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Article Excerpt
OPERATOR: Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Uranium One Inc. 2008 third quarter results conference call. At this time all participants are in a listen-only mode. Following the presentation we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. OPERATOR INSTRUCTIONS) I would like to remind everyone this conference call is being recorded on Friday, November 14, 2008 at 10:00 am Eastern time.
I will now turn the conference over to Jean Nortier, Chief Executive Officer. Please go ahead, sir.
JEAN NORTIER, PRES. AND CEO, URANIUM ONE INC.: Thank you. I'd like to welcome you all to Uranium One third quarter 2008 results conference call. With me on this call is our Chief Operating Officer, Steve Magnuson, who will take you through our operational results, and our Chief Financial Officer, Robin Merrifield who will review our financial results.
As always, let me begin by making you all aware that this discussion contains forward-looking information with respect to Uranium One's operations and financial results. Actual future results may differ from expected results for a variety of reasons which are described in the cautionary statements regarding forward looking information in our press release. Also please note, unless otherwise stated, all references to uranium refer to U308, commonly known as yellowcake, and furthermore, all references to production will be Uranium One (inaudible) until otherwise noted.
Over the last few months, Uranium One has moved quickly to respond to the changing uranium market and the challenging economic conditions to ensure that we continue to grow and focus on our most profitable operations and development projects. Uranium One is strategically placed, as it has a solid platform of producing and development assets. The core of our business in Kazakhstan has some of the lowest cost operations in the world. We also have excellent development projects in the United States which we are continuing to advance. We are well positioned to weather a prolonged period of depressed uranium prices. In fact, despite the current uranium market, and general economic conditions, there is no doubt in my mind that Uranium One will emerge from this current environment as a large and focused uranium producer.
We have taken a number of steps to insure our success. We have reduced or deferred selected capital expenditure projects, as well as reduced our exploration expenditure and corporate overhead. Some examples of the steps we have taken include the following. The recent announcement regarding placing Dominion on care and maintenance, deferring the startup of our Hobson while we continue to work towards expanding the reserve and resource (inaudible) in South Texas, partnering with Mitsui in Australia to fund the development of the Honeymoon uranium project.
We will evaluate all expenditures in light of the rapidly challenging economic environment in order to ensure that our liquidity objectives are met. Our cash position and sources of liquidity are sufficient to meet our current development plans in Kazakhstan and the United States. We do not expect to be required to contribute capital during 2009 for capital expenditures Betpak Dala, Kyzylkum or in Australia.
The changes to our management team are now complete. On November 1st, Steve Magnuson became our permanent Chief Operating Officer. Steve has extensive experience in ISR operations and development projects. Prior to joining us, Steve was Vice President of Operations of a US subsidiary of Cameco with responsibility for ISR operations in Wyoming and Nebraska, as well as the Inkai joint venture in Kazakhstan.
There continues to be a lot lot of focus by some in the market on the spot price for uranium. While the spot price is important to Uranium One, as most of our contracts have market related pricing at the time of delivery, most of the world' uranium is sold under long-term price escalated contracts. As a new and growing producer, Uranium One has developed and approved a fiscally prudent marketing strategy. We will develop a contract book that has a mix of long-term price escalated contracts and market related contracts. With a strategy of covering at least our operating and sustaining capital requirements, with price escalated contracts, we will have better clarity of our expected future realized sale prices which will help us plan and allocate our capital resources to our development projects. However, we will maintain significant leverage to the spot price of uranium for our shareholders by ensuring that at any time the majority of our contract book has market related pricing. That is, related to the spot price for uranium.
At the moment, approximately 80% of our existing contract book has floor price protection. The weighted average floor price at the moment is approximately $45 per pound and this floor escalates over time. During the third quarter Uranium One agreed to enter into its first long-term price escalated contract with an Asian customer. Deliveries under this contract are expected to commence in 2012, pricing at $78 per pound with escalation at US inflation from the end of this year, December 31, 2008.
Our realized uranium sales price during the third quarter was $67 per pound compared to the average spot uranium price of $61 per pound. Cash operating costs per pound sold were $14 per pound, representing a very healthy margin of $53 per pound on attributable sales of 848,000 pounds at Akdala.
It is important to note that uranium is one of the few metals that have seen price increases over the last several years amidst this challenging economic environment. We have seen uranium prices rise from a recent low of $44 in October to the current spot price of $48 per pound. After a period of time, where we were seeing some distressed selling of uranium on the spot market, good levels of demand have now re-emerged. Nuclear power provides baseload electricity. We do not expect the demand for baseload power to decrease. In fact, we expect it to continue to increase as existing nuclear power plants improve their capacity utilization factors and therefore increase their needs for uranium.
The graph shown here on slide 6 shows the growth in nuclear generated power, and you can see that recessionary periods have had very little impact on the growth rate. For those of you listening to this call on audio only, you can view the slides by downloading our presentation from the home page of our web site. With a decision to place Dominion on care and maintenance, lower than expected production from South Inkai, and additional delays in the startup of Kharasan, Uranium One's attributable production estimate for this year 2008, has been revised to 2.8 million pounds from 3.1 million pounds.
As we have been telling the market, we have recently completed our detailed life of mine planning and budgeting process, and now are able to provide updated production and cost guidance. For 2009, we estimate total production of 3.5 million pounds comprising 1.8 million pounds Akdala, 1.5 million pounds from South Inkai, and 200,000 pounds from Kharasan. Our 2010 consolidated production estimate is 5.6 million pounds which includes initial production from our Moore Ranch project in Wyoming but excludes initial production from Honeymoon in Australia.
During 2009, we expect a slight increase in the cash cost per pound sold at Akdala to $15 per pound from $14 per pound so far this year. With our expectation that South Inkai will commence commercial production, we anticipate the cash operating cost per pound sold to average $28 per pound during 2009. As the project is in ramp up, it's important to note that we expect by the end of 2009 South Inkai will be achieving a cash cost of $20 per pound sold.
We expect to incur capital expenditures of $21 million on our projects in Wyoming, and we expect to contribute $6 million towards the cost of constructing a sulphuric acid plant in Kazakhstan. This sulphuric acid plant is a joint venture with Kazatomprom and other uranium producers, and is being constructed at [Zanacorgan] which is near Kharasan. Our ownership in the plant is expected to be 19%, and the total plant construction costs are estimated to be $209 million. Construction of this plant is scheduled...
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