Transcript: Energy Fuels (UUUU) - USA Critical Minerals Hub Getting Love

By
Morgan Leighton
·
October 5, 2021

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.

Energy Fuels is also a major U.S. producer of vanadium and an emerging player in the commercial rare earth business where its work is helping to reestablish a fully integrated U.S. supply chain. With a truly unique portfolio, Energy Fuels has more production capacity, licensed mines and processing facilities, and in-ground uranium resources than any other U.S. producer. It boasts diverse cash flow-generating opportunities, including vanadium production, uranium recycling and rare earth processing.

Energy Fuels has around 700,000lb of uranium of US origin and as the biggest uranium producer in the US, a few of their companies have benefitted from recent movement in spot price. The company has a lot of optionality and moving parts including the rare earth element using monazite sands which is gaining momentum with increased interest daily. Energy Fuels is pursuing a wide variety of activities and is always open to new opportunities for the White Mesa Mill to get the best outcome for their shareholders.

Energy Fuels recently announced the establishment of the San Juan County Clean Energy Foundation, a fund specifically designed to contribute to the communities surrounding Energy Fuels' White Mesa Mill in Southeastern, Utah. The company is a clean energy, critical mineral company committed to providing green benefits for the local communities going forward.

We Discuss:

0:00 – Company Overview

00:55 – Economic News, Confluence & Utility Buyers

10:07 – U.S Companies, Sprouts & Building Company Image

15:31 – Green Economy, Complications & Market Differences

24:59 – White Mesa, Controlling Margins & ESG

33:44 – Outro

Mark Chalmers: Hello, everyone. My name is Mark Chalmers, and I'm President and CEO of Energy Fuels. Energy Fuels is a unique company in the fact that we're building a critical mineral hub of a number of elements for reducing carbon emissions in electrification, including Uranium, our core business, and Vanadium, which is used for steel hardening and also for energy storage for batteries.

The Rare Earth elements, which all of you are aware of, are used primarily for high-density magnets. In addition, we added recently the radioisotopes for potential future cancer treatment. There really is no company like Energy Fuels out there as an investment. 

Matthew Gordon: Mark, lovely to see you. In fact, I'm saddened that this is the first time we've seen you in a while because I was meant to be at your White Mesa opening a couple of weeks ago, but your government wouldn't let me in.

Mark Chalmers: That was a bit of a surprise, Matt. We were really excited to have you come. We had a few other people that couldn't get into the US because of the covid restrictions. But it was a great couple days. We're very excited about it. Some really great people showed up and participated in the events. It was great timing.

Matthew Gordon: I was genuinely sorry that I couldn't get in because of covid reasons - nothing nefarious. What sort of people turned up because it looked like it was a quite a big, mixed crowd?

Mark Chalmers: It was a mixed crowd. We had a lot of people from the region. We had a number of people in the Rare Earth business. Certainly Uranium players. Then we had a number of politicians, particularly from Utah. We had a Biden administration official from the Department of Energy participate. Some people came in virtually or through pre recordings, but we were just really excited by the participation and interest. In addition, we launched our foundation: the San Juan County Clean Energy Foundation, where we deposited USD$1M into an account, and we’re in the process of setting up a foundation, which we believe is the biggest, certainly in the history of our company, and 1 of the biggest initiatives in San Juan County maybe ever when it comes to a foundation.

Matthew Gordon: Talk to me about the people who attended. What did they want to get out of this? Was this all about Rare Earths? Was it about Uranium? Was there anything in particular that they were turning up for?

Mark Chalmers: A number of them turned up for a number of reasons. I think the regional people turned up because they want some good economic news in San Juan County. They see the job creation. They see the work we're doing with training and hiring indigenous people. They heard about the foundation. That was of great interest to them. We had a number of people in the Rare Earth industry show up as well because they wanted to see the progress they’d been hearing about. On the day, the price of Uranium was over USD$50/lb so there were also the Uranium bugs. It was a really nice diverse mix of people and there was a lot of buzz and a lot of excitement in our plans and in the changes in the markets on several fronts. 

Matthew Gordon: There's been a confluence of events in the markets that are working in your favour it seems. Obviously, the Uranium price is being pushed up. The spot price is being pushed higher and higher by the Sprott Physical Uranium Trust buying in the marketplace, some other people buying too. What's your take on that? Is that real and sustainable or was it just a little bit too synthetic to last?

Mark Chalmers: That’s a good question. I think the market is saying that it's going to last. The renewal of their ATM for USD$1B surprised people on the upside. It’s also angered the utilities because they see this move in the Uranium price, but I think it's a catalyst that shook up a lot of people and it's getting utilities to start thinking that they're going to have to go back into long-term contracting sooner than later. It's mixed it up a bit.

When you look at the increase in the spot Uranium price just in the last month or so, it's really put a buzz into the Uranium space and so we'll see what the future has in store, but this Sprott Uranium Trust is making a difference.

Matthew Gordon: The rules of the game have changed for the buyers at the utilities in the sense that they had all the data; everyone shared their data and the utilities did not share theirs. Thus, in effect, the rules of the game were slightly skewed. Whereas with Sprott coming in now, it's moving the game at a faster pace than perhaps utilities want, or had previously been prepared to let it move. Generally, investors believe this is a really good thing, but I'm just wondering, with your experience with talking to utility buyers, what are the options available to them now? Are they going to be put under any pressure financially as a result of this? Will they have to make some quick moves with regards to their finances, their balance sheet, to deal with this? Otherwise they're quickly going to be forced into a position which is unknown to them.

Mark Chalmers: I come from a utility family; my dad was in the utility business for 43 years, and the utilities don't like surprises or sudden shifts. We know that the price of Uranium is just a small portion of the cost of nuclear power for many of them. Granted, they've been under a lot of pressure and one of the things that's good right now is that they're getting more support when it comes to the Biden administration, to keep reactors running. It has just turned the basket upside down and there are a number that are concerned at what Uranium will be available and at what price.

We're already seeing it with inbounds coming from utilities looking for bids, longer-term contracts. The question is: what are those contracts going to be? I can tell you, they will only be at prices that make sense for us as a company where we can make a reasonable margin on those contracts.

Matthew Gordon: I was talking to John Borschoff a of couple weeks ago, and he said: I'm not going after utilities. They can come to me. I'll be here when they need to have a conversation with me. But I don't feel under any pressure to move my project to suit their needs. There aren’t many people who are confident enough to say that, not too many companies in a position to be able to say that. What's your position in your company? You've had some approaches for RFPs, but are you responding with the prices that you need, or are you just not bothering to respond at this moment? 

Mark Chalmers: No, we will respond with prices that we need. You've got to build a book. If you do a contract, it's not a single contract that carries a company; it's a portfolio contracts. It could be 4, 5, 6, 10 different contracts with different pricing mechanisms. We're planning to build our book. We're planning to focus a company on securing revenue and to become cash positive as quickly as possible.

If you look at the last cycle, there was a greed factor that came in, a lot of people didn't do contracts when they could have. We're not going to get caught in that trap. We're going to ensure we build a book that makes sense for us. Not all companies are in the same position. For example if you have to go out and spend USD$400M-$500M, or even $1B to build a project, you're going to have a different contract position, or you should have somebody that has limited capital respond, as in our case. 

Matthew Gordon: Do you think we're going to start seeing layers of contracting at different price points with different volumes and so forth? I ask because that's just the way it works: people assume it's 1 price alone, and that's the way the market works. Different companies will be able to respond in different ways, depending on the strength of what they've got. 

Mark Chalmers: Yes, as I said, we're going to start filling this as a portfolio of contracts at prices that we can make money on, and that will vary over time, but we're certainly glad to see the interest and we'll see how it unfolds. It seems to be unfolding quite quickly and we're going to be dynamic in how it unfolds

Matthew Gordon: Do you think that the US utilities will be fishing in all ponds for now, in which case where does that put the US companies in the mix?

Mark Chalmers: Utilities typically fish in all ponds, but they also want diversity of supply and by regions. We know the United States is a relatively small producer in the scheme of things. I don't know exactly how this will unfold, but I'm very pleased with how it's turned the basket upside down with Sprott and

also the renewal of the ATM. You got a lot of this price movement out of procuring USD$200M-$250M uranium, and now they have the ability to raise that up to a USD$1B on the ATM that they've put in place. So the party is not over. The fundamentals for nuclear are improving. The support for nuclear around the world is improving, this is focus on the small reactors around the world is improving and getting momentum, even what I saw in the UK, with the focus with Rolls-Royce, so it's moving faster than I would have thought at this stage of the game. It's taken a long time since Fukushima, but it all looks like things are moving into place in the right direction in a robust way.

Matthew Gordon: We've got Hinckley C, here in Suffolk, as the largest engineering project in Europe currently. So it's very much part of the infrastructure here in the UK.

Have you been approached by Sprott in terms of buying or do you think your inventory is better served sitting with you for now? 

Mark Chalmers: We haven't been approached by Sprott for some of our inventories, but as I said, we do things that make sense, and we have around 700,000lb of Uranium, produced US-origin Uranium, unlike a lot of people who bought the Uranium, even though that looks like that was a good play for those that bought Uranium at lower prices. We've got a lot of optionality and I don't think any other investment in the Uranium or Rare Earth space has the  optionality that Energy Fuels has right now. 

Matthew Gordon: You've got Uranium inventory, you've got your Vanadium inventory and you're sitting on big piles of cash at the moment as well. Your balance sheet looks good and healthy, and you're getting a lot of credit for that. The thing which interests us, and has interested us for some time and perhaps you are not getting enough credit for that is the Rare Earth element. There are a lot of moving parts to it and perhaps people don't understand those parts. Given the amount of press releases we've seen on Rare Earths, can you tell us how you're building that picture? What are the bits that we should be looking at? 

Mark Chalmers: We're building that with our Monazite plant - Monazite Sands, which we think is a key differentiator because of the quality of the Rare Earths in the contained Uranium that we want and we can recover. That is gaining momentum. The interest is building daily. We still have to show the market that we're going to get into significant commercial production with a very significant cash margin we believe in time, and so the market is watching that but doesn't quite believe it. We don't think the average investor really believes in the Rare Earth program in its entirety. Certainly people like Constantine and some of the other people like Chemours, Hyperion and other sophisticated Rare Earth producers believe the story.

I'm quite comfortable that people don't believe in it because I want to create opportunity for investors to see that pop when the time comes. Nevertheless, my phone continues to ring off the hook when it comes to all the things we're doing, but particularly with the Rare Earths. We're talking to Monazite producers and we're advancing the scoping work for separation. The key experts in the world who are joining us in different capacities is increasing. We produce a Rare Earth carbonate that we've shipped to Estonia. They're getting ready to process it. Estonia is then getting attention because we're the most advanced when it comes to processing than any company anywhere, and we did it in less than 2-years. 

Matthew Gordon: What I can see is that you're looking to fill up the capacity at White Mesa Mill. I wanted to come to White Mesa because I've seen the pictures, it looks huge. You talked about having 17 lines, and so it's all good stuff, but I wanted to actually get a sense of the scale of this thing because the deal with Consolidated Uranium, for instance, when you, because you're operating that on their behalf, and get that up and producing, that's going to come through White Mesa Mill. The RadTran deal with the cancer therapeutic isotope project. I'm looking at Hyperion, who. actually, I am speaking to later today, they will be feeding through the White Mesa Mill, so I can see the revenue streams you are building there. But I think the big picture bit, which people want to understand is, can you deliver this end-to-end solution? Can this be a central hub for the US, for North America, for critical minerals? Will that take time?  Is that something that you will be able to do, or are you going to have to keep shipping off to Eastern Europe to finish the process? 

Mark Chalmers: It's absolutely in our sights and it's going to happen. There's still a lot of work to do. Our goal is that an approximately a year's time we put in a comprehensive plan to the state of Utah with all our plants for a complete retrofit modernisation of the White Mesa Mill, which over its 40 years has been underutilised. We're seeing all these remarkable opportunities to utilise this facility in a much more significant way than ever.

The brightest days for Energy Fuels, and I've been involved with this group for almost 4-years, they are ahead of it. I'm more excited today than I've ever been in my entire career because I never thought that all of these things would be happening at the same time. Now, that does complicate managing the facility, to an extent, because of the unique interest in so many things. 

Matthew Gordon: What then stops you from becoming a Linus or a Mountain Pass? Is it just the feed or is it more complicated than that. 

Mark Chalmers: Right now, the main thing is securing adequate sources of feed for the Monazite sands. We believe that is going to build. We're talking to well over a half a dozen groups around the world who are seeing the progress we're making.

When it comes to the processing, the separations, we don't see that as a stumbling block. We can build that out as we go. We're not downplaying the risk that some of these steps have, but we're comfortable, because of our history, particularly with solvent extraction. Now we've got to show the market that we've got significant feeds of Monazite sands and then on the Rare Earth space, we believe it is going to be game on.

I’ve said this before, the strike rate on capital and operating costs, we believe, is going to be remarkable. It is going to surprise people. It is going to scare some people because there's a lot of people out there saying that they need

subsidies to be competitive with the Chinese. We don't believe we need subsidies at all. We think we can compete head-to-head. We're not trying to do any harm to China because the world's going to need all the Rare Earth elements it can obtain. We're going to need China. We're going to need 

Linus. We're going to need Mountain Pass and others that can competitively produce Rare Earth materials, and we're going to need White Mesa. We need all of these groups to work together and deliver, otherwise we'll never meet the objectives for those looking to advance electric cars and renewable energy, without all these things hitting on all cylinders. 

Matthew Gordon: This is very conciliatory and magnanimous of you, and it is good news for all parties concerned with Rare Earths. Do you feel you can say that because you're in a position of strength? If we look back at the Uranium conversations from a couple of years ago, from US Uranium companies, it was very antagonistic and combative language. Was that because Uranium was  down in the dumps or is it just a very different market to Rare Earths? Is it night and day in terms of the sorts of people that are operating in it? You still have this big foe in terms of the Chinese influence in this space, but you're talking a ‘we're all in it together’ language here. Whereas Uranium just felt different, or has that changed? 

Mark Chalmers: They are very different markets, but they're very complimentary of each other because their objectives are driving the world.

For different players, most of the Rare Earth people are in the Rare Earth camp and most Uranium people are in the Uranium camp, but there are a number of people that I've ran into who are both. They are very different and it's been a learning experience for myself and our company, but I do think we're in a very strong position with our Monazite plant. Even if people try to replicate the plant, they're going to be years and years behind us.

The world needs another Monazite plant other than China, so I think that what  we focused on and how we’ve moved has been very focused and purposeful. I don't have any regrets that we've got into this space, but I also think that the way we're approaching it is smart and I hope I don't have to turn around someday and say it isn’t so.

It was not my idea alone; others have endorsed this, those that have a lot of experience in the Rare Earth business. And as I said, the market hasn't quite caught on to it yet, but I think that when we can show that the supplies of Rare Earths are building and people will begin to understand that this is going to happen. That’s certainly our intention and we don't believe there's anything in the way of making this happen. The question is: at what scale and over what

time period? 

Matthew Gordon: I agree with all of that. I think you could be a Mountain Pass or a Linus, yet there's a bunch of steps you need to go through to get there. It's down to you to focus on the economics of that, but I wanted to understand the thought process and parallels between what you went through; it was from a low base. Uranium was in a dark place for a while. Rare Earths have been much unloved too, but you've approached both of those problems in different ways. Were lessons learned from the Uranium process that have been applied to Rare Earths? You have managed to bring everyone together here with the Rare Earths: you've got the best people together. You're building a US critical minerals hub around White Mesa, and it's almost like a massive love-in. Whereas, I felt that the Uranium story was more combative; it was them versus us, or East versus West. Is that just the history of the geopolitics of Uranium or is that just of the moment and maybe everyone's now best buddies once we now they realised that  the green economy is here and green energy is required. You've got lots of supporters from all around the world, supporting nuclear, which wasn't always the case. Do you see the parallel I'm trying to draw between them? 

Mark Chalmers: I do and I don't, but with the knowledge base that we created with Uranium, the fact that we've got a lot of professionals who have been doing this for many years: dealing with the radio-nucleotides, recovering Uranium, disposing of the tailings, etc, this has created the foundation for the Rare Earth business. I think that's the unique element that we have. 

Matthew Gordon: It seems to me that you realised the importance of White Mesa, but it previously wasn't in an environment where you could do much about it because Uranium was in the doldrums, as was Vanadium to a degree. Now with this Rare Earth component, I think people are starting to recognise what White Mesa could be in terms of its ability to process a lot of different types of material in there. Are we going to see more deals? Because you said to me in the past: there’s a bunch of Uranium companies, there's no chance that they're all going to process through White Mesa. Are you now opening the doors to them? 

Mark Chalmers: We were always going to look at everything on a case-by-case basis. Does it make sense for us as Energy Fuels? Not does it make sense for others? We've got a wide variety of things that we’re pursuing right now. We've got to stay focused on that wide variety because it's fairly complicated.

But with things like the divestment of these non-core assets to International Consolidate Uranium, that's an example of where we’ve recognised that we don't have time to do justice to those assets. We're always going to be open to what makes sense.

The addition of the radionuclides; we are very, very excited about that as that could potentially be another huge opportunity for the company. Huge because radionuclides are in short supply, but guess what? White Mesa can be the host that can be harvested for the radionuclides. And so it all matches perfectly with Uranium production, the Rare Earth production that contains Uranium, the Thorium and in the medical isotopes, so why shouldn't we try to look at this in an holistic way to get the best outcome possible for our shareholders?  We're not thinking small here. We're thinking huge, and we don't need all of these things to happen. A couple of them and we're a multi-billion dollar company. We're already a USD$1B company, but we will be a multi-billion dollar company in my opinion with the focus we have on what we're doing. I'm very confident in that.

We have a lot of work. Is it guaranteed? No, I can't guarantee 100%, but I can tell you it is moving very quickly. 

Matthew Gordon: I want to talk about Uranium. You've always said that the US is the biggest Uranium producer. You've got the White Mesa Mill. You also said to me, whoever controls the mill, controls the district. A few Uranium companies have benefited from the recent movement, not just in the spot price, but obviously the equities there are USD$400M, $500M, $600M - none of them have a mill. Do you have the ability to control their margins as a result or do they have lots of options available to them? 

Mark Chalmers: As I said before, we're going to do what make sense for us. We're going to deal with the people we want to deal with. We don't have to mill somebody else's ore if we don't want to. You are right: whoever owns the mill, controls the district, and that has been around for decades. You can't just mine the ore, put it out on the stockpile and have it turned into material that can go to a converter. Therefore, there's a lot of hype in people saying: I'm going to mine. I'm going back into mining, but they don't have the ability to make that into yellow cake and ship it to the converter without the mill, or they have to go build their own mill, and that can take a decade or longer and it's going to cost hundreds of millions of dollars.

Our goal, and again, our initial arrangement with International Consolidated Uranium, are the only ones that have a milling agreement with us, a very favourable milling agreement. And that is going to be our Focus for now. We're not trying to cover every aspect of the Uranium space because we've got so much in front of us right now. 

Matthew Gordon: Consolidated Uranium were on the show recently, I think they've lost the International bit - rebranding already. They talked about their portfolio of projects. People don't sell the good stuff. I know you have a lot of projects, a lot of us as people don't tend to sell the good stuff. Where would you put the projects that you've sold them against other projects, say in America and in the US, did you sell them some good stuff, or are they going to work real hard to make those things work? 

Mark Chalmers: They are good projects. And if you added up the top, producers over the last 15 years, you'd have Cameco as #1, Energy. Fuels#2, UR Energy #3, the Russians: Uranium One as #4, and Consolidate Uranium, who are acquiring from us as #5. They are ahead of everybody else. They have proven projects. They are permitted. They have milling agreements, and with the prices increasing, they can respond quicker at lower costs lower of capital

costs and get into production quicker than just about everybody else. I believe they'll produce a lot more Uranium than just about anybody else.

Now, there are a few emerging opportunities in the US. I'm not saying that they may not pass these assets that we’re selling,  but these assets have produced. They are proven. 

Matthew Gordon: Let's go back and talk about the San Juan County Clean Energy Foundation. Why did you set that up? Is that just an ESG tick box exercise? Or is there more to it?

 Mark Chalmers: If you look at the history of the mill over the 40 years it has been in existence, it's been under-utilised. It's gone through a lot of down markets. We've had financial limitations on what we could do in the region. With the opportunities that are presenting themselves, that presents more capacity for us. It's a very poor region, the poorest in Utah. About half of it is Native Americans. And this is something our company has wanted to do, our board supported it. It does give us, we believe, some ticks in the ESG boxes. I think people haven't really understood what we do, but we're also rebranding the company: it is a clean energy company. It is a critical Mineral Company.

A lot of people associate the White Mesa Mill with Legacy Uranium mines from the 50s and 60s, and we need to make sure people understand that is not the right analogy and connection. This is clean energy, green jobs for the future. We can do a lot of good with creating jobs and hiring indigenous people, and other people not just indigenous people, and we want to do more. Now's the time to set this up and put it in place. I look forward to those first distributions that we make out of that foundation. I think people are going to applaud it, even our foes that continually challenge us and say we are dirty energy and we've got this poor legacy, I want to show them that we are different and what we're doing is different. I'm proud of how we do things and I look forward to the future. It's going to be just remarkable for San Juan County, not just for our company, but for the whole region. 

Matthew Gordon: Well, more of that, I guess, to be announced as it comes. Mark Chalmers of Clean Energy Fuels we're going to call you. Thank you for your time today. 

Mark Chalmers: Thank you, Matt. Always a pleasure.

To find out more, go to the Energy Fuels website

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