Ur-Energy's (URG) CEO Jeffrey Klenda on Q4 2015 Results - Earnings Call Transcript

| About: Ur-Energy Inc. (URG)

Start Time: 11:00

End Time: 11:58

Ur-Energy Inc. (NYSEMKT:URG)

Q4 2015 Earnings Conference Call

March 02, 2016, 11:00 AM ET

Executives

Jeffrey Klenda - Chairman and CEO

Steve Hatten - VP of Operations

James Bonner - VP of Exploration

Roger Smith - Chief Administrative and CFO

Rich Boberg - Senior Director IR

Analysts

Joseph Reagor - ROTH Capital Partners

Geoffrey Scott - Scott Asset Management

Operator

Hello, and welcome to the Ur-Energy 2015 Year-End Webcast and Teleconference. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event in being recorded.

I now would like to turn the conference over to Rich Boberg. Mr. Boberg, please go ahead.

Rich Boberg

Thank you for joining us today for our year-end 2015 teleconference and webcast. We are required to draw the attention of all of our listeners to the legal disclaimers contained in this morning's slide presentation, which apply equally to our oral presentation today.

At Slide 2, you will find legal disclaimers with regard to forward-looking statements, risk factors and protections as well as other cautionary notes to U.S. investors. We ask that you read and consider these disclaimers carefully before investing in our shares. As well, risk factors inherent in forward-looking statements and projections are set forth and discussed in the company's Annual Report on Form 10-K, filed on February 26, 2016, with the U.S. Securities and Exchange on EDGAR and with the Securities Regulatory Authorities in Canada on SEDAR.

I would now like to introduce and turn the webcast presentation over to our Chair and Chief Executive Officer, Jeff Klenda.

Jeffrey Klenda

Great. Thank you very much, Rich, and I too would like to thank you for joining us this morning. Since we will be attempting to give guidance for the upcoming year, we will, by definition be making forward-looking statements. We, as a group, will try to alert you to these as we’re making them. We may not be perfect on them but we will try and let you know where we are making these forward-looking statements so that you can identify them as such.

I thought that it was appropriate today to start with a bit of a perspective next week on the 11th actually marks the fifth-year anniversary of the earthquake and the subsequent Tsunami that destroyed the Fukushima Daiichi Nuclear Power Plant in Japan. At the time as we were watching that devastation and that wall of water rolled across the landscape in Japan, little did we know what kind of an impact it would have on us as an industry or how long it would have an impact on us as an industry. But we have since come to find out that it was very much a similar event in the uranium space and in nuclear energy in general.

And as a result, over the last five years we have found ourselves in a position where often times it can be a bit frustrating because there are many aspects of what we’re trying to do that are simply beyond our control. So what we have tried to do is focus on those things that we can control and to provide what we consider to be outstanding performance in the post-Fukushima environment.

So as I was looking at this morning’s webcast and preparing for it, I felt it appropriate to develop a theme for this webcast and that theme is going to be our improving and positive trends that we’re seeing in a number of different areas as a company. We are now in our 10th quarter of production, 2.5 years in and you should be at this point looking at Slide 3.

These are the areas that we defined at the beginning of 2015 as the areas of greatest importance for us and the areas where we needed to demonstrate those improving facilities for each one of these areas. The first of which from an operational standpoint was to achieve steady-state production.

Now, this is something that is not achieved quickly or easily but it’s very important that we be able to demonstrate that we are a reliable, low cost producer. But unfortunately we can only judge these things incrementally. It will be – we have a very good report for you today that’s going to be brought to us by Ur-Energy’s Senior VP of Engineering and Operations, Steve Hatten. And so we’ll get to Steve shortly.

But following that, we’re going to be focusing on resource growth. This is another area that we felt was incredibly important going into 2015, and we had a very, very active year both from an exploration standpoint and from the standpoint of restating our resources. This will be brought to you and covered by Jim Bonner.

Finally, one of the things that I think has come to characterize us as a company has been our long-term sales agreements that we have put in place really since 2011. Our first contracts were put in place just before Fukushima and what we have won and what we have seen over the last few years is that we’re only as good as those contracts that they have kept us in very good stead. And that area of the presentation will be brought to you by Ur-Energy’s CFO, Roger Smith.

Finally, as we make our way through these very challenging times, we think it’s also important to be able to demonstrate that we are advancing to our second producer and that will be our Pathfinder project in the Shirley Basin. And so we expect to have that application completed in the first quarter of this year, certainly in the first half of this year.

Rich, if you would move on to Slide 4. For those of you who have known our company for some time, this is a slide that should be very familiar to you. This is something that we have paid very close attention to over the last couple of years. And it has been the ongoing goal of this management team to protect this capital structure. However, you will notice for the first time in the last two years that there are changes and I would direct your attention to the table on the left.

And you’ll note there that there are two numbers given for the number of outstanding shares. The first is from the end of our year on 12/31/2015 demonstrating 130 million shares issued in outstanding. But in the middle of that top segment there, our shares outstanding dated as of 2/25/2016 and that number shows an increase of about 13 million shares. And that’s the result of a bought deal financing that was entered into and completed in the month of February. You will also notice that that elevated our cash position to just under $7 million.

I think it’s appropriate at this time for me to take a few minutes and to discuss the financing, what was done, what we did and how we did it. The simple fact of the matter is, is that we have, as you all know, stated very definitively for the last two years that we had no need to do an equity financing and that we would not dilute our shareholders.

Unfortunately, we were forced to raise money quite unexpectedly when in the first quarter of this year we received notice from one of our major utilities that a delivery that we were expecting to make to them in February of this year was going to be delayed to the second half of the year.

It’s important to understand that these utilities have issues of their own. Many of them are having difficulty competing with very low cost natural gas and wind and solar in their areas with their merchant plants, and consequently beyond our control this utility determined that they would not take the product until the second half of the year.

We have since received a binding notice from them, so we know when those deliveries are going to take place. But this put us in a position where we were forced to do something and do something quickly in the marketplace. This transaction, by the way, was not a small one. It was 200,000 pounds that were to be delivered at $62 a pound, so it was nearly $12.5 million transaction.

So for those of you who know us know that we have been very diligent about protecting the company with these long-term contracts. And so as we – once we realize that we were not going to be able to make this delivery in February, we needed to do something. And it just so happened that at that time, we were contacted by Cantor Fitzgerald and they offered to do a bought deal financing for us. It was the first bought deal financing that was done in calendar year '15. I understand that there have been a couple since that time. But we felt that we were able to do this under very favorable terms.

Many of you who are observers of the market know that during these times, particularly in the natural resources, financings when they can be done at all have been done under very onerous terms. In the United States, for example, it has not been uncommon to see 25% and 30% discounts to recent trading price along with a full warrant being given as part of the unit deal when financings are undertaken. In Canada, they have been closer to about 20% discount with a full warrant.

We were able to do this financing and do it at an 18% discount with no warrant on a bought deal basis. So we were actually very happy that we were able to get that taken care of and do it so quickly and efficiently once we learned that we were not going to be able to make our delivery in February of this year. Sometimes these things are simply out of your control but we responded quickly and we responded decisively.

Understandably, some of our shareholders looked at this as a bit of a betrayal because we had been so adamant about not raising money and frankly, if I had had any other alternatives, we simply would not have undertaken it. But as I think we have seen in oil and gas and what we are getting ready to see in the second quarter and third quarters of this year throughout the natural resources, those companies that have failed to finance themselves when necessary or failed to protect themselves with higher price long-term contracts may pay the ultimate price for that. And so this is going to be a very interesting year here in 2016.

But what you should be looking at right now is Slide 5 and the thing that I think that’s important to reemphasize here is that we have done a very good job of putting long-term contracts in place through the remainder of the decade. You can see that from 2016 through to 2021, we have very few pounds in 2021. But we actually have those contracted for at an average price of just under $50 a pound.

I left 2015’s numbers in there because I wanted to point out that we brought in about $31 million last year and that was augmented by additional sales into the spot market. For 2016, we anticipate 662,000 pounds at an average price of a little over $47.5 that will result in gross revenues of $31.5 million in gross revenues.

Once again, we will have to see how the year plays out in terms of spot pricing to determine how many additional pounds we will deliver into the marketplace, but we actually delivered quite a few last year in 2015. But I’ll leave that to Roger to cover with you.

Spot sales this year will be determined by the pricing that we see in the marketplace and our ability to create those pounds and to build our inventories is heavily reliant on our operations staff. So we have Steve Hatten who is not going to give you his operational update. His team has worked very hard to work on their operational efficiencies and I think with very impressive results.

So with that, I’ll turn it over to Ur-Energy’s Vice President for Engineering and Operations, Steve Hatten. Steve?

Steve Hatten

Thanks a lot, Jeff. I appreciate it. Good morning, everybody. So I want to talk to you – we’re on Slide 6 now and I’d like to talk to you first about the development status. One of the key things that we’ll talk about there is that we have minimized our work during the winter months trying to optimize our efficiencies.

So first in Drilling and Mine Unit 1, all of the injection and production wells have been installed for that area. This work was completed in April of '15 and has allowed for construction to proceed without the complication of working around the drill rigs.

Secondly, the wells are contained in 13 header houses all in Mine Unit 1, of which only 12 are in operations at this time. So we’ve been able to get our work done in a fashion that has allowed us to utilize the best times of the year there.

Mine Unit 2; fieldwork in the second Mine Unit has been minimized during the winter months to optimize productivity as we stated previously. Drilling has primarily been in header houses 1, 2 and 3; each one having approximately 26 patterns each and is moving from the pilot phase through casing, completion and testing of the wells for integrity.

Let’s talk about construction status. In Mine Unit 1, construction in header houses 1 through 12 is complete. The first house, header house 1, was started in August of '13 and header house 12 started operations in November of '15. Header house 13 construction is ongoing and is expected to be brought into operation in the second quarter of '16.

In our second Mine Unit, construction of the primary pipeline and power line for the first few header houses was initiated in the fourth quarter of '15 and will be completed later in 2016. Again, wintertime fieldwork has been minimized to optimize efficiency. And for those of you who know what it’s like at Wyoming at 7,000 feet, you understand why that’s a key component of our construction plan right now. Design and procurement for the initial group of header houses continues with construction scheduled for 2016 based on production needs.

Rich, could you please move to the next slide. So our next slide is on Lost Creek production results. This table demonstrates consistency in all three-production phases; the captured, drummed and shipped pounds quarter-over-quarter for 2015. Two items of significance from this data are; first, the average grade for 2015 was 97 milligrams per liter U3O8, which is still more than twice the originally anticipated average grade for this project. This is after more than 1.57 million pounds were captured through December 31, 2015 from the first Mine Unit. We’ve got great longevity and productivity from this first area.

Second, after 2.5 years of operations, we have been able to maintain our production goals while operating only the first 12 header houses in the first Mine Unit of this project. The slight reduction in production during Q3 was associated with the break in construction to allow for pipeline and power line construction in the Southeastern portion of Mine Unit 1. Operation of header house 12 starting in November provided for the rebound in Q4 captured and drummed pounds.

Finally, for January, the project has captured 60,643 pounds and drummed 65,099 pounds with an average production grade of 88.1 milligrams per liter U3O8, which is in line with the guidance that Jeff has provided for production in 2016.

On our plant systems, all plant systems are functional with normal maintenance occurring as necessary. The reverse osmosis or RO system continues to be idle due to elevated production grades and low production flow rates. The RO will be used as part of the Class V wastewater operations and during groundwater restorations.

We’ll talk about Class V here in just a little bit. The Class I UIC waste disposal wells are functional and are being utilized to dispose of plant wastewater. They are being used in conjunction with the storage ponds to average out the liquid waste disposal stream.

Rich, if you could take us to the next slide please. Finally, for me, I’d like to go over the operational results. I’ve provided a couple of tables here that provide data for several important trends. First, a routine and measurable increase year-over-year in the pounds captured, drummed and thus shipped climbing from 190,000 pounds in '13 to 784,000 pounds in 2015.

Second, you’ll see a significant downward trend in our cash cost per pound and Roger Smith will talk about this in detail later. But that shows a reduction of 10% between '13 and '14 followed by a 17.5% reduction in 2015. Since 2013, we have been able to reduce our cash cost at a total of 26% on a per pound basis. That’s significant.

Third, an upward trend in annual pounds sold in revenues despite a soft spot market. Fourth and finally, a downward trend in the sales price which has been primarily to the aforementioned lowering of the spot price. All the data provided is evidence of continued refinements to the production process and the ability to produce at a low cost in a steady-state environment.

Finally, before turning it back over to Jeff, I’d like to say that every chance anybody publicly lets me say it, but I would like to thank the hardworking staff in all of our offices but particularly at the mine site for their efforts in making sure we bring our production to market.

Jeff, back over to you.

Jeffrey Klenda

Great. Thank you so much, Steve. With that, I’d like to also – Steve mentioned this but I’d like to reemphasize and that is that in our original PEA, we have scheduled that 2.5 years in we’d be well into Mine Unit 2 right now. Lost Creek has become such a prolific and such an exceptional producer that we have been able to sustain a high level of production exclusively out of Mine Unit 1, and we still have header house 13 to go.

We’ve also experienced far greater resources there than we had originally anticipated and so that gives me a bit of a segue into our segment by Jim Bonner. Jim has been charged with the exploration and the growth of our resources and I think he and his staff have done also an exceptional job, and I’ll let him tell you how we did in 2015.

So with that, I’ll turn it over to Ur-Energy’s Vice President of Exploration, Jim Bonner. Jim?

James Bonner

Thank you, Jeff, and good morning to everybody. Ur-Energy was very successful of replacing Lost Creek property resources in 2015. Since the 2013 PEA, 4.6 million pounds of measured and indicated resources and another 1.7 million pounds of inferred resources have been added to the property totals.

Close-spaced pattern well drilling in Mine Units 1 and 2 along with the results of the 2015 exploration drilling program provide us with a drill data that went into these resource estimations. These resource increases were disclosed in two NI 43-101 documents. First, the technical report data June 17, 2015 and a Preliminary Economic Assessment dated January 19, 2016 and amended February 8, 2016.

I’ll summarize the geo and technical report first, because it’s already been a subject of a previous webcast. High-density pattern well drilling in Mine Unit 1 provided valuable insight into the complex configuration of this uranium deposit. Interpretation of drilling data resulted in an adjusted increase of 1.5 million pounds of measured resources to Mine Unit 1.

It was an adjusted increase because nearly 1 million pounds of uranium that had been produced for Mine Unit 1 were subtracted from the total resources. All Lost Creek property resources have to be adjusted to account for past production.

Another important aspect of the resource re-estimation process associated with this technical report was that our uranium grade-time thickness criteria or GT was lowered from 0.3 to 0.2. This was done to reconcile higher than expected uranium recoveries for production operations and to more closely associate in-place resources with uranium recoveries. This new GT cutoff is now being applied throughout the property.

A January PEA will be reviewed in detail on the following slide. For the year, however, it contributed 3.1 million pounds of measured and indicated resources and 1.4 million pounds of inferred resources to the property totals.

Finally, the 2015 exploration program was designed to replace Lost Creek production from 2014 and it met its goal. The 150-hole program was conducted in close proximity to the Mine Unit 1 and delineated approximately 120,000 pounds of measured and indicated resources along with 500,000 pounds of inferred resources. Results of the first phase of this drilling program were reported in the June technical report. Results from the second phase were included in the January PEA.

Rich, can I have the next slide please. Resources for this January PEA were estimated using results of close-spaced drilling in the Mine Unit 2, phase 2 exploration program drilling and existing drilling throughout the property. These evaluations resulted in a 31% increase to measured and indicated resources and a 28% increase to inferred resources since the publication of the June technical report.

As we saw earlier in Mine Unit 1, a better definition of the deposit with high density drilling resulted in dramatic increases to the resource. Drilling included in this PEA took place only in the first three header houses of Mine Unit 2, representing approximately 20% of the Mine Unit, yet the entire Mine Unit’s resources were increased by 45%. We feel this speaks well for the continued development of this Mine Unit.

Jeff has also reviewed all drilling data for the entire property in order to update resources using the 0.2 GT cutoff. As I mentioned earlier, we feel applying this new GT cutoff to all resources is a valuable lesson learned from our ongoing production operations. The resource total shown on this slide have been adjusted to reflect production in September 30, 2015.

Track, Inc. [ph] performed the economic analysis for this PEA, which assumes production of 13.8 million pounds in a life of mine that extends production into the year 2031. The summary of economics is presented on this slide highlighting uranium production costs that rank the lowest quartile, life of mine operating costs estimated to be $14.58 a pound and total cost per pound estimated at $29.29. It was a busy and productive year at Lost Creek and as Steve pointed out, it took the efforts of a lot of good people to get this accomplished.

Next slide, Rich. Shirley Basin is one of Wyoming’s premier historical uranium districts and we are pleased to be developing an ISR project here. This was a high-grade mining district and we have developed 8.5 million pounds of measured and indicated resources at an average grade of 0.2% U3O8.

A preliminary economic assessment was completed by WWC Engineering and published on January 27, 2015. It was estimated that 6.3 million pounds would be produced at quite reasonable costs, direct operating costs were estimated to be $14.54 a pound and the total cost of production was estimated at $31.26 a pound.

Project work for 2015 primarily revolved around regulatory permitting activities. A Permit to Mine application was submitted to Wyoming DEQ in the fourth quarter of 2015 and an application for a Source and Byproduct Material License will be completed probably in the first, maybe the second quarter of 2016. We continue to move forward on this project but we realized that permitting process can be quite unpredictable.

So, Jeff, back to you.

Jeffrey Klenda

Great. Thank you very much, Jim. And again, as I mentioned at the top of the hour, we felt that it was very important to demonstrate that we could not only replace those pounds that we were producing but also grow the resource at a rapid rate. And in keeping with our theme of positive trends, I’d like to point out that since Fukushima at that time in 2011, we had a little over 6 million pounds in the measured and indicated and also in the aggregate adding in the inferred categories as well. Now, in less than five years we have grown that resource to just under 20 million pounds. So I think that that is a rate of growth that has been extraordinary by anybody’s standards.

But I know that most of you on this call this morning are here to listen to what our CFO, Roger Smith, has to say and he not only had to do an unexpected financing that we have excellent contracts in place. We’re only as good as those contracts, but I think that they yielding for us a very good year in 2015.

So without any further delay, I’ll turn this over to Ur-Energy’s Chief Administrative and Chief Financial Officer, Roger Smith. Roger?

Roger Smith

All right. Thanks, Jeff, and good morning, everyone. Let me just thank Steve Hatten and his group out there, because he makes my job much easier. As we’ve said before, our cost per pound will tend to decrease, so production levels increase. This is because many of our production costs are fixed in nature. This slide displays the cost per pound in ending inventory relative to pounds drummed and gives you a visual impression of this relationship.

During the quarter, our production levels increased as we captured 212,000 pounds and drummed 189,000 pounds. Pounds in drummed increased about 7% over the previous quarter. Meanwhile, our production costs were actually down $730,000 from the previous quarter largely due to decreases in non-cash cost.

Production cash cost were down 60,000 with slight increases in well field and distribution cash costs being more than offset by decreases in plant cash cost. Ad valorem and severance taxes were also down during the quarter. As a result, our total cost per pound in ending inventory decreased $4.20 or 14% to $25.23. More importantly, the cash cost per pound component decreased 7% during the quarter going from $16.50 to $15.39 per pound.

This trend is even more evident when we look at the same chart on an annual basis. In 2014, our first full year of production, our total cost per pound in ending inventory was $39.14. In that year, we drummed 548,000 pounds. In 2015, we drummed 727,000 pounds and our total cost per pound in ending inventory was $25.23. This represents a decrease of $13.91 or nearly 36%. By the way, despite drumming 179,000 pounds or 33% more of pounds in 2015, our cash cost only went up 4%. And our cash cost per pound decreased $3.82 or 20% in 2015.

This slide shows our cost per pound sold relative to the average sales price we received and the average spot price during the period. As discussed in last quarter’s webcast, we expected the fourth quarter average sales price to be much lower than the third quarter. You can see from this slide that that indeed was the case as our average sales price decreased from $56.39 to $34.47.

During Q3, our average contract price was $66.71 per pound. While during Q4, the average contract price was $28.49 per pound. During the quarter, we had sales of 225,000 pounds including the one contract sale of 50,000 pounds at $20.49 and we sold 175,000 pounds into the spot market at $36.18. This generated uranium sales revenues of 7.8 million, all of which were collected during the quarter at an average price of $34.47.

Even though the average price was considerably lower than the previous quarter, it still exceeded our total cost per pound sold by $8.12, which represents a gross profit margin of about 24%. On a cash cost basis, our gross profit was $19.05 per pound or 55% on a gross profit margin basis.

When we look at the same chart on an annual basis, you can see that our average sales price was $45.20 per pound. This consisted of contract sales of 630,000 pounds at $49.42 and spot sales of 295,000 pounds at $36.18 per pound. 2014’s average contract price was slightly higher than 2015 and there were no spot sales in 2014. The total cost per pound sold decreased from $34.49 in 2014 to $29.53 in 2015. This represents a decrease of $4.96 or 14% per pound. During the same period, our cash cost decreased $3.46 or 18% from $19.73 to $16.27 per pound.

Returning to ending inventory for a moment, this slide shows the number of pounds held in the various stages of our inventory and the related total cost per pound. Generally, we have built strong inventory during the year, although not consistently as our sales can vary significantly quarter-by-quarter.

Ending inventory decreased to about 183,000 pounds in Q4 because of the greater number of pounds sold during the quarter. Ending inventory consisted of 89,000 pounds in process, 30,000 pounds of dried and drummed material at the plant and 64,000 pounds of finished product at the conversion facility.

The increase in ending inventory can be seen more clearly when we look at the same slide on an annual basis. At the same time you can see the decreasing trend in inventory cost per pound and cost per pound at the conversion facility decreased from $39.14 to $25.23 during the year, and the ending balance was composed of severance and ad valorem taxes of $2.66, cash cost of $15.39 and non-cash cost of $7.18. So to finish where we started, the decrease demonstrates that our cost per pound produced will tend to decrease as our production levels increase.

Now let me make a few comments about our year-end results. Our 2015 uranium revenues were 41.8 million and resulted in selling 925,000 pounds at an average price of $45.20. Our 2015 cost of sales was 29.3 million or $31.67 per pound sold, which includes the higher price purchased product from Q2. Excluding the purchased material, our 2015 cost per pound sold was $29.53.

2015 gross profit from uranium sales were 12.5 million, which represents a gross profit margin of 30%. Compared to 2014, our operating expenses were down across the board as we are attempting to hold our overhead costs in check. As a result, our 2015 operating loss decreased from 7 million in 2014 to 1.9 million in 2015.

After backing out non-cash items, we’re pleased to report that we generated 5.4 million in cash from operating activities and because our capital expenditures are minimal, our free cash flow was at 5.3 million as compared to 1.5 million in 2014.

Now looking ahead, as we head into 2016, we have one contract sale in Q1 for 25,000 pounds at approximately $39 per pound and two contract sales in Q2 for 137,000 pounds also at about $39 per pound. Depending on any spot sales we make, we expect the average sales price during Q1 and Q2 to be slightly better than Q4.

The bulk of our contract sales will take place in the second half of the year when we sell the remaining 500,000 pounds at approximately $50 per pound. Assuming production levels are consistent and our cost are consistent with previous quarters, we expect our cost per pound sold in Q1 to be similar to the cost per pound in ending inventory at the conversion facility, which was just about $25 a pound.

We, therefore, anticipate gross profit margins during Q1 that will be similar to the 2015 average gross profit margin, which was 30%. So in closing, we’re very pleased to report the decreasing trend in our cost per pound figures for the year. And we hope to report similar results in 2016. Thanks.

Back to you, Jeff.

Jeffrey Klenda

Great. Thanks, Roger. First of all, let me point out that there are a good number of bar charts and tables that were included in the 10-K, so if you want to review those in greater detail, those are available there. But I think that Roger put together for us some very good charts there that demonstrate just exceptional performance in what has become a very challenging environment.

Before we go to Q&A here, I just want to make a few additional comments and that is that our company will continue to focus on obtaining companywide cost savings. And it’s interesting because it’s notable that we’ve gone through header houses 1 through 12 but header house 13 will be something quite different. And our guys have learned a lot in those first 12 header houses and they will be doing something completely different in header house 13 working on still greater efficiencies and bringing innovations to that process. So it’s going to be very interesting to see what those results are as we get into the operation of header house 13.

With respect to the long-term sales agreements as I detailed earlier, of course we have multiple long-term contracts taking us out to 2021, which we think do a very good job of protecting the company. But one of the things that we have found is that now as spot price has dropped since the beginning of the year, really since the holidays, we’ve seen the spot price dropped to $32 on the bid, $32.5 on the offer and term price has remained at $44.

However, it should be understood that the term price for all intents and purposes right now is really not a usable price. In fact, the mid-term pricing due to the carry trade that has been undertaken by a number of the traders in our space has really served to push out the intermediate term demand curve. And as a result of that, it is very difficult to find pricing going out into '18, '19 and '20 that uses $44 term price as a base. So we’re going to be very, very selective about any additional contracts that we put in place.

We’re well protected generally in that 60% of nameplate production or about 600,000 pounds a year through the end of the decade. We’re quite content with that. And as Roger pointed out, that results in great positive cash flows to the company. One of the things that we will be doing this year is that we will be paying off the RMB indebtedness of about – that’s currently with a principle and interest of about $4.5 million this year. So those will be additional dollars that will be freed up for development or whatever is needed in calendar year 2016.

In addition to that, we’ll continue to grow our resources but as exploration has become something of a luxury in this marketplace, I think that what we will probably find for 2016 is that the bulk of our increases in resource will come through our development of Mine Unit 2 as was indicated by Jim Bonner. So, as we continue to develop Mine Unit 2, we think this will bring us significant – it’s a forward-looking statement but we do think that will provide significant resource growth along the way.

As to M&A activity, many of you are well aware that there are a lot of things taking place out there. Companies are getting married; some out in necessity, some because they want to bulk up, whatever the reasons are there, a lot of assets that are for sale. We are very interested in selectively making acquisitions that make sense for the company and we’ll try and be opportunistic, however, just keeping in mind that our stock price is at a quite low level right now. Our currency is diminished and so as a result of that, again, unless it would be very, very accretive to the company, we would not be looking to make any acquisitions, but we will be opportunistic as we can be during 2016.

Finally, with respect to our corporate priorities, we will have our application completed for Pathfinder in the first half of this year and we will continue to bring greater efficiencies to Lost Creek as we move forward. And I think that it’s important to reiterate the fact that we have emerged as the lowest cost producer among all publicly traded companies worldwide, and we are very, very proud of that.

So with that, we will go to the Q&A portion of our webcast. Rich, can you queue that up?

Question-and-Answer Session

Operator

This is the operator. Thank you. We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Joseph Reagor from ROTH Capital Partners.

Joseph Reagor

Good morning, guys, and thanks for taking the questions.

Jeffrey Klenda

Good morning, Joe.

Joseph Reagor

One quick thing just to get it out of the way. You guys went over kind of first two quarters shipments and contract sizes. I think that Q2, you said 137,000 pounds. What was Q1?

Roger Smith

Q1 was 25,000 pounds.

Joseph Reagor

25,000, okay. All right. Thank you. And then second thing, looking at the raise you did, obviously, it sounds like you kind of got some late notice on the shipment moved to the second half. Wouldn’t it had been possible to potentially avoid the dilution, sell into spot and then buyback at spot and deliver into the contract, or was this one of those contracts that has to be delivered from your facility?

Jeffrey Klenda

Well, it did not need to be – it was a non-site specific. However, we were put in a position where we did, as you point out, had such late notice on it that we did not have adequate inventories built that would have allowed us to deliver into those. Once you have the contracts in place, it does allow for a certain amount of, for lack of a better term, financing engineering that you can do around those contracts. However, we were put in a very difficult and precarious position and with very little notice, as we have never missed a principle or interest payments on any of our indebtedness and we simply did not want to take the chance that that would be the case. So it was quite opportunistic when we received the call for the bought deal financing. We weighed our alternatives. Even if we had the ability to incur additional debt, I doubt that we would have. Debt is a killer in this marketplace and I think as all the guys in oil and gas are going to find out in a very painful fashion this year in 2016. And we simply did not want to incur any additional debt. Even though we didn’t like the pricing, we felt that the terms were very favorable and we felt that given the circumstances, we would simply have to live with the dilution. So, we did what we had to do when we had to do it. I hope that answers your question, Joe.

Joseph Reagor

Yes, that’s good. Second question or bigger question is Shirley Basin. What do you think the timing is right now as far as – you have submitted your application but how far out is the project still in your mind today? And once you got there, you just kind of said you’re kind of against raising additional debt, but would you be able to use the Wyoming bonds again if you have paid back the majority that you’re currently paying by the time Shirley Basin went into construction?

Jeffrey Klenda

Sure, understood. I think that first of all, timing as was mentioned by Jim Bonner, this is something that has become a little difficult to pin down. The regulatory agency that shall remain unnamed have proven to be very slow at responding right now, even for example you submit an application what you’re supposed to receive is a completeness review within a 90-day period of time. Right now, you can’t even get any type of an indication as to when the completeness review will indeed be completed by the regulatory agency. So it brings another level of uncertainty. One of the things that is absolutely a factor for us this year is the fact that it is an election year and that has made the agency even more skittish than they normally are about making decisions or advancing some of these applications in that environment. To answer your other question with respect to the Wyoming bonding, the answer is yes. The program is a viable program, it’s very healthy, it’s one that has had great results in the state of Wyoming. We have been something of a poster child for them in a very positive way. Our project has been a great success. We again have never missed a payment on our bonding now, which began nearly more than two years ago, anyway. And so yes that money is available to us. And keep in mind, as I mentioned earlier, by the end of this year – at the end of 2016, we will have paid off our remaining RMB indebtedness, which that will require $4.5 million this year. That’s gone as of December 31. So we eliminate that and all we’ll have after that is the very, very favorable debt service that we have with the state of Wyoming on the Lost Creek project.

Joseph Reagor

Okay, that’s very helpful. And then one final one, if I could. You mentioned the impact of lower natural gas prices on energy consumption in the U.S. Can you give an order of magnitude on what you guys are seeing as far as uranium demand declines in the U.S. because of the low oil and nat gas price environments?

Jeffrey Klenda

I’m not sure. I think my answer would be somewhat anecdotal. What we’ve seen is that I think some of our utility customers, despite the fact that they are very large multibillion-dollar entities as we’ve said so many times, there are no small companies that own nuclear reactors, they are nonetheless very mindful of the money that they’re spending right now and they’re letting us know it. And that resulted in the postponement of the February transaction that required our response. But I think that what we’re seeing is that last year, total demand in the United States I believe came in just above 53 million pounds. I might be off just a bit on that. But that does not represent a significant decline from the year before. There are 99 reactors that are up and running in the United States and unlike other natural gas or coal facilities, these cannot be shutoff readily once you start a nuclear reactor. It must remain on and continue to provide that base load. So we have not seen any type of a significant reduction in demand here in the United States as a result of those lower natural gas, and they have heavily subsidization of wind and solar. But I think that what we have seen is increased stress on the part of our utility customers.

Joseph Reagor

Okay. Thank you. I’ll turn it over.

Jeffrey Klenda

Great. Thanks, Joe.

Operator

Thank you. [Operator Instructions]. All right. We do have a question from Geoffrey Scott with Scott Asset Management.

Geoffrey Scott

Good morning. Thanks for all the details. A couple of questions on the long-term sales agreement. You had 10 agreements in place at 12/31/'15. Have you fund any further long-term agreements since then?

Jeffrey Klenda

We have – our last contract was signed last year I believe in the very early part of – first half of 2015. Since that time, because of the impact that the carry traders have had on pricing in our space, as I mentioned the forward demand curve has been somewhat flattened over the course of the next, say, 12 to 18 months and has resulted in that lower pricing. So, I think that right now we have been out to bid for a couple of additional contracts. As you all know, we’re very targeted in terms of what pricing we’ll accept in our contracts. And consequently, we will submit bids that reflect what we believe we can live with. Unfortunately, the carry traders, they’re satisfied to make $0.50 out of a $1 on a pound. That’s not our corporate objective. Of course, we have to maintain certain margins. And consequently, we have not been successful in the other bids that we engaged in throughout 2015 but we’ll continue to be very selective. That’s one of those things that we just don’t control. And with the lower prices, there are companies out there, utilities out there with offers in the marketplace, a couple of them, because we know what the prevailing – the winning bids will be, we have chosen not to engage in the bidding process. So, we’re going to continue to be very selective.

Geoffrey Scott

Okay. For the year 2016, what do you think the total number of RFPs and the tonnage will be for the year for delivery in 2019 and later? Do you have any sense?

Jeffrey Klenda

I guess if I’m hearing you right, what you’re asking is to give some sort of a projection as to what the level of contracting might be in those outline years. I would have to be speculating on that. Those numbers are much better provided by UX Consultants or WMA, and those are the things that are available and their projections are on line. However, I would mention that’s one of the things that we have seen from the most recent UX – that was released earlier this week with year-to-date figures. Spot numbers were down significantly for the month of February and there are virtually no base level escalated contracts being entered into right now at $44 moving out into the 2018 and 2019 timeframe. So, they have pointed out the industry commentators and quotation services like Tradetrek, UX and WMA have not given us – they have their own forward projections as to what the level of contracting will be in those years. But really all we can point to is that the level of activity is down. These low numbers are not very inspirational to those of us that are producing.

Geoffrey Scott

Would it be fair to say that you are in general agreement with those other numbers?

Jeffrey Klenda

From what I’ve seen, I’m really not in a position to dispute them. I suppose that’s the way I would express that. I think that they do fairly good research. These utilities are exposed in those years. I think that they’re fairly well covered over the course of 2016 and into 2017. But as we’re recently meeting with nearly a dozen of our utility customers at the most recent NEI conference, they are filing contracts right now in the 2018 to 2021, 2022 timeline. So they are going to be in the market and we have very reason to believe that this will be an active year throughout the year for most of the utilities trying to fill those timeframes.

Geoffrey Scott

Okay. One more follow up and it has to do with I guess the outlook from the fleet operators. There’s been a lot of international turmoil with Russia, Ukraine and Boko Haram in Nigeria [ph] and is there any sense that U.S. source of supply is worth a premium? Are you hearing that from anybody?

Jeffrey Klenda

We’re not specifically hearing that although there are entities like TVA and others that do have as part of their mandate to source from the United States if possible. Given the inventories that have unfortunately been overhanging in the market for the last six months or better, we have not heard any indications from the utilities that they will need to pay a premium for U.S. sourced material. But one of the things that I think was notable is that we saw a substantial drop in the U.S. production when we got our fourth quarter figures. And so we are only producing from three facilities right now in the United States. So if that geopolitical event that you somewhat alluded to were to occur, which I think can happen at any time given the global geopolitical situation out there, I do believe that a premium would return to the U.S. producers just because it’s a lot easier to get it from less than 1,000 miles away than it is to get it from halfway around the world. So I don’t know what else I can say to comment on that.

Geoffrey Scott

But so far you have not seen any willingness to pay a premium for a 2019 or 2020 or 2021 delivered from the U.S. source?

Jeffrey Klenda

Not in the last six to 12 months, no we have not.

Geoffrey Scott

Okay. Thank you very much.

Jeffrey Klenda

You bet.

Operator

Thank you. As there are no more questions at the present time, I would like to turn the call back over to Jeff Klenda for any closing remarks.

Jeffrey Klenda

Great. Thank you very much. I appreciate your attendance once again today. We will try and be as transparent as a company as we can, as I think that has become our reputation and we will look forward to updating you. And I hope that these positive and improving trends continue and that we’re going to be able to bring those to you when we do our next webcast, which should be in the early part of May. So, once again, thank you so much on behalf of all of the staffers at Ur-Energy for your support and to your attendance this morning. With that, I’ll say goodbye.

Operator

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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