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Edited Transcript of LTBR earnings conference call or presentation 18-Mar-20 8:00pm GMT

Q4 2019 Lightbridge Corp Earnings Call

MCLEAN Apr 14, 2020 (Thomson StreetEvents) -- Edited Transcript of Lightbridge Corp earnings conference call or presentation Wednesday, March 18, 2020 at 8:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrey Mushakov

Lightbridge Corporation - EVP of International Nuclear Operations

* Barbara Kanakry

Lightbridge Corporation - Controller

* James D. Fornof

Lightbridge Corporation - VP of Government Program Management

* James P. Malone

Lightbridge Corporation - Senior VP & Chief Nuclear Fuel Development Officer

* Lawrence Goldman

Lightbridge Corporation - CFO

* Seth Grae

Lightbridge Corporation - President, CEO & Executive Director

* Matthew Abenante

Porter, LeVay & Rose, Inc. - SVP

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Presentation

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Operator [1]

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Thank you for standing by, and welcome to the Lightbridge Corporation Business Update and Fiscal Year 2019 Conference Call. Please note that today's call is being recorded. It's now my pleasure to introduce Matthew Abenante, Investor Relations for Lightbridge Corporation. Please go ahead.

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Matthew Abenante, Porter, LeVay & Rose, Inc. - SVP [2]

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Thank you, Kevin, and thanks to all of you for joining us today. The company's earnings press release was distributed after the market closed yesterday and can be viewed on the Investor Relations page of the Lightbridge website at www.ltbridge.com.

Joining us on the call today is Seth Grae, Chief Executive Officer; along with Larry Goldman, Chief Financial Officer; Andrey Mushakov, Executive Vice President for Nuclear Operations; Jim Malone, Senior Vice President and Chief Nuclear Fuel Development Officer; Jim Fornof, Vice President for Program Management; and Barbara Kanakry, Controller.

I would like to remind our listeners that any statements on this call that are not historical facts are forward-looking statements. Today's presentation includes forward-looking statements about the company's competitive position and product and service offerings.

During today's call, words such as expect, anticipate, believe and intend will be used in our discussion of goals or events in the future. This presentation is based on current expectations and involve certain risks and uncertainties that may cause actual results to differ significantly from such estimates.

These and other risks are set forth in more detail in Lightbridge's filings with the Securities and Exchange Commission. Lightbridge does not assume any obligation to update or revise any such forward-looking statements whether as a result of new developments or otherwise.

With that, I'd like to turn the call over to our first speaker, Seth Grae, Chief Executive Officer of Lightbridge. Hello, Seth.

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Seth Grae, Lightbridge Corporation - President, CEO & Executive Director [3]

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Thank you, Matt, and thank you all for joining us this afternoon. Before we begin, I wanted to let our listeners know that we've been advised by our legal counsel not to discuss any matters relating to Framatome or our joint venture, Enfission, on today's call in light of our ongoing arbitration proceeding. However, we will continue to provide updates as they become available in our SEC filings in accordance with regulation full disclosure.

We ended fiscal year 2019 on a high note, poised to enter a new phase of our company's development with our first funding award from the U.S. Department of Energy, DOE, a voucher from DOE's Gateway for Accelerated Innovation in Nuclear, or GAIN, program to support development of Lightbridge fuel in collaboration with Idaho National Laboratory.

The scope of the project includes experiment design for irradiation of Lightbridge metallic fuel material samples in the advanced test reactor at Idaho National Laboratory. The project is anticipated to commence in the first half of 2020. We've discovered that the federal government has made nuclear a truly bipartisan issue. We believe that demonstrating excellent performance under the GAIN voucher will be helpful for our future grant applications.

Based on our contract with Idaho National Laboratory and others, at this time, we do not foresee issues relating to COVID-19, coronavirus, slowing or postponing the work relating to the GAIN voucher. Facilities at Idaho National Lab are spread out over about 900 square miles. So it's a relatively easy place for people to stay apart. People who need to work on computers in offices, we hope, can work at home.

We also released a video in late December, demonstrating Lightbridge's co-extrusion manufacturing process using surrogate materials for the production of full commercial length Lightbridge fuel rods for large light water reactors and small modular reactors. The surrogate materials in the demonstration were selected to demonstrate the flow stresses, temperatures and extrusion pressures expected in the manufacture of actual Lightbridge fuel rods, which utilize a uranium-zirconium alloy.

It is our goal to bring Lightbridge fuel to market as quickly and at the lowest cost to stockholders as practical. We are designing our fuel to make existing reactors able to compete and win financially against natural gas and renewables and other nuclear fuels.

Lightbridge fuel is also compatible with and can further improve the economics of new, smaller, safer reactor designs that will significantly increase the amount of carbon-free energy. We are dedicating 2020 towards a focused execution of near-term milestones in a timely and cost-efficient manner.

Our team will continue to communicate with government officials, laboratory personnel and others to learn how actions to prevent the spread of COVID-19 are affecting their plans and could relate to our work. We are actively reviewing opportunities and strategies to advance development of our fuel and protect our shareholders' interests.

Everyone in our company can work from home, and we are prioritizing everyone's safety. For example, we do not have a conference room for this call and are all calling in separately. We expect the plans we are setting forth for the company to be achievable even during this turbulent period.

I'll talk in more detail about these plans in a moment as well as other meaningful developments for the company. First, let me turn the call over to Andrey Mushakov, our Executive VP for Nuclear Operations, who will review our near-term research and development opportunities. Andrey?

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Andrey Mushakov, Lightbridge Corporation - EVP of International Nuclear Operations [4]

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Thank you, Seth. First, as Seth mentioned, we demonstrated the co-extrusion manufacturing process using surrogate materials for 12-foot commercial length fuel rods for large light water reactors as well as 6-foot rods for small modular reactors. The surrogate materials are designed to simulate the flow stresses, temperatures and extrusion pressures expected in the manufacture of the Lightbridge fuel rods utilizing uranium-zirconium alloy.

We have begun exploring potential opportunities in the CANDU fuel market. CANDU Reactors are pressurized heavy water reactors, which have online refueling, making it less risky from a technical standpoint for our Lead Test Rods assemblies and their reactors.

With online refueling, lead test rods or lead test assemblies with our fuel rods can be inserted and removed without having to shut down the reactor. There are currently 49 CANDU reactors in operation in the world with about half located in Canada.

While we are in the early stages relating to this opportunity, we're optimistic of the potential economic benefits, providing significant cost savings and/or improved plant economics to CANDU utilities. Particularly in Canada, utilities have taken steps to refurbish and extend the lives of CANDU plants. Back to you, Seth.

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Seth Grae, Lightbridge Corporation - President, CEO & Executive Director [5]

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Thank you, Andrey. I want to discuss recent developments in terms of government support at both the federal and state levels. I'm happy to say that we're in perhaps the friendliest environment for nuclear research in several generations.

The U.S. government is making historically large levels of funding and use of National Laboratory facilities available to the American private sector to develop advanced nuclear technology. As part of its broader support for development of advanced nuclear technology, the U.S. government has recently made these reactors available to the industry, which includes our first GAIN Voucher Award.

Then in December, Congress voted to approve appropriations for fiscal year 2020 that included $1.49 billion for nuclear energy programs, an increase of approximately $167 million over 2019. We believe the timing couldn't be better for Lightbridge to benefit from this historic bipartisan support for nuclear energy from the federal government.

In addition to bipartisan support for nuclear power at the federal level, Virginia, our home state, is an example of the same support at the state level. There are currently 4 bills on the Governor's desk with a fifth passing the House, all related to nuclear energy and the advancement of nuclear energy research.

As a member of the Board of Directors of the Virginia Nuclear Energy Consortium, which has helped support this legislation, I think Virginia sees the large and growing federal support for nuclear power, particularly for advanced technologies, and wants to help position companies and universities within the state to receive that federal support. The legislation is also part of a trend in other states and countries to recognize nuclear as part of clean energy.

We believe there will be significant growth in nuclear power, if the world is to meet energy, climate and security needs. We have designed Lightbridge fuel to play a major role in meeting these goals.

Much of the private investment into advanced nuclear technology companies is leveraged with DOE funding support. The new GAIN voucher helps position Lightbridge well for further research and development activities within the U.S. National Laboratory complex, which we intend to help us commercialize Lightbridge fuel. While bringing change to the nuclear power industry is difficult, we remain confident in our ability to succeed.

Now I would like to discuss our near-term fuel development milestones for Lightbridge fuel over the next 12 to 24 months, we intend on completing the scope of work relating to our GAIN Voucher Award in collaboration with Idaho National Laboratory.

In addition, as Andrey alluded to earlier, we will evaluate the use of Lightbridge fuel in the CANDU Reactor market. Further, we anticipate entering into an agreement to manufacture our nuclear fuel material samples for test reactor irradiation. We also intend to begin the initial phase of demonstration of our fuel manufacturing technology, not with surrogate material as we already have done, but with depleted uranium.

I'll now turn the call over to Larry Goldman, our Chief Financial Officer, to summarize the company's financial results for the year.

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Lawrence Goldman, Lightbridge Corporation - CFO [6]

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Thank you, Seth, and good afternoon, everyone. For information regarding our fiscal year 2019 financial results and disclosures, please refer to our earnings release we filed yesterday and our Form 10-K that we will file with the SEC later today. Our balance sheet remains strong --.

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Operator [7]

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Mr. Goldman, I apologize. This is your operator. I'm going to call you right back. I do apologize, we seem to have a cross line.

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Seth Grae, Lightbridge Corporation - President, CEO & Executive Director [8]

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Just hold on a minute, everyone. This is our first time doing a call like this live with everyone in different locations.

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Lawrence Goldman, Lightbridge Corporation - CFO [9]

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Our balance sheet remains strong with a working capital surplus at December 31, 2019, of $18.1 million. We ended fiscal year 2019 with $18 million in cash and cash equivalents compared to $24.6 million for fiscal 2018, a $6.6 million net decrease in cash and cash equivalents.

We are reducing our overhead spend for 2020. We hope to benefit from additional DOE funding, and we hope market conditions improve. This company will continue to take steps, so that our R&D keeps going forward.

Cash used in our operating activities for the year ended December 31, 2019, was approximately $6.7 million. We used cash during the year ended December 31, 2019, primarily to fund our research and development expenses and general and administrative expenses.

Cash used in investing activities decreased $2 million to $3.8 million in 2019 from $5.8 million in 2018. This decrease was due primarily to the decrease in capital contributions made to the joint venture, Enfission. This cash outflow was partially offset by net proceeds from the sale of approximately $3.8 million of our common stock for the year ended December 31, 2019.

In support of our long-term business and future financing requirements with respect to our fuel development, we'll be seeking new strategic alliances and may obtain cost-sharing contributions by receiving additional funding from others in order to help fund our future R&D milestones, leading to the commercialization of our fuel.

I'll now turn the call over to Barbara Kanakry, our Controller, who will go over some select P&L financial information for fiscal year 2019.

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Barbara Kanakry, Lightbridge Corporation - Controller [10]

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Thank you, Larry. Total corporate and research development expenses amounted to $2.7 million for the year ended December 31, 2019, compared to $3.5 million for the year ended December 31, 2018. This decrease of $0.8 million was due to the decrease in corporate research and development activities supporting the Enfission joint venture. Research and development expenses consist primarily of employee compensation and related fringe benefits and the allocable overhead costs related to the research and development of our fuel.

General and administrative expenses for the year ended December 31, 2019, were $5.7 million compared to $6.7 million for the prior year. This decrease of approximately $1 million was due to a decrease in stock-based compensation of approximately $1 million and a decrease in professional fees of approximately $0.2 million, which was due to a decrease in legal fees, accounting fees and other professional fees. These decreases were offset by an increase in employee compensation and employee benefits of approximately $0.2 million due to an increase in the number of employees.

Total stock-based compensation included in general and administrative expenses was approximately $0.4 million and $1.4 million for the years ended December 31, 2019 and 2018, respectively.

Other operating expenses were $2.6 million for the year ended December 31, 2019, compared to the $4.8 million for 2018, a decrease of $2.2 million. The equity in loss from the Enfission joint venture decreased by $2.5 million in 2019 due to the decrease of research and development activities in the joint venture. Other income from research and development support provided to Enfission decreased by $0.3 million also due to the decrease of research and development activities in Enfission in 2019.

Net loss for the year ended December 31, 2019, was $10.6 million compared to $15.7 million for 2018. This decrease of $5.1 million was due to decreased research and development expenses, decreased general and administrative expenses and a decrease in equity loss from the Enfission joint venture. Now over to you, Seth.

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Seth Grae, Lightbridge Corporation - President, CEO & Executive Director [11]

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Thank you, Barbara. Before we get to your submitted questions, I want to take this time to thank our stakeholders, including our employees, vendors and our shareholders for your continued support. We are certainly not satisfied with where our stock price is today. And we have taken measures, both internally and directly with the investment community, that we will -- that we believe will help deliver long-term sustainable value to our shareholders.

We've discussed important business milestones that we intend on delivering upon in order to commercialize our fuel and take advantage of the opportunities before us in the nuclear industry.

The nuclear power industry is at an inflection point. Additional large reactors will close, and we believe not enough new ones will be built to take their place in the U.S. and abroad. Lightbridge fuel can help the remaining and new large reactors compete against natural gas and renewables. Furthermore, the development of new, smaller, safer reactors, which our fuel can further optimize opens the door for the next-generation of reliable nuclear power.

The Lightbridge leadership team is dedicated to creating long-term shareholder value, and we remain focused on our pursuit of full-scale commercialization of Lightbridge fuel as quickly as possible.

Thank you for your support and belief in our vision to capitalize on the opportunity before us in the nuclear industry. And with that, we will now go to the question-and-answer session. Thank you to everyone for submitting your questions ahead of today's call.

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Questions and Answers

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Matthew Abenante, Porter, LeVay & Rose, Inc. - SVP [1]

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Thank you, Seth. And again, thank you to all the investors who submitted questions. Our first question, Mr. Grae mentioned in the previous conference call that Lightbridge expects to start in the coming weeks some work on a consulting project with a nuclear regulatory authority overseas that will bring in some revenue. What happened to this?

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Seth Grae, Lightbridge Corporation - President, CEO & Executive Director [2]

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This seems to be moving forward. We're waiting for the overseas authorities to start work with us.

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Matthew Abenante, Porter, LeVay & Rose, Inc. - SVP [3]

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Our next question. What is the concrete aim of this company? Is the aim to create shareholder value? Or is it to get the technology to the market regardless of what it means for shareholders?

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Seth Grae, Lightbridge Corporation - President, CEO & Executive Director [4]

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Our fiduciary duty is to the stockholders. The stockholders have invested in a company focused on bringing Lightbridge fuel to market. We believe that bringing the fuel to market will bring great value to the shareholders. We know the share price hasn't reflected that value for some time, and we are working to turn that around with our fuel developments.

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Matthew Abenante, Porter, LeVay & Rose, Inc. - SVP [5]

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Our next question, do you plan to register for additional government grants?

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Seth Grae, Lightbridge Corporation - President, CEO & Executive Director [6]

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Andrey, you'll take that one?

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Andrey Mushakov, Lightbridge Corporation - EVP of International Nuclear Operations [7]

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Sure. Yes, we are preparing to begin our first DOE-funded work under the GAIN voucher. We believe that demonstrating excellent performance under the GAIN voucher will be helpful for our future grant applications.

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Matthew Abenante, Porter, LeVay & Rose, Inc. - SVP [8]

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Our next question, what are you doing to raise awareness in your stock?

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Seth Grae, Lightbridge Corporation - President, CEO & Executive Director [9]

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While we've discussed other initiatives that we're taking within the investment community, ultimately, we need to achieve the upcoming milestones that we've set out. We're about to begin working with Idaho National Lab. And what happens there gets some attention.

As we achieve the milestones, we believe they will be worthy of media attention as our company has received coverage in the past. Our work fits well with the large and growing federal government support for advanced nuclear technology, which helps call attention in the media to nuclear technology.

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Matthew Abenante, Porter, LeVay & Rose, Inc. - SVP [10]

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Our next question, can you give us a time line on the Idaho Project? Once completed, then what happens?

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Seth Grae, Lightbridge Corporation - President, CEO & Executive Director [11]

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Jim Fornof, take that one?

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James D. Fornof, Lightbridge Corporation - VP of Government Program Management [12]

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Yes, Seth. In the last several weeks, we've been working with the Idaho National Lab on the contract for the GAIN voucher work. And we expect to complete the contract and to begin work on the project in the coming weeks.

Once under contract, the Lightbridge and INL team will establish the test plan for the measurement of key thermophysical properties of our fuel materials, both before and after irradiation in the advanced test reactor at INL. INL will then perform a detailed design and establish the safety case for the experiment in the ATR. This will include the control of parameters such as thermo hydraulic capacity, maximum sample temperature, neutron fluence and the physical location of the test capsules within the ATR.

The output of this project will be the complete design and safety case needed for insertion of the experiment into the ATR. And the time line for this effort is 12 months from project initiation.

In parallel with our efforts under the GAIN voucher, we expect to separately contract with INL and others for the HALEU material and fabrication of the sample coupons for the experiment. Our goal is to have these sample coupons available for insertion into the ATR when its core internal change out maintenance outage is complete in mid- to late 2021.

The actual experiment insertion is subject to the final duration of the outage, the availability of testing positions in the ATR and INL's prior commitments for testing. Once the required burn up is achieved in the ATR, we would expect to perform the post-irradiation testing of the coupons at INL's facility as well.

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Matthew Abenante, Porter, LeVay & Rose, Inc. - SVP [13]

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Our next question, what effect will the governments that are for atomic energy have on the company? And how soon can you begin to see some activity as a result of the governments being more bullish on atomic energy?

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Seth Grae, Lightbridge Corporation - President, CEO & Executive Director [14]

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As mentioned in the prepared remarks, we're seeing growing bipartisan support in Congress and within the Trump administration for nuclear power. Just recently on March 5, new legislation H.R. 6097, the Nuclear Energy Research and Development Act was introduced in the House of Representatives. The bill would authorize critical research, development and demonstration programs at the Department of Energy's Office of nuclear energy.

Lightbridge has formally endorsed this legislation with the following quote that is actually on the U.S. House of Representatives' website from us. I'll just read it off there, "Developing next-generation nuclear technologies will help us meet our energy and climate challenges, which is why we support the legislation proposed by representative Conor Lamb, Democrat of Pennsylvania and representative Dan Newhouse, Republican of Washington. By encouraging development of advanced nuclear fuel and reactor designs, this legislation would reinforce American leadership in a strategic sector." And we expect this legislation to move through Congress and become law later this year.

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Matthew Abenante, Porter, LeVay & Rose, Inc. - SVP [15]

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Our next question, the NRC is supporting HALEU fuel as the nuclear fuel for the nuclear reactors. Lightbridge uses metallic fuel rods. What advantages do they have over HALEU fuel rods?

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Seth Grae, Lightbridge Corporation - President, CEO & Executive Director [16]

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Okay. So Jim Malone will take this one.

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James P. Malone, Lightbridge Corporation - Senior VP & Chief Nuclear Fuel Development Officer [17]

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Yes. HALEU or H-A-L-E-U means uranium enriched by weight percent to no more than 5 weight percent and less than 20% uranium 235 content. The NRC doesn't support using any specific fuel. The NRC's function is to review fuels submitted to them for review. Some fuel concepts will use HALEU in the range of 5% to 10%.

Lightbridge's all-metal fuel rod design has superior thermal conductivity compared to other fuel designs. Lightbridge fuel rod's superior thermal conductivity allows the fuel temperatures to remain below the temperature where there is a chemical reaction between the fuel cladding and the steam in the reactor vessel after a loss of coolant accident.

Lightbridge fuel takes advantage of the superior conductivity to support reactor operations at increased power or for longer operating cycles. Fuel users perceive value-added when they have choice of increased power or longer operating cycles.

We know of no other fuel design for the current reactors or the near-term small modular reactors that can do that. The only other reactor concepts that could are the advanced generation-4 reactors being designed for many years in the future. Almost all of them will need HALEU at the level of enrichment that Lightbridge will use, and some of them will need metallization.

The success of Lightbridge is the most likely way to create this near-term demand and supply for HALEU and metallization, that advanced reactors are counting on. We also believe it will be in the strategic interest of the U.S. government to have large-scale commercial production of HALEU, which we believe Lightbridge fuel will help bring about.

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Seth Grae, Lightbridge Corporation - President, CEO & Executive Director [18]

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Okay. And let me just add quickly, your definition on HALEU, High-Assay Low Enriched Uranium is by weight percent enriched more than 5%, but less than 20% of uranium 235, just a technical point there.

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Matthew Abenante, Porter, LeVay & Rose, Inc. - SVP [19]

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Our next question, what actions can Lightbridge take in the face of upcoming supply uncertainty regarding INL's downblended HALEU?

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Seth Grae, Lightbridge Corporation - President, CEO & Executive Director [20]

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Okay. Jim Fornof, take this one?

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James D. Fornof, Lightbridge Corporation - VP of Government Program Management [21]

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Yes, Seth. Lightbridge has investigated the DOE's notice of opportunity for the supply of downblended HALEU material from the EBR 2 reactor at INL. Unfortunately, the EBR fuel contains radioactive contamination and other residual impurities that make it impractical for our current objectives.

However, we have had additional discussions with other areas of the DOE laboratory complex, and we believe that sufficient quantities of HALEU will be available to support our testing program at INL as well as for LTA fabrication in the future.

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Matthew Abenante, Porter, LeVay & Rose, Inc. - SVP [22]

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And our last question, what reasonable time lines can investors expect moving forward towards commercialization? And what is the Lightbridge value proposition to attract new funding, investments and maintain or increase company market cap?

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Seth Grae, Lightbridge Corporation - President, CEO & Executive Director [23]

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Jim Malone, take that one?

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James P. Malone, Lightbridge Corporation - Senior VP & Chief Nuclear Fuel Development Officer [24]

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Okay. We anticipate near-term fuel development milestones for Lightbridge fuel over the next 12 to 24 months will consist of the following: complete the scope of work related to the recent DOE GAIN Voucher Award in collaboration with the Idaho National Laboratory; enter into an agreement to manufacture our nuclear fuel material samples for test reactor irradiation; begin initial demonstration of our manufacturing technology using depleted or natural uranium; and perform evaluation of our fuel for use in the CANDU reactor market.

The long-term milestones towards the development and sale of nuclear fuel assemblies include, among other things: irradiating material samples and/or prototype fuel rods and test reactors; conducting post-irradiation examination of irradiated material samples and/or prototype fuel rods; performing thermal hydraulic experiments; performing seismic and other out of reactor experiments; entering into a lead test rod assembly agreement with a host reactor; demonstrating the production of lead test rods and/or lead test assemblies at a pilot scale fuel fabrication facility; and demonstrating the operation of lead test rods and/or lead test assemblies in commercial reactors.

There are inherent uncertainties in the cost and outcomes of the many steps needed for a successful deployment of our fuel in commercial nuclear reactors, which makes it difficult to predict the timing of the commercialization of our nuclear fuel technology with any accuracy.

Accordingly, based on our anticipated schedule, we expect to begin receiving purchase orders for initial reload batches from utilities, meaning for full commercial fuel sales to power reactors, not for any testing or licensing purposes in about 8 to 10 years. We will continue to seek development funding contributions or other financing arrangements with utilities and the Department of Energy.

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Seth Grae, Lightbridge Corporation - President, CEO & Executive Director [25]

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Well, thank you, Jim, and thank you, everybody, for participating on today's call. We look forward to updating you on our Q1 call. Our lines are always open at ir@ltbridge.com. Stay safe and healthy. Goodbye.