Ur-Energy Inc. (URE) Earnings Call Transcript & Summary

Good morning, everybody. We have John Cash from Ur-Energy, Inc. [Operator Instructions]

Good morning, everybody. Thank you for joining us this morning. I'm John Cash with Ur-Energy, CEO of the company. And today, we're going to be talking about Ur-Energy and our 2 flagship properties or in situ uranium mines in Wyoming. So we'll just jump right into it. We've got the standard disclaimer statement. I might make some forward-looking comments throughout the presentation, be aware of that, please do your own due diligence on the company prior to investing. But Ur-Energy has 2 flagship properties that the one is up and running, producing uranium today, and that's our Lost Creek property. It's been up and running for over 8 years now. And in that time, we've produced about 2.7 million pounds of uranium, and most of that we have sold to U.S. nuclear utilities. We have controlled our production rate in response to market conditions. Markets have not been that great the last few years. So we've allowed our head grades to decline without putting additional investment into the mine site. But in the fall of last year, the market started to come back. Spot price started to come back, long-term pricing started to come back we said, "Hey, look, it's time for us to get back out there, start putting some investment into the ground and getting ready to ramp up, so we can sell into contracts when those become available. So we do have an ongoing drilling and construction program going right now. We've got a fantastic resource at the mine. 11.9 million pounds of measured and indicated. Those are the higher quality resources that means they've been drilled out and are very well understood. In addition to that, we have 6.6 million pounds of inferred resources, which means that there's some drilling enough to define that, but it needs more to move it up into the measured and indicated resource categories. We have a good reputation of being one of the lowest cost producers in the world. In fact, we believe we're probably the lowest cost -- C1 cash cost producer globally outside of Kazakhstan. And we're very proud of that. We're on a very tight ship. And when we return back into production, we expect to be able to return to those low costs. The Lost Creek property is fully permitted. As I said, it's up and running. We do have an adjacent property right next to it, and I'll show the map in a little bit. But we are working on permitting that to be able to bring it into production as well. We are required to have 3 major permits. We have 2 of the 3 in place already, and we expect to get the final permit later this year. It's all going in good order. Wyoming is truly a great state to work in. Our second flagship property is Shirley Basin. It is also an in-situ property. It's a brownfield mine. It was previously owned by AREVA. And we acquired that back in 2013. We've got the permitting completely done. All 3 of the major permits we need are signed, sealed and delivered, and we can go out and construct that and ramp it up whenever the market conditions allow us to do that. But it will effectively double our production capacity because Shirley Basin is licensed on a 1 million-pound a year production rate. Shirley lost previous license at 1.2 million pounds. So if we take both properties up to maximum production, that takes us up to 2.2 million pounds per year of license capacity and the infrastructure will be able to handle that as well. Shirley Basin is expected to be a little bit of a lower-cost mine even than Lost Creek because the ore deposit is very shallow. It's very near the surface. It's underwater, but it's near the surface, but also because a lot of the infrastructure is already in place. It is brownfield. So the roads are there, power lines, substations, waste disposal cell and a lot of the other infrastructure is there. We would just need to build out the front end of the processing plant to be able to ramp up production there. Throughout the history of Ur-Energy. How we've produced a lot of pounds of uranium, most of that, we sold into contracts of 2.4 million pounds. We've also been out in the market. We have purchased pounds that we sold into contracts as well. We also have a great inventory sitting drummed at the ConverDyn conversion facility in Metropolis, Illinois, and that is ready to sell today -- today's market price that's worth about $15 million. So I'm going to talk about 3 different catalysts that are really driving the market and things that will likely continue to drive the market going forward. The first is green energy. The world is really beginning to come to the recognition that if we're going to go to carbon neutral, that we have to involve nuclear in that story. It can't be just renewables. Renewables don't get us there, and they said, I certainly don't give us there at a reasonable price. And so because of that, the world was saying, we've got to go to nuclear and I'll provide a list of countries here shortly that are really pushing hard to go green with nuclear. But here in the U.S., a lot of people don't realize, but we already get 20% of our electricity from nuclear power. And that's about half of our carbon-free energy is from nuclear as well. Worldwide, not quite as good, 10% of our electricity globally is for nuclear and about 1/3 of our carbon free. We have 440 reactors operating globally, about 93 here in the U.S., 55 are in construction. There are a lot of orders out there for additional reactors going forward. But really, what I want to highlight on this screen is the growth potential for our industry going forward. Every 2 years, the World Nuclear Association, the WNA, they do a projection on uranium demand. In September of last year, they projected on their reference case, that growth would be 4.2% year-over-year through 2040. And in their upper end case, they were projecting 7.9% annual growth year-over-year through 2040. So a lot of potential there. Even in their low case, it was a positive growth going forward. So nuclear power is generally used for electric generation. And a lot of people are beginning to move toward that, especially crypto miners and the electric vehicle markets. They're wanting to move to that green energy supply. But in addition to that, there's hydrogen production that's becoming a part of the story as well. There are a number of companies globally even here in the U.S. that are looking to produce hydrogen not from fossil fuels, but from nuclear power so that they can drive down the cost and also have green hydrogen instead of dirty hydrogen from fossil fuels. And then finally, SMRs. That stands for Small Modular Reactors. You guys might have heard about these in the news. Bill Gates is the leader in this technology. And these are small reactors that are actually built on a factory line, and then the parts are shipped to a site where it's assembled at the site. And they typically are small, maybe 50 megawatts to 500 megawatts, whereas a large reactor could be over 1,000 megawatts. But they're claim the thing is, cheaper to construct, quicker to construct and you can put them in remote areas for cheaper electric generation. But Bill Gates is actually in the process of building one in my home state in Wyoming of all places. And he's got tremendous support there to get that built out. It's going to take the place of an existing coal-fired power plant that's set to retire in a few years. So their goal is to continue to work in Wyoming and as those coal fire power plants come off-line to replace them with small modulars. So there are a number of countries around the world that have said, "Hey, we're going to go nuclear, even before Russian invade in Ukraine. The growth in the industry was tremendous. But China has committed to 115 reactors in the next 15 years. Last week, they had a comment that, yes, we're going to do it, we're on track to be able to do that. And if anyone can do it, they certainly can do it. England is really ramping up their efforts. They were doing this before the invasion of Ukraine, but post invasion, in fact, earlier this week, Boris Johnson came out and said, we're going to be building one reactor every year for the foreseeable future to be able to displace that supply of natural gas coming out of Russia. South Korea, they had a plan to phase out their nuclear program over several decades, but they just elected a new pro nuclear President. He is reversing that decision and said, we're going to keep them online, and we're going to build more, and we're going to begin to export the technology again and build out globally around the world. France, 70% of their power comes from nuclear. Macron has said, we're not going to be phasing anything out. We're going to keep the reactors online, and we're going to be building more 6 to 14 new reactors in the coming years. And then there's a list there of additional countries that have committed to nuclear. But here in the U.S. The story here is very interesting as well. There are 2 reactors under construction right now in Georgia by Southern Company. One is slated to come on this year and one next year. But there's also a lot of legislation. I've been in the industry since 1994, when I can say with confidence since '94, I've never seen this level of support from the U.S. government for nuclear power. And so the waning days of the Trump administration, there was a bipartisan legislation -- a bill, that established what's called the U.S. Uranium Reserve. It was designed to create a stockpile here in the U.S. in case there was a supply disruption that we would have that stockpile to be able to draw from for our nuclear power plants. So that was passed. They allocated $75 million to the program. Just last week, Secretary Granholm, with the Department of Energy said that DOE will be going out for opportunities for investment or for financing under that in June. So we are having great inventory that we're able to sell. We've also got the ability to ramp up production to sell into that program. So we're looking forward to that announcement coming out this June. Beyond that, the civil nuclear program was established, again, in a bipartisan manner $6 billion was allocated to that program. The money which is really designed to keep reactors up and running. There are -- it's a handful of reactors that are kind of on the edge on the economics, especially with pressure from natural gas that is being reversed right now. But that money is designed to keep them up and running. There is a preference for those funds, though, to go to utilities that bind domestic uranium. So we stand to benefit from that program as well. There's also new legislation that's being proposed. I'll call that 3 bills, the first 2 are being advanced by Senator Barrasso, a Republican from Wyoming. Both of them would halt Russian imports of uranium into the U.S. And the final one there on the list is being proposed by Senator Manchin out of West Virginia, a Democrat. So again, you've got Republicans and Democrats really advancing the nuclear agenda here in the U.S. But mansions build but also cut off the uranium supply from Russia, but it would be 2025 when that occur. But we've got great support across party lines. So while all of this was going on with green energy, growing support globally and in the U.S. the financial players began to see that happening. They began to see the price of uranium conversion and enrichment, improving. And so they say, "Hey, we've got to be on the front end of this. We see a cycle coming up that we need to be involved with. So they started jumping in. So we have Hedge funds, big Hedge funds jumping in. ETFs were jumping in, buying physical material. Even some of the big uranium miners like Kazatomprom, Cameco, Denison and a bunch of the juniors started buying uranium and taking it out of the market because at that time, it was cheaper to buy than it was to produce it. But the real game changer was in July of last year, a company called Sprott. Many of you are probably familiar with Sprott. They create Physical Trust to hold different commodities. But they jumped into the market and they developed the Physical Trust to hold uranium. It's called the Sprott Physical Uranium Trust, affectionately known as the SPUT. So a lot in terms of your Sprott, SPUT and Spot, all terms be used. But since that time, they've been able to use their ATM mechanism to raise funds. And with those funds, they purchased 55.4 million pounds of uranium, and they've taken that off of the market. And this is a very important. This is a one-way trust. So the pounds can flow into the trust, but they cannot be sold out of the trust. There's no mechanism to do that. So this is really mopping up the mobile inventory that's out there, and it's really driving the price, especially the spot price is when these last few months, when you've seen the spot price increased dramatically. That's because Sprott is in the market. I mean you see it decline, it's because of Sprott has left the market. Kazakhstan, said, "Hey, we like what Sprott is doing. We're going to do something similar. So they jumped in with the fund as well, and they've dedicated $500 million to the purchase of material. So the third catalyst geopolitics. And I don't need to talk a lot about this. Everyone is familiar with what's going on with Russia and Ukraine. But what's important is Russia supplies about 20% of the uranium in the U.S. A lot of people are not aware of that. We are very reliant on Russia for that material. So far, the material continues to flow, but it's not been cut off. But as I mentioned a couple of slides ago, there is legislation pending in Congress to cut that off. We're also hearing threats from Russia that they'll cut it off on their end as well. That's important. That could be a very big price driver in the near future, but more importantly is Kazakhstan. Kazakhstan produces about 46% of global supply. They are the gorilla when it comes to uranium production. They are under the thumb of Russia. There's no doubt about that. For evidence, just to look at January when the Russian troops moved in, they killed hundreds of protesters to shut that protest down. It's very clear that Kazakhstan is under the control of Vladimir Putin. So if Russian supply gets cut off, I think there's a reasonable expectation that Kazakh supply could also be in danger if it could be cut off. So that could also have a dramatic impact on the market going forward. We are already hearing that Kazakhstan is beginning to see some problems with the transport of the material out of their country. Because right now, the trade route is up out of Kazakhstan to the northwest up through Russia to the port of St. Petersburg and then into the Baltic Sea. However, transportation through that route is becoming very challenging. There's an expectation that will be cut off. So Kazatomprom is actually looking at other ways to ship uranium out of Kazakhstan. If you take a look at your globe tonight when you get home, Kazakhstan is one of the most landlocked countries in the world. It's very hard to get to water to ship materials. So, there are opportunities, but it's pretty limited to get out of the country. So, all of that's going around in the world, the supplies in danger is very tenuous. People say, "Well, okay, we'll just get the material from somewhere else. But let's explore that just for a few minutes. It used to be that Canada was a big producer and they still have 2 big mines that Cameco owns, but they have a limited ability to ramp up. They can only go up to about 36 million pounds per year. Beyond that, to bring anything else on in Canada, Next Gen is probably the next company that's going to produce. We're looking at probably a minimum of 5 years before they can produce. Australia is a very similar story. You have a couple of producers that have a limited ability to ramp up. Beyond that, any additional production is probably going to be small and technically challenged. Africa, the third place we should look at. They used to be a big producer. They still continue to produce. But China has acquired or has control over 3 of the mines there, the big ones. And so that material, it's not coming to the U.S., it's going to China, especially as the supply chain tightens. France also has some production out of Africa. But again, that supply probably is not coming to the U.S. It's more likely they're going to go to France. So there's a very limited capacity globally to backfill any supply disruption coming out of Kazakhstan. Even here in the U.S., uranium production has dwindled remarkably over the last few years. This charge is produced by the U.S. government, the Energy Information Administration. And you can see that production is so low now that there's a W on there that's without the U.S. government can't announce those numbers because it would divulge what company is producing how much. So they put a W up there to indicate they are withholding the number, but it's effectively 0. And while it's effectively 0, the U.S. is the largest consumer of uranium in the world. We consume about 50 million pounds a year of uranium. But that's where your energy comes in. So we'll move away from the catalyst here and talk more about the company and our projects. The Lost Creek is our flagship. It's up and running. It's producing pounds today. We have staff out there generating pounds. It's minimal pounds because we've allowed it to decline, but they are producing. We have a great resource in the ground, 11.9 million pounds of measured and indicated, another 6.6 million pounds of inferred. We have 8 years of production history to demonstrate we can produce. In our industry within in situ, the recovery rates typically are about 60% to 80% and at Lost Creek, our recovery rate has been 90% on average. And I think that's a testament to the quality of the ore body, but also the capabilities of our staff at the site. So that blue area on the map that is Lost Creek. That's what's fully permitted, and it's up and running. The green area around it. We have about 35,000 acres that we can work on and explore. The vast majority of this is BLM land, Bureau of Land Management. We stake mineral claims, so we control the mineral rights on that. Every time we've gone out and done an exploration program, we've been able to find more pounds and bring those into the resources. So we think we've got great opportunity going forward at Lost Creek. We are a proven operator. We've got a great reputation of being able to produce at low cost. And I won't go through all of the numbers here. This is really a chart showing our production for several years. But 2015 was our year of greatest production. We produced nearly 800,000 pounds in U308. But I'll call your attention to near the bottom there, our cash cost, $16.27 per pound. Again, we believe that is the lowest cost globally outside of Kazakhstan. That's our C1 cash cost. If you look at the all-in mine site, we're looking at a little over $33 per pound. Switching gears to our second project. It was a Pathfinder Shirley Basin project. 80.8 million pounds of measured and indicated, that deposit is completely drilled out. It doesn't require any more exploration or delineation drilling. We have all the records we could go in and start installing wells very, very quickly on that property. Production cost there is estimated to be just under $16 per pound again because it's shallow and a lot of the infrastructure is there. We don't need to build it out. The processing plant that we will build there and the mine unit associated with it to build it out and ramp it up to 1 million pound a year run rate, we're looking at about $30 million capital expenditure to be able to do that. All of the licenses and permits are in place for that project. All 3 of the major ones are done. I do need to get a septic permit. So we are working on that. But otherwise, we're in great shape on that one and able to move forward. So we do have the drilling program ongoing in Lost Creek. The objective of that is to be able to ramp up production very quickly to sell into contracts. And my goal as the CEO is to be able to get contracts over the next year to be able to sell that production into those contracts. We are a very conservatively run company. We don't like to sell into the spot market. We've only sold into the long-term market historically, and that's what we're going to continue to do. It derisks the story. And so we're working hard to get those long-term contracts. But we've got our experienced people on site. We are very aware of the shortages of supplies and materials, and we're ahead of the game on that. We've instituted a program to ensure that we are keeping track of costs and availability of material. When that availability begins to become problematic. We go ahead and order those materials, so it doesn't inhibit our ability to ramp up production. ESG, we typically, in the past, have not talked much about ESG in our industry, but we really are the poster child for ESG, because we are producing a carbon-free fuel. We're using an in-situ technology, which has minimal disruption to the surface. So some numbers to kind of back that up. If you take a look at the resources in the ground, we have a Lost Creek and Shirley Basin, and you produce energy from that. You compare the emissions from that, to from a coal-fired power plant, the equivalent amount of energy, we will be offsetting about 312 million metric tons of CO2 through production at Lost Creek. That's the equivalent of taking about 67 million cars off the road for a year. It's meaningful. It's a real number, a big number. Beyond that, we're taking other steps to improve our ESG minimize our footprint. We are building out a headquarters in Casper, Wyoming. So we can do construction in town and still having our employees drive out to the mine site every day because the mine site is very remote, very remote. And so we want to keep our employees in town as much as we can, keep them off the road, minimize risks to them from driving out there, especially in the winter time. The in-situ technique, if you're familiar with it, it's quite unique. What we do is we don't go out and strip off the soil, and drill and blast to move rock. What we do instead is we go out in every 100 feet on a grid, we install a water well. So one well will be an injection well where we inject water, oxygen and baking soda. That dissolves the uranium when it gets down into the formation and then 100 feet over the next well will be a production well where we pull the uranium out, and then we pipeline it to the plant. So the disturbance on the surface is absolutely minimal. And when we are done, we will clean up the site, you won't even be able to tell if we were there. And it's free released, unrestricted. You can do anything you want with that land. You could build a school on it and build a town, it's unrestricted. In addition to that, we have a program where we are working hard to minimize the production of wastewater, and we're making great strides on that, and we're very proud of that. We have a reputation of being innovative. The top 4 bullets is a list of the innovations that we've come up with. These are all meaningful to us and to the industry. These are from the technology aspect, but also from the regulatory aspect I'm sure you can imagine, in our industry, we are very heavily regulated. And so we're proud of those innovations, but we're not going to rest on our laurels. We're out there actively engaged in R&D right now on a couple of projects that we've disclosed to the public, one of deals with well casing and installation and the other was with water treatment filtration. We're making strides on those. Again, we are conservatively run. We run a tight ship. And this chart shows our dilution of our shareholders compared to our competitors here in the U.S., and we're on the bottom left there. And you can see our dilution has been minimal compared to some of our competitors. That's because we've been able to produce uranium sell that into contracts to be profitable, and we're going to continue to try to do that in the future to run a tight ship. Just a couple of things on this slide. I'll point out our cash position is very strong. These numbers are very fresh. They just came out on Monday, $45.8 million in cash. We also have the inventory that we can convert over to cash. It takes about a week to do that. So another about $15 million of value there at today's current market price. We're listed on the Russell Index. We've got great analyst coverage here in the U.S. and in Canada. So I'll close with just letting you guys know we're well financed. We're eager to ramp up production, got that inventory as well. We've got our core staff on site. Looking to get those contracts so we can ramp up production and start producing pounds again. So with that, I'm going to leave a few minutes for questions. So yes, have any questions, be glad to try and answer those. Yes.

How long is the cycle of a contract.

Yes. So again, we try to sign only long-term contracts. Typically, a long-term contract in the U.S. is going to be anywhere from 3 to 10 years. We would prefer them be 6 to 8 years in that time range. So that's what we're pursuing right now with utility customers.

Have a presubmitted question. Will Ur-Energy need to raise capital to drive ramping up?

So with the cash we have on hand and the inventory that we can convert into cash, we don't expect that we'll need to go out and do a race. We do have an ATM in place that we've drawn down a little bit from time to time to keep our cash topped off. But as far as going out and doing a large raise, we don't anticipate that. One exception might be if we engage in M&A, which we are interested in doing that. We're always keeping an eye out for opportunities there, and that would likely require a larger equity raise. But otherwise, to ramp up, we believe we can do it with the cash and the inventory we have. We may need to top it off a little bit, but it should be minimal.

And what news flow can we expect with regards to the R&D projects.

So with the 2 projects we have ongoing right now, the well installation techniques, which has the opportunity to dramatically reduce our installation cost. That's in permitting right now, but we expect that to be done within a few weeks. After that, we'll go out and field testing. So within 2 or 3 months, we're hoping to do some reporting to the public on that. The water recycling, it will probably be fourth quarter of this year, late this year before we're ready to make any announcements on that. All right.

Can I get this right on time.

Perfect. All right. Thank you, everybody. There are a few presentations in the back if anybody would like a copy.

Thank you, everybody.

Thank you to our online audience. We'll sign-off now.