Transcript: Energy Fuels (UUUU) - Uranium Producer Working with US Dept of Energy

By
Morgan Leighton
·
June 14, 2021

Interview with Mark Chalmers, President & CEO of Energy Fuels. Energy Fuels is the leading U.S. producer of uranium – the fuel for carbon- and emission-free nuclear energy. Nuclear energy is expected to see strong growth in the coming years, as nations around the world work to provide plentiful and affordable energy, while combating climate change and air pollution.

We Discuss:

  • 0:49 - Share Price Growth & Value Attribution
  • 1:59 - Uranium Market Dynamics & Factors Accelerating Price Discovery
  • 8:25 - Promotion VS Fundamentals: What's the Point When All Boats Stop Floating?
  • 12:59 - Progressing the Rare Earths Component: Options for Feed & Supply of Monazite
  • 21:30 - Monazite Market: Timing, Competition, & Foresight
  • 23:20 - Strategy & Approach: Possible to Avoid any Chinese Components?
  • 23:52 - Timing for Economics of White Mesa & Contribution of Bi-products
  • 26:20 - Moment to Restart Uranium Production & Funding it
  • 29:16 - End Thoughts: "Get in While You Can"

Matthew Gordon: Mark Chalmers, how are you sir? 

Mark Chalmers: Always good Matt. 

Matthew Gordon: Glad to hear it, share price not doing too bad either.

Mark Chalmers:  No, look, the locomotive continues and so we're very pleased with this strong sentiment that we're seeing for all things, Uranium and rare earths. So, yeah, we're riding the wave and looking forward to the future.

Matthew Gordon: What I'm trying to work out is where's the value being distributed? Is it the Uranium dominant US Uranium producer component or is it this new story, this new kid on the block rare earths?

Mark Chalmers: It's a difficult question to answer. But I think we're pretty much trading in the pack with the Uranium equities. I think that, at some stage, people will start to appreciate and value the rare earth side of our business more, which gives us additional lift. But yeah, we're right in the middle of the pack with the Uranium groups, we'll see how that all unfolds but certainly everybody's getting the lift right now.

Matthew Gordon: If it was based on the percentage of questions that I've been sent in, I think it'd be 80% rare earths, but I'm sure that's not true. Should we start with Uranium, the Uranium space, as we last spoke, has kind of unfolded and exploded in a way. Obviously, people are talking about this Physical Uranium Trust, the Sprott and the UPC acquisition, what's going on there, the marketing leverage phenomenon, but also, quite frankly, the exposure to larger North American funds. How do you see that, why did they do that, does it make sense to you?

Mark Chalmers: Look, I always say this speculative buying is a very speculative selling. But I think this awakening on the Uranium front and the nuclear front, when people are looking for carbon free baseload energy is really getting traction, not just here in the United States, but around the world. I think last time we talked, I'm not sure if this has happened, but the EU is looking at nuclear power more positively than they have in the past as well, small modular reactors. So I think a lot of this is culminating in this excitement for nuclear energy. It's long overdue, I mean, it's been over 10 years since Fukushima, you've seen Japan starting to get back on the bandwagon more than they were. It's an exciting time. And, again, what are the options, if you don't have nuclear in the mix, and it's not the only thing in the mix, certainly going to have, other renewables, like wind and solar, and hydro and probably natural gas, in the foreseeable future, but you have to have nuclear in this.

Matthew Gordon: Let me talk about the mood of the nation in North America because, we see what's happening in Europe, that's great. But Biden's requesting $6 trillion, 14Bn has been allocated towards advancing the nuclear cause. Interesting, no mention of the $75M which had been a bipartisan request for a Uranium reserve. I thought that was interesting but it's bigger than that. There is a positive sentiment towards nuclear energy as part of the energy solution going forward. I couldn't help but notice you've done something with Penn State and also with the DOE.

Mark Chalmers:  Yeah, we announced it was a month or so ago. We had this contract with the DOE. This is focused on coal-based resources, rare earth recovery for coal base resources and that was the second award that we've received from the Department of Energy. There are some other awards coming that we will apply for. These are studies but it certainly is a good sounding board with the Department of Energy and the Department of Defence in certain cases, for the efforts and the progress that we're making in this rare earth space. So, we're still going for the brass ring here when it comes to the rare earth, we're going through the brass ring when it comes to Uranium, and matter of fact, all critical materials, we're building that narrative for all the right reasons and we just think it's a great place to be.

Matthew Gordon: It is for sure, but just thinking for a bit, is it a case the markets moving and then the mood is because there's been a real kind of increase in equities for Uranium juniors, without anyone having to do too much, spot price hasn't exactly been helping, hasn't really done too much. But the buying has been very notable and palpable in Australia, and in North America, Canada. Are you just sitting back and just letting the market do its thing or are you actually allocating funds, time and effort to advancing your Uranium efforts internally? 

Mark Chalmers: We're not just sitting back. I mean, we've been doing reviews internally on our various projects when it comes to restarting our Uranium assets, both our ISR and conventional assets. Literally just 30 minutes ago, I was talking to our mining engineer with regard to the Pinyon Plain mine. So we're doing our homework to figure out what would come first, second, and third, and how we would get the best economic outcome and increase production. So we're not sitting on our hands here and I think we're doing every bit as much if not more than anybody else out there in the Uranium space right now, even though we're still doing a lot of work on the rare earth side.

Matthew Gordon:  Okay, do you think that move by Sprott with UPC, do you think that's going to advance the timing in terms of this price discovery? Because we were talking to one uranium company recently, who had been buying in the market, and they said they found it particularly hard. They're being offered products in September, and as far out as 2022. It's getting difficult out there. Does that mean that things are going to move a little bit more rapidly or is it steady as she goes and sees what happens?

Mark Chalmers:  Yeah, I think certainly the Sprott’s move has got a lot of attention, people buying physical Uranium. I mean, that just mops up what's out there and available. So I think it bodes well for the future in the Uranium space. We know that it costs more to place those pounds through new production than it does to buy them. And so I think it has value for the future as the market improves. It surprised me with how many people have jumped in purchasing Uranium. It's probably not a bad plan for some, I'm not so sure what the plan is for a few. But, let's just watch it. I think that anything that increases the focus and attention on Uranium space, and on base load carbon free energy is good for the sector.

Matthew Gordon:  But are you in conversations with these utilities, are they starting to approach you? Because someone said the other day that UPC had bought in total 16Mlb ever, which doesn't sound like a lot, America consumes about 50Mlb-55Mlb a year. So I'm trying to understand the nature of the market. We've constantly been trying to understand the nature of the supply side of things, where are pounds sitting, who has them all.

Mark Chalmers:  We routinely talk to the utilities and I've said this before, a lot of utilities are addicted to cheap Uranium, they'll buy cheap Uranium and they continue to buy cheap Uranium. Are they thinking about things that could be changing in the wind, I think they are. But they're not rewarded for buying expensive, more expensive Uranium, if the price doesn't move now, and they're not risk takers. So, they just want security of supply and if they can get it cheaply, they're going to buy it at the lowest price. I haven't seen any real movement from utilities that say they think it's a game on production driven Uranium pricing, but that will change and when it changes, it will change overnight. It will change so quickly, that everybody's heads will spin because just like we saw in the 2006- 2008 period when the price went right up through the sky. It changed and everybody started buying Uranium, everybody started doing contracts, so that's how it'll happen. It's not going to just inch, when it moves, it will really move in my opinion.

Matthew Gordon:  So when it does move, and it goes up quickly when your experience or your opinion, you used this phrase before, not all boats will float. Do you think, what’s the point at which all boats stop floating because right now, they seem to be taking advantage of a situation, people are distributing their bets into these Uranium equities fairly evenly across the board. Everyone seems to be doing quite well. 

Mark Chalmers:  As I said, everybody is benefited and the price does need to move because equities move like the price is $50 right now, in my opinion. But I think that it does need to move because there's not an economic outcome for anyone not including Cameco at low $30 Uranium. As I said, when the price starts to move, I think it'll move quite quickly and that everybody's just got to be ready to go at that time. So many of the wannabes will not ever be able to deliver any Uranium new production, it's just not going to happen. And even when you look back to 2006-2008, you look at some of the reports done by the WNA. It's shocking how little new production came on, even when the price moved like it did.

Matthew Gordon:  It's interesting. The wannabe producers right now, it's very hard for retail to work out who's real and who's not because everyone talks the same game, right? But I'm intrigued because at some point, when this thing, if it does shoot off, everyone's gonna want to shoot up that curve. But there comes a point when the company's got to start delivering. So what are we looking for? Are we looking for companies that are stretching the delivery point out or are we looking for companies that can deliver, what should we be looking for in your experience? 

Mark Chalmers: I always say, I gravitate for people with proven experience that have done it before. There's a lot of fast talkers in this space, it's easy to talk about producing Uranium, it's difficult to produce Uranium. But I think that there are existing producers that have shown they can do it. Certainly, there's good new deposits like Arrow-NexGen that will make it in the market. There will be some new start-ups that could be quite interesting in time. But I would stick to those that have done it before or have extraordinarily good deposits that are well recognised.

Matthew Gordon:  Okay, let's get on to rare earths, because over 80% of our questions are about rare earths. People are absolutely intrigued, critical minerals, strategic minerals, whatever you want to call them, big conversations going on in US, Europe, even Asia, and you know, how that all works. What have you been up to since we spoke because you have assembled quite a meaningful team, what is the process that you're going through?

Mark Chalmers:  Well, we're looking at it in a holistic way, when it comes to expertise with people that have proven track records with rare earths. We're looking at feeds, we're looking at the crack leach separation, and starting to look at metals and alloys. So we're really trying to cover all the bases to demonstrate that we're going for full integration in the United States. We've got this relationship with Neo, which is alive and well and very healthy in the fact that they have the ability to separate in Europe, and there is no capability in the United States currently. So we're looking at it in a broad brush fashion but in each of those areas that I just mentioned, we're really drilling down into details. I think the main ones are the expertise we started doing our Scoping work with Carester out of France. When it comes to separation that's advancing, we're still getting in bounds on supply and monazite sands. People are watching the progress we're making, and they're taking notice and around the world they're taking notice, and they're impressed with the speed and the focus that we're executing on our plans. So, we're again 100% focused for full integration and having a low strike rate, our capital and operating costs. So the phone keeps ringing, in fact it was ringing a minute ago, I had to hang up on it but we're going to get there.

Matthew Gordon:  I get that and I just want to go over old ground in terms of like the government component, we talked about that, people can look at those interviews about your view on that, because I don't imagine too much change right now. But what I am interested in is, having put the team together and starting to do these various tasks and so forth, you've got a couple of sources of monazite which is great because you’ve got to feed the beast, which is the White Mesa Mill. So are we expecting to see more of these contracts being signed? Are your existing two suppliers going to supply you more or are you going to look for other parties? 

Mark Chalmers: I think it's going to be a combination. We have an arrangement with Chemours, we signed the MOU with Hyperion. We're talking to probably at least a half a dozen other producers of monazite around the world. We're going to build the book for feed to the mill in a number of different ways and we provide different options. The Chinese have established themself as a monazite processor, they said we're open for business we’ll buy monazite and they've been buying monazite from various parties around the world. We're doing the same thing but we're also making sure that people understand particularly those that have significant quantities of monazite, that we will consider other options in addition to purchasing their monazite. So, we want to demonstrate to the market that we have adequate sources of feed from various sources, that it's secure, it justifies full integration and it also justifies that we're going to achieve significant scale in the market. But at the same time, we have to be able to do the value chain add when it comes to the crack, the leach, the separation in potentially metals and alloys and each of those steps have margins so we're very focused on that as well.

Matthew Gordon: Okay, and I do want to come back to that, but just on the feed. Obviously monazite is one thing, are you looking at different types of feed and supply, whether it be from tailings or clays or other types of ore, which you may be able to extract rare earths from just in terms of diversifying the risk in case something happens with the monazite market, prices go up, affects your margins?

Mark Chalmers: Our main focus is on our monazite sands because of the grades and there seems to be a fairly significant quantity of monazite sand material out in the market around the world. But like, for example, the DOE contract is on rare earths from coal base resources so that's another potential source and time. Ultimately, we will start looking at some of the hard rock monazite projects that are out and around in either North America or around the world. But our first focus is the monazite sands. That's kind of built around this first relationship we have with Chemours. And we do believe that there are sources out there that are ready and willing and wanting to come to another jurisdiction outside of China and White Mesa is the other jurisdiction right now.

Matthew Gordon:  Yeah, say okay, so you’re ‘stick to the knitting for a while’ monazite is the focus, but there's optionality there, obviously the Penn State stuff, for instance, right? Is that what you’re saying?

Mark Chalmers:  Yeah, in time, but the beauty of the monazite sand and I call it the monazite plant, is it's the economics, it's the grade, it's the economics of processing, it's the fact that it contains Uranium, and it contains Thorium which potentially might have some value in time as well and those are all differentiators of what our strategy is compared to others. What we want is what others can't deal with and it's the best source of rare earths out there in the entire world. So why look at things that are going to be less economic, we're focused on that big win here. And as I said, the brass ring, and the monazite sands we believe is where our focus should be.

Matthew Gordon:  Okay. Start at the top, start with the biggest revenue opportunity and work your way down the list, okay, fine. Who's calling You?

Mark Chalmers: I can't say but I can say that all the monazite sand producers that I know of in the world, and every now and then I get surprised with somebody else they know what our strategy is. Some of them, like Chemours came across quite quickly, they were shipping to China, of course having a US centric focus was important to them. But others are watching us, because they want other options for selling their monazite sand. And so, pretty much if you just say that those who produce monazite around the world, they're the ones that are calling us that that covers it pretty effective. 

Matthew Gordon: Any automotive manufacturers? 

Mark Chalmers: Well, I've said, you know, publicly on a number of occasions, we are getting inbounds from a couple major car manufacturers that have heard and seen some of the presentations I've done on the rare earths. It's still early days, but they're recognising that they need diversification of the critical materials that they need for this EV revolution. And so that's getting quite interesting but it's even more interesting that they're calling us not the other way around.

Matthew Gordon:  If I look at the market at the moment, there's not too many players, obviously. And if I look at people like MP, who kind of had a renaissance you could argue, given their previous debt problems, and they're starting to take market share, are you going to miss the boat or do you think there's enough space for everyone to play?

Mark Chalmers:  The forecast I'm looking at, they're saying that the demand for rare earths elements, particularly the magnetic rare earths, is going to increase fivefold in the next 10 years. I think that the market requires and needs that production from all the above. And so China is going to always play a major role. EMP, Energy Fuels, Lynas and others, there's room for everyone who can be cost competitive and who can actually produce. So you have to be able to produce and then you’ve got to be cost competitive. I mean, look the MP plan is different than ours, they've got a mine, they're focused on Basanite, they're cash positive, because they can ship there, they're concentrate and not a rare earth carbonate, but it's like a flotation concentrate to China and actually make a profit on it based on its rare earth content. And they are also looking at restarting some of their process plants at Mountain Pass. So it's a different focus and our focus is on the monazite, that's got high distributions in both the light and the heavies. A lot of the Basanite does not have heavies or has very limited heavy. So, you know, we just have a different strategy to how we're going forward versus Mountain Pass.

Matthew Gordon: Is your strategy or do you still feel that your strategy can avoid having a Chinese component to it?

Mark Chalmers: That's the plan. I mean, again, it's a small world. A lot of the manufacturing of the end products still is done in China but our focus is to carry out as many of the steps of integration that we can at White Mesa or in the vicinity, to get the economics and the margins required for sustainability.

Matthew Gordon: Okay, how much longer will you have to spend and how much more money will you have to spend for you to actually work out the economics of what makes or could become in terms of a potentially separation unit of its own? Because you've talked, you've given us a number in the past but have you done any more work around that? 

Mark Chalmers: I said, we’ve got the Scoping Study underway with Carester. They're saying that the Scoping Study would be plus or minus 30% for separation so that would be more accurate than what we have right now. I mean, our financial models that we have, I think are quite accurate because we can pin down a lot of the costs whether it’s securing feed, cracking, and leaching, transporting, and even separation. We've got numbers that have a basis form, and we tried to be quite conservative and we still find it very robust. We think that this monazite plant is a real winner.

Matthew Gordon:  With regards to the contribution from by-products like Uranium, you talked about Uranium extraction in the past and possibly other products, is that a big part of your own numbers? we'll see what comes out of the Scoping Study but what’s the dependence there?

Mark Chalmers: Yeah, the main focus in the monazite sands, in the main value is in the neodymium and praseodymium, the NDPR and that's probably 60-65% of the value and a tonne of rare earths. So it's really driven off of those two elements and then the other elements are 2nd, 3rd, 4th to that. But everything counts, I mean, if you've got a saleable product, it all adds up. When you start looking at margins that say are 20, 30, 40%, another 5% here or 10% there, it's material. And we think that the fact that a lot of the rare earth producers who want to be rare earth producers, they don't want the Uranium, they don't want the Thorium. We want it because it adds value and it improves the economics of processing monazite sands.

Matthew Gordon: Obviously, skipping slightly there on the rare earths component, we must remember, you're a Uranium company, you're a Uranium producer, you've produced the most Uranium in the US out of the White Mesa Mill, you're gonna have to start spending some money on that side of things to get what's the moment you're looking forward? Because, for me, it's kind of when does that fat lady start singing?

Mark Chalmers:  I've said this, again, publicly, that we can get our Uranium production going on quite a large scale pushing 2Mlb a year, with about 50M of working capital. We do not need a lot of capital to restart our Uranium production activities. Now, when we talk separation, at least initial stages of separation, we'll get better numbers in the next month or two. We think 400, 200M, 250M we can get into production of separated oxides, for that kind of order of magnitude of costs. Now, when you look at either one of them in isolation, the strike rate to get there is so much lower than others. I mean, a typical rare earth production company with the ability to have full integration, you're talking about $1.5Bn. And when you talk about a lot of these Uranium projects that you talk about these wannabes, they're saying they need, you know, 300, 500, $800M just to get started. So our strike rate is remarkable on all things, critical materials, Uranium, rare earths, Vanadium, no one can beat us, in my opinion, on capital strike rate, to get back up into production at significant scales.

Matthew Gordon: That's interesting. It's interesting that you kind of forget about the debt component these companies are going to be laden with which, you know, they are going to be laden with.

Mark Chalmers: We're debt free, and I'm not adverse to debt as long as you have line of sight to revenue streams. We're gonna look at how we position ourselves when we need to start up, either Uranium or the rare earths. But again, we've got a strong balance sheet right now with, depending on how you count up, in the order of $100M of working capital, cash working capital or inventory, so we're not far off the mark of having the funds to do all the things we need to do.

Matthew Gordon: But don't spend it until you need to, until you get certainty around the market. Okay, really interesting Mark. I appreciate the catch up. It was really kind of catching up because the markets just got a little bit frothy again and I do think that it's big, generous US funds looking at this space now, a very small space it's like you got a tonne of water and one tiny little spout it's got to shoot out of. It feels like the momentum is building. And it's really a question of trying to understand the timing so get in while you can, I think would be my advice.

Mark Chalmers:  Well, there's only so much legitimate product to invest in. There are different types of investors, there's people that are just trying to ride the wave and get out and then there are people like these end users that are looking long-term and they've got to focus on those that can do it and those that will be there and those that can produce and have this cost structures to deliver. That's where Energy Fuels this, we're not riding a wave just because we're a flash in the pan. We are doers and I think we've proven that over the years and on the Uranium and rare earth front, we are going to continue to be doers and deliverers.

Matthew Gordon:  Thank you for listening. If you've enjoyed the interview, why not subscribe to cruxcasts or our website cruxinvestor.com and of course our YouTube channel crux investor. Plus, you can catch us most days on Twitter and LinkedIn. We really love getting your feedback so please keep it coming and we'll speak to again soon

To find out more, go to the Energy Fuels Website

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