of how we’ve made progress here as a company and the capability of this company was something that happened over the last 60 days and it was something that was put forward in the New Mexico legislature, it got the title of a legacy bill. It was not something we raised, it was something that was raised in the legislature as a way to help clean up whatever mine and mill environmental problems that were in the past. And part of this has been an answer to the Navajos who have been saying, until you can clean up the past, we’re against all future mining. So the legislature was interested in seeing if they could tax new production at the rate of 2%, we were initially opposed to that, the legislature asked us if what we could do to help that or get on board, we said if you can do it at $0.50 a pound that’s something that we would back. So we were able to work with the house, with the senate, with the leadership. The bill passed the house and the senate with two minutes left to go in the legislative session with wide support. Not only was there a $0.50 tax but they also included half of the three quarter percent excise tax that would be used to go into this fund to clean up whatever past legacy problems there were. This came to Governor Richardson’s desk last week, he vetoed it. That part of course got some press. I don’t think it’s a negative event that he vetoed it, he was, first he wasn’t involved in the process but he didn’t have input on it. He was out running for president and that’s the problem. His principle objection was its not enough money. Nobody in this whole process has disagreed on principle, which is tying future production to help resolve the past which is why we’re backing this legislation. It is something I think will pass next year, I think it’s something that is very good for the industry, we’ve taken heat from others in the mining industry, not in the uranium industry, but it’s something that helps resolve our problem. There’s another thing that we’ve been doing in the state is the industry is funding through the state a study to look at what the problem is in the past, so cataloguing all the remaining reclamation that needs to be done in the state of New Mexico, including the Navajo reservation. So this will help us quantify the problem and then help us tie the fixing of the past to the future, so I think that’s all very positive events. Again that’s something that this company is developing the capability of doing. I think the move towards Rio Algom has been very much supported in the state, I think it will help lead us in gaining support for ISR mining. I think all these developments are based on one concept and that is education, educating the public that any mining of uranium, be it conventional or ISR is safe and environmentally friendly. And I think that’s ultimately what helps us resolve the issues with the Navajo. For anybody who hasn’t heard about this book, I suggest you get Gwyneth Craven’s book “Power to Save the World,” chapter 3 is entitled Ambrosia Lake, it gives you a good overview of the uranium story in New Mexico, the past, present and hopefully the future. And she was an environmentalist who was against nuclear power, she was from Albuquerque. She decided to take a fresh look having seen what global warming is doing like a lot of environmentalists, came back and basically investigated the whole fuel cycle and came away saying nuclear power is the answer. The things that she ended up researching and studying for New Mexico I think were important, things that I didn’t know that there’s decades long studies on the effects of uranium mining on or expected uranium minings on health of miners. What they basically discovered, it really is a very, very close tie to between cancer from lung cancer which is then primary cancer tied to non ventilated mines and people who smoked. If you worked in the surface mines you didn’t get cancer, if you didn’t smoke you had a much lower instance of it. So I would suggest you get that book, it gives you a good overview of the issues, it goes into the Navajo issue as well. That was Gwyneth Craven’s “The Power to Save the World.” The bottom line in New Mexico, I believe we are making great strides on all fronts and you know the most important thing we can do is close the Rio Algom deal. I think there’s three parts to that. One, we need to finish our negotiations on five deals which we talked about in the past. We are working on additional financing that will be needed. And then gaining the proper regulatory approvals. As far as deals we are engaged with all the companies interested in New Mexico, I’m not going to say a lot about those, other than everybody really sees the interest or is very interested in this asset, they see its value, they know it’s needed to bring on New Mexico industry. So we’re getting strong support and interest in working these deals. As far as moving towards financing, it has been a long process than anticipated. The market weakness both in uranium and stock markets certainly hasn’t helped. The preliminary or the main reason for any delay that we’ve encountered really was the company at Rio Algom had to be re-audited. [No thought of ours] or BHPs, the auditor they had would not stand behind the audit for the purposes that we needed it for. So the decision was made by use and BHP to re-audit Rio Algom for 2006 and 2007. That’s a process that took three months. While in that process we were also given a review letter by the SEC for our 2006 10K which was re-filed last week with all issues resolved and they were not major issues to begin with. They wanted for us to provide a lot more information on our properties. I think it’s good information. There’s maps included. We feel this whole process has been very positive because it means that the SEC has recently looked at our 10K and reviewed it and that helps us certainly. The last area is regulatory approval. What will be required is we’re not acquiring the NRC license for the mill, we’re acquiring Rio Algom itself. That will take a concurrence of the NRC. We are working closely with BHP to make that happen. We do believe that all these things will take place by the June 1st closing. I believe we will close it by June 1st, we’re working towards that way and with all parties involved but there’s no indication at all that there’s a regulatory lay that we would not continue to work closely with BHP to close this deal. I think it’s in the interest of all parties and everybody’s been working hard to get it done. You know in conclusion, I think the long term market is very bullish. I think the time frame that we’re bringing on production is going to be very good for the company. We are looking to take advantage of the opportunities now presented to us in Texas and we’re looking at bringing on production within the next several years from open stope bleaching and ALISR. In New Mexico we’re looking to close the [Ramble] deal and we’re working hard to resolve the Navajo issue. We are looking for avenues and making progress on communicating and that is the important part, where there was no communication before we’ve, there’s ways to communicate and help resolve this issue. And for those that have heard me speak before, I think you know the legal avenue is a tactic if not a strategy. It’s something that I believe we can resolve in a negotiated settlement. Bottom line, I think the URI is well positioned in New Mexico, again will be the leader of an industry that can provided 15-20 million pounds a year. And we’re ready to do just that and we have the pieces in place to do just that. So with that I’ll turn it over to Tom to review the fourth quarter and 2007 results.

[Tom Ehrlich:]

Thanks Dave. I’ll be going over our production, our sales, costs that we’ve incurred, other financial highlights for both the year ended 2007 and the fourth quarter of 07. Starting with production, we had just over 68,000 pounds that were produced in the fourth quarter, the bulk of which or 60,000 pounds came from Kingsville, the balance was produced from Vasquez. This compares to about 104,000 pounds that we produced in the third quarter of 07. Because of the reduced production that we saw in the fourth quarter, our production costs rose into the $45 a pound range with operating costs in the mid 30’s, depreciation and depletion roughly $11.25 a pound. Production costs for the third quarter were in the $28-$29 a pound range. The production change we saw in the fourth quarter compared to the Q307 resulted again from the natural decline of the well fields that we’ve had on and the delay in timing from bringing on new well fields. On the bright side, at the end of December of 07 we did bring on a new well field at Kingsville, we brought on another well field, this one at Vasquez in February of 08 and we are planning on bringing on another well field with Kingsville expected before the end of this month. So we’re bringing some of those new ones on to replace some of the well fields that have been on for an extended period. Our annuals costs for 2007 were $32.61 a pound for the nearly 417,000 pounds we produced. Our operating costs were in the $18.00 a pound range, DD&A was around $14.60. These compare to our production costs in 06 for the full year of around $46.50 a pound for the roughly 260,000 pounds we produced. At year end 07, we had just under 21,000 pounds in inventory and the carrying cost on those pounds was just under $36.00. Looking to our sales and revenues, fourth quarter sales were $8.2 million compared to our third quarter 07 of $10.4 million, a reduction of $2.2 million. The decrease from the prior quarter was caused by both reduced sales volumes, we sold about 113,000 pounds in the fourth quarter compared to 128,000 in the third quarter and our average costs or sales prices that realized also went down in the fourth quarter from $81.25 we receive in the third quarter of 07 down to $72.72 for the fourth quarter of 07. The sales we’ve made so far in 07 have been at an average sales price of between $71-$72 a pound. Looking at the total sales for 07, we were just over $31 million on 435,000 pounds. Sales in 06 were $8.6 million on deliveries of 263,000. Again the average sales price for the year was $71.61 average price for the 2006 timeframe was $32.63. Moving over to our cost side, our direct cost for uranium sold in the fourth quarter made up of operating expenses and depreciation depletion was $38.72 a pound. This compares to a similar cost in the third quarter of $26.80 a pound. Our 2007 full year costs of sales were just over $33 a pound. Comparing that to 2006 costs which was just over $43 a pound. So again we saw some considerable savings in 07 for the full year from what we achieved or saw in 2006. Royalties and commissions expense for the year was about $3 million, this breaks down to just under $7.00 a pound or as a percentage of sales, approximately 9.7%. The amount in 06 was just under $800,000 again can be broken down to just under $3 a pound or just under 9% of sales. Looking at some of our general and administrative costs, the fourth quarter G&A costs totaled $3.4 million compared to about $3.6 in the third quarter this year. Total G&A costs for the year were $11.7 million compared to a similar cost in 06 of $6.8. The significant increases that we saw from full year 07 compared to the 2006 year related to our non cash stock compensation expense which went up by about $1.6 million, increases related to adding staff and personnel of about $1.3. We had G&A costs related to consulting and professional services to evaluate our New Mexico database as Dave said, we enhanced our public government investor relations and that went up by just about $1 million. Our other public company expenses we listed on NASDAQ this year. The continued SOX 404 compliance that we have, the addition of two new directors during the year increased cost by about $300,000. Other office expenses related to the opening of an Albuquerque regional office, the increase in size of our DFW corporate office and increases in personnel also contributed for about $0.25 million. Looking over our cash and cash flows, our cash balance at the end of the year was $9.3 million, down from almost $14 at the end of the third quarter. During the quarter we generated positive cash flow from operations of $1 million. Year to date, our cash flow provided by operations was a positive $11.3 million whereas in 2006 we consumed cash from operations of $2.2 million. Other sources and uses of cash including our investing activities, our fourth quarter capital expenditures for uranium properties, plant and equipment totaled about $5 million compared to just under $6 million for the third quarter of 07. These expenditures were primarily for additional well fields at Kingsville of about $2.4 million, land acquisition well field development plant upgrades of about $1 million at our Rosita project, continuing well field developments to bring Vasquez production on of about $700,000, costs associated with as Dave says the Rio Algom acquisition of about $300,000 and then the acquisition evaluation of some of those new uranium projects and prospects in South Texas is about $200,000. Additionally we used about $700,000 during the quarter for collateral to back the financial surety obligation changes that we have related to our South Texas projects. The final area related to cash flows relates to our financing activities and these remain essentially cash neutral for the quarter from what we’ve seen at the end of the third quarter. So that concludes the financial and operating aspects.

[Deborah Pawlowski:]

Operator, we can take questions now.

[Operator:]

(Operator instructions). Our first question comes from Peter Homans with Parkman, please proceed with your question.

[Peter Homans:]

I have two sort of single word answer type question and one other. Where is contract to the extent that the contract deals are being made versus spot? And my understanding as a non lawyer is that the only court that can overrule a Supreme Court ruling is the Supreme Court itself. The EPA definition of Indian country which basically sent the case back to the 10th Circuit whose ruling the [Venity] case unanimously overruled in 98, flies in the face of the 98 ruling. It seems to be given the ability of lower courts, the inability of lower courts to overrule the Supreme, there’s no way that the 10th Circuit can affirm the EPA definition of Indian country. Is that your view? And final question is even though the governor did veto the legislation of the $0.50, am I correct in believing there’s nothing impeding you or the industry from negotiating directly with the Navajos absent any legislation once this study is done and when would that be done? A higher price which would be acceptable to them and they could without any legislation drop the moratorium.

[Dave Clark:]

Let me go back to your first question was between spot and long term, I didn’t quite catch that.

[Deborah Pawlowski:]

Are you asking Peter what our current selling price that we’re getting now or?

[Peter Homans:]

No, sort of market wide, not just you guys but sort of wide, is there a generic or industry wide contract price per pound which is different than spot and what is that?

[Dave Clark:]

The long term price is $95 and all I can tell you from my market experience there’s very few contracts that are the same, they’re all different.

[Peter Homans:]

Okay, but long term is something on the order of $20 above where spot is?

[Dave Clark:]

That is correct. And that is either straight base escalated contracts of which apparently is in vogue also is using a base escalated component and a market related component.

[Peter Homans:]

Right, okay.

[Dave Clark:]

As to your second on the Supreme Court, that’s my understanding as well. The Supreme Court will hear cases, the 60-70 cases out of 8,000 that comes in basically on constitutional issues. And whether they want to expand this, certainly if it comes to then and they’re going to overturn it they will hear it.

[Peter Homans:]

Well, but, but, but the 10th Circuit ruled in 96 the rule that made this six part definition of Indian Country which the 98 Supreme Court ruling unanimously overturned. The EPA used the 10th Circuit 96 definition. So if the 10th Circuit gets it back, wouldn’t they in order to rule in favor of the EPA have to be overruling the Supreme Court and my understanding is that the only court that can overrule the Supreme Court is the Supreme Court itself.

[Dave Clark:]

That’s correct but I’m not a lawyer but generally things that get there you grey them up just enough so it is a slightly different interpretation. The Supreme Court can certainly say there is no difference here, this is what it is.

[Peter Homans:]

Okay and then when is the study…

[Dave Clark:]

The study will be done by the end of April is my understanding. It does not preclude and is not being done just for the Navajo, its being done from a statewide basis again, a grass roots up effort to bring this industry back to the state.

[Peter Homans:]

But there is nothing, you don’t need legislation to negotiate with the Navajos with respect to dropping their moratorium if you were to come up with a higher price after the study.

[Dave Clark:]

No we don’t but I think it is what helps bring more people on board, the fact that we’re engaged with the legislature to help resolve this issue, gain support and the more support there is, that includes the conventional milling itself. [Overlay].

[Peter Homans:]

So you would be inclined to try and negotiate with the Navajos without having legislation in hand?

[Dave Clark:]

Correct, that was not the reason for backing the legislation but it certainly helps.

[Peter Homans:]

Okay, thank you.

[Operator:]

Thank you our next question comes from Jimmy Gilbert with Rice Voelker, please proceed with your question.

[Jimmy Gilbert:]

Hey it’s Jimmy Gilbert, Dave, how are you?

[Dave Clark:]

Hi Jimmy, how are you doing?

[Jimmy Gilbert:]

I am fine. I noticed that you gave a number for in place mineralized material as new ISR sighted Ambrosia Lake at 2.4 million pounds but I didn’t see a number in the press release for the OSO project you planned to reopen at Ambrosia Lake. Do you have a number there and also what was it producing prior to it being shut down?

[Dave Clark:]

Well there’s a separation here, we have sections where we own the gold mines. The process was done by both Rio Algom and Home Stake in the 90’s, so there’s not just our sections, certainly it’s something that can be extended with the acquisition of Rio Algom but we’d only be looking at our two sections, what we know we can get out of there and an additional section after closing with [Ramel].

[Jimmy Gilbert:]

Okay thank you very much.

[Dave Clark:]

I’m not sure that’s a total answer to your question, again there’s a lot of sections, I think it’s an eight mile trend. You know Rick you might want to elaborate on that.

[Rick Van Horn:]

Most of the 300 plus million pounds that came out of the district came out of the Ambrosia Lake area and there’s a trend that Rio Algom holds but we also have a checkerboard of our Santa Fe lands in the middle of this. That are our own sections and the two sections in particular produce 50 million pounds between the two of them. They consist now of old open stopes, they are flooded and that’s how the open stope bleach works. Estimating the reserve on these is almost impossible however.

[Jimmy Gilbert:]

Okay and could you just kind of talk just for a second, Rick, I didn’t realize you were there, could you talk for a little bit about the open stope process and how that works? I mean I’ve never heard of that before so I just wanted, maybe you could tell me a little bit about it.

[Rick Van Horn:]

The uranium in the mines contains or excuse me the water in the mines contains uranium and basically what we do is we pump the water out of the mine, we run it over resin, much like we do in an ISR process and recover the uranium and then return the water back to the mines. And so well we’re doing is recovering the uranium that is basically in the waters in the old workings already and in fact what we’re doing is we’re cleaning it up, but we’re recovering uranium as we go. The process on service is basically the same as ISR.

[Jimmy Gilbert:]

Okay, alright well thank you very much guys, that answers my questions.

[Operator:]

Thank you our next question comes from Jack Salzman with Kings Point, please proceed with your question.

[Jack Salzman:]

Thank you, hi guys. I wonder if you could discuss a little bit about the needs on cash flow if you expect to be cash flow positive this year ex-ing out the acquisition and a little bit of how you plan on financing this acquisition if you have a certain amount of dilution in mind that kind of thought process, thanks.

[Dave Clark:]

We’re working on all fronts so stripping out the Rio Algom acquisition is, we believe we’re going to close that and I’m not sure we’ve looked at it without doing that. So we’re building up the expense to take over this company and run this company once we acquire it. From that aspect we’re not building cash we’re investing our cash. That would include the Rio Algom acquisition, it would include acquisitions in Texas as well. So as the operations generate cash we have been spending it. I’m not sure if that fully answers your questions or not, if you’re still there.

[Jack Salzman:]

Yeah, I guess I’m curious if you can give us an order of magnitude and what you guys expect in terms of cash flow going in, cash flow going out, financing or dilution if you’re looking at equity, if you have something in mind in terms of what the overall total impact will be this year?

[Dave Clark:]

Part of what we’re looking at is, I think I got a better feeling for your question, as we’ve said since we announced this acquisition, there is a lot of interest in New Mexico with other companies that also need this mill. We are in active negotiations with them. And it’s what can we do with them not only for helping us finance the purchase of the mill but also financing the next year or two for gaining an operating license for the mill. So there’s two things we’re looking for right now, the cash we need to generate to close this deal and to advance these assets. So there’s two major parts, is what can we do and what will that cost to work with other companies and there’s a strategic and tactical consideration there. And then what is available and what can be done in financing and it’s working the two against each other. And that’s all taking place at the same time.

[Jack Salzman:]

Okay, thanks.

[Operator:]

(Operator instructions). Our next question comes from David Snow with Energy Equity, please proceed with your question.

[David Snow:]

Yes, good morning or good afternoon. I’m trying to find on my desk which is always an impossibility and article that indicated that all the pressure vessels in the world are coming from one plant in Japan, an old sword factory that made cannons and is the only one that can make these single piece pressure walls and I’m wondering if the Chinese are going to not use pressure vessels or what? See how are they going to get around that constraint?

[Dave Clark:]

Well the pressure vessel is what the reactor is, so it’s not a containment vessel, it’s a pressure vessel so that is something that you need. And that is something that has been one of the choke points that people have been looking at. I know some of you who watch utilities have been buying these central pieces for reactors as they haven’t ordered yet in anticipation that they will and they just want to be in line for this. I think my main point is the way I see it is once there’s sufficient demand for that you build that infrastructure to build the pressure vessels and everything else.

[David Snow:]

I’m seeing in the article it would take five years and if these people are hoping to get 60,000 gigawatts by you know whenever 2020, it’s pretty difficult unless it’s a different design of reactors that they’re talking about.

[Dave Clark:]

It’s not a different design but it’s also, I mean they’re buying from the French, they’re buying from the Russians, they’re building their own. The Chinese method in the past is buy enough from West until they figure out the technology themselves and they go for technology transfer and then they’ll build their own. I don’t think long term this 3-600 megawatts long term that they could essentially buy, they’re going to all buy it from us, they’re going to build their own.

[David Snow:]

Alright and I’m wondering if you could give me the, I thought old stope bleaching was a marginal recovery process and how many pounds per ton do you get out of that or what type of a recovery do you get there versus ISR and what kind of cost per pound is it versus ISR, might be another way to look at it.

[Dave Clark:]

It was Rio Algom ran there was about through 1999 when prices dropped below $10, so that gives you a relative idea of what the, it was just the cash cost. All they were doing was circulating water, you get a certain parts per million from the water you circulate and bring to the surface and you run it over resin. As long as that is economic you do it.

[David Snow:]

Is there any way to quantify the amount of recovery you get in terms of pounds for the effort? Is it a very small amount or what?

[Dave Clark:]

It is, I mean they were producing on the order of 2-300,000 pounds per year for most of the 90’s.

[David Snow:]

Okay so that was from a number of sections I guess?

[Dave Clark:]

Correct and elaborate on this Rick that you know you work on different shafts, different vent holes, whatever and you produce from each one of those as long as it’s got a high enough concentration and is economic.

[Rick Van Horn:]

Then you move onto the next.

[Operator:]

Thank you our next question from fro Peter Homans with Parkman, please proceed with your question.

[Peter Homans:]

Yes, just, Dave, you and I both know a consultant who consults with the [unintelligible] industry and [unintelligible] living in France and that person’s view of why the spot market became soft in the latter quarter of last year was that purchasing manager’s for utilities basically get walking around money at the beginning of every year and that allows them to respond to auctions that might you know be announced one day and be effective five days later. But that by September, October that walking around money gets used up and so they have to, they still buy but that have to go and get Board approval so they can’t respond to auctions therefore there are fewer people at auctions. But they should have all reloaded if that analysis is correct at the beginning of this year. Do you agree with that analysis as to why spot started to fall off last year and is it true that the purchasing managers for the utilities are in a position of having walking around money again and should that lead to more people at auctions and possibly more higher prices?

[Dave Clark:]

Knowing the utility budgeting process they will put in there what they expect to purchase during the year and question whether they buy it as part of a long term contract or spot purchases is a decision they make through the year. I think when you get to the third quarter that’s when the activity traditionally has dropped off because people particularly in Europe go on summer vacation and you get that strengthening in the fall. But I think ultimately the underlying part at least from the utility part of the demand side is what is their uncovered demand, what do they need to purchase. They have covered a lot of that under long term contracts than spot purchases over the last several years. So the total demand by utilities I think is down. That simply makes it much more important, the question what is traders buying, what are the physical guys buying, what are producers buying. And when the total volume is down it’s not a question of how much demand is or how much supply is, it is the relative balance between the two and at certain period of times it can get illiquid. I think the market on the way up got way overextended, it was an extreme sellers market, sellers were actually afraid to sell because they didn’t want to have a delivery three months down the road way below market and then when it rolled over and turned down, buyers are the same way.

[Peter Homans:]

Okay and how do you see demand overall utility demand next year versus this year if you had, I know there’s no crystal ball but in conversations you must have gotten some anecdotal sense.

[Dave Clark:]

I think and it’s confirmed by what UX, you know they put out an uncovered demand related to a survey of utilities and what’s their uncovered demand, I think the utility view, especially US utilities is similar to the industry price view, which it will stay high for the next several years and then drop. So when you get out beyond the next couple of years, a lot of US utilities become uncovered, because they expect the price to drop, why contract now when it will go down?

[Peter Homans:]

Uncovered, meaning not contracted, okay.

[Dave Clark:]

That’s correct. And as I’ve said often, markets prove the majority wrong the majority of the time and I think the consensus view is the opposite of the way it seems to be playing out.

[Peter Homans:]

Right, okay thank you.

[Operator:]

Thank you, we have a follow up question from David Snow with Energy Equity, please proceed with your question.

[David Snow:]

Yeah, hi, I guess you had talks with the Indians in Washington last summer is that progress of sorts of ending the Indian talk ban and does that mean that you’re inching forward in that you’re able to open a dialogue with them at this point or and can you tell us anything about what transpired?

[Dave Clark:]

I can’t give you great detail. I mean part o the Navajo ban is you’re not allowed to talk with uranium companies if you’re a Navajo, on the reservation certainly as a member of the Navajo government. We respect that. So it’s for us it’s a matter of finding avenues of communication. We’ve had direct contact with the Navajo on several issues, so we see openings there. Again I think their issue is still about safety, we need to demonstrate that, we’re working on that front by everything else we’re doing in the state. So I’m encouraged. You know a year ago, when I got into this position I was talking about you know finding a way for a negotiated settlement versus legal only means and I think we’ve now had the team in place where that’s now personified and we’re moving forward and I’m very satisfied with the direction we’ve taken and the progress we’ve made and beyond that I’m not going to get into details.

[David Snow:]

Wonderful, now is the closing obligation 110 plus 35 in the prepaid up front for reclamation?

[Dave Clark:]

Correct.

[David Snow:]

Okay and then when you mentioned 2-300,000 pounds a year by Rio, you’re going to do the same amount of sections or less sections? How would you compare in terms of that type of number?

[Dave Clark:]

We have a couple of sections we know we can do that immediately. As far as how long we can do it would depend on whether we close the Rio Algom deal or not because they have again mines in the same area that would use the same process.

[David Snow:]

So it could go on for a number of years if you close the deal at that level I guess?

[Dave Clark:]

Yes.

[David Snow:]

Okay and then I guess, well okay that’s it. I very much appreciate it.

[Operator:]

Thank you, I would now like to turn the floor back over to David Clark for any closing comments.

[Dave Clark:]

Again, thank you for your time and interest in the company. Hopefully we answered your questions. Again there was a lot of information in the 10K that will take time to absorb so I’m sure Debbie will appreciate that if you have questions, give her a call, if I can help she’ll put you in contact with me. So again, thank you for your interest and have a good day, thanks.

[Operator:]

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