Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

Uranium Resources, Inc. (NASDAQ:URRE)

Q1 2014 Earnings Conference Call

May 8, 2014 11:00 ET

Executives

Wendy Yang - Investor Relations

Chris Jones - President and Chief Executive Officer

Jeff Vigil - Chief Financial Officer and Vice President, Finance

Analysts

Daniel Scott - Cowen & Company

Ben Atkinson - Gagnon Securities

Operator

Thank you for standing by. This is the Chorus Call conference operator. Welcome to the Uranium Resources First Quarter Financial Results Conference Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator Instructions)

At this time, I would like to turn the conference over to Wendy Yang, Investor Relations for Uranium Resources. Please go ahead.

Wendy Yang

Thank you, Saatchi. Welcome everyone to Uranium Resources first quarter 2014 financial results conference call. I’m Wendy Yang, Investor Relations for Uranium Resources. You will find our Company listed as URRE on the NASDAQ. This call is being webcast on our website at uraniumresources.com where we have posted slides to accompany our remarks.

Telephonic replay of the call will be available from our website for three weeks following today’s call. We will be discussing some forward-looking information today and we caution our audience that such statements involve risks and uncertainties that could cause actual results to differ materially from projections. Please review our Cautionary Statement on Slides 2 and 3 and review the risk factors including some that are specific to our industry described in the latest Annual and Quarterly Financial Reports filed with the U.S. SEC. We also caution U.S. investors that we will be referencing inferred resources for our Cebolleta project.

The non-reserve mineralized materials for Cebolleta was classified as inferred resources according to Canadian Institute of Mining, Metallurgy and Petroleum Standards and Cebolleta’s Technical Report adheres to Canadian National Instrument 43-101. This Cebolleta NI 43-101 Technical Report is available on our website. Investors are cautioned that the requirements and terminology of NI 43-101 and the Canadian Standards differ significantly from the requirements and terminology of the SEC as set forth in the SEC’s Industry Guide 7. Inferred resources have a great amount of uncertainty as to their existence and as to whether they can be mined legally or economically. It cannot be assumed that all or any part of the inferred resources will ever be upgraded to a higher resource category.

Today we have a brief presentation before the question-and-answer portion of the call. Our presenters are Chris Jones, President, CEO and Director; and Jeff Vigil, Chief Financial Officer and Vice President of Finance. We also have on the call Mark Pelizza, Senior Vice President of Health, Safety and Environmental Affairs; and Dain McCoig, Vice President of South Texas Operations. Chris, please go head.

Chris Jones

Thanks, Wendy. Welcome and thank you all for joining us today. On Slide 4, we give an overview of the new Uranium Resources after we significantly improved the financial operational and G&A position of our company. We are now well positioned for a decision to fast track restart of our production at our operations in South Texas when we see a sustained improvement in uranium market. We have two 800,000 pound per year processing facilities, Kingsville and Rosita in South Texas with license with unlimited production.

We have significant in-place mineralized resources with a majority on deeded mineral rights in the prolific Grants Mineral Belt in New Mexico and we have an extensive uranium database covering more than three decades of exploration and drilling for the Western United States. Christi our staff geologist is leading the charge steadily and methodically reviewing re-logging and digitizing information as we believe we have additions to resources sitting in those file cabinets.

On Slide 5, we see that the uranium’s spot price dropped 31% in the past 12 months. In January and February the uranium’s spot price rose to 35.75 per pound from 34.50 at the end of 2013. Over the past two months this spot price has been heading downward to point where on Monday May 5th it dipped below $30 per pound which is a retracement to levels last seen in the summer of 2005. We should remember uranium like most commodities can be volatile.

Slide 6 shows supply demand factors related to the short term market and the spot price on the left and on the right the utilities uncovered requirements for uranium which has potential to positively impact the long-term price. We urge you to make your own assessment at the uranium market and consider your investment time horizon and risk tolerance. We don’t have a crystal ball on when the long-term recovery commences in the phase of improving fundamentals. From recent news and analyst report, sluggishness in the uranium spot prices is attributed to the delay in the first restarts of nuclear power generation in Japan, the availability of short term supply in the spot market particularly from excess enrichment capacity. And although secondary supply is being drawn down, this inventory was greater than expected.

Demand for uranium is expected to improve from an increase in nuclear power generation in China and the gradual restarting of idle nuclear reactors in Japan beginning sometime in 2014. Worldwide there are 72 nuclear reactors under construction of which 28 are in China. An additional 173 nuclear reactors are planned and over 300 more are being contemplated compared with over 380 currently operating. These numbers are from the World Nuclear Association which also estimates that uranium consumption for power generation at approximately 146 million pounds in 2014.

This graph on the right side shows the steeping rise of the uncovered uranium requirement for nuclear power facilities in the U.S. and worldwide in the coming years. This is the future demand that is not yet covered by long-term contracts. UxC Consulting estimates uncovered demand totals 178 million pounds for 2016 through 2018 which is well in excess of the year’s global uranium production. We’re confident that the future is very positive for uranium. We’re focused on what we can control which is doubling down on future savings in our business. In 2013 we set a new course restructuring and getting the company to a healthier condition to restart economic production in South Texas and generate revenue when we see a sustained improvement in uranium market.

On Slide 7, we show our improved working capital of almost $9 million seven times higher than Q1, 2013. Our cash and equivalents stood at $10.6 million at March 31, and we’re currently at approximately $12 million. Our company is funded well into 2015. Through further efforts our cash burn rate continue to trend down as operating and mineral property expenses dropped 21% to $900,000 in the first quarter of 2014 from the first quarter of 2013.

General and administrative costs were flat for the first quarter compared with a year ago quarter as there were one-time expenses for legal, accounting and public company costs related to the Special Meeting for Shareholders in January. We have further reinforced our financial position by drawing another $3 million under the convertible loan facility. Our Company and Resource Capital Funds agreed to cancel the remaining undrawn amount under the convertible debt facility as we believe our company is positioned to be funded well into 2015. In February we completed a National Instrument 43-101 Technical Report on our Cebolleta project in New Mexico, eight weeks ahead of schedule.

Cebolleta has inferred resources of 5.6 million tons at an average grade of 0.17%. We’re pleased that Cebolleta has been advanced towards the next stage of a PEA or Scoping Study which is a key recommendation of this independent technical report. In addition we now expect to issue a total of four technical reports on our New Mexico projects in 2014, one more than our previous goal of three. With the addition of the one new project technical report due to be completed in June, 2014. We expect to deliver on reports for Roca Honda around midyear and Churchrock by the end of the year.

Let’s turn to Slide 8 on Cebolleta. This Cebolleta project covers approximately 6,700 acres of mineral and surface rights on leased private lands. It is near the Eastern end of the prolific Grants Mineral Belt which is one of the largest known concentrations of sandstone-hosted uranium deposits in the world and has been the largest source of uranium production in the United States. This Cebolleta project has several historic uranium deposits including the St. Anthony group of mines which operated until the late 70s and the L-Bar project which produced from 76 through 1981. The L-Bar operation is credited with production of 1.9 million pounds of uranium and the St. Anthony mines produced approximately 1.1 million pounds of uranium.

This Cebolleta Technical Report recommended going forward with confirmation drilling to potentially upgrade a significant portion of the mineralized material to the Indicated Resources category. Another recommendation in the Technical Report was to drill and develop an initial resource model and estimate for the historic St. Anthony mine area. This Cebolleta Technical Report estimates that the drilling, modeling and initial metallurgical and geotechnical study for a PEA over a nine to 12 month period would cost approximately $1.7 million.

With that I’ll turn this over to Jeff for the quarter’s financial review. Jeff.

Jeff Vigil

Thank you, Chris. Good morning everyone. After the recent downdraft in uranium equity sector our share price on Monday closed at $2.46 which is 11% higher than the 52 week low, but 55% below the 52 week high. Our current total shares outstanding is $24.7 million.

Turning to the financial summary Slide #10, let me reinforce Chris’s message that we’re focused on managing our business to best position and balance our company’s near term and long-term priorities and to be ready to restart production. Chris already highlighted our stronger cash position and working capital position and resulting in significant improvement to the company’s balance sheet in the past year. While our financings were up – short up by working capital we also achieved a significant reduction in the cash burn rate. These cost savings initiatives started a year ago under Chris’s leadership and as a result of then reduced operating and mineral property holding costs, legal fees and other G&A overhead.

In November 2013 we established a $15 million senior convertible loan facility with our largest shareholder Resource Capital Funds. We drew the first tranche of the $5 million of the convertible loan facility between November and February. After shareholder approval of the convertible loan facility in January, the annual interest rate decreased 10%. The conversion price is 2.60 per share and facility expires at the end of 2016.

Last week on April 30 our company and RCF amended the convertible loan agreement to reduce the second tranche to $3 million and canceled the third and final tranche of $5 million. We requested and received the $3 million from the second tranche of the convertible facility. As Chris said we believe we have sufficient cash, financial liquidity to support our company well into 2015. In addition we expect to continue to target a cash burn rate at below $1 million per month.

Operating and mineral expenses dropped 21% to under $1 million in the first quarter of 2014 from the first quarter of 2013. This quarter’s general and administrative costs were $2.6 million which is flat compared to the first quarter 2013 and that was despite higher legal accounting and public company expenses due to the one-time expenses related to the January Special Meeting for Shareholders that (approved) the convertible loan facility. First quarter net loss of $3.5 million was 23% lower than the Q1, 2013 net loss of $0.15. While the net loss – while the net loss per share was $0.15 in Q1, 2014 compared to $0.26 in Q1 of 2013.

With that I’ll turn it back to Chris.

Chris Jones

Thanks, Jeff. Our optimization drive for 2014 continues on several fronts reflected in our 2014 goals on Slide 11. In the first quarter we expanded our targeted delivery of technical reports from three to four during 2014. We’re pleased that our Cebolleta project has advanced is now the doorstep of a PEA with a potential to upgrade the mineralized material to the Indicated Resources category. Work is progressing on the Juan Tafoya, Roca Honda and Churchrock Technical Reports by our staff and external independent qualified persons.

In the second half of the year we expect to announce a rollout schedule for additional technical reports for our other projects. Jeff is keeping us on tight reins on monthly cost review meetings and our drive to whittle down cash burn rate. In New Mexico our dialog continues with the Navajo Nation, a newly formed sub committee made up of Navajo and company representatives, it has had three meetings since it’s formation at the end of 2013. We continue to take steps towards reaching a mutually beneficial agreement with the Navajo Nation. We believe we’re making positive progress. Optimization is about planning and balancing near term, mid term and long-term priorities and taking advantage of market opportunities.

In this regard we believe there are opportunities to add to our asset base and we’re pursuing value accretive additions. We’ve used this down cycle in uranium to position the company to quickly resume production when we see a sustained, stronger uranium market. It’s a great day the NASDAQ in New York where I’ll be presenting at the Sidoti Micro-cap Conference tomorrow. And I hope you all have a great day wherever you are.

Operator, we’re ready for questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) The first question is from Daniel Scott of Cowen & Company. Please go ahead.

Daniel Scott - Cowen & Company

Hi, good morning guys. How are you doing?

Chris Jones

Great. Thank you.

Jeff Vigil

Good morning.

Daniel Scott - Cowen & Company

The first question I had was maybe if you just give a little more color on your actions was to convert the decision to cancel over the last 7 million and kind of what went into that thought process?

Chris Jones

Initially Dan we’re fully funded well into 2015 so the need for the convert was quite a bit lower and while we’ve strong support from our partners at RCF we felt no need to continue. I think Jeff if you want to add anything to that.

Jeff Vigil

Yes, I mean just to reiterate we’ve felt we have adequate liquidity. We also Dan have $7.1 million of capacity on the ATM beyond the liquidity picture that with current cash today takes us through early 2015.

Daniel Scott - Cowen & Company

Okay. That was going to be my second question, great. So that basically puts you in position to achieve production in Texas and then I assume I guess the longer term view is to continue a project finance approach in New Mexico. Is that correct?

Chris Jones

First project finance approach for Churchrock in New Mexico is really dependent upon Navajo resolution, but yes over the longer run project finance for Churchrock is the way we would produce there.

Daniel Scott - Cowen & Company

Okay, great. Then last question would be with the spot prices down to these levels that we’re seeing now. And looking at the last bullet on you (to do this), they’re pursuing opportunistic acquisitions. Does this price make that more or less likely, I guess is that make the potential targets more likely to have to be doing deals?

Chris Jones

Frankly it makes the progress on the M&A front for us to bring on other assets quite a bit more likely, asset prices tend to go down at least as fast as the price.

Daniel Scott - Cowen & Company

And it hasn’t changed your appetite?

Chris Jones

It increases our appetite.

Daniel Scott - Cowen & Company

Okay, great. Thanks very much guys.

Operator

(Operator Instructions) The next question is from Ben Atkinson of Gagnon Securities. Please go ahead.

Ben Atkinson - Gagnon Securities

Thanks. Good morning. First of all the roughly $2.6 million of G&A in the quarter. How much might that go down absent the one-time items you were talking about in January for the meeting and just in general maybe help us understand a little bit better through the year how you hope to see that progress on planned expenses?

Chris Jones

Jeff, you want to take this one.

Jeff Vigil

Okay, sure. Ben, the one-time expenses are about $300,000 in the G&A and we fully expect to be under the $1 million per month going forward as we’ve directed everyone over the last six months or so. And where we have we believe some capabilities still and do that, it’s primarily in the legal and the public company expenses and those and just tighter management of those types of cost and use of internal resources versus external resources.

Ben Atkinson - Gagnon Securities

Okay. Thank you. And I know you may not be the most active out there in the contract market because you already have some good contracts. But could you help us with any anecdotal evidence or direct evidence of kind of what the utilities in the U.S. and elsewhere doing about their uncovered positions?

Chris Jones

Ben, thanks for the opportunity and thanks for asking by the way. We don’t see the utilities in the market yet. And the longer of course they wait in one respect if the uranium price goes down they look smarter and smarter. But at some point where we believe strongly that the uranium fundamentals are great, uranium or the consumers, nuclear power generators could be back in the market at the wrong time as they wait much longer. So frankly it’s a little mystifying that they are not in the market right now. But clearly I think from Slide #6 you can see that their uncovered requirements were increasing not decreasing.

Ben Atkinson - Gagnon Securities

Great. Thank you.

Operator

The next question...

Chris Jones

And I would also – Ben if I can add one thought to our cost reduction efforts as well. Over the course of these last several months as we’ve completed the pond restoration work, we’ve completed well field restoration work following that. And now we’re in the reclamation phase of our well fields at Rosita. Those costs will fall off as well late in the year. So continuing decreases on the operating front as well as the G&A front are in the offing for us.

Ben Atkinson - Gagnon Securities

Okay. Well maybe I’ve got this wrong, but you are already well below $1 a month or you’re also talking about above the sales line, I’m sorry cost of sales as well?

Chris Jones

Yes. Our – I think it’s over – it’s our overall cash burn that’s probably very important. G&A costs.

Ben Atkinson - Gagnon Securities

Okay.

Chris Jones

But remember that our overall cash burn needs to drop in addition and that’s where you’ll see those benefits.

Ben Atkinson - Gagnon Securities

So you burned 3.749 from operations in the quarter and your – the target there would be to get that (63 million) or less?

Chris Jones

Yes. Our overall cash burn should be at about $1 million or less by the end of the year and we’re trending towards that right now, I think that’s the simplest way to say I think.

Jeff Vigil

Right.

Ben Atkinson - Gagnon Securities

Thank you.

Jeff Vigil

And there’s peaks and valleys in the monthly cost, quarterly cost throughout the rest of the year.

Ben Atkinson - Gagnon Securities

Okay. It won’t be straight line, understood.

Jeff Vigil

It would be straight line but it should be on average it will be. So.

Ben Atkinson - Gagnon Securities

Thank you.

Chris Jones

Thank you.

Operator

(Operator Instructions) The next question is from (Daniel Maoloso) a Private Investor. Please go ahead.

Unidentified Analyst

Hi, good morning gentlemen. I guess just the first question was kind of the housekeeping. I see the – are this unrealized gain on derivative liability on the income statement, I was just curious if you were modeling or do you expect kind of any one-time below the line items like that going forward?

Jeff Vigil

No, we don’t.

Unidentified Analyst

I’m sorry.

Chris Jones

Feel free to take it, Jeff.

Jeff Vigil

Okay. Be happy too, Chris. No, that’s the only, that’s really the only activity that you should see below the line and this derivative liability of – valued at each reporting period, (indiscernible) pricing ups model. And so there will be that activity that’s seen and but that should be the extent of it.

Unidentified Analyst

Alright. I appreciate it. And then I guess getting a little higher level talking about the uranium market obviously it appears that there has been kind of mixed expectations and certainly missed expectations as far as the spot price, I think that being said obviously nor the spot and the term pricing demand. I was trying to find out do you have any source or anyway you’d sort of tell someone getting familiar with the market to look and know if there are – do you kind of resisting inventories particularly U.S. utilities, you hear a lot obviously and you’ve all spoken the uncovered requirements going forward. But I’m trying to sort of get a sense for if a lot more product just might be out there kind of hiding up and continue to push-out the utilities coming back to market particularly in the U.S.?

Chris Jones

You bet Daniel. The best general source for information on the uranium market and this isn’t a plug for them, they just do a good job.

Unidentified Analyst

Yes, please.

Chris Jones

Yes, UxC Consulting to subscription service, the costs are moderate. The weekly and daily information you get from UxC is pretty much the best we get from a general sense on the market.

Unidentified Analyst

Okay, understood. And it’s a related question but I guess I’m familiar enough about the underfeeding process that be enriches. But with Usach I guess shutting their inventory down in the United States I mean do you have any idea where the big sources are for this uranium kind of underfeeding coming in the market or any commentary for who might be doing that, whether any enrichment facility shutdowns could be coming?

Chris Jones

The notion that Usach is shutting down is probably not exactly correct. That they’re going through a bankruptcy process probably. But they keep getting support for their actions from the Federal Government. There is also inventory releases from the Department of Energy they complicate the inventory process. So I think from the standpoint of the secondary market once again the information we get is generally available through UxC and through some of the analysts. Believe that it supplies some 15 million pounds a year or so plus or minus except when it doesn’t and it’s really the Department of Energy’s province to regulate that, sometimes they do a good job, sometimes they don’t.

Unidentified Analyst

Alright, understood. Well I guess I thought that Usach had shutdown a facility down in Kentucky despite kind of the ongoing political situation with the one that trying to build?

Chris Jones

I wouldn’t be so sure that the net effect of that is going to – of any shutdowns tails or moving to another facility is going to have a material effect on the market just yet, Daniel.

Unidentified Analyst

Okay. I understood. And then one last company specific question and I certainly appreciate the time. As far as sort of reconciling the ongoing need to get to 43-101 compliant reports for all the (indiscernible) and the existing and I guess what I’ll call paper inventory of information on your properties. I mean could you help to sort of understand just what extent or whether there might be any material changes to your existing resource estimates just based on what you’ve already got in historical information as opposed to what you might have to kind of buy or pay forward future drilling or future analysis of your properties and that’s all I had? Thank you.

Chris Jones

Yes. Thanks, Daniel. With regard to material changes in our resources, I wouldn’t anticipate any – our work has been robust in previous years. 43-101 is as much as anything a way to put together a sensible report that is universally understood in the mining and investment community as to having something like the Good Housekeeping Seal of Approval if you will on it. So I wouldn’t expect any fundamental changes to the resources, it’s the – so it’s not the quality of the resource frankly, it’s the quality of the information. And with regard to any further increases or changes to our resource base going forward is Christi does her work and Matt and Ted as well are reviewing and consolidating that work, I think time will tell, we don’t anticipate upfront any material changes at all.

Unidentified Analyst

Alright, really appreciate it. Thanks guys.

Chris Jones

Thank you.

Operator

There are no more questions at this time. I’ll now hand the call back over to Chris Jones for closing comments.

Chris Jones

Thanks, Saatchi. Ladies and gentlemen thank you for sharing part of your day with us for an update on Uranium Resources. We’re excited about our future. Have a great day.

Operator

This concludes today’s conference call. You may now disconnect your lines. Thank you for participating and have a pleasant day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Uranium Resources' (URRE) CEO Chris Jones on Q1 2014 Results - Earnings Call Transcript
This Transcript
All Transcripts