Energy Fuels (UUUU) - The US Rare Earths Project That Experts Want a Piece Of
Energy Fuels Inc. is a leading, US-based integrated uranium producer for use in carbon-free, clean nuclear energy. The company also produces high-grade vanadium which is used in aerospace, steel, chemical industries, and battery production. The company's major vanadium production is the White Mesa Mill in Utah. Energy Fuels is emerging as the largest critical minerals producer in North America with a strong focus on uranium, rare earth metals production and processing, and vanadium production, along with recycling.
Matt Gordon caught up with Mark Chalmers, President, and CEO, Energy Fuels. Mark previously served as an Executive General Manager of Production at Paladin Energy Ltd. Mark has a strong background in situ recovery (ISR) uranium production. He serves as a consultant for BHP Billiton, Rio Tinto, and Marubeni. He has served as the Chair of the Australian Uranium Council for the past decade.
Energy Fuels is a uranium and vanadium mining, development, and production company. Its main assets are located in the western part of the United States where it owns and operates the only uranium mill in the country. The company was founded in 1987 and is headquartered in Colorado, the United States. It is listed on the New York Stock Exchange (NYSE: UUUU) and the Toronto Stock Exchange (TSX: EFR).
Energy Fuels observed a 30% jump in share price in the past few months. The company is one of the major carbon reduction plays in the world with a market cap of CAD$1.7Bn.
The company is working on a uranium isotope for a market, an end-product that is exclusive to Energy Fuels at the moment. As per the company's Q3 results, it has $132M in cash and marketable security. These estimates are based on a $23/lb uranium and a $5/lb vanadium pricing.
The company also has other revenue generation sources such as tradable securities and the monetization of non-core assets. Additionally, the company has $30M in securities. It has the funding to carry out operations for its uranium and rare earth business for the next 2 years.
Energy Fuels spent $8M in Q3 2021 to advance its rare earth project. The company is currently working towards securing monazite from the market. It is currently manufacturing mixed Rare Earth (RE) Carbonate from monazite and is shipping to Neo Performance Materials in Estonia at the Silmet operation.
The company is purchasing a part of monazite sands from the market to bridge the supply gap and increase production. It is working on advancing the separation of monazite. To achieve this, the company carried out initial scoping work with Carester, France to advance the project. At present, lab-scale tests are being carried out with chloride along with the construction of an additional circuit for nitrate. Energy Fuels is looking at metals and alloys to develop a fully-integrated rare earth supply chain at a global scale.
The White Mesa Mill
The White Mesa Mill was built 40 years ago with a permitted production capacity of 8Mlb uranium. The maximum produced uranium from the mill has been 4Mlb-5Mlb annually. The mill has never been run at full capacity in the past 4 decades.
Energy Fuels currently has 6 permitted projects to feed the mill., including the La Sal Complex that features 4 different mines. The company is currently producing carbonate through a chemical process. It seeks to become a low-quartile rare earth producer on a world-scale through the ongoing advances at the White Mesa Mill.
The White Mesa mill can also process rare earth. The mill is also planned to be a part of Energy Fuels' recycling business.
Divesting Non-core Assets
The company recently divested its non-core assets to Consolidated Uranium Inc. (CUR). This consists of 3 permitted projects that are planned for development under CUR while being managed and operated by Energy Fuels. The company's CEO has joined the CUR board and is currently planning out operations on these properties. The divestment for non-core assets was done so that the company can focus on its rare earth business.
Energy Fuels is focused on running operations exclusively with CUR, where it owns a 19.9% stake. The rare earth business is anticipated to be a significant cash generator for the company alongside uranium. The company's assets offer a diversified investment opportunity for reducing carbon emissions and helping electrification.
Given the right market conditions, Energy Fuels can produce up to 1.5Mlb-2Mlb uranium annually with limited capital. The company can expand this production capacity through a capital raise to cater to long-term contracts.
The company intends to start production at 1.5Mlb-2Mlb annually. This capacity can be increased on a modular basis in 500,000lb increments. As the company holds multiple uranium assets, it has the flexibility to expand operations based on market demands.
The DOE (Department of Energy) for the US government is working on including the Uranium Reserve funds into the reserve. The uranium market has recovered due to the developments in the past 3-4 years, leading to funding opportunities through banks and investors.
Given the current market dynamics with an interest in nuclear power, small modular reactors, and decarbonization, the uranium and rare earth market are expected to appreciate further.
The Uranium Market
The establishment of the SPUT (Sprott Physical Uranium Trust) is seen as a positive development by Energy Fuels. The announcement by Kazatomprom to purchase physical uranium supply has led to growing investor interest in the utility market.
The recent price jumps are credited to multiple factors including the SPUTs purchase of bulk uranium from the spot market. The disappearance of physical uranium from the market has led companies to seek sustainable uranium suppliers by way of long-term contracts. Energy Fuels is currently looking to enter a contract with RP or other long-term contracts to supply uranium. The company is also open to sell uranium to Sprott and other market entities.
To attain a fair replacement value for uranium stock, the company needs a market pricing within the $50/lb-$60/lb range. The recent price jumps in both uranium and vanadium have provided significant optionality for Energy Fuels.
Energy Fuels is in the upper-quartile within the uranium production domain. The company has been the largest producer of uranium for the past several years. Its uranium assets are wholly-owned and based in the US. The company is only second to Cameco in the US in uranium production.
Although uranium is a major part of the company's operations, It anticipates that the rare earth business offers the scalability and potential to generate significant margins.
Rare Earths Operations
Energy Fuels is focused on processing monazite sands for its rare earth business. The White Mesa Mill has a well-built infrastructure along with the required operating permits. Based on initial estimates, the separation plant being built by Carestar makes the asset an exciting package within the rare earth space. Apart from Energy Fuels, China is the only entity that can decouple or partially decouple monazite.
18 months ago when Energy Fuels announced its foray into the rare earth space, the NDPR (Neodymium and Praseodymium) pricing was between $45/kg-$50/kg. Since then, the pricing has jumped to $150/kg, a three-fold price jump in 1.5 years. Comparatively, uranium prices have seen a two-fold increase in market price in the past 18 months.
Targets 2021 and Beyond
Energy Fuels is currently in the process of recruiting additional staff. It recently brought in an environmental expert on the team that is assisting the company with the ongoing permitting and environmental compliance work. The company has also retained its original staff from the time when the company was evaluated at $100M-$200M.
The company anticipates that the uranium pricing will continue to rise, leading to long-term contract signings. Once the contracts are in place, the company plans to restart its uranium properties in early 2022. The company seeks to demonstrate the potential of its rare earth business to investors. It anticipates that 2022 will be a significant year for the company and its shareholders.