Ur-Energy (TSX: URE, NYSE: URG) - Two Can Really Ease the Pain (Transcript)

March 31 2020, 16:17 GMT+01:00

Ur-Energy is one of the two companies that submitted the Section 232 Petition to the US government, Department of Energy. Klenda tells us why he felt it was the right thing to do at the time. And with an announcement expected this week, he expresses his hopes for the Nuclear Fuels Working Group decision.

Klenda is a forthright speaker and doesn't shy away from the reality of the numbers in the market and for Ur-Energy. Klenda is clear about how long Ur-Energy can run before it needs to go to market and raise more capital. We discuss the implications of cost cutting, inventories and dwindling contracts for Ur-Energy.

Klenda also opens up about his peers and some of the barriers and hurdles that they will have to overcome.

Interview highlights:

  • 2:08 - Company Overview
  • 4:08 - Section 232: Drivers Leading to the Petition
  • 10:39, 25:06 - DOE Announcement: $150M Distributed How and For What?
  • 12:52 - Business Plan: Decisions, Cost Cutting Measures and 2019 Sales & Inventory
  • 18:06, 27:17 - Contracts vs Spot and the Likelihood for Junior Company Funding
  • 19:37 - Value Creation and Moving Forwards: Where Will UR-Energy sit in 2021?
  • 37:06 - Struggles Fuelling M&A Talks: A Look at the Unfolding Situation

Click here to watch the interview.

Matthew Gordon: You are one of the big names in this Uranium space, and we've been keen to talk to you. Here you are today. Jeff, could you start off and give us a 1-minute overview of the business so people can sort of put that in context then we'll pick it up from there.

JeffKlenda: You bet. Well, Ur-Energy, westarted now, come the end of the month, we will mark 16-years since I and acouple of other guys founded this company. And I don't mind telling you, wespent the first 7-9-years as a permitting and licensing story. We finally gotour record of decision in October of 2012. We spent the next 9-months buildingout our processing plant. We you completed it on time and on budget, spent thenext 2 months in commissioning, and we've been producing now since August of2013; so for the last six and a half years, we've not only been producing butwe've emerged as the lowest cost producer globally outside of Kazakhstan. Iwon't go into the details as to why Kazakhstan is the lowest cost producer, butit sure helps when you devalue your currency by 90%. So anybody can look likean economic marvel when they can do that and still sell into the US market.

 But beyond that of course we were, I thinkforward looking; our board was, and so was I. Back in 2011 through 2015, we putcontracts in place that we still have and are still delivering into to this dayin 2020, and a couple into the next year and 2021. That's given us consistentcashflow, but more importantly, it's allowed us to navigate this minefieldwithout blowing up our shareholders. And by that, I mean blowing up the capstructure. We've only raised USD$22M since Fukushima occurred, and that'll be 9-yearscome next week. So, I think that that's one of the strongest points about ourcompany.

Bythe way, I am the largest shareholder in this company, unlike most, orvirtually any of my peers. I've got USD$3.5M of my own money in this, so I amthe gatekeeper. I hate issuing shares and we are a very shareholder friendlycompany.

MatthewGordon: Thanks very much. Good summary. Can we kick off, there's a lot oftopics to discuss and you are well known for having a view on these things,strong views on these things. Can we just kind of kick off with the Section 232petition? You're one of one of the two companies that submitted that petitionalong with Energy Fuels with Mark Chalmers, who we have spoken to a few timeson this program.  I've read the pressreleases; we are talking about adversarial behaviour in the market and securityand so forth. I mean, what was the, what was your actual driver for thatpetition?

JeffKlenda: Well, for me, the driver was thatI met with Rick Perry in his offices along with the UPA, the Uranium Producersof America, and that was in July of 2017. Before we left the building, Idecided that I would start the section 232. We actually did it, we made thedecision before we ever hit the curb that morning.

MatthewGordon:  Why do you say…what had beensaid in those meetings that riled you?

JeffKlenda: What was said in the meeting wasthat Rick Perry acknowledged that when we were making the case that, look,we're dying. And we were formerly the largest producer of Uranium on the planetback in the early 1980s, late 1970s, producing 43Mlbs, 44Mlbs a year, meetingall of our own personal needs. Unfortunately, that changed over the years andit really changed with the accelerated production coming out of Kazakhstan. Webelieve that it is very, very dangerous to become this reliant on Russia,Kazakhstan, and Uzbekistan, and so we filed a section 232 basically opposingthat and suggesting that we needed to preserve the fuel cycle in the UnitedStates, and we thought that the best, most benign way to do that would be bysimply imposing a quota, saying to the US utilities, you can go out there andyou can buy whatever you want from whomever you please, but you have to buy a20% to 25% from domestic producers. We've got to keep the fuel cycle alive. AndRick Perry agreed.

Heused the term, ‘this is a national security issue’, no less than a half a dozentimes in that meeting. And effectively said to me, bring me a 232 Petition becausehe wanted something that would bypass a deeply divided and extremely partisanCongress. Of course, everyone knows that characterises our extremelydysfunctional government here in the United States and give me something that Ican put on the President's desk. We did just that with the 232.

Now,unfortunately on July 12th of last year, we did not get the outcome that we hadhoped for. But nonetheless, it gave birth to the working group, and we arewe've seen positive outcomes from the working group. Obviously, the line itemthat went into Trump's 2021 fiscal year budget; that's a good start. But we arenow waiting for what we are told is going to be immediate short-term relief tocome out of the working group. That was as of last Monday. The Governmentfunctions on its own timeline, so we continue to wait.

MatthewGordon: If you don't mind, let me just finish off the 232 component. You havegiven lots of reasons that, I mean you genuinely believe that this is asecurity issue, not an economic one. So, what is to stop the US Governmentgoing and getting everything, they need from the Australians, the Africans?

JeffKlenda, Well, the problem is that thegeneral belief in this, this isn't the first section 232, the first one wasbrought in 1988 because we had actually gotten down to the point where we were onlyproviding 37.5% of our own needs, down from 100% less than a decade earlier. So,we found ourselves in a position back in 2017 where approximately 93% of ourfuel needs were coming in from outside the United States. And the utilitieswould make the argument that, well, this is not a problem because of course, wecan get all that we need from our good friends; the Canadians or theAustralians or others around the world. Well, sadly, we all have come tobelieve and understand that that's not true. Australia's production is reallybasically down to whatever BHP produces there as a by-product. And theCanadians are only producing now out of one facility, at cigar Lake. They haveshut down the largest production facility in the world because the economics simplydo not support it and they don't have long-term contracts to support it.

Sothe sort of harsh reality is, is that now, especially after there was no actiontaken on 232, we find ourselves in the just dangerous position of being 100%reliant on outside sources, foreign sources for all of our nuclear fuel, andyet it supplies 20% of our base loads. So while I am I am grateful that we haveDonald Trump in the White House, because he is a supporter of nuclear, and it'snice to have that for a change, we understand we were not the constituency ofthe Obama administration, I don’t want this to become political, but it’s niceto have a friendly in the White House for our industry, and I think that whenhe is saying now that we have become energy independent – well, yes, except forthat 20% that nuclear counts for our base load, which we are 100% reliant onforeign powers for.

Andsadly now, because of the closure of McArthur River, whereas before we wereabout 40% reliant on Russia, Kazakhstan and Uzbekistan, we are now well inexcess of 50% reliant on those 3 countries. And keep in mind, this somethingthat is imperative to understand and that is that the Russians actually controland own a significant portion of the Kazakh production. So when you take a lookat this, this is not just, well, we are getting the bulk of it from Kazakhstan,and they are a market economy, they are a relative friendly and so we can relyon them; well, no; Vladimir Putin owns it. He controls it and he will dictatewhere that material goes and when. So, this is something that is notwell-understood but we like to think that we have done a pretty good job ofmaking the Department of Defence, Department of Commerce, and the Department ofEnergy well aware of this. So now, as we are facing a whole new battle with theRussian suspension agreement, these things are coming into play and the battlelines have been drawn.

MatthewGordon: Like I said, before we started this interview, I think you suggestedthat perhaps there’s another conversation to be had there before we get drawninto the politics and geopolitics of this. So, let’s come on to the recentannouncement: the USD$150M a year for the next 10-years. The statement, to me,and the subsequent articles, they seem vague; there’s no real clarity as to whothat’s going to, where that’s going to, how its being divided up. It’s just anumber that seems to have been plucked from the air.

JeffKlenda: That’s correct.

MatthewGordon: What do you know?

JeffKlenda: Well, here’s the situation, we hadthe same questions, by the way, we were taken through the process. Right nowwhat is happening is that there are appropriation companies on the Senate andon the House of Representative’s side; they are kicking this thing back andforth, and as you, here in this country, when appropriations are added to thebudget, we just normally refer to it as ‘pork’, and the negotiations take theform of, ‘My pork is better than your pork, so my pork needs to stay in, yourpork needs to come out.

Whatwe have been told is that Congress is hoping to have a joint budget. Now, takethat for what it is, by some time in April but no later than May. The problemis that we are now in an election year so Senators like Mitch McConnell andothers high profile have said, we will not take that up, even when we have abudget we think we can move forward with we will not take up the real intensenegotiations until after the elections.

So,to paint a bit of an, unfortunately, ugly picture here, if you can imagine, weget into the first week of November, whatever the outcome of the election is,now we are really going to start fighting over the budget. Now it is more, ‘mypork has to stay in, and your pork has to get out’ becomes much more strident,becomes much more intense. So that's okay, the problem is that you've got theThanksgiving break, which we'll send them all home for five days, and what Ithink will happen then is that it's going to be a knock-down and all bloodyfight all the way up until the day before Christmas Eve, and they'll come upwith something last minute that everybody thinks they can live with, and mainlyso that they can go home for Christmas. So sadly, that's the way we do thingsin the United States.

MatthewGordon: I think that's fascinating. And I do want to get into your businessmodel, your plan. You're working and operating in a very complex but alsodifficult commercial environment right now, okay. And I've got to admire all ofthe CEOs who are having to do what they need to do to survive. Well, except forthe ones who are perhaps being economical with the truth; not so much them, butthere's a great group of hardworking CEOs who are trying their best to do thebest for shareholders. And I want to talk about what you are doing. I've readyou've been through a cost cutting exercise, you've renegotiated payment termsand I suspect contracts, and that's not easy. I've been in that situationmyself. These are commercial and human decisions you're making. I mean, can youtalk people through some of the things that you've had to do over the pastcouple of years, two, 3-years to actually get to this point?

JeffKlenda: Sure. Let's keep it down to amanageable timeframe; 4-years ago I was just under 100 employees. Today I'm 30and that represents 4 reductions in force and the last one was probably themost difficult of all. And that was because you're starting to, when you getdown to that low, you're starting to cut into guys that have been with you for8, 9, 10-years. That is extremely hard for people.

MatthewGordon: That hurts, that hurts.

JeffKlenda: So, what we did, mostimportantly, is that we have not waited for somebody to kick us in the behindand say, look, you guys need to cut costs. We have always been way out in frontof that. We've always been very proactive on that. When everyone else decided,look, we've been slaughtered because we didn't get what we wanted. Our shareshave just, you know, cut by 40%, we’ve lost 40% of our value, we've got to getout there. We’ve got a market. We've got to try and get our share price backup. We didn't do that. Frankly, I didn't see much point. I didn't think therewas a very big audience. A lot of folks have just been burned because they hadbeen speculating on what the outcome of 232 would be, so we decided to stayhome, clean off our own front porch.

Wewent department by department. We engaged in cost cutting. That was extremelysevere but very, very effective. We did a reduction in force where we took downinto another 12 highly experienced, long time employees that came out as well.In addition to that, we restructured our debt with the state of Wyoming, ourindustrial revenue bond, where we now have gone from making a quarterly paymentfrom USD$1.5M per year, a quarter to where it's USD$178,000 per quarter, andfor the next six quarters that will save us USD$7.8M. So, it's been things likethat that we've had to do, but we felt that it was critical.

MatthewGordon: That's, just to clarify, that’s deferred, right?

JeffKlenda: We had it out on the runway.

MatthewGordon:  You had it on the runway; i get it.But that money's been deferred, it hasn't been written off ..?

JeffKlenda: That's correct.

MatthewGordon: Okay. So you'd need, you're basically saying, we’ve got some revenuecoming in, which is great, and I do want to talk about that in a second, butthe cost cutting is, is the bit which is, it gets you the runway, to use yourphrase, down the line, so that you are not going to shareholders and asking formore money to sit around doing nothing. Okay, let's talk about the productionthen and once we've understood the revenues coming in and the cost, maybe wecan have a useful discussion about what that looks like today. So, last year,2019 look like what, in terms of sales?

JeffKlenda:  Well, we had a good year last year and we just came outwith our financials last Friday. We ended up delivering into the market 665,000lbs Uranium at an average price of USD$48, USD$50, just under USD$49 p/lb. Wechose to purchase more than 2/3rds of those pounds and we purchased them at anaverage cost of USD$26 in the marketplace. And so, we were able to effectivelyscrape the delta out of that between the shares that we were delivering intoour contracts and then our purchase price in the marketplace. So, we actuallyhad a quite good year. We did USD$32M in gross revenues. We ended up with grossprofits of USD$12.2M. And unfortunately, most of that was wiped out because weno longer have the large scale contracts moving out into 2021, we had to nowwrite down our inventories to a level to reflect current market prices, whereasbefore, as long as we could say to the auditors, well, I've got USD$48contracts out there, these pounds have a value of USD$48, now I have to saythey have a value of USD$25 because just like Cameco and others in theindustry, we're coming to the end of this contracting cycle and so we havelimited contracts moving forward, both this year; when we're going to deliverabout 200,000lbs pounds at USD$42lbs, again with a purchase price of USD$26lbs.And next year, we go down to virtually nothing. It's under 100,000lbs we have.

MatthewGordon: Okay. Well firstly, I like the fact that you're being honest about theinventory levels and what it represents on the balance sheet. Again, weinterview too many companies who try to deceive.

JeffKlenda: I’ve been accused of being tootransparent.

MatthewGordon: Okay, that's never a bad thing. Let's talk about these contracts so thatpeople understand them. Again, because there's going to be a wide range ofunderstanding here; there's some guys who watch this thing who are wonderfullyinformed, and the others are coming new to it, looking at the macro story for Uraniumand thinking, well maybe now's the time, with prices as they are, to be gettingin here. So, let's try and describe the contract versus spot for those people,if you may.

JeffKlenda: Absolutely. At the present time,spot price, let's just call it USD$24.50. I think that that's probably a goodworkable number, and while there are a number of reporting services in terms ofpricing, I think that it would probably be a usable number of right around USD$31to USD$32 now on term price. And typically, you're going to have that kind of adelta between spot and term. Now what we've seen over the last several years isthat we've seen kind of a reversal; it used to be 10-years ago that 90% of thematerial that was sold into the market was done so under term contracts. Ofcourse, that's no longer the case. You've seen the reports probably out of UX /TradeTech or others where now the vast majority, or the majority of thematerial that is being transacted is being transacted in the spot market. Sosadly, that's the situation we find ourselves in right now. And that does notlend itself to entering into any new contracts moving forward. Not for us, notfor Cameco, not for anybody.

MatthewGordon: Okay. So, break that down for me; you said obviously you've had a fewcontracts for 2018, 2019, you've got this 270,000lbs, which you said will be soldat your discretion. That means there's no contracts against those and that'smore likely. Contracts typically are higher than spot price, again for the 40and so you sold a quite significant average. Your average, your pounds weresold at about USD$60. You obviously bought in the market, you sold the delta,your average was somewhere in the 40s, so you had a good year last year, right?

JeffKlenda: Very good year in the fourthquarter, yes.

MatthewGordon: This year, with your 270,000lbs, that's going to be somewhat different.So how much value are you attributing to that?

JeffKlenda: Well, here's the situation: thelast time I gave a public presentation, I had one of our existing shareholdersand say, ‘Hey, what kind of a year are you going to have in 2020?’, and I said,‘Well, not trying to be evasive, but that depends. And what that depends on isif we sell our inventories and if we do at what price we sell them’. So, Ithink it's important to understand that first of all, we do have solid cashcoming into the year and we've got revenues from our many contracts. Those areenough to get us through to the remainder of the year. Now, once we get to thefourth quarter of 2020, the question will become, have we been able to sell ourcontracts? This is why we're waiting for the most recent report that is due anytime now. We were told it was going to be coming out on Monday or Tuesday. It'sGovernment - I don't place much stock in that. I'll believe it when I see it. I'vebeen at this long enough to know what my government means by immediate is notnecessarily what I mean by immediate, and what they mean by relief may not meanrelief.

MatthewGordon: Then I've got a small anecdote for you: I was working in Africa andwhen I was told by government officials it would be done now, they didn’t mean‘now’; the phrase you're looking for was, it will be done ‘now now’, whichmeant now. So, I have some sympathy.

JeffKlenda: One of our Directors spend a lotof time in Africa and he said that the phrase in Africa is, ‘it can happen anytimefrom now.

MatthewGordon: Right, sorry to interrupt, but yes, if we could just talk aboutcontracts just a little bit longer here because you described earlier on inthis interview, your scenario; what you think the scenario would be politicallythis year. There's a lot of events which would possibly prevent Government frommaking any meaningful decisions. So, we're looking towards the end of the year.I think that's an honest appraisal. You've got enough money at the start ofthis year, and the end of some of these contracts to generate revenues to see youthrough to the end of the year. Plus, you'll have your 270,000lbs at yourdiscretion to do something with if you can get a contract or a spot price,which reflects your value, your desired value for that. Where does that put youin 2021?

JeffKlenda: Well I think you've driven down tothe heart of it now. It all comes down to the contracts and what we're hopingfor, and this is why when, if you were to watch, for example, Secretary Brouillette,when he was testifying in front of the Senate Energy Committee on Mondaymorning, we had Senator Barrasso in there peppering him with questions, askinghim, well, when are we going to see this report? It's critical to us becauseone of the things that we've been talking to these guys about is the fact that,look guys, it doesn't do me any good if you help me two years from now. Itdoesn't do me any good three years from now. I'm in a better position thananybody else in the industry, and I know that by the time I get into the secondquarter of 2021, whether by that time I will have sold my inventories, I'llneed to raise money, most of the players in our industry have lived equity,race to equity race. That’s just how it is and they have done that ever sinceFukushima.

Wehaven’t had to do that. We have only raised USD$22M since Fukushima; we havebeen very fortunate. But what we are hoping for, and what we have spoken toKudlow about and what we have spoken to each of the members about the workinggroup about; this is the fact that we need immediate relief. Now, what formmight that take? Well, for the two producers, the two legitimate producers thatremain: us and Energy Fuels, that immediate relief, we hope will take the formof the purchase of existing inventories. Does that solve all of our problems?No, but if you give me a higher price than spot price for the sale of thoseinventories, those are domestically produced pounds, they can be used toconvert and enrich and become what is called, ‘unobligated material’.

That'scritical because if you're going to use it for military purposes in any way, ifour government is going to use it for their purposes, it needs to be an obligatedmaterial. So what we are hopeful of is that we will see something out of theworking group that it will provide immediate relief in terms of purchasing ourexisting inventories and that will extend our runway and give us more time tosee things like the line item in the budget for those contracts.

MatthewGordon:  Right. Okay. Again, a lot of alot of things in there. The question was what happens in 2021 and I thinkyou've gone back to; well it depends if there are any meaningful announcementsbetween now and then.

JeffKlenda: Well, our inventories are pretty good to go right on through to about 2H/21.

MatthewGordon: Okay, fine, and that gives me a sense of what the margin, your expectedmargin is on the 270,000. Okay. Just on again, the USD$150M, this wholediscussion and you know being, pressing the government. You said the governmentworks on its own timeline and whatever it says doesn't equate to a meaningfuleconomics in any way. And so yes; until the money's in the bank, it's not inthe bank. Right? So, what do you think you're going to be able to persuade thegovernment to buy from you at? Or what do you want, what price will you needfor them to buy at? Because they're taking guidance from you guys, aren't they?They don't really know this space.

JeffKlenda: They've asked and we have providedthis data to them, not only during Section 232, we provided a lot of data tothe Department of Commerce, but even the working group itself, we haveprovided, we formed our own core working group and that included not onlyourselves and Energy Fuels, but the conversion and the enrichment as well. And wepresented our own white paper to the White House through Larry Kudlow, aschairman of the working group, to make our case. Now at what price they may purchase.That of course is the complete unknown. They, I think that if you talk tosomebody like Tim Gitsel, over at Cameco, he has been quoted as stating, look,I wouldn't even look at restarting production in the United States unless Icould get somewhere around USD$$60lbs or greater. And so, I'm going to say thatif that's a number that's good enough for them, that’s what's good enough forme. But we have demonstrated that we can not only function well at USD$$60lbs, Ithink people have seen how we functioned at USD$50lbs.

Oneof our concerns quite candidly in this space, something that I don't know if itis a bit indelicate for me to share, is that there are others out there thatare not producers, and there are only two legitimate producers left in theUnited States. What representations they may make, and what contracts theymight be willing to enter into, whether there's a reasonable prospect for themto be able to deliver into those contracts is another matter. So, it's a bit ofa wild card for us.

MatthewGordon: This is something that we talked about before with other CEOs. You've produced,you've sold to utilities, you sold into market. Tell me this, what do you thinkthe chances of a utility sitting down with a Uranium junior whose pounds are inthe ground and saying, I'll give you something. I'll give you a contract forsomething. Is that reality?

JeffKlenda: I think that they may, but Ithink that they're going to be very guarded. I think what they're going to doin this, and look, I know all the utility buyers, I see them at all theconferences. We've done business with six of them when we had all of ourcontracts in place extending all the way out through the end of the decade,which by the way, in 2014/15, seemed like a long time. Okay. So 5-years went byquickly. But you know, when you talk to those guys, I think a couple of themsaid, well, you know, you guys haven't produced yet so we won't give you maybethe 200,000lbs that you're asking for, but we'll go 100,000lbs with you, or, wewon't give you the 300,000lbs you are asking for, we'll go 150,000lbs. And youhave to prove yourself. I mean, look, these guys have seen it all.

Andone of the things you need to understand about the utilities is that the buyersare, they're smart guys. They've been in the industry a long time. They've seenit all. They know all the players. I mean, the one thing about our industry isthat the BS doesn't go very far, and the reason being is because they knowthose projects as well as we know them ourselves. Not only are we getting to bea very small fraternity at this point of producers or prospective producers,but the utilities, they can look at a project and we can say, well, you know,we think we can produce this project, let's call it Shirley Basin, and we thinkthat we can have a cash cost thereof under USD$15lbs, and they'll say, wellyeah, but that's in this area, in that area. But then by the time you get overinto this area, don't you expect a little higher cost by the time you getthere?

Well,you wouldn't expect them to know that much about your projects, but that'stheir business; they're supposed to. And so, I think that unfortunately, ourindustry is one that has survived on, I mean this has levity, I call it BSsquared: blue sky times the other BS. And unfortunately, it's been true. But Ithink that what's happening here, and I think this is something else that yourlisteners should probably understand, while pounds in the ground may have meantsomething five years ago, we are rapidly entering a time where fundamentals aregoing to be pretty much all that matter. If you can't demonstrate that you canproduce, do it in a timely manner, do it efficiently, and remember somethingelse; It's not just about getting to that level. You've got to get there andgot to stay there. That's really tough.

Imean, you've got to get to 1Mlbs, and you've got to stay at 1Mlbs, come hell orhigh water, rain or shine, doesn't matter, you got to stay there. And utilitieswhen they're giving you those contracts and trust me, they're going to assessthat. And so I think that you might be able to smoke them to a minimal extent,but not to a great extent. I think that, look, we've had utilities sit downwith us recently and say, we know what you can do. We know what Cameco can do.We know what Energy Fuels can do. Anybody else? - we don't know.

MatthewGordon: It’s an interesting area for debate as well because again, we havespoken to a lot of Uranium juniors CEOs from all around the world, and youknow, the management teams have varying degrees of ability and they areabsolutely working hard. The tough bit here is walking into, not getting somefund to invest in your equity because they're taking a bet on the Uraniumspace. But funding the capex to develop these things out. These are some prettybig numbers here, right?

JeffKlenda: You’ve got to be the real deal.

MatthewGordon: Yes.

JeffKlenda: I think, I mean, look, I'll tellyou, for us personally, I mean we went to one of the big French lenders, right?I won’t designate who they are, but they said to us, look, you guys seem likeyou've got a great project here, great management team, but you've neverproduced before. You need to build this thing out. So they just told us quitecandidly, we won't fund you the first time around, but come to us the secondtime after you've been producing for four or five years and we're all over it.And so we have those type of capital options open to us.

MatthewGordon: But that's the gap I'm concerned about in the marketplace with, youknow, 50 players now, down from the heights back in the day, 500, 400 - 500 Uraniumcompanies, but down to 50, more manageable. But I just feel that initial hurdleis the biggest hurdle. You know, of course I used to say the same phrase, we'llgive you the money after you've got it going. You know. Bankers offer you anumbrella when it's a sunny, and I think it's a little bit late then, you know.

So,some of these companies that we've spoken to can't give us the answer to howthey get that initial either cornerstone investor or institutional, fromwherever to get this thing going. You know, getting a couple of small contractsis not going to be enough to get some of these banks to move because it's toorisky. It's far too risky. So, do you see, how do you see these small companiesenabling themselves to get funded? What do they need to say? What do they needto do?

JeffKlenda: Well, unfortunately, first ofall, I think that your numbers are a bit high; are there 50 companies outthere? I would say there's less than 50, and the vast majority of them areexplorers, usually in Canada or Australia. When it comes to those that areactually capable of producing, that number gets down to a dozen or less. Whenit gets down to the number in the United States, that may actually have thecapability of producing, and particularly for government purposes, say underthe $150M line item in the budget, or something else that may come out of theworking group or whatever the case might be. Well now that number gets stillsmaller, and unfortunately that is…

MatthewGordon: What's the number, Jeff?  Is it 2?

JeffKlenda:  I think that there are potentially, and I saypotentially, 4. And I think that, but now keep something in mind here; this issomething that we, by the way recently received a request for information fromthe Department of Energy that we filled out. One of the things that we had tolist in there as a caveat was, we'll keep in mind this depends, because if theUnited States were to ramp up to expose production capability, you can't dothat without Uranium One coming back into production. And you can't do itwithout Cameco coming back into production.

So,the question here becomes, what are we capable of producing? Well that dependson a couple of the foreign players that are right now on standby. And so, ofthe other guys -how did they get there? Well that's, now you're asking the question that every,frankly intelligent fund manager should be asking, look, you know aswell as I do when you're an issuer, I walked through a lot of portfoliomanager's doors and invariably the smart ones, the good ones anyway, ask youone question before you leave: what am I not asking? What am I missing? What amI overlooking here? What is the potential landmine you could trip on that couldblow all this up for you? And what they're not asking right now is what is yourcapex to get to any minimal reasonable level of production that you cansustain? And that is the question that's not being asked.

Andso what I've done, and what we've done as a company is what we've looked ateverybody and we've looked at the players that we believe even have areasonable shot of getting into production. How long it would take them to get thereand we've just decided, okay, let's come up with a number that we apply toeverybody. Let's call that a 2Mlbs per year run rate. Okay, 2Mlbs per year.What's it going to cost for you to get there? Not just get there but sustainit. We know what that number is. It's in our PowerPoint. It's on our website.For us to get there, we can get to 1Mlbs, 1.25Mlbs per year, out of Lost Creek,I can do it for about USD$14M to USD$15M.

ShirleyBasin is going to cost me about USD$25M because I have to build a satelliteplant there.

So,for me that number is over a 2-year period of time. It's about USD$40M. Morethan likely I would go out there, I would probably do debt financing againstcontracts. I won't build out. Nobody's going to build out without contracts andthey simply will not. So, what we will do is that we can get there for about USD$40M.More than likely, at least half of that will be debt, and we would only be veryselective.

LikeI hate issuing shares. Everyone knows that about me. I'm very stingy when comesto that. And that's what my shareholders like about me. I mean the last proxy,I got 99.6% of the vote. I'm not even sure Warren Buffett gets that, but theyknow that I don't issue their shares willy nilly. I won’t.

So,I think that it comes down to it, I can do it for USD$40M. Now you pick a name,what's that number for them? What's their timeline to get to that 2Mlbs ofsustainable production. So, I think that what we need to do here is, we need tochange the dialogue a little bit in terms of let's just assume, let's just giveyou the benefit of the doubt and assume that you can get to this 2Mlbs peryear. What's your timeline? What's your cost? More importantly, what's yourdilution to your shareholders in getting there? I know what mine is.

MatthewGordon: That's the name of the game. It's the name of the game.

JeffKlenda: At the end of the day, it's theonly thing that matters. Right?

MatthewGordon: Absolutely. Well done. On that basis, some companies are going tostruggle. Are you seeing, or have you had any discussions about mergers, JVs,acquisitions, asset sales? Possibly, but I can’t say, right?

JeffKlenda: Well, in the last 5-years, we'vehad three offers for the company and of course none of them were adequate. Theywere all, I would classify as opportunistic. That's fine; you would expect guysto do that. And that's been other players in the space, and it's been privateequity. So you know, look, I mean, look, I'm a lean, clean machine. Everyoneknows that I'm the lowest cost producer. I've got years of production ahead ofme. If you're going to make a grab for anybody in the space where you're goingto buy, well, we know who we are.

Wehave no illusions about that. So, for us, I think that yes, there's alwaysthose ongoing conversations. There's absolutely nothing imminent. And theproblem is, is that over the last three, four years, as we have evaluated a numberof these opportunities, the harsh reality is as well, this guy will sink me inabout a year. If I merge with this guy, he's won't be quite as bad, he'll sinkme in about a year and a half. And this guy, he'll sink me about two and a halfyears. So, but the one thing they all have in common is they'll sink me. So, Ican't, for me it's all about, you know, guys, I know what I can do. I know thatI can sustain myself in a very difficult environment. We've demonstrated thatand we've demonstrated we can do that without diluting our shareholders tooblivion. The only reason you're interested in doing something with me isbecause you know, you can't do that.

So,it's the harsh reality of the market that we find ourselves in right now. But Ilike to believe that the fundamentals are actually turning, that I believe thatthe supply of fundamentals will begin to reassert themselves. We have a lot ofnew reactors starting up at a faster pace and they're shutting down where weare. Technically we are a growth industry and, but the bottom line for us, andthis is probably the most crucial to understand; is that our government, we putthis thing in the national dialogue, we've put it on the national stage with 232and with the working group. And the one thing that our government has beenforced into it, they've been forced into an uncomfortable position. And thatuncomfortable position is, is what are we willing to do to save the fuel cyclein the United States? Because if we don't save the fuel cycle, we lose our seatat the table.

We'vebeen the primary gatekeeper; we've been the primary deterrent to nuclearproliferation for the last 70 years since the beginning of the nuclear age. Andwhat are we going to do? Countries like the Saudis, Russians are going to buildtheir first few reactors. They're going to build them out, they're going todesign them, they're going to fuel them. They'll re eventually decommissionthem and hey, we'll buy and pay for the first 2 or 3.

Wecan't say anything like that. The Saudis have said to our state department,well, why should we do business with you? You guys don't even have a fuel cycleleft – they are right. And so if we want to continue to be players in the game,and particularly if we want to continue to be that deterrent to the nuclearproliferation, I mean, look, the bad guys around the globe right now that aregoing rogue and causing a lot of trouble: whether it's North Korea or Iran,Pakistan, or whomever, they didn't get it from us. So, what are we going to do?We're going to cede that seat at the table to the Russians and the Chinese? Youcan't do that.

MatthewGordon: It kind of feels like the Americans already have ceded that seat inreality, but hey, Jeff, that's a conversation for another day. That's aconversation for another day. Jeff, I want to say thank you very much for beingso candid and refreshingly honest and straight forward about what you see isgoing on here. I'm interested in your timing.

JeffKlenda: It’s funny; the utilities findmy candour to be a bit off-putting. Thank you for appreciating that.

MatthewGordon: Well I guess shareholders and buyers would have two different sets ofgoals. But we should catch them again and talk about that geopoliticalcomponent because that does, I think that's fascinating.

JeffKlenda: I’ll tell you when I’ll bewilling to do that when I would feel like really getting in trouble with theutilities.

MatthewGordon: Okay. We might have to defer then.

JeffKlenda: Look there are a lot of positivethings going on and I'll leave your viewers with this thought: we tend tounderstate, we're not overly promotional. In fact, we've been accused of beingtoo transparent and not promotional enough. But the one thing I know for a factis that I've given myself great runway. I wouldn't trade positions with anybodyelse out there in the industry. And I know every other player intimately. I canrun faster than anybody else. I can do it at lower-cost, and I can do it at lesspain and dilution to my shareholders. There's only one of us that gets to saythat. That's U-r Energy.

MatthewGordon: Let's finish on that note. Thank you very much for your time. Let'sstay in touch. Great to hear from you. I hope there's some news. It looks likeit won't be necessarily be today, hopefully next week and I’d love to get yourview on that when it does come out.

JeffKlenda: Let's do it. Yes. Once we getsomething from the working group, let's hope that it's something that'spositive, we're hoping that it's going to be, and doing another one of these onthe heels of that would be quite instructive.

MatthewGordon: Beautiful. Thanks for your time. Have a great weekend.

Jeff Klenda: We will. In our warm temperatures here. Thank you so much

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