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Uranium Resources, Inc. (NASDAQ:URRE)

Q4 2011 Earnings Conference Call

March 9, 2012, 11:00 AM ET

Executives

Donald Ewigleben - President, Chief Executive Officer and Chief Operating Officer

Thomas Ehrlich - Vice President and Chief Financial Officer

Richard Van Horn - Senior Vice President - Operations

Mark Pelizza - Senior Vice President - Health, Safety, and Environmental Affairs

Mathew Lueras - Vice President - Corporate Development

Deborah Pawlowski - Investor Relations

Analysts

David Snow - Energy Equities Inc.

George Walsh - Gilford Securities

Operator

Greetings and welcome to the Uranium Resources Incorporated Fourth Quarter and Year-end 2011 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).

It is now my pleasure to introduce your host, Deborah Pawlowski, Investor Relations for Uranium Resources Incorporated. Thank you Ms. Pawlowski; you may begin.

Deborah Pawlowski

Thank you very much Emilia and good morning everyone. We certainly appreciate your time today and your interest in Uranium Resources.

On the call I have with me President and CEO, Don Ewigleben, who will review the recent events of the last year, the great strides that we have made in 2011 and in the first part of this year and what our focus in strategic initiatives are for the company as we move forward. He’ll be joined by Tom Ehrlich, Chief Financial Officer and Rick Van Horn, Senior Vice President of Operations and Exploration; whom by the way I should point out is in the (inaudible) of New Mexico, so we may lose him off and on, but he’ll be with us to stay on the line, as well as Mark Pelizza, the Senior Vice President of Environment Safety and Public Affairs and everyone should know also Matt Lueras our Vice President of Corporate Development.

We will conclude the call with an opportunity for the questions and answers. If you don't have today's news release, it can be found on our website 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 to future events, which are subject to risks and uncertainties, as well as other factors that could cause the actual results to differ materially from where we are today.

These factors are outlined in the news release, as well as in documents filed by the company with the Securities and Exchange Commission. You can find those on our website where we regularly post information about the company, as well as on the SEC's website at sec.gov. So please review our forward-looking statements in conjunction with these precautionary factors.

With that, I’d like to turn the call over to Don to begin the discussion. Don.

Donald Ewigleben

Thanks Debbie and I too want to thank everyone for joining today’s call, particularly just the fact that we all met I think about a week ago or many of you did in joining the conversation that we had about our Neutron discussion. Today, before I open up for Q&A, I am going to review the progress and objectives in Texas and New Mexico. I’ll briefly hit on the Neutron announcement that we made last week and I’ll provide some information on the feasibility study. However, I will not be able to get into the complete details as it is still being reviewed by our management and by our board. We have not made it public at this point.

2011 is going to be remembered for the tragic events that took place in Japan and led to the events at the Fukushima Nuclear Power Facility. We saw a lot of negative sentiment toward nuclear energy. Some countries such as Germany and Italy and Switzerland made decisions to decommission nuclear power. It also led many countries to review their stands on nuclear energy as well as the safety of their plants and guidelines to be followed for future reactors.

Over the course of the year and on into 2012 we’ve seen a gradual improvement in that sentiment. Uranium stocks within the nuclear sector generally is faring better. However, thus far the uranium spot prices have remained relatively flat. The reported weekly spot price this past Monday was $51.75 US and the long term contract prices currently hovering around 60%.

Going forward, we believe there is still a number of drivers to support the growth in demand for uranium. For example, Germany, Italy and Switzerland who’ve decided to decommission their power plants combined for less than 6% of global demand for uranium. The current and future growth in China and India will more than offset this impact. In China alone there are 26 reactors under construction with an additional 171 planned or proposed. While the China Nuclear Energy Association has announced that some projects maybe scaled back they still anticipate installing capacity for 60,000 to 70,000 megawatts. India, second only to China as far as new reactors being built plans to have a capacity for 63,000 megawatts in nuclear power generation in the next 20 years. This is a 14 fold expansion and the expectation is that India alone will need some 40 million pounds of uranium annually by 2030. Also, as we noted on other calls the Russian HEU contract comes to an end at the end of 2013 removing around 24 million pounds annually from the US market and Russia has its own needs for uranium to address its nuclear facilities and those it supports.

With the HEU agreement coming to an end and the increasing demand for cleaner energy sources there is going to be greater demand for new deposits and greater production which ultimately should drive prices to a level that will support exploration and development. We also think that some of the announcements in prior years for new development projects may not make it, but we expect to capitalize on the trend for an increasing demand and our actions today are positioning us to be the leader in the future market demand for uranium certainly in the United States.

Let me move to Texas. In Texas we achieved several objectives throughout last year and have laid out specific plans for the coming year with the goal being to develop sufficient in place mineralized uranium material to support long term production and capitalize on the processing assets that we have in place at Kingsville Dome and Rosita. There are number of markers that must be reached before we move to production in 2012, but having two already permitted processing facilities there gives us a leg up on the competition.

Los Finados exploration project that you know we have been working on back in January of last year when we completed a lease agreement to explore one of the largest ranches in Texas, it is over 53,500 acres in Kennedy County, Texas. The lease is for three years with a drilling investment requirement and includes an option to lease the acreage for uranium production. Shortly thereafter we entered into a joint venture three phase exploration agreement which commenced in June 2011. Phase I exploratory work was completed in November 2011 and used a widely and evenly space drilling program covering a grid designed to test the potential for uranium mineralization over the entire area. At completion, a total of 19 holes had been drilled at an average depth of 1300 feet for a total cost of approximately $1 million.

Phase II work started in December 2011 and it is scheduled to be completed this November. Cameco will fund about a $1 million with a total of $1.5 million that was committed by URI to the lease holders for Phase II activities. Today, under Phase II 10 holes at an average depth of 1300 feet have been drilled. Cameco has earned a 40% interest in the project today and at the completion of Phase II will have approximately 50%. Two other areas we planned to focus on advancing our current leased properties in Texas through licensing and permitting and we will continue to look to lease additional targeted properties. In addition to that we will seek to further our discussions with Itochu and UG U.S.A with whom we have sales contracts for any production from our existing properties other than Los Finados. We would like to read upon the terms so as to enable better margins which would enhance our likelihood of returning production in Texas on a sooner basis.

We are going to start activities at Kingsville Dome where our two holding ponds in the second quarter to make improvements to increase the usable capacity of the ponds and to recover uranium that has been collected over the various production cycles of the project. That effort is expected to last through the end of the year at a cost of appropriately $3 million. We do estimate that we may be able to generate up to 40,000 to 50,000 pounds of U3O8 as a byproduct of this activity. This is a necessary step which positions us for uranium production in Texas as well as the potential of processing future uranium projects in Texas and New Mexico. We will also be upgrading our Kingsville Dome processing plant, which we planned to begin to toward the end of 2012. This activity is also needed for our future production plans in Texas.

We’ve continued to focus our time and resources on our other reclamation activities. To date we processed approximately 4.2 billion gallons of water associated with those activities. Two restored production areas at Rosita are expected to complete their final closure in the later part of this year.

Let me move on to New Mexico. One of our primary focuses in 2011 was on the completion of our feasibility study for Churchrock Section 8. This area contains 6.5 million pounds of in-place mineralized uranium material and is covered by our underground injection control permit and our reactivated NRC license. We did complete the study at the end of the year as planned and we decided it had to be reviewed by an independent engineering firm in order to validate the economic determinations in engineering plans. As I mentioned earlier the report is currently being reviewed by our management and our board as it was certified by the third party.

At this time I can pass on some of the highlights from the reports as follows: We are initiating infrastructure construction and core and definition drilling which will be planned to begin in the second quarter of 2012 and we’re evaluating the best approach to raising the needed capital for the total project which is looking to be at the higher end of that 30 to 50 million that we had been estimating over the course of the past two years. Current plans are to initially transport uranium loaded resin to either our Kingsville Dome or Rosita processing facility. This will allow us to accelerate production, reduce capital cost and ultimately advance cash flow from the project before completion of the Crownpoint facility. Production is targeted for the second half of 2013.

While I move back for just a moment and talk a little bit about our Neutron Energy acquisition announcement from last week. For those of you who didn’t see our announcement we signed a definitive agreement to acquire Neutron Energy, a privately held uranium exploration and development company with significant assets located in the Grants Mineral Belt of New Mexico. We also executed a financing agreement in conjunction with the transaction. This would represent the first major consolidation in New Mexico and we will position URI as one of the largest uranium development companies in the US. The acquisition would add 18.6 million tons of mineralized material at a weighted average grade of 0.15%. The combined companies will have over 206,000 acres of uranium holding. The merger agreement has been unanimously approved by the board of directors of both URI and Neutron and is subject to shareholder approval and is expected to close no later than the third quarter of 2012.

I am going to move to our liquidity position. Our cash position at the year-end was $2.9 million compared with $5.4 million at September 30, 2011. The decrease was from sequential third quarter reflects ongoing reclamation activities in Texas, the cost associated with the feasibility study, and the Neutron acquisition and $500,000 of funding to collateralize URIs financial surety obligations.

We entered into an at the market sales agreement last October enabling us to sell up to $15 million US in shares as we needed it. Between November and January, approximately 2.3 million shares were sold for net proceeds of approximately $1.8 million. Importantly, in conjunction with the acquisition of definitive agreements we executed a financing agreement with Resource Capital Fund which focuses on resource companies. The fund is quite large little over $1 billion investment in the industry. We expect to receive $10 million under this agreement today. In addition, we candid our option receive an additional $5 million at the closing of the merger.

With that overview, I would like to open it up for some questions and I do have available the management team of the company so we can answer your questions. Emilia, if you help us with those questions.

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Our first question comes from the line of David Snow from Energy Equities.

David Snow - Energy Equities Inc.

Yes, hi. First of all, last week your folks were able to send over a little breakout of the Neutron acquisition and it had a grade of 0.143% and today it has a grade of 0.15%, which is accurate?

Donald Ewigleben

The 1.5% is accurate, David. We’ve been evaluating the numbers and you remember we’re talking about average grade here across all of them. The Cebolleta property it’s 11.2 million tons of mineralized material at a weighted average grade of about 1.4% U308. Juan Tafoya property is 4.2 million tons of mineralized material at a weighted average grade of about 1.4% U308. Ambrosia Lake is 3.2 million tons of mineralized material at a grade of around 0.15% U308 and the general average actually is closer to 15 then 14, that is the only difference.

Deborah Pawlowski

Yeah David, the difference was in the third decimal place of 3 or 5.

David Snow - Energy Equities Inc.

At the third decimal place?

Deborah Pawlowski

It’s a third, yes.

David Snow - Energy Equities Inc.

Okay.

Deborah Pawlowski

So, that’s the rounding.

Donald Ewigleben

The numbers that you have are still accurate.

Deborah Pawlowski

Yes.

David Snow - Energy Equities Inc.

You keep referring to 43-101 compliant, are these Neutron measures indicated as yours are or are they 43-101 compliant, or historically what is their status?

Donald Ewigleben

Rick, are you available to answer that question?

Richard Van Horn

Yes, I am. David, the resources that we have there are not 43-101 compliant. They are historically here for the most part, they have been reworked by the Neutron staff who has done an excellent job of taking the known data and working it up in the block diagrams kind of the early (inaudible). But really until we are listed on the Toronto exchange or someone who is listed on the Toronto exchange they are not 43-101 compliant.

Operator

Thank you. (Operator Instructions) Our next question comes from George Walsh of Gilford Securities.

George Walsh - Gilford Securities

Don, do you have any data as regard to the cash burn of Neutron Energy historically?

Donald Ewigleben

We have reviewed that information. It would be inappropriate for us to release it under our confidentiality agreement, but George, we do have an arrangement under the merger agreements to provide interim funding until close and that has an approved budget if all the parties agreed to and Neutron Energy will be working under that approved budget. So we do understand the expenditures going forward.

George Walsh - Gilford Securities

Okay. But I guess, so we won’t see that data till the closing and then going forward with pro forma?

Donald Ewigleben

Well, it will be as appropriately provided. What I mean by that is we are back in the reviewing session if you will about what they have done. You heard Rick mention the work that was done by the Neutron staff was really stupendous work. And what I mean by that is in all of the activities that we have had looking at various other assets, these projects were probably brought forward from a development standpoint more than any others that we had seen. There is a great deal of detail that needs to be reviewed. So what we will be doing over the course of the time between now and closure of the deal is working with their technical staff to determine how they got to where they did and what expenditures. One of the things we did notice is that they had strong technical staff for doing certain things but they needed to go outside for consultants for some other things. We typically have lesser consulting activities on the outside, so the budgets are less relevant as much as the actual review going forward.

George Walsh - Gilford Securities

Okay. And given the $10 million you expect to close on here, do you expect less reliance on the aftermarket sales agreement?

Donald Ewigleben

Well, at this stage of the game it is not being used, it was used at a particular time to support the functional needs to get to the transaction that we just announced with Neutron. We don’t have that need today and while it is available to us there are no immediate reasons to go back to the market at this point having the available cash necessary to meet our budget as well as Neutron funding budget between now and closure. That said, market conditions can change and it is a tool and nothing more than a tool and we will be very judicious about how we use it. We only put it in place for the purpose of having the funding that we needed to move forward and do the due diligence on this transaction at a time when we weren’t going to be able to go to the markets. Unfortunately, we were in the possession stuff not material public information, so we couldn’t do other things but the ATM provided an ability for us do that as we previously stated, that’s why we raised the $1.8 million to meet those needs.

George Walsh - Gilford Securities

Okay. And that 143 million shares that you mentioned on the previous call what would be the post deal number of shares outstanding? I guess, that includes the aftermarket sales that were done in November and January?

Donald Ewigleben

It does.

George Walsh - Gilford Securities

Okay great. Alright. Thanks a lot.

Donald Ewigleben

Thank you, George.

Operator

Thank you. We have another question from the line of David Snow from Energy Equities.

David Snow - Energy Equities Inc.

Was the Neutron reserves measured and indicated?

Donald Ewigleben

Rick?

Richard Van Horn

Yes, they are.

David Snow - Energy Equities Inc.

They are, so you are in –

Richard Van Horn

We are not allowed to report inferred reserves.

Deborah Pawlowski

Right.

David Snow - Energy Equities Inc.

Pardon me?

Deborah Pawlowski

Go ahead, Rick.

Richard Van Horn

We are not allowed to report inferred reserves.

David Snow - Energy Equities Inc.

Okay. So they are really on same quality as your own reported reserves.

Richard Van Horn

Yes, they are.

David Snow - Energy Equities Inc.

Terrific. I am wondering how much will it cost per pound to ship from New Mexico to Texas?

Richard Van Horn

You mean, to ship what the resin?

David Snow - Energy Equities Inc.

Whatever you are planning. Yes, I guess you are going to ship resin from Churchrock to Texas.

Richard Van Horn

David, I would rather not talk about that because as part of the ongoing feasibility study but it is economic to do it.

David Snow - Energy Equities Inc.

Can you give a ballpark as to what the overall operating cost would be?

Richard Van Horn

It’s under $5 a pound.

David Snow - Energy Equities Inc.

The total operating cost?

Richard Van Horn

The operating cost?

David Snow - Energy Equities Inc.

Okay.

Richard Van Horn

I am sorry, go ahead David.

David Snow - Energy Equities Inc.

Yes, what would be the total operating cost for the –

Donald Ewigleben

Unfortunately David, we are not in a position to release that public information. It’s simply a matter that the third party qualified person that was doing the work on that report has just come to a final version of that report. We have not been able to review it and get it approved by our board for public dissemination and the numbers you are asking are in that document. So I am afraid we can’t speak to that one today.

David Snow - Energy Equities Inc.

Would that document be available on the website?

Deborah Pawlowski

Once we release it and everything David we will be able to provide you all of the details. It’s just going to be a few more weeks, obviously we are going to give you everything that you need to know, we can’t do it yet.

David Snow - Energy Equities Inc.

And what will be Phase 2 in Texas do as compared to Phase 1?

Donald Ewigleben

That we can talk about and I will ask Rick to respond.

Richard Van Horn

I guess I need more clarification on the question, David.

Deborah Pawlowski

Well, how much are we going to drill in Phase 2, Rick?

David Snow - Energy Equities Inc.

No, not how much you are going to drill, what is it –

Richard Van Horn

You mean, as far as Los Finados?

David Snow - Energy Equities Inc.

Yes.

Richard Van Horn

Okay. In Los Finados we completed I think as you said there, 10 holes in this space, we are going for a 40 hole program there. Some of the holes will be shallow, some of it will be a 1,300 foot well.

David Snow - Energy Equities Inc.

Are you looking to follow-up on any leads that you got on Phase 1?

Richard Van Horn

That’s the reason for the shallow hole basically. We will be offsetting some of the defaults we put in.

David Snow - Energy Equities Inc.

Okay. And I am wondering what is the cost of your feasibility study, roughly?

Richard Van Horn

A lot of that including our cost and everything I think will probably be in the range of $750,000, something like that.

David Snow - Energy Equities Inc.

That’s not too bad. And just on a macro question, the slippage in demand that did occur over the past year, most increased the inventories in the market and the coverage going forward, I understood they were pretty well covered due 2016 now. Can you give a little color on the inventory overhang in the market as a result of the slowdowns in Germany, Europe, and Japan?

Donald Ewigleben

Well, actually David, we are not – we don’t hold ourselves as experts. We have been reviewing the recent document that was presented by Ux Consulting. The Uranium market outlook and trying to get a better handle on that situation, but here is what we come down on it. We have always assumed that any of that secondary source that comes in from HEU and is put into the DoE inventory will be coming out at the end of 2013. So we have targeted our production schedule to be for a full year’s production in 2014 to ensure that that overhang if it still exist in the marketplace and I always say that from the standpoint that we think that some of us already baked in to the market place price will change the nature of that pricing for Uranium by 2014 while we are in production for full time.

David Snow - Energy Equities Inc.

Well, my question is the amount of material and demand reduction is just about the amount that is coming off of the market from HEU in ’14 and I believe in the near term it adds to the inventories. So I am just trying to get an idea of how much inventories in the mean time is filled out?

Donald Ewigleben

Yes, and I wouldn’t argue with you about that point. I don’t have any answer to give you today.

David Snow - Energy Equities Inc.

Okay. I’ll get back in queue, thanks.

Donald Ewigleben

Thank you.

Operator

Thank you. Our next question comes from George Walsh of Gilford Securities.

George Walsh - Gilford Securities

Don, exclusive of Neutron Energy, just Uranium Resources, do you expect your burn rate for 2012 to be pretty much the same as this year?

Donald Ewigleben

No, we actually expect it to be reduced absent the cause of the actual Churchrock construction. The reason for that is we spent a great deal of dollars on a monthly burn rate last year related to the feasibility study that we had going on in house and with an outside provider. That increased our burn rate considerably above our normal burn rate which had been in that $650,000 to $750,000 range. And we went up well over $850,000 on some months as a result of the needs. We also had increased costs for the due diligence activities with regard to Neutron. So going forward what will have are closing costs related to the transaction, a lot of legal work etcetera. There will be new personnel who will be coming on from Neutron over to URI in the course of the year and that will increase our overall burn rate etcetera but likely to be offset by the expenditures that we had with regard to feasibility study.

George Walsh - Gilford Securities

So, are you in the range of that $650,000 to $750,000 for this year or is a little bit higher than that?

Donald Ewigleben

It’s going to be a little bit higher than that, George, primarily because of the continued nature of this closure. It’s a little harder to describe because we contemplate the closing of the agreement somewhere at the early part of the summer but it could go on as long as the end of the summer. So we are sort of estimating at this stage of the game that we will still have a higher burn rate through August as a result and then things will level off back to a normal operating activity, of course it doesn’t include any contractor that will bring on for the construction activities in 3Q and 4Q.

George Walsh - Gilford Securities

So it will be close to that $850,000 for a while and then kind of come back down?

Donald Ewigleben

I believe so and I don’t have an exact number to offer you today.

George Walsh - Gilford Securities

Okay. It’s just a ballpark I was just going for. Okay, thanks Don.

Donald Ewigleben

Thank you, George.

Operator

Thank you. Our next question comes from David Snow of Energy Equities.

David Snow - Energy Equities Inc.

Hi, I forgot to ask. Will the shipment of pounds from New Mexico to Texas be subject to the two Texas contracts?

Donald Ewigleben

No.

Deborah Pawlowski

No.

David Snow - Energy Equities Inc.

Okay, thank you.

Deborah Pawlowski

Yes, the only production that are subject to that David is what we had been producing on the properties we have been producing on. So things still don’t reside at (inaudible).

David Snow - Energy Equities Inc.

Have you got any feedback on yesterday’s meeting with the people in New Mexico that are complaining?

Donald Ewigleben

I am sorry, David, you have to ask that question again.

David Snow - Energy Equities Inc.

Well, there was some sort of a court hearing alluded to that you went to yesterday to make a statement about your New Mexico activity, I am wondering if you could give us any –

Deborah Pawlowski

Of the in down?

David Snow - Energy Equities Inc.

Yes.

Donald Ewigleben

Mark, are you available?

Mark Pelizza

Yes, I am available.

Donald Ewigleben

Okay.

Mark Pelizza

To simply put that whole hearing was deferred. I did not attend but what I was told by our attorney is because there had been no activity on the ground yet. That decision was deferred, I wouldn’t say it was moved, but the judge sort no reason to hear the arguments yesterday. So it is deferred for some undetermined time in the future.

David Snow - Energy Equities Inc.

And that doesn’t seem to propose a major risk in your judgement or it does?

Mark Pelizza

Our attorneys don’t believe that the client has (inaudible). So we are not treating it lightly but we don’t see that the risk significant.

David Snow - Energy Equities Inc.

Okay. Thank you very much.

Deborah Pawlowski

That’s it Don. If you want to close.

Donald Ewigleben

Any other questions?

Operator

There are no further questions at this time. I would like to turn the floor back over to management.

Donald Ewigleben

Thank you, Emilia. Well, I appreciate all of the questions and we do hope to have some information available with regard to the feasibility study in the future. The direct question was asked would it be on the website that is not been determined at this point.

Well, just finishing for an overview look. In a year where the nuclear industry was obviously out of favour for many, we continue with our strategy to advance our assets toward production and grow our asset base. We will continue to move forward on this path and expect the company to be in a position to take advantage of the future growth of the industry by providing a constant and reliable supply of Uranium in politically stable countries.

Thank you for your time today and we always appreciate the interest in URI as always you can contact us through the website or make calls directly to me or any other management staff at any time. Thank you for your patience today and my stumbling when I can’t read my own writing. Thank you so much.

Operator

This concludes today’s teleconference. You many disconnect your lines at this time. Thank you for your participation.

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