Ur Energy Inc Common Shares (Canada)

Second quarter earnings and company update conference call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Ms. Penny Goplarud. You may begin. Thank you.

Thank you for joining us for our teleconference and webcast this afternoon. We are required to draw the attention of all of our participants to the legal disclaimers contained in this afternoon's slide presentation, which apply equally to our oral presentation today. At slide two, you will find legal disclaimers with regard to forward-looking statements, risk factors, and projections, as well as other cautionary notes to 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 March 6, 2023, with the U.S. Securities and Exchange on EDGAR and with the securities regulatory authorities in Canada on SADAR. I would now like to introduce and turn the webcast presentation over to our chairman and CEO, John Cash.

Good afternoon, everyone, and welcome to UR Energy's second quarter 2023 earnings call. It has been an exciting quarter for the company, as we have successfully initiated ramp-up in our second mine unit at Lost Creek, and as demand for nuclear fuel and global geopolitical uncertainty continue to support the uranium price. We have revamped our corporate presentation for the purposes of this call to focus more on our finances and geopolitical risk. I hope you find it informative and useful. The photos here are of the ion exchange portion of the Lost Creek plant and the first shipment of Yellow Cake in the fall of 2013. We expect to get back to shipping uranium this fall. We encourage participants to review the disclaimer presented here and our filings so you are aware of the risks associated with investing in the uranium industry and uranium mining in general and our projects. UR Energy has two flagship properties that are our primary focus. Lost Creek is our first operating in situ mine and is in South Central Wyoming. Shirley Basin is our second planned in situ mine, also in Wyoming, that is fully licensed and construction ready. Lost Creek has been in operation now for almost exactly 10 years and has produced approximately 2.7 million pounds of U-308 through 2022. As previously announced, we have been ramping up production again with commercial operations beginning in header house 2-4 in May of this year. Ramp up continues to progress and we have now established good head grade and flow from the first house. We intend to bring Hedder House 2-5 online this fall, followed by additional houses through the end of this year. The resource at Lost Creek is 11.9 million pounds of measured and indicated resource and 6.6 million pounds of inferred resource. As many of you are aware, Lost Creek has a well-deserved reputation for being a low-cost producer, and we believe as we work our way through ramp-up to commercial production that we will return to low costs. I will talk more about production costs later. Lost Creek has a 14-year mine life with significant opportunity for exploration. We are aware of numerous role fronts that have not yet been explored. The Lost Creek mine is licensed and constructed to produce at a rate of 1.2 million pounds per year, while the processing plant is licensed and constructed to produce 2.2 million pounds per year. The delta between these two figures was intentional because we have always planned on expanding operations through additional mines or processing for competitors. It is our intent to bring loaded resin from the Shirley Basin mine, once it is constructed, to process at Lost Creek so we don't need to build out a full processing plant. This will provide us significant capital savings. Our next planned project is Shirley Basin, which has all the licenses and permits for construction and operating in place. The Shirley Basin mine is licensed at 1 million pounds per year, and the plant is licensed at 2 million pounds per year. However, as mentioned, we don't intend to build out a full plant. Instead, our intent is to build out a satellite facility and ship the resin to Lost Creek for processing. This will allow us to build out much more quickly and with significantly less capital. The resource at Shirley Basin is 8.8 million pounds of measured and indicated resource, at a grade of 0.23 weight percent. Given dense historic drilling, there are no inferred pounds. Unlike Lost Creek, there is little opportunity for expansion within our existing footprint at Shirley Basin because the mineralized body has been completely and thoroughly drilled. We don't see this necessarily as a disadvantage. We view this as a cost savings since we won't need to expend funds for exploration and little delineation drilling is required. This allows us to go straight into production. In fact, we have already planned every mining pattern, header house, road, and power line for the property based on existing drilling data. Interestingly, we believe Shirley Basin was the first commercial scale in situ uranium mine in the world. In 1963, the owner ran an experimental in situ mine and was able to recover well over 1 million pounds of uranium. We have all the records from the test work and will rely on that data to assist in design of the facility. The decision to build out and operate Shirley Basin will be predicated on signing long-term contracts that de-risk the capital expenditure. When sufficient contracts are in place, We believe we can build out the facility and have it in commercial operations within 24 months. We are very aware of supply chain limitations, and our first step will be to identify long lead items and get them ordered. We expect that this will include electrical equipment, such as transformers and motor control centers, and other industrial instrumentation, such as flow meters. We previously announced the completion of our Casper combined services facility, which is adjacent to our company owned office. I'm happy to report that we have started building header houses in town, which will reduce travel time to and from the mine site, which will in turn improve safety, reduce emissions and fuel costs. These slides show the external and internal of header house 2-6, which is slated for production this fall. For those of you with a keen eye, you may notice that we have changed the style of flow meters to a dramatically smaller system that is also much easier to wire in. Let's talk about the broader nuclear space, including supply and demand fundamentals and geopolitical risk. The demand for nuclear fuel is expected to grow significantly over the coming decades as more countries are moving to nuclear power for its carbon-free attributes and for energy independence. The U.S. gets about 20% of our electricity and 50% of our carbon-free electricity from nuclear power. Southern Company just brought Vogel Unit 3 into commercial operation, and Unit 4 is expected to come online late this year or early next. Beyond that, as a result of the Inflation Reduction Act, many utilities are seeking reactor life extensions, power uprates, and extended time between fueling outages California's Governor Newsom is advocating for Diablo Canyon to extend its operation, and in an unprecedented move, there is serious consideration of bringing the Palisades reactor in Michigan back online. Globally, the number of reactors on order and proposed is growing at a fast rate. There is also a move to design and construct small modular reactors with the idea that construction costs can be reduced by factory building small reactors. Several companies around the world, including NuScale, Rolls-Royce, and TerraPower have jumped into the fray. Of particular interest to Wyomingites, Bill Gates' company TerraPower and GE Hitachi Nuclear Energy launched the Natrium SMR project with involvement by Berkshire Hathaway's Pacific Corp. They have announced plans for their first unit to be installed near Kimmerer, Wyoming, adjacent to an existing coal-fired plant that is slated for shutdown. In a recent poll, the Nuclear Energy Institute found that their members expect to have approximately 300 small modular reactors operating in the U.S. by 2050. For context, their members include some very serious utilities such as Duke, Southern Company, and Constellation. This may seem a bit optimistic, but even if just a fraction of these small reactors are realized, the additional demand for uranium will be material. TerraPower just announced their plans to build dozens of SMRs in England. Globally, acceptance of nuclear power is growing at an unprecedented rate. China is certainly the elephant in the room with stated plans to construct 150 reactors within the next 15 years. China alone could be responsible for growing the current reactor fleet from 436 to 585. China currently has 24 reactors under construction, and they just approved the siting of six more units. I won't read through this slide, but suffice it to say the numerous countries are making strong moves toward nuclear power. The initial move toward nuclear power was based on a desire to reduce emissions, but post-invasion of Ukraine, many countries are moving toward nuclear for the energy security in uncertain times. Support for nuclear power is growing in the U.S. as an increasing number of environmental groups such as the Nature Conservancy, Climate Coalition, Clear Path, and many others throw their support behind nuclear power. Support for nuclear power is also growing in the U.S. Congress as both parties, in rare bipartisan alignment, are pushing nuclear legislation to grow the nuclear utility fleet for environmental, energy independence, and national security reasons. For example, Congress has already passed a bill establishing the U.S. uranium reserve and funded it at $75 million. The DOE was charged with establishing the program and in December of last year issued UR Energy a contract for 100,000 pounds of uranium at a price of $64.47 a pound. Also of great importance to the industry is the passage of the Civil Nuclear Credit Program and the Inflation Reduction Act, which together have breathed new life into the industry. This is perhaps the most significant legislation impacting the nuclear industry ever. Looking at pending legislation, two of our most staunch supporters are Senator Barrasso, a Republican from Wyoming, and Senator Manchin, a Democrat from West Virginia. Just a few days ago, Senators Barrasso and Manchin introduced the Nuclear Fuel Security Act as part of the National Defense Authorization Act, or the NDAA. The Senate passed the bill by a vote of 96 to 3 in a strong indication of rare bipartisan support. The bill is designed to expedite domestic production of HALU, merge the U.S. uranium and American Assured Fuel Supply, and encourage domestic production of uranium. The bill still needs to work its way through the House and across the President's desk. There is also pending legislation to cut off low enriched uranium imports from Russia. We expect this bill to be considered this fall. While nearly everyone agrees it's a bad idea to be supporting Russia by purchasing nuclear fuel from them, there is concern that Western suppliers will be unable to fill the gap created by sanctions. So, it is unclear if this legislation will pass. The White House has also provided great support for the nuclear power industry and believes it will be difficult to reach our carbon emission goals without this critical baseload source of power. It is impossible to have a meaningful discussion about uranium supply and demand without touching on geopolitics. While Russia doesn't mine much uranium, they dominate global processing in the form of conversion and enrichment. About 46% of primary supply is mined in Kazakhstan, a former Soviet state that still has close ties with Russia. In fact, Russia has partial ownership of some of the largest uranium mines in Kazakhstan. As the next slide will show, the Western world has limited ability to replace Russia's processing or Kazakhstan's mine supplies. This is why the U.S. and European countries have been unwilling to date to sanction low enriched uranium coming from Russia. To better quantify the supply risk, I performed an unscientific review of uranium company websites and the World Nuclear Association's online database. This table summarizes my findings. There are only 15 countries in the world that produce uranium, and of those, most production comes from the top seven or eight countries. About 76% of mine production is controlled by state-owned enterprises such as Arano, Kazatomprom, and Rosatom. Unfortunately, a large percentage of production comes from countries that are aligned with the east instead of the west, which significantly adds to supply chain risk. The second table on the slide attempts to show the percentage of production that is eastern versus western aligned. These are simply my estimates from an optimistic and pessimistic view. I am not a geopolitical scientist, so I encourage you to run the numbers based on your own knowledge. Of important note to uranium investors, in my opinion, we have only one peer in the uranium mining space and that is Cameco. I am unaware of any other publicly traded companies with significant exposure to uranium prices that are currently mining uranium at a commercial level. I'm excluding Kazatomprom because only 15% of their shares are publicly traded and BHP because of their relative exposure to uranium via mining at Olympic Dam is minimal compared to the value they realize from other commodities. Of course, this conclusion may change soon if other companies initiate production. By my estimates, again, based on an unscientific analysis, there are about 12 potentially serious companies who have announced plans to begin mining uranium within the next five years. Of those 12, perhaps three have projects of the scale technical certainty, and jurisdictions necessary to succeed. The other nine will likely face significant challenges due to the known technical problems, economics, local opposition, and or scale. Some of these nine may succeed, but their path is difficult. The point to take away is that uranium mining is hard, and the Western world will have a hard time responding in a timely manner to a supply crunch. For even the most advanced in-situ projects that have been mothballed, it will likely take about a year to have saleable company mine pounds in their inventory because they will need to hire staff and contractors, train them, ramp up production, fill plant circuits, make deliveries, and wait for assay at the conversion facility before making a sale. By then, a hot spot market may have evaporated. To support the risk hypothesis, let's consider the top 10 producing mines of 22 and the respective risks to production and sales to the West. Most recently, the coup in Niger has raised concerns about production from the Somer mine, which produces about 4 to 5% of the world's uranium. Many long-term followers of the uranium space will remember the Cigar Lake floods of 2006 and 2008. Shipping logistics have become problematic for Russian LEU and Kazakh uranium due to a severe lack of carriers and insurance providers. And this brings us back to the United States, where mine production over the past few years has been virtually nonexistent, not enough to run even one of our 94 reactors. At UR Energy, we are working to change that situation as we ramp up production at Lost Creek. Lost Creek is a scalable mine with the opportunity to grow the existing resource by exploring on 35,000 acres of contiguous land. As I mentioned earlier, Lost Creek has a reputation for being a low-cost producer due to several factors, including fantastic average recovery rates of 90%, which is much higher than the U.S. industry average of 60% to 80%. Also, the royalty burden at Lost Creek averages less than 1%, which is much better than many other U.S. projects that are encumbered with royalties of 3% to 8%, or in some cases, even higher. The map on this slide shows the Lost Creek project in blue, surrounded by additional projects we control in green. The topography in this area is relatively flat, so it will be technically feasible to pipeline additional resources into the processing plant at Lost Creek. We are currently mining within the HJ geologic horizon. However, resources have been characterized in the FG and KM horizons, and mineralization has been identified in the L, M, and N horizons, but has not been characterized adequately to determine if it can be brought into compliant resources. In the future, we plan to explore known role fronts in each of these horizons. This table shows actual statistics from Lost Creek for the years 2014 to 2019 and shows that our cash costs have been as low as $16.27 per pound when we optimize our economies of scale. While inflation will likely prevent us from reaching these costs again, we believe we can stay relatively close to these values going forward with all-in mine site costs of around $34 per pound. Additional economic analysis for both our Lost Creek and Shirley Basin projects can be found in our September 2022 reports, which are linked on our company website. Ramp up is in full swing with header house 2-4 in full production. Header house 2-5 is in construction and we plan to bring it online in September and follow that up with additional header houses this year. Also of significance, We have just completed casing deep disposal well five and completion work and testing will commence in the coming days. It will likely take several months to receive permission to use the well under the existing UIC class one permit with the state of Wyoming. Ramp up has been made possible by good planning to overcome numerous supply chain issues. We believe we have everything ordered or on hand for the next several header houses. We have been fortunate to retain several of our most experienced personnel who are now training our new staff. We still have a few positions open, but that is not interfering with production. When you are an in situ miner, it is easy to talk about green energy since we are the tip of the spear. The uranium resources that we plan to recover at Lost Creek and Shirley Basin, when compared to coal-fired power, will offset approximately 312 million metric tons of CO2, which is the equivalent of taking 67.5 million cars off the road for a year. We are taking additional steps to lighten our environmental footprint through the use of the new Casper Shop, using in-situ mining, which has a minimal and temporary impact on the land surface and by recycling water. We have already reduced our water consumption by recycling about 99.3% of the water we use, and we have a goal of recycling up to 99.8% of the water we use by deploying advanced, novel technologies that we are developing. Research and development has always been a priority for UR Energy, and the top four bullets highlight some of the successes we have already had. But we aren't resting on our laurels. We have embarked on developing a well casing and installation technique. Phase one field testing demonstrates a 75% reduction in our drill rig time for injection wells. We have had to delay phase two testing due to limited bandwidth during ramp up, but hope to get back to testing well development and injection capacity in the near future. As mentioned on the previous slide, we are also working on an advanced water treatment and filtration system to reduce wastewater generation. Turning to our Q2 financials, as of August 3rd, we had $63.7 million of cash with a remaining inventory of 223,790 pounds. We expect to ship our first load of yellow cakes since ramping back up in Q4. We are fortunate to work in Wyoming where there is strong public and government support. Many of you will recall that we received a $34 million loan from the state at 5.75% interest. As of early August, the remaining principal on the loan is $7.1 million, and we expect to make the final payment in October of next year. We have three multi-year contracts in place with average pricing of about $62 per pound, which will result in revenue of about $220 million. Keep in mind that each contract has a small flex that may result in slightly higher or lower deliveries depending on the buyer's needs. For 2023, we expect to deliver an additional 180,000 pounds in the contracts for total 2023 revenue of 17.3 million. In 2023, we expect the gross profit margin to be above 40%. In subsequent years, the contract book ranges from 600 to 700,000 pounds per year through 2028. This represents only about 32% of our licensed mine capacity, so we have a lot of room to layer in additional sales contracts if prices continue to improve, which we believe is likely. In addition to revenue from the sale of uranium, we are also seeing small but not insignificant revenues from interest income and waste disposal fees, which we expect to continue in the near future. Our shares outstanding total 264.7 million with a market cap of around 278 million. We maintain a strong cash position of 63.7 million. Our share registry contains some of the most sophisticated names in the uranium space, which we believe is validation of our company and projects. We have outstanding liquidity and great analyst coverage in both the U.S. and Canada. As we reach the end of the presentation, I would like to just hit on a few of the highlights once more. First, we remain cashed up so we can see our way through ramp up and into steady revenues. We also have a ready-to-sell inventory of 224,000 pounds that can be sold into contracts. Our goal is to ramp up Lost Creek to full production and build out and ramp up Shirley Basin as long-term contracts justify. We believe it's a great time to invest in the uranium space with so many market catalysts in motion, catalysts that UR Energy is well positioned to seize on. Thank you for your time. We will turn now to the Q&A portion of the webcast.