Ur-Energy Inc. (URG) Q4 2017 Earnings Report, Transcript and Summary

Good morning and welcome to the Ur-Energy Year End Operational Update Conference Call. 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 is being recorded. I would now like to turn the conference over to Penne Goplerud. Please go ahead.

Thank you, Brian. Thank you all for joining us for our fourth quarter 2017 operation teleconference and webcast. We are required to draw the attention of all of our participants to the legal disclaimers contained in this morning’s slide presentation, which will 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 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 March 3, 2017, with U.S. Securities and Exchange on EDGAR and with securities regulatory authorities in Canada on SEDAR. I would now like to introduce and turn the webcast presentation over to our Chairman and CEO, Jeff Klenda.

Great. Thank you, Penne. And again, welcome everyone this morning. I want to personally thank you for taking some time to spend with us this morning to allow us to share with you our operational results for 2017, I think we had a very good year. But in addition to that we might as well get right to the elephant in the room and that is everyone knows that we filed a Section 232 Petition with the Department of Commerce earlier this week and that is something that we're going to want to discuss and certainly take questions on - in this webcast as well. So with that said, we'll go ahead and get started on slide number three. As usual we kind of start with our company at a glance and here you see the areas of emphasis for us as we begin our 2018 campaign. But let me say that normally we would be - I would be working with Steve Hatten on this to give an operational update. Today I'm going to be kind of passing the baton back and forth with John Cash, Ur-Energy’s Vice President for Regulatory Affairs, only as John one of our - of course, one of most highly technical people. But John has also been spearheading our initiative on the Section 232 Petition in the filing this week. So it's particularly important for John to be on this call today. But as we look at our areas of emphasis for 2018, what I would emphasize here is that we have now exceeded 4 years of consistent production and I don't want to see any of John’s under [ph] so I'll just let him speak to that production. But we have exceeded £2.4 million that we have produced at Lost Creek. And candidly we'd be higher than that had we not intentionally scaled back production in response to market conditions. But that was the prudent thing to do. Additionally on the second bullet point as I've already mentioned, we filed on Wednesday afternoon of this week a Section 232 Filing and that was filed jointly with our friends at Energy Fuels and this is a petition that falls under the Trade Expansion Act of 1962 and we believe that the uranium industry has fallen to such a low level of operation in such a dire strait that we felt it necessary to initiate this action. And we do believe that it goes right to the heart of the national security of this country. So we felt that it was essential that we do it and that we do it while we still have an industry left to protect. Beyond that, what we will – we’d be talking about also is the fact that we've had a great year this year. Look, our long-term contracts that we have secured over the years and many of them several years ago have given us an amount of strength, a degree of strength in this marketplace that frankly few of our peers enjoy. And we've - what we've tried to do is also utilize those contracts and their flexibility that they provide us to give us stability as a company and to help us maximize our revenues and we have done that by balancing between the pounds that we produce at Lost Creek and the pounds that we purchase in the market at what are very low unfortunately, but also very opportune prices for us to deliver into our contract. So in a somewhat perverse way that actually serves our purposes and has allowed us to maximize our margins. Moving forward into the future, of course, we continue with our expanded licensing at Lost Creek East and the KM amendment that is with the NRC right now. And of course, we have our Shirley Basin project which we hope to have fully permitted and begin to build out on in 2019. With that said, let's move forward on slide number four. We have a very - slide that I think is well known to anybody that knows our company. But this is something that I believe goes right to the heart of the problems that we're facing here in the United States. We as a country of course used to be the largest producer of uranium on the planet, producing in excess of 40 million pounds a year. We of course no longer do that. If you take a look at that very colorful bar chart on the bottom, you will see that this is a 20 year depiction of production in the United States broken down by quarter. And the projection would be that we are going to produce in excess of 2 million pounds this year, but that's actually not correct. What's included in there is secondary feed and processing that's being done at the White Mesa plant in Utah by Energy Fuels, and so actually the number at the top of the slide is correct, this industry will do about a 1.5 pounds of uranium production this year. And yet while we are no longer even close to being one of the largest producers of uranium in the world, we are still far and away the largest consumer of uranium in the world consuming nearly 50 million pounds a year. And of course that bullet point at the bottom of the slide is something that we believe goes right to the heart of the Section 232 Petition and that is the fact that we have now allowed ourselves to become dependent upon Russia, Kazakhstan and into Pakistan for nearly 40% of the material that we need to – the nuclear fuel that we utilize in this country. And when you consider that we are 20% of the base load in this country and more than 60% of carbon free emissions. The idea that we would allow ourselves to become dependent on Vladimir Putin [ph] for nearly 40% of our nuclear fuel for such a critical element is not only an unsustainable energy policy, it's insane energy policy. So this is something that absolutely had to be addressed. Moving on to slide number five, we have the usual Ur-Energy share capital and market position and you will notice in the upper left hand corner in the box above there that our number of shares issued in outstanding at a 146 million have not changed appreciably over the last couple of years. One of the things that we have - we deal - we have done an excellent job that is – is done a good job of really protecting our shareholders from excess dilution during a time when most of our peers are living equity raised to equity raise. We have been very fortunate. We have been cash flowing and we've been able to protect our shares from access - our shareholders from excessive dilution. We have great distribution of our shares about 68% are held here in the United States with Canada and Europe making up the remaining 30 plus percent. But one of the other things that I would mention with respect to the cap table is that, while we have stock options in RSUs that are out there to the 2 million to 9 million we found that historically very few of them tend to get exercised, so they really have not added a great deal to our dilution and the warrants that we have 5.8 million in number actually have a strike price on them of a $1.28 to $1.35 and virtually all of them come off in 2018 this year. So this is something that we do not see as a threat to the shareholders from the dilution standpoint. But the last thing that I would point out on this slide is that, the graph that you're looking at on the right hand side is a graphic depiction of our two year trading on the New York Stock Exchange under the symbol URG, and of course you see a lot of ups and downs there. But one of the things that I think is noteworthy is that there have been at least three and perhaps four instances where we have had very significant moves in the stock upward which had certainly created liquidity events for our shareholders. \ But I think most notably since we have been - at the end of the year we saw a number of companies announce that they were going to be shutting in production. And since that time I think the market has been in a positive upward movement. And what we see here is constructive building of our shares and I think that we're in a good position to move higher. So moving on to slide number six, once again as I mentioned from the outset, the long-term contracts that we have with our utility partners is something that has served us very well and continue to service to this day. And I think that it's very important to mention here and this slide is as good as any place to introduce this and that is that, the Section 232 while it does call for a percentage of consumption in the United States to be reserved for domestic producers such as ourselves, it is not in any way intended to hurt our utility partners. The simple fact of the matter is that we could not be where we are as a company without them and we are extremely grateful for everything that they have done for us. But as you can imagine as producers of uranium we have few options for salvaging this company and our industry in the years ahead except through higher contracts and unfortunately those must come from utilities. \ So if we had another way of going about this we would have done it, but it is certainly not our intention to harm our utility customers, but having said that, we are very appreciative of that. We will move forward now onto slide number seven and go into our operational results and here's where I will pass the baton to our always very talented and eloquent Vice President of Regulatory Affairs John Cash, John?

All right. Thank you, Jeff. Appreciate that. First and foremost Ur-Energy did implemented a development schedule in 2017 that allowed us to continue to be ready to respond to positive market developments, while maintaining the future value of in-ground resources. This included keeping experienced staff and contractors where possible, by doing so Ur-Energy was able to develop our key development and construction costs as low as possible for the realized production levels. The last of the required wells for the first 3 header houses in Mine Unit 2 were installed in 2017 using updated installation methods. These latest well completion techniques, along with an experienced team has proven beneficial and that we are experiencing sustained flow rates in our newest areas. That equates to lower maintenance costs, quicker recovery times and potentially lower operating costs. Surface construction of the two of the three Mine Unit 2 header houses is complete with the first house starting in late August 2017 and the other in January 2018. Construction of the third house will be complete in 2018 Q1. As with drilling we have incorporated the lessons learned at Lost Creek to date and have been able to increase average flow rates for injection wells, reduced maintenance and operating costs through better filtration and more precisely with CVN [ph] chemistry maintenance. The result again should be potentially lower operating cost. So on slide seven, here's a slide summarizing our production costs and sales for the last few years. As we stated earlier in the webcast 2017 has been about balancing construction, production and maintaining assets in the ground. The top section of the data again provides more evidence of that, as stock prices have weakened, we have increasingly curtailed pounds captured. Continued excellent recoveries and duration of operations in Mine Unit 1 has allowed for moderate new construction investment in Mine Unit 2 and has thus kept cash cost reasonable for this production rate. However the revenues from sales certainly haven't suffered since our management team has been quick to pick up low cost pounds to fill out our contracted commitments. This can be seen in the bottom table where you will note over a $38 million in sales revenue in 2017. And then moving to slide eight. On the well field operations side, we continue to operate a good portion of the wells in Mine Unit 1. Please keep in mind that the first of the wells were started in early August 2013. As of December 31, 2017, we have recovered near the 89% of the estimated under pattern resource based on the revised and updated February 2016 PEA. This is compared to an accepted industry standard of 70% to 80%. As part of the normal operating process many of the flow past in Mine Unit 1 have been modified to allow for secondary recovery. In other words, we have turned some producers into injectors and vice versa to optimize flow lines and maximize recoveries with a limit - limited amount of capital outlay. Well field operations in Mine Unit 2 begin with a start of header houses 22 [ph] in late August 2017. To date we have had a similar response to what we're seen in Mine Unit 1 with one exception. We have been able to maintain initial flow rates longer and with less maintenance activities. As previously stated, this can be attributed to modified filtration and well installation techniques. Header houses 23 [ph] recently started last week and appears to be operating in the same manner. We expect to turn on header house 21 [ph] during the first quarter as well. Our Lost Creek processing plant continue to operate nicely with normal maintenance occurring as necessary. One of the major operating components of the sites is the wastewater treatment and the solar system. While significant recycling efforts continues to occur, we are pleased to say that we have incorporated Class V disposal into our water processing portfolio. Class V is essentially the treatment of brine water with reverse osmosis followed by the removal of radium. The water is being re-injected in a shallow [indiscernible] dust recycling a large portion of brine for future use. This system is the first of its kind and in highest our facility and has been available for operations since early 2017. In conjunction we continue to operate three deep wells to dispose of that water where that cannot be recycled. So Jeff I'll turn it back over to you with that one.

Great. Thanks, John. And I would just make a couple of supplementary comments here. And one is that while John accurately detailed that we have been able to enjoy gross revenues of $38.3 million that was on 780,000 pounds delivered into the marketplace at an average price of $49.09. And when you consider that throughout 2017 we spent the bulk of the year between $20 and $24 a pound on spot to achieve $49 dollars a pound is something that we're very, very proud of. But in addition to that because we have scaled back production in the manner that we have and strategically purchased pounds when needed, we've been able to preserve our resources in the ground and not lose them to the market place during a time of very low prices. But the other thing that I would emphasize that I don't think John really - really put much emphasis on was the fact that in the first four years we have experienced a recovery of 89%. Remember that our initial PEA stated that we hope to achieve recoveries of 80%. We're already at 89% and with some of those secondary recoveries as John put it in Mine Unit 1, this is one of those forward looking statements that [indiscernible]. But I do believe that we can actually push a 100% and I think that that's something that's not only worthwhile, but that’s virtually unheard of in our industry or any of the extractive industries. The other thing is that John's very self-deprecating, but one of the things that he didn't mention was the fact that in 2017 we put in place and implemented and are operating our classified waste disposal systems and this is really a game changer in the ISR industry. This is something that has allowed us to reduce our waste water and it has resulted - it had great results for us because every pound - every gallon of water that you do not have to process is waste is money to the company to the bottom line. One last comment I would make is that on the heels of these operational results is that this is just really a testament to the hard work and dedication and the innovation of our staff on an ongoing basis. Now moving forward with slide number nine. Let's get to it, let's talk about the Section 232 filing that was filed with the Department of Commerce on Wednesday of this week. Simple fact of the matter is that this is something that we thought was absolutely necessary. As I mentioned on the prior slide, we have become exceedingly dependent and reliant on foreign sources of material coming into the United States and unfortunately in most of those cases, with the exception of I believe Australia and Canada, when you're talking about Russia, Kazakhstan, and Uzbekistan, you're talking about state sponsored companies that are heavily subsidized, and have also benefited from greatly devalued currency. So this is something that has - that has allowed them to produce that what appears to be a lower and more competitive rate than what we can produce at here in the United States. But nothing to be further from the truth and I'll let John talk a little bit more about that on a subsequent slide. But this is it. We've got to the point now where we are producing less than 5% of our needs in this country. This is unsustainable, and from a national security standpoint I cannot imagine that anybody, whether it's our utility customers or anybody else in the fuel cycle believes that it is in this country's best interests to be without of the capability of producing our own nuclear fuel. And yet that is the position that we find ourselves in. And of course as we all know, nuclear fuel is - our industry as is the starting point of the fuel cycle and we provide not only for the defense programs, our navy and also for commercial use in our nuclear fuel and electricity generating facilities. So this is something where we feel that as a national security issue that this is something that we have to address and that we must address now. And again here on slide number 10. We detail some of these uses for our material in the marketplace and not only for defense, but tritium [ph] for triggers for nuclear weapons. We must maintain a nuclear deterrent as long as that is a priority here in the United States. We have to have - we have to maintain this capability. But politically we believe that that there is ulterior motives for the growth of this production coming from these parts of the world. And for us to become dependent on it is unsound, foreign policy, particularly when we know that there is a rise of groups like ISIS in countries like Uzbekistan and other problems in some of those parts of the world and let's face it. We have sanctions against the Russians and yet we allow ourselves to become dependent on Vladimir Putin for critical material coming into the United States. And it is projected that right now the unallocated amount of VOE inventories represent less than one year's supply to our nuclear utilities here in the United States. So this is something that is becoming critical and we feel that time is of the essence and we are asking the Department of Commerce to act on this very quickly. Moving on to slide number 11, I think that this is an instance where a picture speaks a thousand words. And if you take a look at this slide what you notice here is the - just incredibly rapid ramp up by Kazakhstan really in the post-Fukushima environment. Remember that Fukushima occurred now nearly seven years ago on March 11th of 2011. And so we're coming up on the seven year anniversary and yet look at how much these countries have ramped up production here. Normally if you were any four profit organization company or any true market based economy you would not be ramping up production in the post-Fukushima environment - in an environment that is characterized by massive oversupply and growing inventory. Except to execute on what we believe is a geopolitical agenda that the West seems to be blissfully ignorant of. n fact, there was a book written three four years ago by Marin Katusa called The Colder War and in that book he details - the thrust of the book is that since Vladimir Putin came into power he charts the growth of the Russian presence in all elements of the fuel cycle and uranium production, enrichment and fabrication and his growing influence and control over the fuel cycle. And this is something he draw some very compelling and very alarming conclusions in that book. And I think that this slide speaks for that very well. Moving on to slide number 12, here in the domestic industry we find ourselves in a position where this slide really speaks volumes as well. We find that we are fulfilling less and less of the demand needed in this country. That number up above says less than 5%. We wanted to make sure that it was a reasonably accurate number. But knowing what we know now and once you remove the secondary processing that we know is being done at White Mesa and actually address only primary production. We are actually only satisfying about 3% of the needs in this country not 5%. So it's even worse than we had anticipated. But moving forward and speaking further to the Section 232 analysis, I'm going to turn this back over to John Cash. We did – in the body of the petition we did some very interesting analysis and I think nobody speaks better to it than John does. So John, go ahead and take it away.

Okay. If we could advance to slide number 13. Thank you Jeff, I appreciate that. Something really interesting that we did as part of the Section 232 petition itself. We took the preliminary economic assessment for Lost Creek and we compared it to some of the things that are going on over in Kazakhstan and I'll get to that a little bit more in just a second. But it really showed the difference between the two sides, and that we'll get more into that in just a bit. But Kazakhstan and Russia as you can imagine they have very different environmental regulations that we - than we do here in the U.S. They mine with sulphuric acid. They don't perform mechanical integrity tests on wells. They don't even restore their groundwater when they're done like we do in the U.S. There is substantial cost differences between operations because of that. And in Kazakhstan and Russia they benefit from a lot of subsidies and things like faster permitting, energy subsidies, we know that electricity is subsidized. Currency valuation is also a big issue. If you take a look at the Tenge and also the Russian currency they are very weak compared to the U.S. dollar. So those countries they produce in their domestic currency and then they sell in U.S. dollars. And that makes it very difficult to compete with them. In fact at one point the Tenge, the devaluation there was about 87%. And also there are some significant differences in labor costs. Moving back to the PEA. We took the last PEA which our engineers had put together back in 2016 and we asked them to simply integrate the Kazakh environmental regulations into that, don't make any other changes, just integrate the Kazakh regulatory regime, their environmental regulations into the PEA and let's see what the result is. And the results were just staggering. The PEA pre-tax IRR was 53.7% for Lost Creek. But if you adjusted for the Kazakh standards it takes it up to 151%. Likewise the PEA total cost per pound produced at Lost Creek was just shy of $30 a pound. However, if you take that over to Kazakhstan you have to adjust it $20.01. So nearly a $10 difference in production costs between the two sides, simply because of environmental regulation. PEA life of my OpEx is 14.58 per pound at Lost Creek, has to be adjusted by 897, if you look at the Kazakh benefit. And I want to make sure to point out we're not asking anyone or seeking to reduce our environmental oversight of uranium mining. We believe at this point we have very good, strong and sound environmental regulation in the U.S. We would challenge Kazakhstan and Russia to meet our standards here in the U.S. We're really seeking a level playing field. The Lost Creek production cost about 50% less results in a lower mining cost than nearly every Kazakh ISR mine. So if you do level that playing field we can compete with anybody in the world. We can compete even with the lowest cost producers in Kazakhstan and that's based simply on environmental regulation and also looking at devaluation of currency. So if we can move over to the next slide, please number 14. So another issue that we brought up in the PEA and this seems to be of great interest here in Washington. The domestic job losses that we've experienced in the industry you know, one time in excess of 21,000 employees in the mining industry and now we're estimating there were about 500, maybe even slightly less employees. We're losing a lot of experienced people. We've lost a lot of geologist’s, engineers, chemists, one position that's been very difficult to fill our health physicist, that helps us deal with radiation safety concerns. And once those people leave the industry it's really tough to get those people back. So there's a chart there from EIA. These are federal government numbers that shows the decline in the industry - attempts to break it out by the different sectors of uranium mining and you can see that those job losses is just - it's on a straight line down and we don't have any expectation that's going to reverse itself in the foreseeable future. Okay. You can advance to slide number 15 please. So we have two proposed remedies that we've included in the petition. First of all it's a quota that reserves 25% of the market for US producers. The second one is a requirement that federal government utilities of agencies purchase Ukrainium [ph] from US producers in accordance with the Presidents Buy American policy that's an executive order. So those are the two remedies that we're proposing and on that second one on the Buy American policy, those agencies would include departments such as the Department of Defense and NSA and any federal utilities out there, such as TVA and Bonneville Power Authority. We believe that the remedies that we proposed are sensible and that are achievable and we believe they'll result and only minor impact to US utilities and their customers. We provide US utilities and their customers with improved supply diversification that will lessen exposure to the policies of Russia, Kazakhstan, China and Uzbekistan and will protect against supply shock, price increases and other geopolitically motivated action. So we believe that this action is in the best interest of utilities in the long-term. We believe the remedies will also maintain a high degree of competition that encourages lower prices and innovation and it will support US clean energy independence, air pollution and also lower carbon emissions. And with that Jeff, I've got a lot more I could say about Section 232, but I'll turn it back over to you.

That's great. Thank you, John. And let me just follow on by making a couple of comments and that is that again I will echo what John said and what's in one of the bullet points is that we believe that what we are recommending in terms of a remedy or remedies because they are two parts, are both reasonable and achievable and I think that this is something where I can't emphasize this strongly enough that this is certainly not any 1930s type Smoot-Hawley style protectionism where American industry has been rendered uncompetitive and we are trying to salvage faltering industries in the United States. We have been rendered uncompetitive by state sponsorship and subsidies and currency devaluation is that - and open markets and there's a lot to be said for open markets and this is not intended to be protectionist in any way, but you've got to – they’ve got to make sense and particularly when it pertains to national security. When you allow your markets to be flooded with cheap materials to the point where it results in the destruction of critical industries that are allowed to wither and die here in the United States. That absolutely makes no sense and those are broken trade policies. And as expected when we dropped this petition, the opposition popped up immediately. The one trade magazine brought out - rolled out no less than the ancient oracle of the industry. Tom Neff who within less than 24 hours came out and said that by reserving 25% of utility consumption for domestic producers that it would result in the destruction of the nuclear industry in the United States. I can't help but think that that's a bit of a hysterical response and a bit of an overreaction. And actually anybody I think that takes the time to read the petition will come to the conclusion that it is very reasonable. It's very rational, it's well laid out. And I think that it makes a very compelling case that there needs to be protection of these very critical industries here in the country - in this country. One other thing that I would mention is that we also know that we have strong support. We have senators like Senator Barrasso that came out with an endorsement of this within 24 hours and so we expect opposition on this, that's fine. And we certainly expect that the utilities will come out and act in their self-interest and I would expect them to do nothing less. We met with most of those utilities while we were at the NEI conference over the last three days and we sat down with them face to face after this was dropped and made sure that we let them know how much we appreciate their business and appreciate them as customers and that we seek to do them no harm but that we have - that we're doing our best to salvage our industry. So with that said, let's close up our comments and then we'll open it up for the Q&A and I'd just like to emphasize the takeaway – the takeaway from today's webcast are that we still have emerged That's one of the lowest cost producers across all publicly traded companies and as John just detailed, if we were not competing against entities that are being very heavily subsidized and benefiting from deeply devalued currencies, we might be the lowest cost producer in the world. We've delivered great results since Fukushima. We’ve de-risk the company by having the foresight to put a high price long term contracts in place several years ago. The Section 232 is really something that we believe not only serves the interests of national security, but will sustain our domestic industry and preserve what few players we have left. Our revolve strategy of balancing purchased and producing pounds is something that has resulted in excellent margins for our company and we are going to continue to believe that cash is – look in the extractive industries [indiscernible] generating revenues, you're deluding your shareholders and there is no third alternative. So I think that there are also very good catalysts in this taking place in our industry and they are - those are on slide number 17. Those catalysts are supply demand. I think that if you just look at the supply demand fundamentals alone there are more than 1 billion pounds that need to be bought by global utilities over the next 10 years. And if the production cuts are real that have been detailed by Kazakhstan and Cameco then I think that it's going to serve us all well and we should see prices make their way higher. Under current market forces, there are a number of things that could bode very well his industry this year. As Kas Adam [ph] promised is planning an IPO for the third quarter of this year. They've already named JPMorgan in London as their bankers and they have been engaged in the due diligence for nearly six months now. Section 232 let's face it a successful outcome here under the – our Section 232 filing would do wonders for this industry. And lastly, this is something we don't like to think about, but these geopolitical threats are very real for any reason there is a disruption of the flow of that material that we have become so dependent on coming out of Central Asia from Russia, Kazakhstan and Uzbekistan now coming to nearly 40% of our fuel needs in the United States. Our utilities would be in a crisis overnight. In fact I asked one of our utilities how long will it take to be in crisis. He said well we wouldn't be in crisis immediately and I said what about six months later down the road. He said yeah, we have real problems. So okay, maybe you’d get [indiscernible] on inventories for a short while if this material stop flooding into the country. But the reality is that it would be a much different result in a very short period of time. So with that said let's move on to Q&A and we'll go from there.

[Operator Instructions] And the first question comes from Michael Wichterle with Cantor Fitzgerald. Please go ahead.

Yeah, hi. Hi, Jeff and John.

Hi, Mike.

Hi. Congrats on your yearly production figures and on your Q3 two analysis. I just had two questions. The first dealing with the petition itself, to get to that proposed 25% quota – the domestic quota. How do you see that working, I am assuming this would be a gradual rollout with spread over - spread over a couple of years I guess?

It most certainly put in and by the way John and I are at different locations. So John feel free to jump in on any of this anytime you want, but we have taken a look at this and I'll speak to it on a macro basis, well let John speak to it on a micro level. On a macro level of view, if you look at EIA numbers from the Department of Energy they will tell you that we have capacity in this country for 36 million pounds of production, but I think anybody that's actively involved in this industry and owns a red pen can have that list pretty readily and whittle that down to where I think that even with a concentrated effort of significant capital infusion and an effort to bring production on line, I think that we could probably in five years get to about 21 million to 23 million pounds or at least that's my personal assessment. Now given your question has to do with how quickly we could ramp up to meet the 25% that we're asking for. John has taken a look at that on a detail basis and I'd ask John to weigh in on that John?

All right. Thanks, Jeff. Actually if you take a look at the petition there are two exhibits that are dedicated to discussion of the domestic uranium industry, it includes a table that shows the capacity of each of the facilities that are out there. But of the second what Jeff said, if you take a look at the EIA numbers and start whittling that down, I think I'll take it a step further not just five years, but if you look in one year I think it would be relatively easy to get up to about 8 million pounds of production if the price were right going on from 8 million pounds a year to get up to 11.5 million which would represent about 25% which we're seeking in the petition that might take another year and some good prices to support that. But we could get to that 25% I believe quite readily within two years with the proper incentive with respective prices.

Great. Got it. And last question. Just concerning your header houses, obviously you’re ramping up in Mine Unit 2. But circling back to Mine Unit 1 has got 13 in operation right now. Do you see those 13 running over the duration of 2018 or will some be gradually shut off this year? That's it for me. Thanks very much.

All right. John?

Yeah, we see those continue to operate throughout the majority of 2018. Of course, as the head grade continues to decline and then the [indiscernible] field will continue to reduce the flow rates to turn off some of those wells where the head grades are just becoming uneconomic. But I believe the majority of that flow continues throughout most of 2018.

Okay.

Right. The next question comes from Heiko Ihle with H.C. Wainwright. Please go ahead.

Hey, guys. Good morning. Thanks for taking my question.

Hi, Heiko. Sorry, its [indiscernible]

So on 232, walking through that timeline, I mean, we know the maximum timeline with you know the one to initiate investigations that created the 270 days, the present got 90. I did some Googling around and to say the aluminium one that's going on right now, there really hasn't been one of those 232 since 2001. So I am just trying to get my hands around what would your – what your people have told you on what they realistic - what time they realistically think it will take to get some sort of feedback on this. Will they enacted out, they try to get this done ASAP?

Yeah let me let me make a couple of preliminary comments on this and then John jump in with anything that you have. But one of the things that we should emphasize here is that we did in our petition ask for an expedited review. So whether or not we get that from Congress we simply don't know. From a statutory standpoint they have 270 days to evaluate, investigate and write their report and send that along to the president who then has 90 days to determine what remedies are appropriate if any. And so I guess this is as good a time as any to, to emphasize that the outcome here is anything, but certain this will be a very open and very public process wherein there will be public comment period. Certainly our utility customers and any other parties that have standing in the 232 process will be invited to weigh in their concerns and their criticisms or whatever else they have to offer will be evaluated by Congress and that will all be reflected in Congress decision, to a large extent yes we'll have to deal with this thing over the next year now that it's been filed, but actually the determination will be in Congress hands and ultimately in the president's hands. John, anything you'd like to add?

No, you're spot on Jeff, just would add one thing. Back in 1989 Congress initiated a Section 232 investigation on uranium imports that was required by statute [ph] because the Atomic Energy Act stated that anytime we exceed more than 37.5% in-force of uranium that the federal government would investigate and determine if trade action needed to be taken. Now the results of that are confidential, they are sealed. We were not able to have access to that. But at that time when it exceeded 37.5%, the government decided not to take any action at that point. We have to recognize that was a totally different world at that point. Most of the uranium coming into the U.S. was coming in from Canada and Australia and also some from South Africa. So it was coming in from allies and the situation has dramatically changed. Now we're not at 37.5%, we’re at 89 – 80% [ph] and growing rapidly and longer it is a lot of that coming out of the friendly allies like Canada and Australia, a growing percentage is coming from Russia, Kazakhstan, Uzbekistan and we believe a growing percentage is going to be coming from China. So keep in mind too that Canada now or very soon will only have one operating uranium mine. Cameco has decided to shut down McArthur River. I think that’s getting pretty tenuous on the production coming out of Canada to continue to rely on that and say our allies are providing a sufficient quantity because that number just continues to decline.

Okay. And again, my first real time going through one of these things, and these are two questions thrown into one. How often does the government keep you guys updated on what's going on with this and how often do you expect to keep the marketplace updated with what's going on with this. That question is especially important and since its right now two companies you know pulling on the same strings, so you guys need to sort of get together and figure out what you say and when you say it?

Yes most certainly, Heiko that's a good question and the fact is that we are coordinating our efforts as best we can with energy fuels. We have designated spokespersons within our organised respective organizations and the two spokespersons for our company are on this call today and energy fuels will select their own and make those into the marketplace. We will be coordinating our efforts. Really this now is in the hands of Congress. We would expect to hear from them within the next two to four weeks. And then as I said, as far as what we report to the marketplace and what we can even say to the marketplace, I'm not honestly - I'm not trying to be evasive here. But I really don't know exactly what that's going to be because it will be in their hands and the process will be theirs. They will - they will share with us what they want to share with us when they want to share with us and I'm not sure that we have much if any control over that. John, anything else that you would add to that in terms of process?

A proper characterization of how Congress is going to handle it.

Okay. That's what I hear your answer would be.

Okay…

Our first time too indeed

The next question comes from Joseph Reagor with Roth Capital Partners. Please go ahead.

Morning, guys. And good to be having a public call again. Most of my questions have already been answered. But just kind of some fine tuning items. This whole attempt to get the regulators to pay attention better. Is there any additional cost you're going to absorb, you know, chasing this down or have you guys budgeted for a certain amount of money you’re going to throw at it or is it simply [indiscernible] writing it up and now it's strict in the hands of the regulators?

Okay. Good question and I wish I could say that it has been a little bit of money. It has not. This type of a filing honestly does not come cheap. We have - but frankly the reason that we did this in conjunction with our friends at Energy Fuels was because we want - between the two of us and this is a sad commentary on the state of our industry. But we represent more than 50% percent of primary production that remains in the United States and we felt that that gave us proper standing to bring this action to begin with although anybody can bring the action. But the other upside of that has been that we've been able to share costs. They've been great to work with. And so it has helped us to fray the cost of that we haven't had to shoulder it alone as a company. We feel as though the legal costs have been manageable to date and certainly haven't been a hardship for either one of our companies. But moving forward we will have to deal with this and manage - media responses and so on and so that will be an active ongoing activity of ours throughout 2018. And when you take a look at the timing of when this was filed this really will play out throughout 2018. John any comments from you.

Thank you. Well, it's been submitted and that was the bulk of the effort right there, but we’ll continue to respond to Congress with any questions that they might have and also any items from the media. So there is some effort involved there.

Okay. But not like a - there's no set number you could give us as far as like a number to add to G&A for this year and last…

No, you'll see that reflected in our in our end of year. Likely you'll be able to peel it out of there. And when we come out with the end of year numbers Joe we'll be happy to have a call and identify those additional costs specifically. But I think that when you see – and you're going to see that they're not backbreaker, but we felt critically important.

Yeah. Fair enough. And then on the more positive note, let’s dream that you essentially win and we get the 25%. At what price and how quickly after that price is reached could you get Shirley Basin into production?

Well there's two different - there's two parts of that and I think I'll let John speak to both of them because I think that – what’s critical of course, one of the things that we've endeavoured to do, the reason we're still producing is because we just are adamant about retaining the quality staff that we have and that has taken us years to train and we don’t want to lose good people, we've lost enough of them. And that's one of the reasons that we brought this action is because we're just tired of losing critical staff. The fact is, is that if we get much leaner the ramp up should the market give us proper incentive to ramp up we won't have the ability to do it. So what you've seen from us over the course of throughout 2017 has been an effort to retain critical staff and to give ourselves the ability to respond rapidly to what we hope will be positive changes in market conditions. John, you can speak better to the time it would take to ramp to a full [ph] million pounds at Lost Creek and then would you follow on with the second half of that question and address Shirley Basin as well.

Yeah, absolutely. And I'm really glad you asked that question, that’s an important question, what will the price be going forward. So essentially what would happen that there would be two markets created, there would be a world market for uranium and a price established associated with that, but then there would also be a U.S. produced market. Keep in mind though that the U.S. market any time a utility wanted to buy pounds they would send out an RFP to a number of producers and then we would be competing amongst ourselves to try to win that bid. So to see what those prices would be, I think you only have to look back to a few years ago when we were signing contracts with our utility customers. So if you want to see that the range of prices where we think it would be, in particular I think for Energy Fuels and Lost Crude – into Lost Creek Ur-Energy, look back at the prices we've been getting for our uranium here in the last few years. So I think that's kind of where you can bracket it. So probably an increase in price 20 to 30 pounds are dollars per pound. So with regard to Lost Creek and Shirley Basin, the Lost Creek is already permitted, so we've got a number of places we can go there to continue production within Lost Creek. So ramping up to 1 million pounds per year would be a matter of simply additional drilling, getting well installed in places that are already permitted, we just have to get the infrastructure put in place in the well field. The infrastructure and the processing plant is already there. So for Lost Creek to get up to that 1 million pound a year rate once we see those contracts I believe it would - we could do that within a year and get up to a 1 million pound per year rate. For Shirley Basin we're still permitting there and so that's an ongoing process, but I think that we'll have that completed probably, near probably first half of 2019. We're waiting on the agreement state program to be set up in Wyoming and that's supposed to happen third or fourth quarter of 2018. So once that's established we'll be supplying them our applications and have to understand that their group is already partly established within the land quality division. They've already accepted our application. They've already reviewed it and deemed that it’s adequate and they've also given us technical questions that we've responded to. So that process is already a long ways along. So I think we could begin construction of that site at some point, maybe as early as mid 2019. I think the build out I think you could look at Lost Creek to determine how long it's going to take to build out Shirley Basin and see that as an example. So I think nine months would be about how long it would take us to build out Shirley Basin. So hopefully that is response to your question.

Yeah, it’s very helpful, I'll turn it over. Thanks, guys.

Great. Thanks, Joe.

Next question comes from Ben Atkinson with Gagnon. Please go ahead.

Thank you, Jeff. And the management and employees there. Thanks for doing such a great job on trying to keep Ur-Energy in a good position to take advantage of what I think we will ultimately see is a turnaround in the uranium markets. So thanks and appreciate working on our behalf.

Thank you.

My question just coming back to today's market, Jeff could you just give us your thoughts on supply - over supply, potential over supply in 2018. Some of the things that have influenced [ph] in the past have been underfeeding and the traders, as well as perhaps uranium leaking out of Japan that was supposed to be delivered to utilities that they can use. Could you just kind of give us your thoughts about where that - what all that looks like over the next year or two?

Yeah, look I think that you're talking about two different things there and first of all let me deal with what I think is the first half for question and that is global primary production. When you look at primary production one of the things that we were very, very happy to see last year is that there was a great deal of what we call supply destruction that took place throughout the year and we had everybody from AREVA to Rio Tinto to Cameco to [indiscernible] all announced a very significant reductions in production and of course we need to see that - we need to see that supply destruction. Now we attempted to put the total on that, total amount of primary production that was supposed to be based on public pronouncements by multiple companies and state owned entities out there. We put that number at somewhere around 36 million pounds of primary production that was being taken out of the market by the first quarter of this year. Now if you translate that into global primary production it's somewhere in the neighbourhood of 24%, 22% of global primary production. That's significant supply destruction and that helps the situation. The second half of that equation is one that's less - less transparent, it's certainly more opaque, because you're really talking about underfeeding and with underfeeding you're talking about U3O8 equivalent being really produced out of thin air because those centrifuges just have to keep earning. And so they're going to get more production out of them and underfeeding is projected to introduce to the market this year, somewhere between 20 million to 22 million pounds again this year. So that continues to be a problem, particularly with enriched product EUP being at such low prices right now, in fact at multi-year lows in around the $40 range. So that's something that's going to continue. Others as far as inventories, inventories are another thing that are very, very difficult to get your arms around and simply because when you're talking about state players like Russia, like China, like Kazakhstan and others these are considered to be state secrets, even here in the United States our military inventories are closely guarded secrets. This is not something that we make known to the public. And our - you know, our competitor countries around the world are very much in the same position. So we see that unfortunately yes there are a lot of negatives out there as far as secondary supply. The Japanese are secular supplies and the Japanese are slow turning on the reactors. These are things that we have been dealing with for some time. Others are - there are other inventories out there where we know that the entities holding them are cash strapped, so they - those become pricing sensitive pounds that must be sold into the market. And we see them unfortunately oftentimes at month that are driving down prices and then of course you see other state players like Germany and Korea has kind of vacillated on this, but where they are moving away from nuclear and that's not helping us. On the positive side of course we've still got 61 reactors under construction and we've seen very positive developments in the fourth quarter of this year like Westinghouse being bought out and being and now going to be brought out of bankruptcy. The decision to move forward with the Volvo [PH] plants these are these are all positive developments in the uranium space. And so it's a bit of a mixed bag. But as I mentioned with the cat - when I was talking about the catalyst, I think that if the Kazaks do IPO this year and they're very serious about that that means by definition that they're going to have to cut supply to achieve the pricing that they would want to have a successful IPO to build out of the plants will increase demand and we will continue to eat through that overhang that we have. And of course, the geopolitical – the possibility of a geopolitical that is always the black swan that really nobody can count on or discount one way or another.

So I mean, it sounds as if at least entering 2018 there is nothing that's getting substantially worse on the supply side, if anything it could be getting a bit better at least as far as we know today?

I would say that this is probably going into 2018. The most positive environment that we've had entering the New Year in the last six years, at least from my perspective it is. And I think that that viewpoint is generally shared and if you take a look at what I've mentioned earlier was the constructive based building that's taking place in the stock, I would have to look at that and say that the market tends to agree.

Thanks, Jeff.

You bet. Thanks, Ben. Appreciate it.

This will conclude our question-and-answer session. I would like to turn the conference back over to Jeff Klenda for any closing remarks.

Great. Thank you very much. And once again thank you everyone for joining us tonight. I'd like to - I really do have what I think are some important closing comments here that I'd like to make. And first of all I'd like to say that we as a company will continue to do the things that you know characterizes. We will continue to work on our efficiencies and strive to be the lowest cost producer across all publicly traded companies and playing field ever gets levelled we just might emerge as the lowest cost producer in the world. Wherever possible we will add or grow resources. We will continue to pursue that balanced approach so that we can maximize our margins. But above all we will work to make sure that we cash flow properly and in that process protect our shareholders. And a couple of last words with respect to the filing of the Section 232. I think that it needs to be stated here that while yes it is your energy and energy fuels that is filing this petition, I think it really speaks to the dire state of the industry that a couple of juniors of our statures have to be the ones to bring this. And as we looked at how the situation in the uranium production industry, you see the number of employees below 500, it became such a – we see a dire situation developing over the next two to three years unless we get some love out of the market and we see higher prices. But it really became a question of if not us who, if not now when. And so we felt compelled to act on behalf of the industry and I think that it deserves to be stated here that it's not just us, we don't act in a vacuum just the two of our companies. There are other companies out there that are waiting in the wings that would love to have an excuse to ramp up production. Our friends at Peninsula, UEC [ph] and ironically and paradoxically enough when you think about this if there is 25% that is preserved for US producers that would mean by definition Willow Creek would come back into production, which is owned by the Russians that are primarily produced in Kazakhstan. Also Smith Ranch owned by Cameco would be coming back online. So it would give actually foreign owners of U.S. assets the opportunity to come back into production themselves. And finally I'd like to make a comment and this is a sincere one with respect to our utility customers and that is that, we have watched the events play out in Illinois and New York and now in other states and we have very much been rooting for the utilities to get the type of legislation they need to be able to keep those merchant plants open. We know that they're hurting, what is needed here is federal legislation. This country needs federal legislation to protect our industry. And I will go on record right now and saying that it is not fair that the utility should have to shoulder this burden alone. They're hurting. They've been hurting for some time. But as I said to many of them personally while I recognize that they're hurting, if we don't do something over the course of the next two to four years we may well be dying and we simply cannot sit around and wait for that contingency to take place. So we did what we felt we had to do, was not intended to hurt our utility customers and we hope that the marketplace will look at it as a favorable development and one that they will give us their support. So with that I'll close this out and thank you once again for sharing this time with us this morning and we will talk to you on the next conference call.

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