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Uranium Resources, Inc. (NASDAQ:URRE)

Q4 2009 Earnings Call

March 11, 2010 11:00 am ET


Deborah Pawlowski – IR, Kei Advisors LLC

Don Ewigleben – President and CEO

Tom Ehrlich – CFO


George Walsh – Gilford Securities, Inc.

David Snow – Energy Equity, Inc.


Greetings, and welcome to the Uranium Resources, Inc fourth quarter 2009 call – financial results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Deborah Pawlowski, IR for Uranium Resources. Thank you. Ms. Pawlowski, you may now begin.

Deborah Pawlowski

Thank you, Shei, and good morning, everyone. We appreciate your time today and your interest in Uranium Resources. President and CEO, Don Ewigleben, is going to cover the strategy and outlook for the company. And following that will be some Q&A. If you don't have the news release, it can be found on our Web site, which is

As you are aware, we may make some forward-looking statements during the formal presentation and the Q&A portion of this teleconference. Those statements apply to future events, which are subject to risks and uncertainties as well as other factors that could cause the actual results to differ materially from where we are today. These factors are outlined in the news release as well as in documents filed by the company with the Securities and Exchange Commission. You can find those at our Web site where we regularly post information as well as the SEC's Web site, which is So please review our forward-looking statements in conjunction with these precautionary factors.

With that, let me turn it over to Don to begin the discussion. Don?

Don Ewigleben

Well good morning to all. We appreciate you participating with us this morning. And I want you to know that we have on the call today two members of our management team, Rick Van Horn, who is our Senior Vice President of Operations and Development; and, Tom Ehrlich, URI's CFO. They'll be joining me in responding to questions later in this call.

I'm going to assume that everyone has the news release. And I won't take up your time by trying to read any portion of it. In fact, I'll just stick with highlights. And then when we move to questions and answers, if you do have questions related to specifics in the release, we'll address them at that time.

We started this week with some very great news. And I believe you would have all noted that the Tenth Circuit Court of Appeals upheld our NRC license in New Mexico. And this is very strategically important to us in that it confirms the safety of the in-situ recovery methodology. ISR mining has been, in essence, supported by the Court in its review of the NRC's environmental impact study that we – that it used. In essence, the Court basically stated that the appropriate standard of review has been met by the NRC.

And it's strategically important to us because it avoids any reopening of this licensing process, and puts us in a strong position once our UIC permit has been received to begin mining. Of course, it really allows us to complete the feasibility study and obtain the necessary financing to complete the construction moving towards operation. But it is one of the last issues necessary for us to move forward.

We also had some activities in the recent times that I want to stress, the most important thing, the approval by our Board of a new strategic plan. Overall, our most important issue as a management team is to execute on all of the strategic initiatives so that we continue to build shareholder value for URI shareholders. One of those objectives is to analyze the synergistic attributes of our competitors' holdings. That might seem quite normal for everyday business. But the fact of the matter is, in the respective districts that we're in, in Texas and New Mexico, we believe there's quite a bit of opportunity for synergistic value. And we're looking at that very seriously. That means we'll consider joint ventures. We'll look at partnerships of any kind, on up to including any mergers. And the Board feels that at this stage of the game, that's an appropriate place for us to be with uranium prices where they are and with our position in these respective districts.

We must also determine any potential for asset sales in the event that there's an appropriate sale opportunity, particularly for anything associated with existing liability. And we'll look to see if we can enhance shareholder value through asset sales.

One of our other initiatives will be to enhance our exploration capabilities. We've had some successes in the past. We've had some non-successes. We want to make sure that if the uranium price recovers, we're in a position to enhance that capability and particularly use that to support any joint venture relationship that we might have if it includes a larger entity who would look to us as a unique junior that can develop, explore, but also construct and operate a facility.

We want to consider any additional capital markets. Now that we are presently listed on the NASDAQ, is there any aspect of another listing that would be beneficial to our shareholders? So we're looking at that from an initiative standpoint. And of course, we must continue to find ways to reduce costs, we will, by necessity, leave some short term financing to bridge the time until the uranium price returns and we can go back into production in Texas as well as obtain the necessary financing to complete the construction and operation in New Mexico.

Specifically with regards to Texas, the management team needs to be prepared for this recovery in the uranium price. So we're going to prioritize our production targets and understand what are capabilities are in the short, mid, and long term for a return to production. That means we'll be developing well field plans, and we'll create production plans so that we can rapidly execute them as quickly as the return of the price.

We also are going to develop exploration priorities and determine the potential for our existing holdings as well as new holdings in South Texas. Let me be clear about South Texas. There seems to have been some inference in the marketplace that we were moving to a New Mexico only base. That is not the case. The Board reviewed our strategic objectives and agrees that it is appropriate for a company with 30 years of history operating, developing, constructing, and now in the process of restoration in South Texas that we should use that expertise to enhance shareholder value in Texas. Of course, it takes nothing away from our New Mexico activities. We intend to operate in both locations. And we are certainly poised to do that.

As you know, we headquarters and our officers are in Dallas. But we have an operational office in Kingsville, Texas. And we'll maintain an operational office in New Mexico when we're moving forward on the projects.

Turning to New Mexico, we will continue the discussions that we believe have improved the relationship with the Navajo community, with the Navajo EPA, with the US EPA, and various other governmental officials in New Mexico. We're looking for an open, honest process to continue those communications. And we feel positive about the way that things are moving in New Mexico.

We're going to actually develop an engagement plan that helps us create a future opportunity for these types of cooperative efforts. As you know, we've been in active in trying to educate everyone in the community. And we've been gaining general community support. Our most recent activities of building a job bank and trying to educate individuals who want to come to work for us has been quite successful with a number of activities that Rick has held in Northwest New Mexico.

As you know, the most obvious issue for us at the moment is to maintain a positive cash position while we await the return of the price. We had $6.1 million at year-end, and that's noted in the news release. Most recently, we had $4.8 million at the end of February. Now that would imply a $650,000 a month burn rate. But in fact, we're targeting something less than that, a $6 million a year burn rate. And therefore, we're moving to a $500,000 burn rate to avoid any issues about our longevity until we can raise the short term financing.

Now the reason for this implication of a higher burn rate despite our target is quite simple. There were a few one-time non-reoccurring events, specifically around legal costs and a few operational improvements. And we do want to be prepared for the return to operation in Texas, so it's imperative that we use our existing funds wisely to put us in that position. We can talk specifically about these one-term items later in the financials. But I do want you to be aware that the targeted burn rate is $500,000 a month. That means before year-end, we will move towards a short term financing mechanism, unless there's a larger event that allows us to move forward in a bigger picture way, and that it could happen with the UIC case that is still pending before the Tenth Circuit Court of Appeals.

We were pleased that last January, January 12 to be specific, the en banc oil arguments were heard by the courts. It's just an unusual event in legal activities in that 11 of the 12 judges in the Tenth Circuit chose to hear this case. It would have been all 12, but 1 had to refuse himself. We're awaiting the decision.

I apologize for all the noise in the background. But when you use a speaker phone of this nature, unfortunately, it picks up the emergency activities in the streets below us.

With regard to that court case, we can't give you a definitive time on when that decision will occur. But I will say that we're heartened by the court's decision this week, two of those same judges voted in favor of the support of the NRC permit. One of course did not. It was a two-to-one decision. But we're heartened by that activity. These are companion court cases that allow us to move forward. So suffice it to say, if we have a very positive event with regard to the UIC permit and we want to move forward on the development activities in New Mexico that might change the nature of our short term financing need and make us move to a mid term or long term strategy.

With that, I'd like to turn to Tom Ehrlich, who is our CFO, to address any specifics with regard to the financials. Tom?

Tom Ehrlich

Thank you, Don. I want to go over a little bit about our production and sales for the year, our operations, and our financial position for the year. During 2009, our production, including positive inventory adjustments, totaled 59,000 pounds, compared to over 300,000 pounds for 2008. The lower volumes that were produced in '09 resulted from the shutdown of our production operations is June of this past year. This move was made in response to the deteriorating uranium market price conditions.

Production costs during the year were about $43.50 per pound, compared to almost $48 a pound in 2008. Our sales for 2009 totaled $4.7 million on volumes of 95,200 pounds and average sales price of $49.08. Our '08 revenues totaled $18.6 million from sales of 285,000 pounds. And we saw an average price of about $65 a pound related to the 2008 sales.

Our activities in South Texas, primarily in the second half of the year since we did curtail production, were related primarily to restoration, reclamation, and standby activities for both our Vasquez and Kingsville Dome projects, and also for restoration stability activities at our Rosita project. We estimate that our restoration and reclamation for our two ongoing active restoration sites, which are Kingsville Dome and Vasquez, will be in the $1.2 million, $1.3 million range for 2010.

During 2009, our cost of uranium sales totaled $8.1 million, compared to $34 million in the prior year. The lower amounts in '09 resulted from lower uranium production that was sold compared to '08 and reduction in our write down of our uranium properties. Our total direct cost of sales and royalty expenses during the year for '09 was $4.5 million versus $16.4 million in the previous year. Also during 2009, we recorded an impairment position for our uranium properties of $3.5 million, compared to $16 million in 2008.

Our corporate expenses, including general and administrative costs, were $6.8 million for the – for 2009, compared to over $11 million for 2008. The almost $5 million cost reduction that we saw in 2009 was realized throughout all URI's departments, functional areas, and locations. When we compared our G&A costs for 2009 and 2008, we saw reductions in payroll of nearly $1 million; stock compensation expense of about $900,000; professional and outside consulting fees over $500,000; office-related expenses of $400,000; legal, accounting, and company-related costs of $240,000; and, also in 2008, we saw a – or we had a $1.4 million write off related to unsuccessful target acquisition costs that we did not incur in 2009.

During 2009, we used $5 million in operations, compared to generating $1 million from operations in 2008. The main difference for this change, this downturn, was a reduction in uranium sales that we had in '09 when compared to the prior year sales volumes. Our cash use and investing activities last year – I'm sorry, in 2008, was about $11 million. And that was scaled back to less than $1 million in 2009. The significant reduction arose from our deferral of additional development at the projects because of, again, those uranium market conditions.

As Don said, our current operating cash is approximately $4.8 million. And we are continuing to assess additional areas on how to conserve those costs. We have reduced costs across all company departments and locations. Our employee base currently stands at 31d, down from 60 in June of 2009 and 79 at the beginning of 2009. Certain of our projects have been put on hold. Discretionary spending has been eliminated. And we continue to review and evaluate increases in efficiencies and reduction in costs in order to extend our position as long as possible and subject to the financing that Don was referring to. Don?

Don Ewigleben

Thank you, Tom. At this time, I think it's appropriate to move to questions and answers. And as I mentioned, Rick Van Horn is with us to address any operational issues. Debbie?

Deborah Pawlowski

Shei, we're ready for Q&A if you can give the instructions.

Question-and-Answer Session


Thank you. We'll now begin the question-and-answer session. (Operator Instructions) One moment please while we poll for questions. (Operator Instructions) Our first question comes from George Walsh from Gilford Securities, Inc.

George Walsh – Gilford Securities, Inc.

Don, I wonder if you could just explain as you go to negotiations on joint ventures or other type of procedures, what are some leverage you have just from a general negotiating way given the price of the uranium and the conditions in the balance sheet with the cash burn?

Don Ewigleben

Well, one of the things, George, that we bring to the table on any joint relationship is the experiential factor. First, let me say that I think many of you know from my background, I come from the senior mining houses. And I worked with a lot of juniors who are out there helping to develop the initial target for exploration, moving forward in development for meeting things of that nature. And then, the seniors come back in. I believe there's a lot of opportunity for URI to be that form of entity with the senior mining house because of these 30 years of experience and success, frankly.

With regard to other juniors in the district, I think anyone that looks at either the South Texas district or the New Mexico district will come to the same conclusion that I've drawn. I've only been with the company about five months, a little over five months. But my first visit there, it began to be very apparent that there is an opportunity for consolidation. And one of the ways to bring value to shareholders is to join forces and whatever is necessary to bring these projects forward sooner. So while we may have a limited balance sheet at the moment, what we do hold is of course 100 million pounds plus in New Mexico. We hold the NRC license. We hold what we believe will be a UIC license that will be upheld. And that'll put us in a very distinct advantage.

That said, there are things that others can bring to the table beyond their assets. And so we're looking to say, "What are those synergies, not just about the assets themselves, but about the other entities?" And I would have to say in the past URI was a strong company that could do much of this on its own. We now look at ourselves, having reduced the headcount significantly and asked the serious question, "What is it that we can gain by support from a joint venture relationship with another entity?" And that part we're moving forward on this initiative.

George Walsh – Gilford Securities, Inc.

Okay. Well what's the argument against any potential partner just waiting it out using time for their side as opposed to moving forward with negotiations at this point?

Don Ewigleben

We're waiting it out in the respect that wait to see whether or not our court case gets settled or waiting it out until the price rises, the answer is the same. We don't intend to sit still. And if they're going to wait out to see whether or not uranium resources can move forward on its existing projects, the answer is we have absolute belief that we can do that and we can obtain the necessary short term financing to move to a position to get the mid term and long term financing once we're ready to go on search run.

George Walsh – Gilford Securities, Inc.

Okay. Are there other alternatives you're looking at in terms of financing besides joint venture partners? Are there financial institutions where you feel you could get some financing?

Don Ewigleben

The answer is yes, George. We have a belief at this point that we will be quite successful between now and year's end in putting in place short term financing.

George Walsh – Gilford Securities, Inc.

Okay. All right, just one other question, regarding the court decision the other day, which is very positive, could you just give a risky assessment of any appeals process that might be done and any effect it may have?

Don Ewigleben

Well with regard to the NRC license issue, that process is now done. And the reason for that is the Appeals Court refused to review the matter. They didn't return it to the district court for any further review. They basically have said to the environmentalists who brought this case, "The process that was used by the NRC was the appropriate process and they have used all of the necessary information. The EIS was adequate. The standard of review was appropriate. And therefore, the NRC license is valid." There won't be an appeal.

George Walsh – Gilford Securities, Inc.

Okay. All right. Thank you very much.

Don Ewigleben

Thank you, George.


Thank you. (Operator Instructions) Our next question comes from David Snow from Energy Equity, Inc.

David Snow – Energy Equity, Inc.

Yes, hi. I'm trying to understand the difference between the NRC license issue that was resolved last week and the one that's still pending, which I guess is the underground injection control permit. What does that mean, the under injection control? And what is the difference between that and the last one?

Don Ewigleben

David, it is a good question. And in responding to this with a few external folks in the past few days since we released the information about the Appellate Court decision on the NRC license, these are companion cases. We need to be successful on both. And we certainly believe that we will. We made the first hurdle. In many respects, the NRC license is far more important than the UIC permit. And let me explain why.

The NRC license, having been approved, puts us in a very competitive advantage in that district. Secondarily, the UIC permit is only a question of jurisdiction, not a question of whether or not we can or cannot get it. And just dating back many years before I joined the company, as you know, the UIC permit was issued by the state of New Mexico. The Navajo, encouraged by some environmental community activists, decided that there should be a question raised about Indian lands. And whether or not the lands we're encompassed on are in fact Indian lands under the law that has gone through the courts. That's was the en banc appeal was in January. And it was appealing a prior decision that was not negative to us in the sense that it said, "They may be Indian lands, and therefore, the US EPA should have issued the UIC permit, not the state of New Mexico."

Now if we prevail on that en banc appeal, then the state of New Mexico's permit stands, and we move forward. If it does not and we are unsuccessful on that en banc appeal, it doesn't preclude us from getting the UIC permit. It's simply, once and for all, will decide jurisdictional relationship. And we can pick up all of our permitting activities and our documents and our filings with the state of New Mexico, and march right into the EPA. Of course, we would have liked to have done that over the past several years. But the EPA could not do that because while the jurisdictional case hangs over their heads, they won't conclude that they have jurisdiction, nor will they conclude that they do not, and in fact argued that if it is Indian lands, they do have jurisdiction.

So either way, we've got a solution. And I should also say unlike the case that was just decided in the NRC license, there would be a further appeal on the UIC case. If we lose, we could take it to the Supreme Court because there is a significant question at odds. And the reason we say that is all of the other circuit courts that have answered this question about what is Indian lands have dealt with it differently than the way the court that heard this case prior to the en banc appeal. Meaning, the Tenth Circuit stands out as looking at Indian lands differently. That means it could very well be a Supreme Court case.

If we are successful, we're thinking at it might be more difficult for the other side to get to the Supreme Court. But either way, we're prepared to deal with that discussion because we want to open this into a discussion with the Navajo that avoids further litigation. And we believe we can get there.

David Snow – Energy Equity, Inc.

And what was the subsequent decision this week, where two out of three voted in your favor? Is that a different case altogether?

Don Ewigleben

That's the NRC license of which at this stage, there would be no further appeals. And the one judge who did not vote with us is on the en banc review panel. So we can assume he's not going to vote with us on that case as well. He's been very vocal. In fact, he issued the original decision that went against us on the question of Indian lands some years ago. So we know why he takes that position. But we're not concerned. We know that the balance of the panel heard the oil arguments, read the appropriate filings, and we feel very strongly about the potential outcome.

David Snow – Energy Equity, Inc.

All right. Now, this Friday, last Friday I believe, I hear the EPA sent a letter to the NRC regarding in-situ recovery. Do you have any color on that?

Don Ewigleben

Actually, I wasn't aware of that. I'll certainly look into the matter.

David Snow – Energy Equity, Inc.

Okay. I'm wondering also Strathmore, I think it's just this morning, announced they're starting with a bankable feasibility study on Roca Honda. Is there any way you could piggyback onto that?

Don Ewigleben

Honestly, I haven't seen that release as well. We certainly have monitored what our competitors are doing in the area. We're quite familiar with the local staff there. We exchange a lot of information about, not respective properties, but about how to get things moving forward. But I will certainly say that as part of our initiatives and the new strategic plan, we are looking at strategic issues or I call them synergistic attributes of these respective competitors, and they're in the neighborhood.

David Snow – Energy Equity, Inc.

Okay. So it was sound like a logical thing to if you can find any companies, especially in New Mexico. Are there discussions to working that direction? I mean, there's only need for one mill, for example.

Don Ewigleben

Well I will certainly say that with me being rather new to that particular district, it was something that jumped off the map quite quickly. To try and have multiple mills and/or processing facilities up and down that district does not seem to make a lot of sense for any of the respective shareholders of the many entities that are up and down the district. So there has been some discussion. And at one point in time, you'll recall, that URI had to look at a specific property. And there was an arrangement that would have included other entities that would have used that processing facility. We'll probably look at a similar type strategy going forward.

David Snow – Energy Equity, Inc.

I guess while you can't predict the timing of this case, is it likely in the first quarter or before you run out of money, or you can't even predict the six months type of–?

Don Ewigleben

We can't really predict any specific timeframe. There are some indications that give us hope that it would be in this first half of the year. But I cannot speculate specifically on the timeframe.

David Snow – Energy Equity, Inc.

One last question and this is on the uranium price.

Don Ewigleben

No, if I had a stronger feeling about that price, I'd probably be in Vegas tomorrow sitting at a craps table. But here's the way I look at it. I have been involved in the uranium business for a relatively short time. My last stint at a gold company that also was a very large producer of uranium allowed me to follow uranium price. I certainly don't have any capability to predict uranium price any better than many others who've been in this business for a long time.

But I do look at the idea that the pact with the Russians will go out in 2013. There was concern in the marketplace about deal re-dumping. I believe the industry is beyond that. I look the fact that there are, and I think this is still the accurate number, 18 applications at the NRC for 23 reactors. That tells me this market will turn. It's not a question of will it, it’s a question of when will it. And our job to our shareholders is to maintain our position, be prepared to come back in the South Texas arena, and be prepared to move forward in New Mexico as soon as we've got the prices necessary to do that.

David Snow – Energy Equity, Inc.

I guess there's one company in production there in South Texas. Are you likely to try to tie your wagon in with them?

Don Ewigleben

Well, like I mentioned before, the idea of looking at various synergistic attributes of our next door neighbors doesn't just hold in New Mexico. And I've had to do a lot of learning in these first five months. And I assumed that the place to do that was in South Texas. We weren't the only ones to use ISR technology. We weren't the only ones to do exploration and development in large ranches. So I had a lot to learn by meeting with the various entities in that area. And I feel very strongly that we built relationships that allow us to move forward if there was a joint setting.

You must remember there are four processing facilities in South Texas, and we own two of them. So for anybody entering that arena, it makes sense for them to get to know us and us to know them, and that's the way we're proceeding.

David Snow – Energy Equity, Inc.

Okay. Thank you very much.


Thank you. At this time, we have no further questions. I'd like to turn the call back over to Don for any closing comments.

Don Ewigleben

Thanks, Shei. Let me just close by stating that as we discussed this morning, we are looking at a variety of options, anything that we can do to enhance shareholder value. But at the same time, I want to emphasize that we've had some shareholders who are long-standing shareholders of this company. And we must keep their interest in mind as well.

We're going to look at the setting of each of these synergistic opportunities in the very near term. I'm talking about 2010. And we will do whatever is necessary to be prepared to get back into production in South Texas as soon as we can see the return of the price. It's now time for this management team to meet these initiatives, act upon them, and deliver. And that's what I told the Board we were going to do last week. And that's what I'll be telling our shareholders in the future.

I appreciate everybody participating today. We're always available at a later time after the release is on the Web site. If there're some additional questions come up, Debbie Pawlowski, myself, Tom Ehrlich, Rick Van Horn, we'll be available to answer specific questions. And we appreciate your participating with us today. Thank you very much.


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

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