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Uranium Resources, Inc. (NASDAQ:URRE)

Q3 2010 Earnings Call Transcript

November 8, 2010 1:30 pm ET

Executives

Deborah Pawlowski – IR

Don Ewigleben – President, CEO and COO

Tom Ehrlich – VP and CFO

Rick Van Horn – SVP, Operations

Analysts

Jack Salzman - Kings Point

George Walsh - Gilford Securities

David Snow - Energy Equities Incorporated

Operator

Greetings, and welcome to the Uranium Resources, Inc. third quarter update 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, Deborah Pawlowski, Investor Relations for Uranium Resources Inc. Thank you, Ms Pawlowski, you may begin.

Deborah Pawlowski

Thank you Tanya and good afternoon everyone. We appreciate your time today and your interest in Uranium Resources. President and CEO, Don Ewigleben will discuss recent events and the outlook for the company, and he will be joined by Tom Ehrlich; Chief Financial Officer, also on the call with us today are Rick Van Horn, VP of Operations; Mark Pelizza, Senior VP of Environmental Affairs. We will conclude the call with an opportunity for Q&A. If you do not have today’s news release, it can be found on our Web site, at www.uraniumresources.com.

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 the future events and 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 on our web site where we regularly post information about the company as well as on the SEC's web site, sec.gov. So please review our forward-looking statements in conjunction with the precautionary factors.

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

Don Ewigleben

Thank you Debby, and thank you to all of our listeners today, our shareholders and those in the industry who are observing our activity. We are very pleased to be talking about what has occurred in the third quarter for Uranium Resources and the advancements that have been made on behalf of our shareholders. First and foremost, we have measurable progress on all fronts. We're moving in the direction of achievement on all of our strategic objectives for 2010. As you know, we have recently had a very successful offering. I will talk about that in more detail in a few minutes.

Last week, we had an announcement of letter of intent to do a joint venture arrangement for exploration activities in Texas. And we'll speak to that in detail. We are pleased to have settled in the Saenz case, a Texas case that we'll describe a bit more detail. We have made progress on lease advancement in Texas. We made additional progress on the feasibility study that is now under way and will be completed by the end of 2011. We have been advancing our, in our NRC license update activities and we have continued to meet all of our restoration activities in Texas and mostly, we are very pleased with what has been happening on the uranium price.

Let me start with the capital raise setting. Within the past two weeks, we have done the second of two capital raise activities in 2010. In this particular quarter, we raised approximately $9 million and we have been describing publicly that we had uses for the June raise. These activities in the third quarter where in addition to our needs for the capital raised in June. This particular capital raise over the past two weeks, proceeds will be used in part for the settlement of the Saenz case, that’s approximately $1.4 million. We have a requirement to fund some additional collateral for bonding activities in Texas that is approximately $2.5 million that we are going to pay out in $500 installments over the next 5 quarters. As you are aware, we have been working on exploration activities in Texas, we have a potential land lease that would cost us $2 million. We previously had said we wanted to continue on the feasibility study and our estimated costs of $1.5 million. So we're very pleased to have had this additional raise, it was at $1.16 priced and as we all know today we are established at a price considerably higher than that.

The shelf registration that previously was in place that we used for the June capital raise as well as the September, excuse me October capital raise was for an amount of $25 million. We have now used approximately $19.5 million of that amount. I'm going to ask Tom to speak the details in just a few minutes. But basically our liquidity position is very strong. We had $10.5 million at the end of the third quarter and as of today, it is presently at $18.8 million and that of course includes the approximate $9 million that we raised in the recent offering. We had have previously been working very hard to maintain our costs at a lowest possible levels. And in the course of this year, we indicated that would be decreasing our core burn rates slightly but we have met that objective. The increases are largely for the additional staff that was hired for the feasibility study and engineering studies as well some of the capital expanded that we previously had discussed for our exploration activities into Mexico.

I want to focus on Texas for just a moment. I know a lot of folks have had some interest in the press release we put out last week about a letter of intent with Cameco. We will be working with Cameco in south Texas as their junior partner for exploration and development for any potentially uranium exploration leases that we come forward with. In particular, we have been working on a lease that I believe has excited them, but I must emphasize this is a letter of intent, it does not bind Cameco or URI to the extent of a specific lease at this point. We will bring to the table a lease, then they will consider it. But we are very pleased because this is one of the objectives that we set ourselves at the beginning of the year. When you have over 30 years experience in south Texas as an explorer, a developer, an operator and as importantly, one of the few companies that say they have closed properties and have their release. We think, we bring something to the table for a multinational company like Cameco, and fortunately they have agreed with us.

Our thoughts going forward is that, we would have commitments in the future that would lead to an industry standard type arrangement with ownership split between the two entities as Cameco’s Power Resources Company, its subsidiary earns into the agreement over time. It is our expectation that we can have a joint venture agreement in place within about 30 to 60 days from the time of obtaining the lease. We hope to do that before year’s end. We know that we bring value to our shareholders in many ways and we do believe that we have the capability for the next lease with the funds that we have recently raised. We are looking towards Texas as being a much larger part of our exploration resource base in the future. Having 101 million pounds into Mexico puts us in a position of having the eighth largest deposit in the world, and certainly the largest in the US. If that does not give us the value that we should be bringing to our shareholders for the sunk capital for the two existing fully licensed facilities in a state of Texas. So additional exploration needs to be done and we wanted to bring in a partner who could not only bring financial resources but bring strong marketing skills, technical understanding and basically avoid us going outside for third-party consulting costs when we can get that from an inside junior, excuse me, joint-venture partner.

We hope that this will be the first of many for the set of arrangements that will have in all future areas, but let me stress that we are sticking with our strategic plan which has said all along. We must fully exploit the assets that we have in both Texas and New Mexico before we begin to look beyond those two states. Moving from Texas, excuse me, before I move to New Mexico, I wanted to speak to, the Saenz case. We mentioned in the press release, that we had a settlement. We previously had booked about $700,000 plus as royalties that were already owed in this case.

We also knew from talking with council that we would have a setting in which, we could have additional expenses from litigation that would drive the price of this overall case to a point greater than what we were able to settle it for. Now that said, we fully believed that we would be exonerated in a courtroom. But we came with a new strategic plan that said, let's put all of this behind us, we want to be saying to our shareholders what we have done to move forward to the extent that we don't have to look backward towards the activities of litigation, we're going to do that. And in this particular case, settling this case for about $1.4 million was about what we had expected if we would have just had expenses and not-not lost the case. The point being, it was a reasonable settlement for both sides and it gives us an opportunity to have additional exploration lands in our nearby area where we already have historical information.

From a standpoint of production, we have been asked recently about a significant rise in the price of uranium, and what that might mean for us with regard to our Texas setting. While as the uranium price has moved beyond $50 a pound on the short-term spot pricing, we had begun rethinking about our closure ended 2009 of our operating facilities. So we’re rethinking those Texas opportunities at this point, but we are not prepared to give any guidance as to a potential opening of those properties. We have previously mentioned that we have some work to do before we would enter into the setting where we would be in operation again. That’s primarily some work with some ponds to give us maximum amount of opportunity to bring in the ore.

The point being that, this is not a long time decision, we can reinvigorate the property and operate in a relatively short period of time within one quarters of time. However, we are not going to make that decision until we see a stabilization of the price. We believe that is in the offing. As for our exiting uranium that exists there, there is something, a little less than 1 million pounds available to us of identified mineralized material, uranium material in place and we know that there is probably 50,000 pounds, approximately in our retention pond as we do some of that work. In previous production areas that we know we can re-enter there is another 180,000 pounds in place. Additionally if we seek additional permits we know there is 1.1 million pounds that we can reach to. That is with our existing upgrading facilities. The point here is, there is a good million tons plus available to us in the near term when we decide to reopen the operations at Kingsville and at Rosita.

Now I would like to move New Mexico. I mentioned that we have the eighth largest resource base in the world for uranium and certainly the largest in the US. But we have some work that is yet to be done. We are extremely pleased with what has occurred this year. As you all know in June the Court of Appeals upheld our position with regard to the UIC permit, also we had a decision in the US Tenth Circuit Court of Appeals that determined our NRC license was appropriate.

We have been following up with the advancement to have that license, reactivate it and we must do so in accordance with our plans for feasibility. We have been working on the feasibility study now from a few months and we will continue on that activity throughout 2011. With our expectations of having the available construction decision by the end of 2011 and the thought process at the moment certainly dependent upon what that feasibility study shows us is that Crownpoint and Churchrock would be available for construction in 2012, 2012 excuse me and operation in 2013.

With our understanding of what is likely to be the disappearance of the secondary markets related to the ATU agreement in 2013, we want to be able to time this construction and operation as closely to the rise in the price of uranium as we possibly can but much more must be done on the feasibility study. I mentioned this is a $1.5 million study. We have multiple mile posts in this process but we will be looking at what needs to change from our prior conceptual studies. Most importantly we will determine of the 40-45 million pounds in Churchrock and Crownpoint, how much of that is ISR amenable and if it is non-amenable to ISR it would go into the reminder of our conventional resource base.

We did some exploration activity in the Mexico. In particular we drove three holes primarily for confirmation drilling and hopefully by the end of this quarter the fourth quarter but have some final information that we will be able to update our geologic studies for use in the feasibility study. It will help us to develop field mining plans, wellfield plans and estimate our appropriate wellfield costs.

We must decide what we are going to do however in New Mexico with regard to the conventional mining. So our feasibility study will help us also consider. Other entities up and down the New Mexico district and what they may be considering with regard to a center mill. We have had conversations with our competitors in the area seeking their information and insight an input and we expect those conversations to continue because it is our firm belief that by 2015 when the prices risen sufficiently to allow for conventional mining to begin, we must have had some further direction both out of our feasibility study and from an understanding of our competitors positions about whether there will be central milling facility or we should say facilities because there could be more than one and how that would fit into our operating plans.

It is our expectation that we will be the next entity to produce uranium in New Mexico. These are via our Churchrock and Crownpoint property but we must have a pipeline available to bring forward the conventional pounds as quickly as possible as the short-term and long-term prices for uranium increase. Staying in New Mexico for just a moment I want to mention that no petitions were filed as of the September 30, 2010 deadline regarding the June United States Court of Appeals Tenth Circuit en banc ruling that said our Section 8 property at Churchrock was not Indian country. That is a ruling that said our UIC permit was properly issued by the state of New Mexico.

Secondarily, ENDAUM and the Southwest Research and Information Center did petition the United States Supreme Court for review of the March 2010, Tenth Circuit decision out of the appeals court that upheld our NRC license that would have allowed us to conduct in-situ recovery ISR uranium mining at the Churchrock/Crown Point. We believe the Tenth Circuit correctly analyzes these issues when it upheld the NRCs process for issuance of our license. There is no deadline by which the Supreme Court must act on the petition. The petition however does not, I must emphasize this, it does it not impede our progress on the development of this project.

First and foremost the Supreme Court will look to see if there is a jurisdictional dispute that is worthy of its consideration. We don't believe one exists. Secondarily, if they do take up the case, there is no reason to believe they will take up the case in this particular term. So we must continue to look forward to benefit shareholders on the development of Churchrock and Crown Point and because we have our license in force, all we must do at this point is provide the additional updates required by the NRC that has been done. On July 28, a public meeting was held at the offices of the NRC in Rockville Maryland where URI stated our intent to file the necessary documents to put the Crownpoint Uranium Project source materials license as it is known in an active status and we outlined our plans for the license renewal.

That meeting was based on the US Tenth Circuit appeals court ruling. We have been following up on those activities and we are pleased to say that it's moving forward. So we have no reason to believe that the petition that was filed by ENDAUM and the Southwest Research Information Center will be heard and therefore we are moving forward with the understanding that our license is to become active and is definitely valid. I have already mentioned the Section 13 drilling and how it would enter into this. It is not a question of whether we have resource it is a question of delineating the type of resource. We have also been asked whether we would do additional exploration or whether we have sites on other properties in New Mexico. At this state we have not planned for an additional exploration program in 2011. But that could easily change depending upon opportunities for acquisition.

Strategically, we have always saw what was critical for the assets in New Mexico to be consolidated. We know that part of this is related to the need for conventional mill that can support the entire district. We also think it would not be economically feasible to mine all of the smaller quantities of uranium held by several of our competitors in the district. In many cases there are situations where either data that we would shares that we have would make it more logical for their projects to be developed. Ultimately New Mexico could end up belonging to just one or two major players. We want to make sure that URI sits at that table. So, I cannot speak today towards any particular acquisition. I can simply say that we are very pleased that one of our objectives to consolidate the district in the Mexico is underway and moving forward. With that I'm going to turn it over to Tom Ehrlich, our CFO to speak to the financials. Tom?

Tom Ehrlich

Don, thank you very much. This is Tom Ehrlich. As Don said the Chief Financial Officer for URI. Our financials for the second – I’m sorry the third quarter of 2010 compared to where we were at the end of the second quarter. Our balance sheet remained fairly stable. Our current assets went down by about $800,000 and our current liabilities went up by about $1.4 million. The largest component of that increase in current liabilities was an accrual for the legal settlement that Don had mentioned in the Saenz lawsuit. During the quarter our operations again were fairly stable compared to where they were in the previous quarter with the exception of that same provision that we had for the Saenz lawsuit.

Our general and administrative costs went up by about $200,000 again as Don has indicated related to increased activities for personnel, increased activities for consulting work, and items related to the higher activities both in South Texas and in New Mexico. Our cash used in operations was about $1.8 million for the quarter, again the primary reason for that were the restoration activities that are ongoing down in South Texas, at our Kingsville, our Rosita and our Vasquez locations. The general administrative costs that we have incurred during the quarter, our cash used in investing activity was just over 250,000 and that related to increases to our property in South Texas as well as the drilling activity that Don had mentioned that our Section 13 property in the Mexico. As John has mentioned the most significant event that has occurred recently the capital raise we had done.

While Don has spoken to the most recent capital raise that was closed last week obviously those numbers do not show up in our financials since we are talking about the September 30 quarter-end and all that activity transpired in November. However we did have a capital raise that was down in June with an over-allotment portion that did occur in July which is reflected in our financials showing about $1.4 million proceeds that came in related to the July closing. Again, the most significant piece of that is our ability to raise capital, the emphasis that our shareholders are showing in us and the ability of us to move forward. Don.

Don Ewigleben

Thank you Tom. Debby, at this point I believe we are ready to take questions.

Deborah Pawlowski

Tanya.

Question and Answer Session

Operator

Thank you. We will now be conducting a question and answer session. (Operator instructions) our first question comes from Randy Muller with Winchester Group. Please proceed with your question.

Randy Muller - Winchester Group

Yes, the question is how - what is the distance from this new property that you are going to explore jointly with Cameco from your existing processing facilities.

Don Ewigleben

Actually Rudy, there is a number of properties that we have our eye on but I would have to say the most advanced opportunity for us is within 50 miles, a relatively close property from a transport standpoint.

Randy Muller - Winchester Group

And besides our two processing facilities, who else have drafting facilities in Texas.

Don Ewigleben

There are four that are licensed. One is on the private property of the Jones ranch and run by the Mestena Uranium Company. They have been active on the Jones ranch of course. We have the two facilities Rosita and Kingsville Dome. We also have in the neighborhood Hobson property run by UEC, and they are working diligently to get the property ready to go for their own areas. We are pleased to point out that one of the advantage we have in having to two of the four licensed facilities is that both set up for two separate circuits for operations purposes, so it gives us a great level of accountability and that is a real plus when we talk to the large ranch owners in the area and that they don't particularly care to have commingled resource. So we can offer up not only a separate circuit out of each plant but if need be the side prevails in an exploration play into what we think it might be, we may be able to dedicate an entire plant. So having two there in the local areas are a very significant platform of. Thanks for the question.

Operator

Our next question comes from Jack Salzman with Kings Point please proceed with your question.

Jack Salzman - Kings Point

Thank you. I actually have a number of questions. First is, what would be the earliest that you folks have visioned going back into production.

Don Ewigleben

The earliest would likely be its first-quarter decision. We may be able to move that up in the sense of making the decision by our board to re-enter production at the Texas – south Texas facilities, but we are presently looking for an opportunity in the first quarter dependent on as I mentioned earlier the stability of the short-term and long-term uranium prices.

Jack Salzman - Kings Point

Okay, is there been any thought to recapitalization or perhaps before we even get to recapitalization? If you want to ramp up production in the future or set whatever strategy that you have in mind, will there be another equity raise as likely be preceding all these of it.

Don Ewigleben

For the first question as to recapitalization, there is no present plan to do so having had two successful finance raises this year. We were presently setting in a position where we will have no need until it is time for the construction decision for Church Rock and Crownpoint. Our conceptual studies have indicated somewhere between $30 million and $50 million to fully construct those properties. We must take it from conceptual study to bankable feasibility study throughout our 2011 year and determine exactly what that price will be and of course some of that is driven by how much is ISR minimal versus those pounds that may need to go conventional mill.

Jack Salzman - Kings Point

Would you be looking for a partner to help finance that expansion or do you expect to try and tackle those numbers by yourself.

Don Ewigleben

We have said all along that one of our strategic initiatives is to find successful joint-venture relationships not you know like the one that announced for Texas and we would hope that that would be an option for consideration but we are fully prepared to be able to raise the necessary capital to build that project on our own if it comes to that. The matter fact that this is ISR it does not include a significant amount of capital for milling facility allows us to do it on our own but we must always look and see what brings the most value to our shareholders. So we, in a short-term there is a joint-venture partner setting that makes more sense to bring value to shareholders, we will clearly consider it.

Jack Salzman - Kings Point

I wonder if you could share with us your thoughts about uranium pricing, where did you think it will settle in or do you think prices will continue to go up.

Don Ewigleben

Well, I believe at the moment is that what we are seeing today is a recognition or what is about to occur in an ever increasing uranium price setting. What I mean by that is, we used internally a $50 short-term spot price by year-end 2010. We have obviously attained that. We have used internally a $70 price by year-end 2011 that will tell you that they have some strong belief in their return after uranium price on a spot basis. Part of this is driven by what I mentioned earlier that the HEU agreement that is going to go away will move the secondary supply source that is artificially depressed the price. When we look at the number of facilities under construction worldwide and the number of applications before the NRC in the United States, we have the belief that demand is going to be far greater than the supply in the course of 2012 and 2013 driving the price up considerably higher. Conventional properties in New Mexico will need to have something north of $75 a pound in our estimation. But our feasibility study is going to tell us under various price scenarios, when can we go in and do a conventional property for our existing resource.

Jack Salzman - Kings Point

Thank you, it was very helpful. One little last quick question from the - can you tell me what is your current burn rate is and the expectations of your burn rate once you start production.

Don Ewigleben

I'm going to let Tom speak to the current burn rate and I will come back to the other one. Tom.

Thomas Ehrlich

Sure, yes, for the current quarter our burn rate is about $650,000 a month for the July August and September timeframe. Down in terms of production burn rate, you want to handle that?

Don Ewigleben

Well, our production costs per pound in 2008 were fairly high at $47 a pound. In 2009 before we shut down, it was $43 a pound. Those prices are still relatively valid for the particular resource that we had at the time, so if we operated again, we know that our operating costs would be somewhere in the neighborhood of the 40’s and therefore leaving us some rate of return but that is why we are looking for a stabilized price. If you are asking for the specific burn rate increase to reopen, we do not have an internal number. But I can say to you that what we are primarily talking about is a pond refurbishment to give us additional headroom, we mentioned that it has a number of pounds available to us and in fact we believe it will be a cost offset, but we will approximately need about $2 million to restart, we have that available now. That will be recovered from that resource that sits in the pond, and Rick is on the phone. Rick, what number of individuals would you need to bring back to get into production in the first quarter and therefore that can give us a general idea of what additional burn rate might be.

Rick Van Horn

Do you mean for the pond project, or.

Don Ewigleben

For the pond project and for operations.

Rick Van Horn

It is seven.

Don Ewigleben

You need to add seven.

Rick Van Horn

Yes.

Don Ewigleben

So, we are talking some individual salaries overhead etc, but this is a fairly minimal amount to get back into production.

Jack Salzman - Kings Point

That was very helpful, thank you very much and good luck guys.

Don Ewigleben

Thank you.

Operator

(Operator instructions) our next question comes from George Walsh with Gilford Securities. Please proceed with your question.

George Walsh - Gilford Securities

Don, could you review - you mentioned the June raise of the $25 million and I believe you said you used $19.5 million off that, could you just review the use of proceeds?

Don Ewigleben

Certainly, we have used $19.5 million of the shelf registration that we did in the first part of the year. So that does leave some additional funds there but we, as I mentioned don't have any present plans to bring down anything else on the shelf. But where those proceeds have primarily been used is a combination of things in Texas and New Mexico. For our continuing activities in Texas it’s important to note that we are meeting all of our restoration obligations. That costs us approximately $125,000 a month and that's primarily water pumping.

But we must continue to maintain all of our activities in restoration and the significance of that, is that once we prove we can restore, we already have done so, our license in the Mexico allows us to go from the initial year of 1 million pounds per year to 3 million pounds per year. And if you - just let me take a bit of a second to mention why that’s important, this country only produced a little over 3 million pounds last year 2009, so we will be able to double the production.

So we are using the proceeds to get to that position. That is the 1.5 million for the feasibility study, $150,000 for the exploration activities that occurred this past quarter, we have spent – or we will spend I should say approximately 1.4 in the Saenz case for those that have asked has that actually been paid we paid it into a trust position with counsel as the lease gets rewritten and then we will pay it to the other side as the lease is rewritten.

We have also used funds from those two finance opportunities to conduct activities towards acquisitions and/or other M&A possibilities. We brought in some investment banking support to help us do valuation upon various properties and that will help us in the future make a decision about acquisition opportunities as well as tell us more to our feasibility study about this possibility of the Central mill in New Mexico. I believe that outlines the majority of the issues. Tom did I miss anything?

Tom Ehrlich

Let me just clarify one thing. Don you mentioned that we had $19.5 million that was used that includes the June and July raise as well as the initial overnight that we did and closed last week. We also closed the overallotment on Friday of last week which was another $1.4 million. So the total amount that we have used under our shelf is not the $19.5 million but including the $1.4 million exactly it’s $20.9 million.

Don Ewigleben

Thanks for the correction Tom, because that does go into the fourth quarter but it's appropriate for response to the question.

Tom Ehrlich

Right.

George Walsh - Gilford Securities

Don it sounds like - have you reached a phase here where primarily your expenses are now related to development and a lot less is going to litigation and could you quantify that in the way in terms of what litigation type of costs you are looking at going forward?

Don Ewigleben

Well, the only litigation that we have going forward relates to a case in Kleberg County Texas, that we expect to have further discussions towards settlement on here in the near term. It’s a relatively small case regarding an agreement for how many gallons on a regular basis are pumped that I don’t have an estimate, Tom do you have an estimate of what those continuing litigation expenses are because that’s the last of our litigations?

Tom Ehrlich

Again, we have incurred fairly substantial legal fees in connection with the Saenz case it was very high profile case. With the Kleberg County case we were not anticipating may be some of you are approaching high-five figures maybe a $100,000 and if this case goes to court as Don said, we are looking to resolve the case short of that but again if we take it to court we are looking at it maybe up to $200,000.

George Walsh - Gilford Securities

Okay, now litigation I’m trying to include legal challenges the properties your other things that may come up but are we really moving into a phase where you are lot more focused on the settlement of properties, CapEx type of sending, joint ventures etc?

Don Ewigleben

Absolutely. The setting at the beginning of this quarter we had resolved the question of who had jurisdiction for the UIC permit but not the question of continuing litigation on the Indian lands. That has now been decided there will be no additional litigation costs. So its results major matters and it just leaves one minor matter for us to put behind us and we hope to do that in the fourth quarter. At that point you are spending all of your money on two primary activities growth and the continued maintenance of the facilities in Texas which includes restoration.

George Walsh - Gilford Securities

Okay very good. Thank you Don.

Don Ewigleben

Thank you.

Operator

(Operator instructions) our next question comes from David Snow with Energy Equities Inc. Please proceed with the question.

David Snow - Energy Equities Incorporated

Yes, hi I’m wondering what is a typical joint venture deal if you go into production - the company – senior partner would end up with 80% or what would be left at the end of the day in a deal such as a Texas?

Don Ewigleben

Well David first let me say hello to you. I don’t think we have met yet. I know you followed the company and I appreciate your question.

David Snow - Energy Equities Incorporated

Thank you.

Don Ewigleben

Having been with the company for about a year plus I can look back at my past history where I have been on the other end where I have always been with the larger multinational and most of the joint-ventures that I have conducted in the past ended in a setting where it was either a 60/40 or a 70/30 split. I would expect that it would be in that range going forward once the joint-venture agreement is put in place. Remember that’s after earn-in periods when the senior has earned their position which typically can take three to five years. We use typically what’s known as Form 5 which is simply the Rocky Mountain Mineral Law Foundation’s basic joint venture agreement.

That’s kind of a starting point for any negotiation on a joint venture agreement. It usually results in that 60/40 to 70/30 split at the end of the day. What that does for a junior mining energy such as ours that’s striving to get to a mid-level position. Its inputs – a portion of that risk and of course a portion of that capital on the balance sheet of the other entity but I do need to stress. One of the reasons we are looking for these kinds of settings is, we bring localized talent to that particular area and we would of course in New Mexico as well where the larger entity may not have had a position. Our expertise is what they are looking for and our people on the ground that’s why we have been able to enter into this LOI with Cameco.

David Snow - Energy Equities Incorporated

Would deal of that type entail the capital – the heavy lifting of the capital spending going into production to be borne entirely by the senior partner or would it be kind of heads up?

Don Ewigleben

Typically you moved from a joint setting where there is cash cost both sides until there is an appropriate earn-in decision maintained by the larger entity and then you settle in that again 60/40, 70/30 range. At this present time, we would have a studying where we would have shared expenses over some of the activities remembering that we are moving forward if we should be able to obtain this lease on our own with or without our joint venture partner but it will be the first of many opportunities to have with Cameco and we would necessarily put down the initial million dollars to start the lease and a million dollar commitment for 2011 activities then those money’s could be recovered through the joint venture at the relative rate that gets worked out. I mentioned this because people have asked us about the use of proceeds. I wanted to make it very clear that is one of the intended use of proceeds from our June capital raise activity.

David Snow - Energy Equities Incorporated

In the promote here for your expertise that I’m hearing though.

Don Ewigleben

I’m sorry David.

David Snow - Energy Equities Incorporated

There is not a promote for your expertise that I’m hearing though.

Don Ewigleben

I’m sorry you have to explain that to me. I don’t understand the question.

David Snow - Energy Equities Incorporated

Well you ought to get a disproportional carry cost-wise in return for your expertise and I would think if the expertise is really worth?

Don Ewigleben

Well, I would have to say to you that because it is still prospective, I could not speak to the details. I could only say to you that we will not enter into an LOI with the companies with a stature such as Cameco unless we felt that it was absolutely beneficial to the shareholders and yes sir, we will be getting the value for the expertise that we as a company bring to the table.

David Snow - Energy Equities Incorporated

Okay. And I'm just wondering, you say the consolidation is – I think your expression was, underway in New Mexico. You've had some talks, but isn't that about it? Or can you elaborate on?

Don Ewigleben

I would not be in a position to discuss anything specific but what I actually meant was, if I did not say clearly. We set out with the new strategic objective at the beginning of this year when our board approved that said. We will strive to seek consolidation in the district largely driven by this issue up too many smaller entities, who all have the same need for a centralized milling facility. So whether it is going to be a discussion that, multiple parties come together for a joint venture to build a facility or we look at M&A activities to combine assets so that we can bring stronger values to bear and pay for the appropriate costs and capital of a central milling facility, one of those two ultimate scenarios will play out. You are in conversation with anyone and everyone who is in that district who will visit with us about one of those two concepts, a joint-venture relationship, or potential M&A activity that means that some of one plus one is more than two.

David Snow - Energy Equities Incorporated

I guess Strathmore has a mill already a 60% under preliminary feasibility study is that, kind of high on the list of ones that are advanced or more advanced or the kind of a looking about the same.

Don Ewigleben

I do not have any specific details which regard to where they sit in their plans for their facility. I will simply say to you that they are one of the companies in the district that has significant assets and as a result we have open conversations just as we have with everyone of the down the district asking the same question. How do you intend to deal with significant capital costs for a milling facility? They like everyone else will develop a plan to do it on their own and try to permit it. We would like to see that some of those activities get consolidated in some fashion so that we don't all reinvent the wheel, so to speak as it relates to the permitting and the capital costs necessary to get that central mill going.

David Snow - Energy Equities Inc.

Is there some likelihood or possibility of doing the project financing bit based on a mill?

Don Ewigleben

At this stage of the game, we don't have that as a plan because we call our next step will be ISR mining at Church Rock, Crown Point. But within the confines of feasibility study, we will look at every possible scenario for the capital structure for a milling facility.

David Snow - Energy Equities Inc.

Okay, thank you very much.

Don Ewigleben

Thanks David.

Operator

There are no further questions in queue at this time. I will like to turn the call back over to management for closing comments.

Don Ewigleben

Thank you all for listening, it has been a longer call at this quarter than it has been in prior quarters. We expected that because this has been a very energetic quarter for us. In the first nine months, we are very, very pleased to announce that we have met so many of our objectives in this short period of time. But we have much more work to attend to, we have a senior management team that is second to none in this business and I'm not talking about me. I'm talking about the people that, I joined when I joined this company a year ago and I cannot tell you how happy I am that they have met their objectives and are working towards the strategic plan that we have announced at the beginning of the year. If you have questions on the future, do not hesitate to contact any of the senior managers at the team or key advisers who represent us on all shareholder matters. Thank you, Debby and thank you to the operator for your assistance today.

Operator

This concludes today's teleconference; you may disconnect your lines at this time. Thank you for your participation.

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