Transcript: Energy Fuels (UUUU) - The US Rare Earths Project That Experts Want a Piece Of

Morgan Leighton
December 17, 2021

Matthew Gordon caught up with Mark Chalmers, President & CEO of Energy Fuels Inc. (NYSE: UUUU) to discuss the year in review and the direction of the company upon entering 2022. Energy Fuels is the leading producer of uranium in the United States with more production capacity, licensed mines, processing facilities, and in-ground uranium resources than any other U.S. producer.

The company is also a major U.S. producer of vanadium and an emerging player in the commercial rare earth business. Energy Fuels has recently been evaluated at over CAD$ 1.7 billion and entered into an agreement with Consolidated Uranium Inc. (CUR) in October 2021. The agreement sees Energy Fuels acquiring and managing the Tony M, Daneros and Rim mines as well as acquiring 19.9% of CUR with Chalmers joining the company’s board.

The addition of the three CUR operations will ensure feedstock availability to Energy Fuels’ White Mesa Mill, which aims to produce 1.5-2 million pounds of U3O8 per year. Energy Fuels has also recently engaged with Carester SAS to prepare a scoping study for the development of a solvent extraction rare earth element separation circuit at the White Mesa Mill. The production of value-added rare earth products will be a large contributor to the company’s cash flow in the future, with Chalmers believing the high margins show promise.  

The path forward for Energy Fuels in 2022 includes the execution of long-term supply and purchase agreements and the commencement of production at its uranium properties early in the year. The company is completely funded for the next few years enabling their continued focus on uranium, vanadium and rare earth expansion. Chalmers believes that Energy Fuels has the right people and is in the right space at the right time to ensure that 2022 is a significant year.

We Discuss:

00:00 – Company Overview

00:18 – Carbon Reduction Electrification, Long-Term Contracts & Modular Basis

04:53 – Potential Producers, Reducing Carbon Emissions & Major Contributors

08:24 – Advance Things, Plans Moving Forwards & Margins

12:12 – Rarest Components, Vanadium & Worthy Investments

16:36 – Reserved Funds, Last 18-Months &  Long-Term Contracts

22:31 – Market Dynamics, Restrictions & Environmental Compliance Work

27:23 – Outro

Mark Chalmers: Hey Matt, it’s always a pleasure to get together with you and as you know, I’m the President and CEO of Energy Fuels, probably one of the most carbon reduction electrification plays I believe out there in the entire world.

Matthew Gordon: Well, Mark, good to see you as always. We saw you back at the beginning of October, but it’s been all quiet, you don’t sound too busy at the moment. No press releases. No news.

Mark Chalmers: it has been quiet, Matt, but it’s not because we’re not busy. Quite the opposite of that. We’re advancing our plans. Every day, we get more excited about where we’re taking the company with all the great things that we’re doing with rare earths and uranium. Who would ever have thought that the market would be so supportive of reducing carbon emissions and focus on electrification as I said? Yeah, it’s been quiet, but we certainly haven’t been standing still.

Matthew Gordon: No, you haven’t. The share price is up by 30% since the last time we spoke to you, actually, and the rare earths - I want to talk about the rare earths in a second, but you position yourself as the US’s number 1 uranium company. We’ve had people write in to us and say, these guys are over CAD$1.7Bn market cap now, they’re not producing anything, there’s no cash flow here, at some point they’re going to need to backfill the valuation a bit. The point of the question is, White Macer Mill, you’re going to need to feed that. Where is that feed going to come from? Have you got enough? Are you going to have to work with some of these other US wannabe producers?

Mark Chalmers: Well, Matt, the White Macer mill has been around for 40-years, and I don’t believe it’s ever - it’s permitted for 8Mlb of uranium. The maximum it’s ever produced is about 4Mlb or 5Mlb per year, so it’s never run at capacity. Do we have enough projects to feed the mill? Absolutely, we do, but not to produce 8Mlb of uranium. We have about 6 permitted projects. When we talk about the La Sal Complex, that is 4 different mines in a grouping. With this divestment with CUR, we’ve got 3 permitted projects there that they’re I believe planning to develop. We’re in great shape with the mill, and also have the ability to feed the rare earths into the mill as well as some of our recycling business. When it comes to where we secure our feed, we’re going to deal with the people we want to deal with, and we won’t deal with those we don’t want to deal with. But yeah, the mill has been under capacity from the day it was built.

Matthew Gordon: Okay, a couple of points there. 1, the question was, and I’m going to assume you get the price that you want - you’ve always talked to us about $60 - $65, but assuming that you get the price that you want, whatever that may be, the 6 projects that you have, you would aim to produce how much a year from those?

Mark Chalmers: Well, with the right market conditions, with limited capital, we can produce initially about 1.5Mlb to 2Mlb per year. With long-term contracts, we have the ability to expand from there, but it will take more capital. Yeah, right now, what we’re looking at is - I mean, the market seems to be coming to us as it is other uranium producers that have legitimate properties. There’s not a huge spread between where the utilities are, I believe, at this point in time, and where it starts making sense. We’re seeing a pickup in RPs from various utilities. But yeah, our first rung is at 1.5Mlb to 2Mlb. We’ll build that on a modular basis, probably, and like 500,000lb increments, and we have the ability to do that because we have multiple assets ready to go.

Matthew Gordon: Okay, and you’ve also done a deal, I think last time we spoke, with Consolidated Uranium. You’ve got 3 projects with them, which you are going to be the operator of? Is that correct?

Mark Chalmers: Right now, we’re the manager of that. I’ve joined the board with CUR and they’re planning to do work on those properties right now. That’s the main reason we divested them; we have our priorities set on our assets, our existing assets that remain and the rare earths, and we just didn’t have time, so they’re very excited about getting going with some of the uranium projects right now.

Matthew Gordon: Right, okay so that will be 9 uranium projects that will feed into the mill. You’ve got the vanadium component, and also the recycling component. That’s something we’ve talked about ad nauseam in the past, so you feel that that is as much as you need right now. However, the second point you mentioned there, there may be other parties outside of the Consolidated Uranium guys who may want or need to use your mill. We’ve had people like Western Uranium & Vanadium say that they’re going to use your mill; you said to us last time, that’s news to you. And others too. At the moment, have any of those conversations begun? Any of those conversations advanced if you have been talking to them? Are they going to be able to use your mill and give you the feedstock you need?

Mark Chalmers: We’re having no discussions with anybody except CUR.

Matthew Gordon: Right, okay.

Mark Chalmers: Look, we’re happy with the projects that we have, the focus at CUR is going to be put on these other projects at this point in time. Now, does that change? Depends on what the price of uranium is and the market itself, but we’re in very good shape with the assets we have, the relationship, we own 19.9% of CUR and at this point in time, we’re good.

Matthew Gordon: Okay, the old adage, he who controls the mill controls the district applies. You’re not rushing into any other relationships with any other potential producers outside of Consolidated Uranium, right?

Mark Chalmers: Correct, not at this time.

Matthew Gordon: Got it, okay. Coming back to my point about backfilling valuation, that CAD$1.7Bn market cap, that’s a big chunk of company there. The market has gotten excited about uranium at various points during the year. I think vanadium is not so much on the agenda at the moment, but rare earth is. You said you’ve been busy. You haven’t been making announcements, but you say you’ve been busy - busy doing what?

Mark Chalmers: Busy advancing our strategy. Most of our focus has been on the rare earths and I mean, if you look at us, where we trade with the uranium peers, we’re still in the middle of that and if we’re overvalued on uranium then everybody else is overvalued, but they don’t have the rare earth component, and if you look at the main players in the rare earth business like MP Materials and Lynas and stuff - they’re at like $6Bn or $7Bn market cap, huge, and I think that reflects where we’re trying to drive our bus here. We’re getting recognition that the rare earths are going to be a major contributor to our company’s cash flow over time, and we still have uranium. If you invest in us, you’re investing in a diversified opportunity for reducing carbon emissions and helping with electrification. I mean, there really isn’t any investment you can compare us to because of the way that we have these two, three opportunities actually if you start looking at the emerging isotope opportunity, that nobody else has.

Matthew Gordon: Again, we’ve talked about the various points you’ve gone and chosen to raise money. What are you sitting on? I saw the Q3 numbers, it was whatever, $132M in cash and marketable security.

Mark Chalmers: Yeah, I mean that was our last reported release and again, that’s assuming that uranium prices are, I believe, at $23lb and vanadium at $5-something a lb. If you adjust that to the current price of uranium and vanadium, that $132M is very conservative, and it also doesn’t include the fact that we monetise these non-core assets and some of the other tradeable securities we have. We’ve probably got another, in the order of $30M of securities as well on top of that. We’re in a very, very strong position. We’re completely funded to do all the activities we need to do over the next couple of years as we pull this rare earths and uranium sector together in a way, as I said, that nobody else can do.

Matthew Gordon: I think you laid it out for me last time we spoke but I just want to be really clear because you’ve burned through a chunk of cash, you burned through $8M in Q3 to advance the rare earths component. I’m intrigued by what you’ve done recently, and what that’s setting you up for in 2022. You’ve got the cash to advance things, but what have you actually done recently on the rare earths side?

Mark Chalmers: We’re trying to secure the monazite for the front end, and I’ve said this before, we’re talking to everybody out there in the world that’s either producing monazite or wants to produce monazite. That hasn’t changed and a number of these parties are amping up their interest in the plan that we’re putting together. I’ve talked about how we’re making the carbonate; we’re shipping it to Neo in Estonia at the Silmet operation. That’s going very well. We’re processing monazite sands right now. Another new batch has come in from Chemours; we’re out there trying to purchase some monazite as a bridge, we’re not limited. If anything, the guys at the mill call me up and say, ‘Hey, we need more monazite sands,’ so we really need to fill that up, and we’re advancing the separations. We did some initial scoping work with Carester out of France, we’re looking at moving that forward in a much bigger way. The guys are doing separation at lab-scale with the chloride route right now, and they’re building out another circuit for piloting for the nitrate route right now. We’re starting to look at metals and alloys. When we say we’re focused on full integration in the rare earths supply chain, we are looking at full integration at world-scale.

Matthew Gordon: Yeah, I guess as an investor, I’m trying to - I’m also dealing with some of the questions that have been sent in. Yeah, some people are like, ‘Well, White Macer isn’t operating at full capacity,’ but on the other hand, businesses are about making money. More about the money you can make, the margin you can make, the net profit you can make, rather than are you busy being busy. Give me a sense of what it’s like processing uranium versus processing rare earths, and separating eventually, in terms of margins. You’ve mentioned you’re putting yourself on the same stand as MP, Lynas etc, and these are multi-billion dollar companies. You’re at the beginning of that journey, but to get there, you’re going to have to get stuck into the rare earths component. Can you give us a sense of the economics, even as a ratio or however you want to do it? I just want to understand how much more important rare earths is.

Mark Chalmers: Within what I can talk about Matt, obviously, but we’re not where Lynas is at this point in time. When it comes to producing carbonate, we’re actually ahead of Mountain Pass, chemically producing the carbonate. We still have a lot of work to do, but look, we’re first and foremost a uranium company. But I believe that we can be a low-quartile, rare earth producer of world-scale with the activities and the advances we’re making at the White Macer mill. On the uranium front, we’re never going to be competitive with Kazakhstan, okay. We’re typically upper-quartile, maybe third quartile, and so the biggest prize we have in addition to the fact that we have been the largest producer of uranium for several years, we’ve got more assets fully paid for in the United States in the history of being the material, biggest producer, second to Cameco, in the United States. We’ve got that and we trade in that peer group, but we have the ability, I believe, to be low-quartile on the rare earths at world-scale. We’ll never achieve that as a uranium producer. You’ve got the Camecos, the Kazatomproms. They’re in a different league than we are, and everybody else in the United States. They’re not going to be there either. When I say what kind of margins, right now, our biggest margins are on the rare earths space with uranium also being substantial, but not at the same sort of scale or opportunity of scale as compared to the rare earths.

Matthew Gordon: Right, okay, I think that’s what people are sensing from the story. Uranium is going to make you money, vanadium is going to make you money, and it’s a nice, solid business, it’s the biggest in the US for those things, but rare earths is an entirely different quantum in terms of margin, hence the investment in that using White Macer. That’s what you’re going for.

Mark Chalmers: I believe the rare earth strategy that we’re putting together is in another league.

Matthew Gordon: Right, and I just want to be clear, when you say a lowest-quartile producer, you mean lowest cost quartile, therefore in terms of maximising the sorts of returns that you expect. You guys must have started doing some numbers. You must have an indication in the sense of what this could look like. I know you’re not going to give me numbers, but I’m going to say, it’s definitely worth the investment for you, is what I’m hearing. When do we get to know?

Mark Chalmers: Again, I’ve got to be careful on disclosure, but as we’ve said all along, people like Constantine Karayannopoulos saying that the focus on monazite sands, game changer. I don’t think game changer would be in the upper quartile, and we believe that with the combination of the monazite grades, the processing costs, the operating in the United States, the fact we have existing infrastructure, permits, and all that, rolled up with some of the initial estimates that we’ve received from Carester on the build-out of separation plant, we think it all rolls up into a very, very nice and exciting package. But we have to show that we have the feed. We can’t promise returns when we haven’t lined up the feed yet, but as I said, people get it. People that are producing monazite get it and they understand they want to decouple or partially decouple from China, right now we’re the only game in town that can do it at scale.

Matthew Gordon: Okay, I hear what you’re saying on that front. I think that we would love some sense of the numbers or would like to start to understand what this thing could look like, even by inference or some peer analysis type work once you understand how much monazite you can get hold of and therefore how much you can process. But the other thing is when I look back at the conversations we’ve had in the past with regards to uranium and the US government’s involvement, we’ve talked about US Reserve, we’ve talked about them actually putting some money into support you as producers, but nothing has really materialised, and those catalyst moments came and went. Once again, we’re seeing US senators, and in this case, Utah senators, Mike Lee, Mitt Romney, get involved. We’ve seen with your open day, you had big banks turn up, you had lots of investor interest. Has this moved to the point where those people are putting their money where their mouth is, or are they giving you indications of how they’d like to get involved or is it just still a watching brief for them?

Mark Chalmers: Well, I think to a certain extent, even though with the Uranium Reserve, the funds were appropriated and they’re there, and the DOE is trying to figure out how they would incorporate those funds into the reserve, the market is moving quicker than the government is, unfortunately, or fortunately I guess, depending on how you look at it. The market tends to be fixing itself. Yeah, you know as well as I do that we took the lean role, I believe, in this whole Uranium Reserve, going back 3 or 4-years when the market was less frothy than it is right now, but the market seems to be fixing itself and I think that the banks and investors are coming in for the dynamics right now, or what’s happening right now with the interest in nuclear power, the moves with small modular reactors, the focus on decarbonisation, and then in our case, the improvements and the focus on the rare earths sector. When we got into the rare earth business, we announced about 18-months ago we were getting into it, the price of NDPR, the neodymium and praseodymium was like $45/kg to $50/kg. It’s now $150/kg. It has gone up 3-fold in 18-months. I don’t think people really understand how attractive the rare earth business is right now, and that’s one of the reasons that Lynas and MP have performed so well, just that alone. The uranium business has also done very well, but it hasn’t gone up 3-fold in the past 18-months. It’s probably doubled, but not tripled.

Matthew Gordon: Yeah, it’s a very interesting market there at the moment. Here’s a question for you with regards to the influence of Sprott and the Sprott Physical Uranium Trust is having in the market. Obviously, it caught the eye, it caught the attention of many people. It drove the spot price up, which is great. It brought investors from outside of mining into the space, and people got very, very excited, and it’s fallen away from most uranium companies in the last couple of months as I think SPUT waits to see when its New York listing will happen, etc. Do you welcome a synthetic financial overlay to this market? Do you think that helps? Other than the marketing fervour, I’m talking about the realities of the functional operational component. For instance, would you consider selling all of your production to an intermediary like SPUT and not dealing with utilities, or do you feel that SPUT just needs to be part of the mix, not try and insert itself wholly? How do you view them?

Mark Chalmers: Well, look, I think the Sprott Fund has been great. It’s put a refocus on the market, the supply-demand, and Kazatomprom is saying that they’re going to buy uranium as well too. When it comes to our inventories, we’re looking at those inventories of US origin that we produce. I always like to emphasise that. And how we look at that in terms of various responses we make on RPs for contracts, or for looking for long-term contracts. But if it makes sense for us to sell some to Sprott or others, we’ll consider that as well too. I mean, it’s interesting that if you look at what we have, the uranium on our book sat the prices that are included in our working capital last reported period, and the increase of uranium and vanadium, we’ve basically got an appreciation of our inventories that is equal to or approximately equal to our burn, so holding inventory has not been a bad place to be right now, particularly when you look at the future because even in that mid-40s, that’s still not the replacement value of a pound of uranium. You still need to get into the 50s or the 60s to really get to a fair replacement value. Yeah, we’re just holding our cards with our inventory, and we’ll see where it goes, but it gives us a lot of optionality and as I said, it’s been a good place to be with the increases in both uranium and vanadium.

Matthew Gordon: It has, but I always wonder what changes in terms of the market dynamics when you’ve got a new entrant and it’s a financial - I always refer to is as a synthetic financial overlay, could you move from a - it’s obviously moving from a buyer’s market to a seller’s market, it’s in that slow transition period at the moment, but could this ever become a wholesale market in the sense that if you’ve got someone like a SPUT, and I’m not sure what it’s allowed to do or not, but if it could come and buy from producers wholesale, hold, and then sell into utilities at a retail price, it’d be interesting and awkward.

Mark Chalmers: Yeah. Matt, look, I’ve always said that speculative buying can end up being speculative selling. If you look at the run-up in that 2006/2007 period where the price went to $135lb, a lot of that run-up was speculative buying. I don’t understand all the dynamics and the mechanisms of the Sport Uranium Trust, but it’s my understanding that they have some restrictions on how they would put that back out for market at some time, so I think that is good, but I think what it does show, and I think this is really quite interesting, that even though they bought a lot of uranium, I think it’s starting to show that there’s only so much uranium to really buy. People talk about these big inventories and all that, and I think it’s showing that there’s only so much uranium to buy, and that’s why you can tighten up the price of uranium with, relative in the scheme of things, small purchases.

Matthew Gordon: What about - you’re the CEO, right, so you’ve got a lot more moving parts now and you’re potentially building something that is even bigger than the uranium. Uranium is good, it’s core, it’s a revenue generator for you, but will you be looking to appoint any new people to the board to help you with the different aspects of the business? I know we talked several months ago; you’ve got some new advisory type roles but not necessarily operational.

Mark Chalmers: We’re growing. We’re hiring people, and we have to look at the entire business in a holistic way from the board down. We’re growing, we’re adding people. I had a new environmental person come into my office today that was hired to help with some of the permitting work and environmental compliance work that we’re doing. We’re looking at it, again, we’ve been running very lean for a long time now. I have to say that with the people we have, people have been working really, really hard, but we’re looking at how and where we need to fill some of the gaps as we grow. We basically have effectively the same staff that we had when we were $100M or $200M of market. Now we’re well north of USD$1Bn. Yeah, you’ve got to be dynamic.

Matthew Gordon: Okay. Look, Mark, I don’t think we’ve got time to talk about thorium or radium or other things like that, but I just wanted to catch up because it’s just before Christmas, looking back it’s been a fairly dynamic year for you guys, the big idea being delivered, I’m intrigued about the path forward and what that looks like. What are you looking forward to in 2022? What are the big moments for you?

Mark Chalmers: Again, hopefully, uranium prices continue to rise, and we can sign some long-term contracts that make sense for us, and then we start up some of our uranium properties, hopefully in 2022 - early in 2022, I want to show our investors that the rare earths is real and it’s happening, and I’ve said this many times - we think big. We think big, and I cannot believe how blessed I am to have these 2 very exciting opportunities, the 2 just being uranium and rare earths, in my hands right now. We’re thinking big, we are aggressive but not reckless, we’ve got the right funds and the right people, and we’re in the right space at the right time, so I believe 2022 will be a very significant year for us and our shareholders, but we’ve got to connect a few more dots and I think we will do that based on the interest that we’re having on so many fronts. It should be hopefully a remarkable year as this year was a remarkable year, but I really believe we’ll be in a better position for people to understand our entire business model in 2022.

To find out more, go to the Energy Fuels website