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

Interview with a candid Jeff Klenda, President & CEO of Uranium producer, Ur-Energy (TSX: URE, NYSE: URG).

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.

Jeff Klenda: You bet. Well, Ur-Energy, we started now, come the end of the month, we will mark 16-years since I and a couple of other guys founded this company. And I don’t mind telling you, we spent the first 7-9-years as a permitting and licensing story. We finally got our record of decision in October of 2012. We spent the next 9-months building out our processing plant. We you completed it on time and on budget, spent the next 2 months in commissioning, and we’ve been producing now since August of 2013; so for the last six and a half years, we’ve not only been producing but we’ve emerged as the lowest cost producer globally outside of Kazakhstan. I won’t go into the details as to why Kazakhstan is the lowest cost producer, but it sure helps when you devalue your currency by 90%. So anybody can look like an economic marvel when they can do that and still sell into the US market.

 But beyond that of course we were, I think forward looking; our board was, and so was I. Back in 2011 through 2015, we put contracts in place that we still have and are still delivering into to this day in 2020, and a couple into the next year and 2021. That’s given us consistent cashflow, but more importantly, it’s allowed us to navigate this minefield without blowing up our shareholders. And by that, I mean blowing up the cap structure. We’ve only raised USD$22M since Fukushima occurred, and that’ll be 9-years come next week. So, I think that that’s one of the strongest points about our company.

By the way, I am the largest shareholder in this company, unlike most, or virtually any of my peers. I’ve got USD$3.5M of my own money in this, so I am the gatekeeper. I hate issuing shares and we are a very shareholder friendly company.

Matthew Gordon: Thanks very much. Good summary. Can we kick off, there’s a lot of topics 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 232 petition? You’re one of one of the two companies that submitted that petition along with Energy Fuels with Mark Chalmers, who we have spoken to a few times on this program.  I’ve read the press releases; we are talking about adversarial behaviour in the market and security and so forth. I mean, what was the, what was your actual driver for that petition?

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

Matthew Gordon:  Why do you say…what had been said in those meetings that riled you?

Jeff Klenda: What was said in the meeting was that 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 planet back in the early 1980s, late 1970s, producing 43Mlbs, 44Mlbs a year, meeting all of our own personal needs. Unfortunately, that changed over the years and it really changed with the accelerated production coming out of Kazakhstan. We believe that it is very, very dangerous to become this reliant on Russia, Kazakhstan, and Uzbekistan, and so we filed a section 232 basically opposing that and suggesting that we needed to preserve the fuel cycle in the United States, and we thought that the best, most benign way to do that would be by simply imposing a quota, saying to the US utilities, you can go out there and you can buy whatever you want from whomever you please, but you have to buy a 20% to 25% from domestic producers. We’ve got to keep the fuel cycle alive. And Rick Perry agreed.

He used the term, ‘this is a national security issue’, no less than a half a dozen times in that meeting. And effectively said to me, bring me a 232 Petition because he wanted something that would bypass a deeply divided and extremely partisan Congress. Of course, everyone knows that characterises our extremely dysfunctional government here in the United States and give me something that I can 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 had hoped for. But nonetheless, it gave birth to the working group, and we are we’ve seen positive outcomes from the working group. Obviously, the line item that went into Trump’s 2021 fiscal year budget; that’s a good start. But we are now waiting for what we are told is going to be immediate short-term relief to come out of the working group. That was as of last Monday. The Government functions on its own timeline, so we continue to wait.

Matthew Gordon: If you don’t mind, let me just finish off the 232 component. You have given lots of reasons that, I mean you genuinely believe that this is a security issue, not an economic one. So, what is to stop the US Government going and getting everything, they need from the Australians, the Africans?

Jeff Klenda, Well, the problem is that the general belief in this, this isn’t the first section 232, the first one was brought in 1988 because we had actually gotten down to the point where we were only providing 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 our fuel needs were coming in from outside the United States. And the utilities would make the argument that, well, this is not a problem because of course, we can get all that we need from our good friends; the Canadians or the Australians or others around the world. Well, sadly, we all have come to believe and understand that that’s not true. Australia’s production is really basically down to whatever BHP produces there as a by-product. And the Canadians are only producing now out of one facility, at cigar Lake. They have shut down the largest production facility in the world because the economics simply do not support it and they don’t have long-term contracts to support it.

So the sort of harsh reality is, is that now, especially after there was no action taken 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, and yet it supplies 20% of our base loads. So while I am I am grateful that we have Donald Trump in the White House, because he is a supporter of nuclear, and it’s nice to have that for a change, we understand we were not the constituency of the Obama administration, I don’t want this to become political, but it’s nice to have a friendly in the White House for our industry, and I think that when he is saying now that we have become energy independent – well, yes, except for that 20% that nuclear counts for our base load, which we are 100% reliant on foreign powers for.

And sadly now, because of the closure of McArthur River, whereas before we were about 40% reliant on Russia, Kazakhstan and Uzbekistan, we are now well in excess of 50% reliant on those 3 countries. And keep in mind, this something that is imperative to understand and that is that the Russians actually control and own a significant portion of the Kazakh production. So when you take a look at 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 rely on them; well, no; Vladimir Putin owns it. He controls it and he will dictate where that material goes and when. So, this is something that is not well-understood but we like to think that we have done a pretty good job of making the Department of Defence, Department of Commerce, and the Department of Energy well aware of this. So now, as we are facing a whole new battle with the Russian suspension agreement, these things are coming into play and the battle lines have been drawn.

Matthew Gordon: Like I said, before we started this interview, I think you suggested that perhaps there’s another conversation to be had there before we get drawn into the politics and geopolitics of this. So, let’s come on to the recent announcement: 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 who that’s going to, where that’s going to, how its being divided up. It’s just a number that seems to have been plucked from the air.

Jeff Klenda: That’s correct.

Matthew Gordon: What do you know?

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

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

So, to paint a bit of an, unfortunately, ugly picture here, if you can imagine, we get 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, ‘my pork 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 the Thanksgiving break, which we’ll send them all home for five days, and what I think will happen then is that it’s going to be a knock-down and all bloody fight all the way up until the day before Christmas Eve, and they’ll come up with something last minute that everybody thinks they can live with, and mainly so that they can go home for Christmas. So sadly, that’s the way we do things in the United States.

Matthew Gordon: I think that’s fascinating. And I do want to get into your business model, your plan. You’re working and operating in a very complex but also difficult commercial environment right now, okay. And I’ve got to admire all of the CEOs who are having to do what they need to do to survive. Well, except for the ones who are perhaps being economical with the truth; not so much them, but there’s a great group of hardworking CEOs who are trying their best to do the best for shareholders. And I want to talk about what you are doing. I’ve read you’ve been through a cost cutting exercise, you’ve renegotiated payment terms and I suspect contracts, and that’s not easy. I’ve been in that situation myself. These are commercial and human decisions you’re making. I mean, can you talk people through some of the things that you’ve had to do over the past couple of years, two, 3-years to actually get to this point?

Jeff Klenda: Sure. Let’s keep it down to a manageable timeframe; 4-years ago I was just under 100 employees. Today I’m 30 and that represents 4 reductions in force and the last one was probably the most difficult of all. And that was because you’re starting to, when you get down to that low, you’re starting to cut into guys that have been with you for 8, 9, 10-years. That is extremely hard for people.

Matthew Gordon: That hurts, that hurts.

Jeff Klenda: So, what we did, most importantly, is that we have not waited for somebody to kick us in the behind and say, look, you guys need to cut costs. We have always been way out in front of 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 shares have just, you know, cut by 40%, we’ve lost 40% of our value, we’ve got to get out there. We’ve got a market. We’ve got to try and get our share price back up. We didn’t do that. Frankly, I didn’t see much point. I didn’t think there was a very big audience. A lot of folks have just been burned because they had been speculating on what the outcome of 232 would be, so we decided to stay home, clean off our own front porch.

We went department by department. We engaged in cost cutting. That was extremely severe but very, very effective. We did a reduction in force where we took down into 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, our industrial revenue bond, where we now have gone from making a quarterly payment from USD$1.5M per year, a quarter to where it’s USD$178,000 per quarter, and for the next six quarters that will save us USD$7.8M. So, it’s been things like that that we’ve had to do, but we felt that it was critical.

Matthew Gordon: That’s, just to clarify, that’s deferred, right?

Jeff Klenda: We had it out on the runway.

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

Jeff Klenda: That’s correct.

Matthew Gordon: Okay. So you’d need, you’re basically saying, we’ve got some revenue coming in, which is great, and I do want to talk about that in a second, but the cost cutting is, is the bit which is, it gets you the runway, to use your phrase, down the line, so that you are not going to shareholders and asking for more money to sit around doing nothing. Okay, let’s talk about the production then and once we’ve understood the revenues coming in and the cost, maybe we can have a useful discussion about what that looks like today. So, last year, 2019 look like what, in terms of sales?

Jeff Klenda:  Well, we had a good year last year and we just came out with our financials last Friday. We ended up delivering into the market 665,000 lbs Uranium at an average price of USD$48, USD$50, just under USD$49 p/lb. We chose to purchase more than 2/3rds of those pounds and we purchased them at an average cost of USD$26 in the marketplace. And so, we were able to effectively scrape the delta out of that between the shares that we were delivering into our contracts and then our purchase price in the marketplace. So, we actually had a quite good year. We did USD$32M in gross revenues. We ended up with gross profits of USD$12.2M. And unfortunately, most of that was wiped out because we no longer have the large scale contracts moving out into 2021, we had to now write down our inventories to a level to reflect current market prices, whereas before, as long as we could say to the auditors, well, I’ve got USD$48 contracts out there, these pounds have a value of USD$48, now I have to say they have a value of USD$25 because just like Cameco and others in the industry, we’re coming to the end of this contracting cycle and so we have limited contracts moving forward, both this year; when we’re going to deliver about 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.

Matthew Gordon: Okay. Well firstly, I like the fact that you’re being honest about the inventory levels and what it represents on the balance sheet. Again, we interview too many companies who try to deceive.

Jeff Klenda: I’ve been accused of being too transparent.

Matthew Gordon: Okay, that’s never a bad thing. Let’s talk about these contracts so that people understand them. Again, because there’s going to be a wide range of understanding here; there’s some guys who watch this thing who are wonderfully informed, and the others are coming new to it, looking at the macro story for Uranium and thinking, well maybe now’s the time, with prices as they are, to be getting in here. So, let’s try and describe the contract versus spot for those people, if you may.

Jeff Klenda: Absolutely. At the present time, spot price, let’s just call it USD$24.50. I think that that’s probably a good workable number, and while there are a number of reporting services in terms of pricing, I think that it would probably be a usable number of right around USD$31 to USD$32 now on term price. And typically, you’re going to have that kind of a delta between spot and term. Now what we’ve seen over the last several years is that we’ve seen kind of a reversal; it used to be 10-years ago that 90% of the material that was sold into the market was done so under term contracts. Of course, 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 the material that is being transacted is being transacted in the spot market. So sadly, that’s the situation we find ourselves in right now. And that does not lend itself to entering into any new contracts moving forward. Not for us, not for Cameco, not for anybody.

Matthew Gordon: Okay. So, break that down for me; you said obviously you’ve had a few contracts for 2018, 2019, you’ve got this 270,000lbs, which you said will be sold at your discretion. That means there’s no contracts against those and that’s more likely. Contracts typically are higher than spot price, again for the 40 and so you sold a quite significant average. Your average, your pounds were sold 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?

Jeff Klenda: Very good year in the fourth quarter, yes.

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

Jeff Klenda: Well, here’s the situation: the last time I gave a public presentation, I had one of our existing shareholders and 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 is if we sell our inventories and if we do at what price we sell them’. So, I think it’s important to understand that first of all, we do have solid cash coming into the year and we’ve got revenues from our many contracts. Those are enough to get us through to the remainder of the year. Now, once we get to the fourth quarter of 2020, the question will become, have we been able to sell our contracts? This is why we’re waiting for the most recent report that is due any time now. We were told it was going to be coming out on Monday or Tuesday. It’s Government – I don’t place much stock in that. I’ll believe it when I see it. I’ve been at this long enough to know what my government means by immediate is not necessarily what I mean by immediate, and what they mean by relief may not mean relief.

Matthew Gordon: Then I’ve got a small anecdote for you: I was working in Africa and when 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’, which meant now. So, I have some sympathy.

Jeff Klenda: One of our Directors spend a lot of time in Africa and he said that the phrase in Africa is, ‘it can happen anytime from now.

Matthew Gordon: Right, sorry to interrupt, but yes, if we could just talk about contracts just a little bit longer here because you described earlier on in this interview, your scenario; what you think the scenario would be politically this year. There’s a lot of events which would possibly prevent Government from making 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 of this year, and the end of some of these contracts to generate revenues to see you through to the end of the year. Plus, you’ll have your 270,000lbs at your discretion 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 you in 2021?

Jeff Klenda: Well I think you’ve driven down to the heart of it now. It all comes down to the contracts and what we’re hoping for, 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 Monday morning, we had Senator Barrasso in there peppering him with questions, asking him, well, when are we going to see this report? It’s critical to us because one 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. It doesn’t do me any good three years from now. I’m in a better position than anybody else in the industry, and I know that by the time I get into the second quarter of 2021, whether by that time I will have sold my inventories, I’ll need 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 since Fukushima.

We haven’t had to do that. We have only raised USD$22M since Fukushima; we have been very fortunate. But what we are hoping for, and what we have spoken to Kudlow about and what we have spoken to each of the members about the working group about; this is the fact that we need immediate relief. Now, what form might that take? Well, for the two producers, the two legitimate producers that remain: us and Energy Fuels, that immediate relief, we hope will take the form of 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 those inventories, those are domestically produced pounds, they can be used to convert and enrich and become what is called, ‘unobligated material’.

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

Matthew Gordon:  Right. Okay. Again, a lot of a lot of things in there. The question was what happens in 2021 and I think you’ve gone back to; well it depends if there are any meaningful announcements between now and then.

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

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

Jeff Klenda: They’ve asked and we have provided this data to them, not only during Section 232, we provided a lot of data to the Department of Commerce, but even the working group itself, we have provided, we formed our own core working group and that included not only ourselves and Energy Fuels, but the conversion and the enrichment as well. And we presented our own white paper to the White House through Larry Kudlow, as chairman 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 to somebody 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 I could get somewhere around USD$$60lbs or greater. And so, I’m going to say that if that’s a number that’s good enough for them, that’s what’s good enough for me. But we have demonstrated that we can not only function well at USD$$60lbs, I think people have seen how we functioned at USD$50lbs.

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

Matthew Gordon: 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 think the chances of a utility sitting down with a Uranium junior whose pounds are in the ground and saying, I’ll give you something. I’ll give you a contract for something. Is that reality?

Jeff Klenda: I think that they may, but I think that they’re going to be very guarded. I think what they’re going to do in this, and look, I know all the utility buyers, I see them at all the conferences. We’ve done business with six of them when we had all of our contracts 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 by quickly. But you know, when you talk to those guys, I think a couple of them said, well, you know, you guys haven’t produced yet so we won’t give you maybe the 200,000lbs that you’re asking for, but we’ll go 100,000lbs with you, or, we won’t give you the 300,000lbs you are asking for, we’ll go 150,000lbs. And you have to prove yourself. I mean, look, these guys have seen it all.

And one of the things you need to understand about the utilities is that the buyers are, they’re smart guys. They’ve been in the industry a long time. They’ve seen it all. They know all the players. I mean, the one thing about our industry is that the BS doesn’t go very far, and the reason being is because they know those projects as well as we know them ourselves. Not only are we getting to be a 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 think that we can have a cash cost thereof under USD$15lbs, and they’ll say, well yeah, but that’s in this area, in that area. But then by the time you get over into this area, don’t you expect a little higher cost by the time you get there?

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

I mean, you’ve got to get to 1Mlbs, and you’ve got to stay at 1Mlbs, come hell or high water, rain or shine, doesn’t matter, you got to stay there. And utilities when they’re giving you those contracts and trust me, they’re going to assess that. 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 down with 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.

Matthew Gordon: It’s an interesting area for debate as well because again, we have spoken to a lot of Uranium juniors CEOs from all around the world, and you know, the management teams have varying degrees of ability and they are absolutely working hard. The tough bit here is walking into, not getting some fund to invest in your equity because they’re taking a bet on the Uranium space. But funding the capex to develop these things out. These are some pretty big numbers here, right?

Jeff Klenda: You’ve got to be the real deal.

Matthew Gordon: Yes.

Jeff Klenda: I think, I mean, look, I’ll tell you, 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 like you’ve got a great project here, great management team, but you’ve never produced before. You need to build this thing out. So they just told us quite candidly, we won’t fund you the first time around, but come to us the second time 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.

Matthew Gordon: But that’s the gap I’m concerned about in the marketplace with, you know, 50 players now, down from the heights back in the day, 500, 400 – 500 Uranium companies, but down to 50, more manageable. But I just feel that initial hurdle is the biggest hurdle. You know, of course I used to say the same phrase, we’ll give you the money after you’ve got it going. You know. Bankers offer you an umbrella 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 how they get that initial either cornerstone investor or institutional, from wherever to get this thing going. You know, getting a couple of small contracts is not going to be enough to get some of these banks to move because it’s too risky. It’s far too risky. So, do you see, how do you see these small companies enabling themselves to get funded? What do they need to say? What do they need to do?

Jeff Klenda: Well, unfortunately, first of all, I think that your numbers are a bit high; are there 50 companies out there? I would say there’s less than 50, and the vast majority of them are explorers, usually in Canada or Australia. When it comes to those that are actually capable of producing, that number gets down to a dozen or less. When it gets down to the number in the United States, that may actually have the capability of producing, and particularly for government purposes, say under the $150M line item in the budget, or something else that may come out of the working group or whatever the case might be. Well now that number gets still smaller, and unfortunately that is…

Matthew Gordon: What’s the number, Jeff?  Is it 2?

Jeff Klenda:  I think that there are potentially, and I say potentially, 4. And I think that, but now keep something in mind here; this is something that we, by the way recently received a request for information from the Department of Energy that we filled out. One of the things that we had to list in there as a caveat was, we’ll keep in mind this depends, because if the United States were to ramp up to expose production capability, you can’t do that without Uranium One coming back into production. And you can’t do it without Cameco coming back into production.

So, the question here becomes, what are we capable of producing? Well that depends on a couple of the foreign players that are right now on standby. And so, of the 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 as well as I do when you’re an issuer, I walked through a lot of portfolio manager’s doors and invariably the smart ones, the good ones anyway, ask you one question before you leave: what am I not asking? What am I missing? What am I overlooking here? What is the potential landmine you could trip on that could blow all this up for you? And what they’re not asking right now is what is your capex to get to any minimal reasonable level of production that you can sustain? And that is the question that’s not being asked.

And so what I’ve done, and what we’ve done as a company is what we’ve looked at everybody and we’ve looked at the players that we believe even have a reasonable shot of getting into production. How long it would take them to get there and we’ve just decided, okay, let’s come up with a number that we apply to everybody. 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 sustain it. 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.

Shirley Basin is going to cost me about USD$25M because I have to build a satellite plant there.

So, for me that number is over a 2-year period of time. It’s about USD$40M. More than likely I would go out there, I would probably do debt financing against contracts. I won’t build out. Nobody’s going to build out without contracts and they 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 very selective.

Like I hate issuing shares. Everyone knows that about me. I’m very stingy when comes to 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 they know 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 of sustainable production. So, I think that what we need to do here is, we need to change the dialogue a little bit in terms of let’s just assume, let’s just give you the benefit of the doubt and assume that you can get to this 2Mlbs per year. What’s your timeline? What’s your cost? More importantly, what’s your dilution to your shareholders in getting there? I know what mine is.

Matthew Gordon: That’s the name of the game. It’s the name of the game.

Jeff Klenda: At the end of the day, it’s the only thing that matters. Right?

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

Jeff Klenda: Well, in the last 5-years, we’ve had three offers for the company and of course none of them were adequate. They were all, I would classify as opportunistic. That’s fine; you would expect guys to do that. And that’s been other players in the space, and it’s been private equity. So you know, look, I mean, look, I’m a lean, clean machine. Everyone knows that I’m the lowest cost producer. I’ve got years of production ahead of me. If you’re going to make a grab for anybody in the space where you’re going to buy, well, we know who we are.

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

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

We’ve been the primary gatekeeper; we’ve been the primary deterrent to nuclear proliferation for the last 70 years since the beginning of the nuclear age. And what are we going to do? Countries like the Saudis, Russians are going to build their first few reactors. They’re going to build them out, they’re going to design them, they’re going to fuel them. They’ll re eventually decommission them and hey, we’ll buy and pay for the first 2 or 3.

We can’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 cycle left – 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 nuclear proliferation, I mean, look, the bad guys around the globe right now that are going 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? You can’t do that.

Matthew Gordon: It kind of feels like the Americans already have ceded that seat in reality, but hey, Jeff, that’s a conversation for another day. That’s a conversation for another day. Jeff, I want to say thank you very much for being so candid and refreshingly honest and straight forward about what you see is going on here. I’m interested in your timing.

Jeff Klenda: It’s funny; the utilities find my candour to be a bit off-putting. Thank you for appreciating that.

Matthew Gordon: Well I guess shareholders and buyers would have two different sets of goals. But we should catch them again and talk about that geopolitical component because that does, I think that’s fascinating.

Jeff Klenda: I’ll tell you when I’ll be willing to do that when I would feel like really getting in trouble with the utilities.

Matthew Gordon: Okay. We might have to defer then.

Jeff Klenda: Look there are a lot of positive things going on and I’ll leave your viewers with this thought: we tend to understate, we’re not overly promotional. In fact, we’ve been accused of being too transparent and not promotional enough. But the one thing I know for a fact is that I’ve given myself great runway. I wouldn’t trade positions with anybody else out there in the industry. And I know every other player intimately. I can run faster than anybody else. I can do it at lower-cost, and I can do it at less pain and dilution to my shareholders. There’s only one of us that gets to say that. That’s U-r Energy.

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

Jeff Klenda: Let’s do it. Yes. Once we get something from the working group, let’s hope that it’s something that’s positive, we’re hoping that it’s going to be, and doing another one of these on the heels of that would be quite instructive.

Matthew Gordon: 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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