U.S. Energy Corp. Wall Street Analyst Forum's 20th Annual Institutional Investor Conference Transcript

| About: U.S. Energy (USEG)

U.S. Energy Corp. (NASDAQ:USEG)

Wall Street Analyst Forum's 20th Annual Institutional Investor Conference Transcript

March 26, 2009 9:50 am ET


Hellen Bard – Director of Client Services, The Wall Street Analyst Forum

Keith Larsen – Chairman and CEO

Hellen Bard

The next company that we have presenting this morning is US Energy Corporation (inaudible) energy and resource diversity investments in the natural resource sector. Founded in 1966, U.S. Energy Corporation traded on the NASDAQ on USEG is a diversified natural resource company with interests in molybdenum, oil and gas, geothermal, and real estate assets. U.S. Energy Corporation’s objective is to capitalize on the tremendous opportunities in the commodities market today and to build the company into a growing cash flow entity. U.S. Energy Corporation is committed to the enhancement of shareholder values through the investment of its capital into natural resource related projects that have above average profit potential and/or the ability to generate recurring revenue and cash flows. The company has entered into a $400 million option agreement with Thompson Creek Metals to develop Mount Emmons molybdenum projects and has the goal of exiting 2009 with a daily oil and gas production of 7000 million cubic feet per day.

Presenting this morning is Keith Larsen, the Chief Executive Officer.

Keith Larsen

Thank you Helen and thank you for coming in and letting us share our story with you this morning. I think you will find it unique, we are not a true E&P company, we believe in times that you have more than one leg under the stool and I think that was kind of (inaudible) us considering what has happened over the past 12 months and certainly over the past six months.

I will need to read this closely just to protect everybody. Again a diversified portfolio in natural resources and we are going to talk about everything that we are involved in now. We have plenty of capital. We did not get leveraged up and I think you will see a lot of E&P companies that are in deep trouble right now. They went right up their borrowing base, the borrowing base got reduced after the end of the year when the commodity prices went down, and some of those companies are looking to sell some assets, we will talk a little about that as well, and our strategy is to go out and get them. We did not spend our money when we got it and I will talk a little about how we got our money. We are very patient and we are looking for borrowers.

First thing anybody does and that is probably Economics 101 identified what is out there? Who needs money? How do you evaluate an oil and gas prospect or another prospect? What is the rate of return? And you need the money to invest in it either through debt or if you have the cash and then you extract a value and that is what I am going to talk a little about next. How are we going to get from here to there? We have got a very valuable long-term asset, we have got one of the largest molybdenum deposits in the world. Molybdenum is an alloy that you add to steel and it is also a very high temperature alloy, so anywhere you see high temperature or high corrosiveness you will see a lot of molybdenum mixed in with that steel. Last year with the construction boom in China and here a lot of molybdenum was used because generally between 0.1 and 1% molybdenum added to steel makes that steel stronger as well and you live by the sword you die by the sword, when steel prices and consumption go down generally you will see molybdenum prices come down. A year ago molybdenum was around $25 to $30 (inaudible) and we will talk about Thompson Creek. So how do we get from here to there? This is a long-term opportunity, it is not going to turn on tomorrow, it is going to take five years plus to get there and as you will see in a minute we have got a lot of cash and we want to generate cash flow. So we will talk about those opportunities as well.

How do we get the money? Back in the ‘90s we are a uranium company. We invested in distressed assets, uranium was not the darling of Wall Street, much the opposite of last year, if anyone here in the room followed uranium and got to an all-time high and then got huge valuations for Canadian companies as well as US companies and a lot of people came here in New York hitting the streets raising money, well, at the same time we sold our assets. Uranium One was hitting the streets, they bought three or four different companies, our assets were one up. And we were very fortunate they paid us in stock and when we closed, this was in June of ’07, and our stock was pretty much at $18, it hit one of its all-time high and uranium was at $138. We immediately sold our stock and we cashed in for about $100 million. So that is where we find ourselves today in addition to the $100 million as they develop our assets as they turn on the uranium mill that we sold them there was another $20 million and then another $20 million payments as the properties we sold them performed. Now today, uranium is only $40 (inaudible) and what happened in the near term I don’t know and they have no obligation to share with us but when and if in the future they do turn on, there is some significant additional cash payments that will come to us.

Let’s talk about where our assets are now and how we are developing them. We have our real estate in Gillette, Wyoming and I will talk a little about that, our real thrust right now is in oil and gas and we do not operate yet. We are buying working interest in proven partners where there is low risk, it is exploration, it is not development. We have invested in geothermal and we will talk a little about that and then of course we will finish off with the big molybdenum project and how it got developed and where it stands today. Two years ago after we got this cash we said where we are going to put it and we have been a deal company, we have just done deal for deal and sometimes a deal happens every year and sometimes it happens several years and so we were not generating cash flow, we were not generating revenue. So our first goal when we received this money on the uranium deal was to say we need recurring revenues. And one of the things that was happening in Wyoming was there was a huge shortage of housing. The energy markets were booming in Wyoming, Wyoming is one of the new target areas for oil and gas and by the way it is also the largest producer of coal in the United States. Within Gillette, Wyoming within 50 miles, 500 million tons of coal are mined and shipped out every year that is the equivalent of 125 hundred-car trains every day, 10,000 tons range, 125 leave the state of Wyoming every day. 50% of the US consumption of coal comes from Wyoming. In addition to that Gillette is building a $2.5 billion power plant and about $250 million worth of infrastructure in the city and people were literally living out of the trunks of their car. So we went in and we built the 216 unit multi-family apartment complex. We thought that it would fill up quickly and in fact the city gave us occupancy permits per building as they were completed because the housing shortage was so severe. We projected we would be above 90% within six months of completion. We completed the project at October of last year and we were 96% providing about $240,000 a month in cash flow, and the way I see this asset is if we do nothing else it will keep the doors open. We will not expand anymore into real estate and in fact if the prices come back and we get out of the recession and interest rates get a little more easy to handle, we may consider selling this asset. We want to be an energy company but that was the background and where we are and we are very pleased with it. It came $1 million under budget and about two or three months ahead of schedule.

So the real nuts and bolts of what we are doing now is looking for oil and gas participation. We partnered up with professional players, we have also been partners with Carrizo in the past, Credit Suisse First Boston we take a working interest, a non-operative working interest although our strategy today is we have engaged Sanders Morris Harris at Houston, Texas to help us find distressed assets. As I mentioned earlier, a lot of these companies last year and banks that were over-zealous they thought energy prices are going to stay high and some of these guys went up to 90% of their borrowing base, now they got readjusted after the first of the year and are being readjusted as we speak and there is going to be several companies that are going to be above their borrowing base and they are going to be out of ratio and out of covenant and we know that. In fact we investigate and identified 125 companies that had a market cap of over $150 million one year ago. Today there are less than $15 million in market cap and it all comes down to debt and equity. So those companies that we see have an opportunity that have to sell things and it is a bargain and we are talking about operated and non-operated, that is what we are looking for, and I am confident within the next six months to a year that you will see us buying assets, producing assets with some upside potential. Our goal is to exit this year with 7 million cubic feet a day. We are doing about 1.7 currently with one well that we did, we are developing wells with PetroQuest on the Gulf Coast, they are expensive wells, they cost $6 million to $8 million to drill. We have 20% working interest but when they hit they are great, the first well that we hit came out 17 million cubic feet a day, a second one came in as dry hole, so it is a risky business.

Geothermal, we were out looking for oil and gas, found some really good private companies and the theory that they had was if you are going after geothermal it is very similar if you are going after oil and gas, you are looking at the same type of records and the court houses because joint companies have to post what they get where the water was, what the temperatures were, what type of formations they went through, what the logging was. So we had kind of a unique combination the group that we went with also said let’s look where there is transmission lines, you do not want to be 100 miles away from a transmission and transmission lines would have capacity. And so the thing that really attracted us to geothermal and I would suggest that if any of you are not interested in it or do not know about it to look at a company called Ormat that runs a 100 megawatt power plant in Reno, Nevada, I have been there. It was one of the most amazing things I have ever done, this plant is producing a 100 megawatts, it has scarcity [ph] power of about 15 megawatts, it runs a lot of pumps, it is moving a lot of fluid. I was glad to see it, there are no trucks bringing fuel in and there are very few people and they are running a pretty exciting plant out there and the costs are much lower than other renewables. I listened to the Ethanol presentation before, we have looked at solar and we have looked at wind and I will tell you the problem with solar and if not the problem just the facts. The wind does not always blow and the sun does not always shine and so when you obtain a long-term power purchase agreement for those commodities you get between $0.05 and $0.06 a kilowatt.

Geothermal you get between $0.10 and $0.115 because it is very slow, it flows all the time unless you have a power outage but you are creating your own power. So we have picked up 60,000 acres with our investment in this private company Standard Steam Trust, the next step here is to go out and prove what we have got and it is very expensive drilling to prove it up. The first thing you do is you do temperature gradient drilling and basically you can tell if you go down a couple of hundred feet, if the temperature is rising so many degrees per foot or per hundred foot, then you can extrapolate and say, okay, we know that when we get down to 2000 feet we are going to have the magic number 300 degree water and that is what – the ideal for a geothermal plant is around 300 plus.

There are two ways to produce power with geothermal, one is called Flash and that is in California, they take the water when it hits the atmosphere, it flashes into steam and it turns the turbine. The other Norway that is being developed and it is more environmentally friendly is called the closed-loop binary system. What you do is you bring the heated water up, run it through a heat exchanger, the heat exchanger heats into alcohol, the alcohol flashes and it turns the turbine, you cool that alcohol back down and it is a closed loop, then you cool the water back down and inject it right back into the formation. So it is a zero omission.

Some of the geothermal water is pretty nasty water, it is pretty corrosive and it has – that is one of the issues with geothermal as well. Our exit strategy here is to sell the land to utility joint venture with utility. We are not utility. One thing that we do recognize is we have to partner up with really smart good operators both in the oil and gas as well as in this endeavor but we have been pretty successful in developing these projects, getting a diamond in the rough, put a little shine to it and then realizing value. The end thing is and if Mr. Obama has given money and throwing it at renewables, we may become a generator. I would say that would be less likely though.

Let’s talk about this long-term opportunity. Back in the ‘70s we were running a lead, zinc, silver mine in South Central Colorado and a Company called Climax actually based out of Greenwich, Connecticut was searching for molybdenum. They were the largest primary molybdenum producer in the world and they were spending tens of millions of dollars looking for molybdenum worldwide and they had two primary moly mines in Colorado, Climax and Henderson and so they were spending a lot of money in Colorado to look. We knew that they were around the area and they ended up buying this property from us and right in the centre of the property they found the third largest deposit of molybdenum in the world. They went on to spend $160 million and if you look at the grades here, these grades are the Henderson and the Climax, the two largest primary moly mines in the world and this is bigger and the better grade than those two. So what happens after a series of events Climax merged with Cyprus in ’91, Phelps Dodge bought Cyprus Amax in ’99 if there are any mining people here, and eventually Freeport-McMoRan took them up.

And here a couple of years ago they came to us and they were paying us advance royalties way back from the ’70s and said we are going to give this property back to you. So the first thing we did is the same thing we do with everything else, we went out to find out a really good partner who knows how to develop these type of things and we found them.

We found Thompson Creek Metals and we signed an agreement in August of last year where they can earn up to 75% interest in the deposit by spending $400 million, 15% interest by spending the first $15 million and that includes $1 million payment to us for the first five years and then going on to spend an additional $35 million for another 35% interest, and then funding the CapEx to the tune of $350 million to earn that other 25% interest. They have announced that they expect to spend between $5 million and $7 million this year.

Their only required on the contract to spend about $3.5 million. I think they are pragmatic about it. Moly prices have come down but there is not a better moly deposit in the world that compares to this and I will show you that in a few minutes. It is long term, any type of mining today, you will have to do a lot of environmental studies, environmental impact statements, you have to jump through a lot of hooves and they are up to the major because they are mining people.

Who is Thompson Creek? They have molybdenum production they will probably do 22 million pounds I think is what they have announced this year. Importantly for us is they have roasting capacity. When you produce molybdenum it is molybdic disulphide, it has sulfur in it and you have to roast the sulfur out of it to make it MoO3 or molybdic trioxide and that is what you sell to the seal people. Of course you are not going to put sulfur into seal. Now again a roaster, to environmentally permit a roaster is difficult. So part of the value we see in partnering up with Thompson Creek is they will roast for us and they will also market for us. Again same thoughts, using a company that has got the expertise and success helping us market our material and that equates into larger profit margins for us.

This is the property proper and what you see in the white is untapped mining claims and mill site claims and what you see in the yellow are patented mining claims and you probably read in the paper about patents and let me just give you a little primer on what a patent means, that means that if you go out under the Mining Law of 1872 and you prove up that a mineral is valuable and you can extract it at a profit, then you can apply it through independent analysis not just you saying it is but a lot of independent analysis and you submit that to the US government and you apply for a patent and they issue you the patent, you can buy that acre for $5 an acre.

And what the environmentals will have you say is these are pristine areas and they are around cities like (inaudible) and they are getting it for $5 an acre and towards several hundred but they what they forget is the $160 million is spent on this property, $160 million so that is a $1 million an acre just to get it to that point. Anyway we are going to do – it appears to me that the patent process is going to be done away with because they have suspended all patents, this patent was the last one issued, what the patent means is you own it in feet [ph], you own the surface and you own the minerals in feet, there is no more public ownership of the surface, you own everything there, as well as another 7000 acres of undeveloped land that we are going to need for infrastructure. This is what the deposit looks like and this was developed by Amax there.

Actually what you see on the right side there is the old workings where we were working. We had a lead zinc silver mine and mill. We are extracting those minerals. And what you see in the back was the big molybdenum plug, in fact when I was a young person down there, we actually went to the mill and kind of had a grey substance coming out of the mill and we thought the bearings were out of the mill so we tore the bearings down and replaced them. I could not pronounce molybdenum that is what it was. And as soon as the Amax guys came to the mine dumps they knew what it was. So what they did is these are tunnels that go right into the guts of the deposits. So the green is the tunnels, the green squares are drill stations, the blue lines on there are drill holes.

They drilled 30 miles of core, took the core out, they analyzed that and that is why we know that we have got this huge deposit and what it looks like, the geologists and engineers have looked at it. This is how it compares. See now it is in the high grade section, it is an anomaly as to most of these moly deposits do not have a high grade section. You combine all of the resource and it has an average grade but this has 20 million tons of 0.7 although that cuts down on the size of the deposit. But overall, if you take the overall size, it is bigger than anything in the world. And so we need to get from here to there. We will want to do the work on this and we want to bring in a really good partner but we need to get from here to there that is why we are doing the other things that we are doing.

Its current status, there is a lot of treating plan on site, we are upgrading now (inaudible) anything in a mining industry, oil and gas is a huge issue, electrical upgrades, we are getting ready to be permitted. We are doing baseline studies. When I say wait Thompson Creek is the operator, they are doing the work, we run the water treatment plant, they run the operations. They have done a great job so far. We have confidence in them, we are very, very pleased to have them as a partner.

Let’s take a look at the corporate data. I am the Chairman; Mark Larsen is the President; Scott Lorimer is the CFO, we have all been with the company for over 30 years. The only newcomer if you will is Steve Youngbauer and that is because our General Counsel of 40 years retired three years ago. Steve brings a vast wealth of experience in the Wyoming legislature as well as the coal industry and the oil and gas. We think we have built a real good team that is up to the task for moving the company forward.

Some of this is going to be a little surprising to you, this was added up in the end of the year so I will have to tell you about some adjustments and subsequent events that happened after the end of the year. There is $64 million in cash, cash equivalents, treasury, total assets of $142 million very little long-term debt, current debt pretty high that was construction loan on the Gillette property, shareholders equity of $111 million. Book value of our stock as of the end of the year $650, treasuries and the reason you will see a difference between treasuries and cash is it is an accounting rule, if you have your money in treasuries, it is not cash, it is an investment so you call it treasuries, but if you combine our cash and treasuries the cash being on the bottom which we did have in current cash, other assets, investment in oil and gas about $8 million, $22 million in Mount Emmons, the $25 million in the Gillette facility, it is $650 book value, it is what we are trading at $1.87 I think that is probably current as of today, at least the last time I looked at it.

It has been up to $3.50 down first part of this is the function of the overall markets, I am not sure, there is a whole bunch here that anybody could do to really tell Obama or the banks or the finance or somebody gets fixed, we don’t have any debt. What we have done in subsequent events is we weighted our cash needs to financing the construction loan on the Gillette property. We said look, we are getting less than 1% in treasuries and we know we are going to be paying at least 6%, maybe 7.5% to finance this, we are going to use our own cash. So we have no debt, we paid all of our construction loan and we own that facility a 100%.

Maximizing value minimizing risk that is what we do. We did get criticized somewhat on the real estate quite frankly and honestly and people said look if I want to buy real estate I will buy a REIT, okay we are going to go into natural resources, we believe it was a natural resource play anyway and it was very safe. Let me tell you, I have run this company the last 15 years and (inaudible) I need to find money just keep the doors open and that cash flow is important to me but I think if we are successful and I believe we are going to be in the oil and gas side that is what we want to be as an E&P company. We are a bit difficult to understand because of the diversity but quite frankly I am proud of that. We have got more than one leg under the stool and if one fails, and we have done this over the years, the other can hold you up.

We are doing about $1.5 million a day now and again I think it is pretty aggressive but realistically we want to exit at $7 million a day. We want to take that cash and engage Sanders Morris Harris go out find some of these distressed assets, we want to buy production. We are going to be doing a little bit of exploration drilling but we think that we can buy production cheaper than we can drill for it. For instance, a year to two years ago you could buy one barrel of oil per day for $50,000 plus. We think that we could buy some for between $10,000 and $15,000 and we can book those reserves and then we can count on our cash flow. We don’t want to gamble, we need to make money today. If they make money today and we happen to get an uptick which I am bullish on I must tell you, I think we are going to higher prices, energy prices, and those valuations are going to come back up towards where they were a year ago and I hope it does not go as high as it did a year ago because I think that our industry got a little crazy but it is going to do what it does.

Mid-term we are going to continue to do some exploration work with these various companies. We are going to find additional (inaudible) opportunities, work with SMH to identify these assets as I mentioned we have got over 100 targets, some of them are not going to fit. In fact we will probably look at a hundred before we find one that fits. We want to continue working on the geothermal, again these gradient, temperature gradient holes and then once you get there then you go on to the development holes that will prove up per megawatt as a function of temperature and water flow. You have to have permeability so you can move a lot of water and then taking it out it is just technology and let someone else come in and engineers your plant but the ticket is prove that you have the water. Long term it is pretty simple, we want to be here when this multi-billion dollar deposit of molybdenum gets produced.

And that is my highlights. If you are looking for a diverse portfolio which is what we have, mid-term opportunities we have got a world-class molybdenum project. We have got solid track records falling down the season, we have got pretty good experienced people here, and pretty much we are what we are. I have been telling people this is about a third one I have done here in New York and we are going to be in California next week, just watch us, see if we do what we say we are going to do because you do not invest in companies, you invest in people. All I could ask you is just keep an eye on us and if you see that we are making a progress that I have talked about here today that you might consider taking a look at us.

With that I will turn it up to questions.

Question-and-Answer Session

Unidentified Participant

Your opportunistic buyers, you have these projects up the curve, you know about some, when you went into Gillette I thought that you guys did not get the new statements out there with (inaudible) eating the production and then you sold it out for $1.5 million that was pretty impressive. But now you are in the oil business with stuff that you have never done before because you guys come from mining, there are large sharks out there, can you give me some comfort that you know what you are doing in the oil business?

Keith Larsen

And for the Webcast I will repeat the question, we are new in the business of oil and gas and can you give me some comfort that you know what you are doing? Well, I did not go over this but in 2001 we took a $10 million and invested in coalbed methane in the Powder River Basin which was the booming trend back then and we ran out of money and so we went down to Houston and met a company called Carrizo Oil and Gas, Chip Johnson and Steve Webster and some other guys and they came out and they invested $12.5 million with us for half the interest and I must say they have been one of the best partners we have ever had. They taught us the business, what is an AFE, what is an LOE, what is lease operating expense, how do you pay for these things, what is a JIF, joint interest filling, and we were fortunate that in addition to that after we partnered up with Carrizo then we went to Credit Suisse First Boston and they took a subsidiary company Carrizo and we put land into it and they took it public it is called Pinnacle Gas Resources, raised about $200 million for that company.

That company is not doing that well today but neither are a lot of other coal bed methane companies and we sold the rest of our assets and we got out for about $45 million. We also had production in Montana, we had some 20-year wells so partners with the Indians in Assiniboine and Sioux tribes, so we are not experts and again what we are looking for is we are looking for the experts, the guys that have been successful. We searched before we went to (inaudible) and I think their numbers speak for themselves. They are stocks like everybody else and so is Carrizo’s. They are good, honest and hardworking people and until we get our feet under us, the only way we will become an operating company is if we buy a company that has got the personnel so that is where we are coming from.

Unidentified Participant

1.4 million Bcf today you are generating cash burn (inaudible)?

Keith Larsen

Right now our cash burn is about $0.5 million a month and we are bringing in – the last check was $300,000 on that one well, there is only one well for the 1.5 million cubic feet a day and then the other cash flow, it is not earnings, there is about 240,000 for the apartment building and it is because of the depreciation you are not going to see any but the cash flow looks pretty good on that.

Unidentified Participant

And you have got $7 million run rate at the end of the year as your goal, how much capital you are going to spend?

Keith Larsen

It depends, I think we are going to spend between $10 million to $15 million unless there is a large acquisition but that is what it looks like to me and we don’t announce them like the other companies yet. We are not there but I think it is going to be between $10 million and $15 million.

Unidentified Participant

Is a piece of that differential as organic from the (inaudible)?

Keith Larsen

No we have some, if you remember the slide, we do have about 2500 acres at (inaudible) in South Louisiana. We are also doing, I thought maybe in the breakout but we are doing about a 100 mile seismic shoot with another private company, Yuma Exploration, and then we should have already targets on that this fall. Small piece, we have 7% working and about 4.5% net revenue interest. They did well, they are expensing but again let me tell you my philosophy, I would rather have a small piece of something that is working than 100% of something that is costing a whole bunch of money.

Unidentified Participant

What did you say the name of the company in Reno, Nevada which works with power?

Keith Larsen

It is Ormat and they are a public company and I believe they have got several thousand megawatts of power, they are vertically integrated as well. They built the turbines, they designed the systems and they produce for themselves as well as come in and contract and engineer for others.

Unidentified Participant

It is geothermal?

Keith Larsen

It is geothermal, exclusively geothermal I believe.

Unidentified Participant

The CBM, what is going on with that?

Keith Larsen

Coalbed methane, I will tell you the only people I have seen make money in Coalbed methane is going to be myself. Coalbed methane is a tough business especially in Wyoming because of the – that is why you don’t see us doing a lot of (inaudible) there is a lot of takeaway capacity to complication as a differential and especially in the summertime. I mean, the first field we bought up there we were getting 260 and like two weeks later we are getting $0.60 because there is so much competition and there is so much work up there that (inaudible) and all that stuff that is going on in the state they are producing and they are developing more production quicker than they get the pipeline out and we have no industrial base use and there is no residential use, there is only 0.5 million people in Wyoming.

And coalbed methane suffers more than anybody because you have got to pump that water. So what is going to happen with coalbed methane, I don’t know, I think you have seen some companies that are in trouble up there, I won’t name them but there are companies that are struggling a bit. Now if I was going to be in coalbed methane, I would rather be in the San Juan than in the outer [ph] much higher standard cubic feet per ton and longer lives.

Unidentified Participant

The coal in Wyoming, you know what grade coal is?

Keith Larsen

Yes, it is pretty low BTU coal, it is like 7500 to 8800 compared to the site out here where you are in up in the 12,000 to 13,000 but then they said it would not work but they proved them wrong and of course it takes an awful lot of water. We have run that business and we pumped hundreds of millions of gallons of water, I could tell you that and some of the wells just don’t come on. It somehow looks like the oil business but if you are in a hole, if your geology is in a hole and you are pumping and people are not helping over here, you are not going to get any production.

Unidentified Participant

And the likes of those mines, any idea?

Keith Larsen

The mines are going to be there for hundreds of years. I don’t know the number but I have heard that Wyoming has enough coal at today’s current consumption can supply the United States entire energy needs for 500 years. What it is is these are big 80-foot seams that out drop and then down another 300 foot there is 150-foot seam and it goes for hundreds of miles.

Unidentified Participant

These are leased. Are these part of the buildings of Gillette are they older (inaudible)?

Keith Larsen

No they are just rented.

Unidentified Participant


Keith Larsen


Unidentified Participant

And is there a lot of other construction going on there?

Keith Larsen

Yes there is, in fact just north of it there is another 330 units going out, I think there is 800 that are almost complete, we were the first ones to get completed and there is a huge need, I believe there is going to be more because it is an anomaly which you would think about, in the economy today and real estate today it is unbelievable, I will encourage anybody if you want to see something that is unbelievable in today’s market, go to Gillette, we have got lots. I mean, the rents are good and there is still a lot of activity, the wages are good. We looked at our own hometown and I am glad we did not do it there. We looked at Rock Springs, Wyoming; (inaudible). But the one thing Gillette had that those others did not is the coal mines and those coal mines are going to operate for many, many years. They are going to have slumps in their economy but when the economy comes back we will probably end up selling that facility. Anybody else?

Unidentified Participant

Moly reduction forecast between $20.15?

Keith Larsen


Unidentified Participant

No, your –

Keith Larsen

Our production, you know, I just must be honest with you, it may not be $20.15, this is a long – it is going to be two-tier, one permitting and two market driven and either one of those if they don’t come, although I am a bull on it because the primary production is going down and it is also a function of copper, a lot of the production comes from primary but over 50% comes from a byproduct to copper so when copper prices went to $350 that was a lot of money, moly went to $30, there was a lot of production from copper. Now copper is down to $1.50, $1.25 and so let’s say a macro situation worldwide, China produces a lot of molybdenum as well, South America, (inaudible) a lot of molybdenum, the primary ones the ones that you are seeing coming on, the grade is tenth of our grade is generally moly, Mount (inaudible) Idaho and its beneficiaries in Australia the grades are like less than 0.5 pound per ton but there are 1 billion tons or 2 billion tons. I did not answer you directly but I am a bull on molybdenum, I think that we are going to need some more and I think China, I think the brick countries are going to come back on and they are going to start building again, it may take us a little longer.

Unidentified Participant

Yes Kevin was in town yesterday, you might still (inaudible) you made a nice presentation where you said if fee is looking at $20.15 or maybe earlier but one of the things that you should mention is the use of moly in the oil pipes everywhere in the world and also (inaudible) they are you using more and more moly than others.

Keith Larsen

The question was consumption and their use in the oil field services and of course that looks better a year ago than it does today but the fact remains, we need an awful lot of pipelines out there and they do use a little bit more molybdenum drills fuel for jet engines, last year they were forecasting an awful lot of jet engines that were going to be using molybdenum and really back in the ’80s when Amax permitted this thing and then the price went from $14 down to $2, there were substitutes, now there is not. Molybdenum has been engineered into the product now where they do not substitute, especially on those high-end items. Even a car, a car contains I think an average of 2000 molybdenum each family car that comes out. Although it is very small, you don’t have to use as much steel and Kevin Lottery [ph] is who you are referring to and he is just a heck of a neat guy, I think him cutting back on his production on his current facilities and cutting back on CapEx we are very, very pleased that he is still involved with us because we know he has a lot of different opportunities and I think it gives an endorsement that – I think he will tell you this, our project is the best pipeline project out there.

Unidentified Participant


Keith Larsen

Yes, I think that is about it, well thank you.

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