On September 26th, Strathmore Minerals President David Miller presented at the Platts Nuclear Fuel Strategies conference, announcing a large percentage jump in U.S. uranium production over the next decade. Presently, domestic production hovers around 3 million pounds of uranium oxide. Miller forecasts U3O8 production could increase to 25 million pounds by 2016 and maintain this pace through the second decade.

We talked with Miller about his projections and how he arrived at those numbers. He told us the big surprise would be the return of conventional uranium mining – both underground and open pit deposits. While the in situ recovery (ISR) method might quadruple from the current level of production, conventional mining would overtake ISR over the next seven to nine years. Miller believes by 2015, conventional uranium mining production in the United States might come close to 15 million pounds per year.

He also talked about which U.S. states would become the top producers. Miller explained the strong interest in Wyoming and the states’ favorable climate toward uranium mining would keep Wyoming in the Number One spot through 2020. Miller foresees New Mexico becoming the country’s second largest uranium producer, closely followed by Utah. Neither state is currently mining uranium, but both have a long history of high uranium production. Despite a strong increase in production, Texas would fall to fourth place. Colorado and Nebraska would round out the key uranium producing states.

We believe his production estimates – if the current group of junior uranium developers and others meet the 2013 target – might come just in time. The Russian HEU-LEU deal, also known as ‘swords for plowshares,’ expires in 2013. U.S. utilities have been complacent in ensuring an abundant inventory is accumulated in advance of this expiration. If U.S. uranium production meets or surpasses Miller’s projections, this could become a welcome event for U.S. utilities and electricity consumers.

Q& A with David Miller

President of Strathmore Minerals

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StockInterview: Who do you think will become the U.S. uranium producers by 2010?

David Miller: Strathmore is moving forward with two projects, which we are permitting in New Mexico. In Wyoming we could be in production with one or two of our projects by 2010. Permits are the limiting factor. If we had our mining permits tomorrow, we could start construction the next day. By 2010, other uranium producers would include Cameco Corp’s Power Resources with two existing and possibly two additional projects, Mestena and Uranium Resources in Texas, Denison (IUC), Cotter in Colorado, and others who have announced they plan to be in production, such as Energy Metals, UR-Energy and

Uranerz Energy. And a few others may also come into production around that time or later in the decade.

StockInterview: And what will the U.S. production climate be like by 2020?

David Miller: Naming the uranium-producing companies who will be around in 2020 may be difficult, but knowing which properties will likely be in production is easier. Strathmore’s Roca Honda should be in production by then with a proposed new mill in New Mexico. This mill might produce between three and six million pounds of U3O8 per year, fed by the Roca Honda and other uranium mines in New Mexico. The big operation in Wyoming will be the Sweetwater Mill, now owned by RTZ unit Kennecott. Sweetwater would be fed uranium from the Gas Hills and Green Mountain Projects in Wyoming. Blanding (Utah) should be the third largest milling operation in the U.S. The other two mills, Canon City (Colorado) and Ticaboo (Utah) should also be operating at somewhat lesser production rates.

StockInterview: What will happen with ISR operations in the U.S. with the rise of conventional mining?

David Miller: By 2020 I can see eight ISR’s in Wyoming, two in New Mexico and maybe four in Texas. Total production from conventional and ISR could be over 20 million and maybe as much as 30 million pounds per year. The split will be about 60 percent for conventional mining and 40 percent for ISR.

StockInterview: Why do you see Wyoming leading the country and annually producing more than 10 million pounds before 2020?

David Miller: The largest conventional mill is presently in Wyoming. Two operating ISR plants and three additionally permitted operations could start in the near future. A number of companies have already announced their permitting plans. The regulatory and political climate in Wyoming is more comfortable with uranium mining because of the fifty-plus years of continuous uranium production. Uranium mining is recognized in Wyoming as clean and safe. It is also appreciated for the jobs the industry creates and the taxes the uranium production spins off.

StockInterview: Speaking of taxes and jobs, how will this projected increase in uranium production impact Wyoming?

David Miller: Producing 10 million pounds per year would yield close to $25 million in severance and ad valorem taxes. There may be an additional few million in royalty payments on state lands. This additional stream of tax income would be enough to educate nearly 3,000 children per year in Wyoming. For every one million pounds of uranium oxide produced at least 200 direct jobs would be created. If uranium production increases by 10 million pounds per year, I would expect more than 2,000 direct new jobs created. These are mining jobs, which are at the top of the pay scale and with full benefits. Each direct job will spin off a number of support jobs – suppliers, contractors, builders, merchants, educators and the like. About seven jobs are indirectly created for every new mining job. That would have a strong impact in many areas of Wyoming, and especially in New Mexico, where uranium mining should also significantly grow.

StockInterview: But, New Mexico is presently producing zero uranium. Why do you envision this state surpassing Texas and Nebraska in uranium production by 2020?

David Miller: New Mexico has a great uranium history. New Mexico uranium deposits have some of the highest grades in the country. You find elephants in elephant country, and New Mexico has elephant uranium deposits. You do not produce 350 million pounds historically by having poor uranium deposits. The political climate in Grants, New Mexico is also one of the most encouraging environments for uranium mining in the United States.

StockInterview: Of course there are likely to be some disappointments along this production timetable.

David Miller: There will be many disappointments with many of the new companies and deposits they try to mine. There will be permitting delays. Those companies which say they will be in production in two years may be disappointed. ISR is not an easy way to mine. It takes some very skilled people to do it properly. I know of no consulting group in which you can go hire out this expertise. There may be less than twenty people in the U.S. who are capable of running ISR operations at an optimum level. Those companies which have those experts will have fewer disappointments than those who don’t. Many geologic environments which have been promoted as having potential ISR operations may show difficult characteristics, disappointing the owners and shareholders. There will be some winners, but there could probably be more losers in this game.

StockInterview: What will be the key to a successful U.S. ISR operation?

David Miller: The key to ISR will be permeability, grade, thickness, and depth – pretty much in that order. With low or no permeability the deposit will need to be conventionally mined. A high permeability, low or medium grade deposit at less than 1000 feet will be a very attractive operation. After you have a certain volume of uranium to justify the capital costs of an operation, I would rather have good permeability and low grade than low permeability and high grade, if I am going to use ISR as my recovery technique. Of course with conventional mining I will take the highest grades we can get.

StockInterview: How large would a uranium deposit have to be to justify the conventional mining method?

David Miller: Near-surface, open-pittable deposits could be as small as a few hundred thousand pounds to be economic if a mill is nearby. To justify a new mill, for example in New Mexico, a critical mass of about 50 million pounds of uranium is needed. Grades can vary greatly. If the deposit is shallow and mined by open pit, with a mill nearby, then grades could be as low as 0.05 percent U3O8. With a 1500 to 2000-foot underground mine, grades above 0.20 percent may be required.

StockInterview: How many U.S. uranium deposits do you suspect can be economically mined using conventional methods for less than $65/pound?

David Miller: There are probably more than one dozen deposits in the U.S. with uranium resources recoverable at less than $65/pound. The resources would likely exceed more than 200 million pounds.

StockInterview: Why do you believe companies will proceed with conventional mining instead of ISR mining? They are more expensive to set up and more labor-intensive.

David Miller: Conventional mines will access much larger deposits. The individual projects which justify a mine and mill will have to be deposits of 30-million to 50-million pound and larger. Also, with higher grades a deposit has less permeability. You cannot properly address the mineralization with ISR in the higher grade deposits. Percent-recovery of the total uranium resource should generally be higher with the conventional mining. Conventional mining can recover all the good ore, even in low permeability areas.

StockInterview: It appears Strathmore Minerals and SXR Uranium One plan to move forward with conventional mining. What obstacles do you expect as you come closer to mining your deposits?

David Miller:

The Number One problem will be finding experienced miners. It has been over twenty years since we did conventional mining. I was involved in the very last underground uranium mine in Wyoming. The miners I worked with are all in their fifties now or older. While some would make great mentors we will need a new generation of young, tough miners that are not afraid of getting dirty. We may have to recruit some from the hard rock mines of Canada to teach the new generation of miners in Wyoming and New Mexico.

StockInterview: When do you think conventional uranium mining will overtake the ISR method in the United States?

David Miller:

The key is the four existing mills in the United States. They could all be up and running by 2012. Conventional mining and milling could pass ISR before 2012 with Blanding getting up to full speed. I won’t make a forecast as to when Strathmore’s proposed mill near our Roca Honda property would become operational until we have evaluated all the alternatives and issued a formal statement. Once we have a permit, production would likely follow within two years.

StockInterview: How many new jobs will the current uranium bull market create for the world’s mining industry?

David Miller: When annual uranium production reaches 20 million pounds U308 in the United States, the industry would create about 4,000 direct jobs in the mining industry and nearly 30,000 in support services. Because Canada and Australia have higher grades, there would be about 150 new mining jobs created for every one million pounds of newly recovered uranium. However, in Canada where is a tremendous amount of new exploration pushing the limits of geophysics and drilling contractors. I would guess this would create at least 2,000 new full-time exploration-related jobs.

StockInterview: In dollar terms, how large of an operating revenue stream would this bull market bring to the U.S. mining industry?

David Miller: In U.S. the new uranium mining production will be sold at prices in excess of $50 per pound. So the industry will be generating $500 million in cash flow per 10 million pounds produced. Over next 20 years it should spin off $20 billion in cash flow to US uranium producers.

StockInterview: Is it realistic to expect operating income of about $20/pound between ‘all in’ costs and revenue from the uranium sold to U.S. utilities?

David Miller: That sounds about right for the new production coming online. Operating costs automatically go up because companies try to extend the life of the orebodies being mined. I think the spread will be between 1.5 to 2 times cost when prices settle a little. At a mining cost of $30 per pound, a reasonable sales price of $45 to $60/pound will make a nice profit for an operating company.