Did Energy Fuels Just Buy 50 Years of Rare Earth Supply to Add to Their Uranium Processing Plant?

• Energy Fuels is a critical minerals company focused on uranium and rare earths
• Recently announced merger with Base Resources to acquire the Toliara heavy mineral sands project in Madagascar containing significant monazite (rare earths)
• Energy Fuels is building a rare earths business to complement its uranium business, aiming to be an integrated rare earths producer
• White Mesa Mill in Utah is being utilized to process monazite and uranium, with phase 1 rare earths separation under commissioning
• Company is acquiring monazite feed to become a major rare earths player alongside MP Materials and Lynas, while still committed to uranium

Energy Fuels' Rare Earths Gamechanger

The recently announced merger between Energy Fuels and Base Resources is a transformative transaction that significantly enhances Energy Fuels' position in the rare earths sector. By acquiring the Toliara heavy mineral sands project in Madagascar, Energy Fuels gains access to a world-class asset with the potential to be a long-life, low-cost source of monazite feedstock for its growing rare earths business.

The Toliara project boasts an impressive 1.4 million ton monaziteresource, with an additional 800,000 ton inferred resource, making it one of the largest undeveloped deposits globally. Notably, the monazite is contained within the heavy mineral sands at an average grade of 2%, which is relatively high and should enable low-cost extraction as a byproduct of titanium and zircon production.

Based on the DFS and PFS studies completed by Base Resources, the Toliara project has the potential to produce 22,000 tons of monazite per year over a multi-decade mine life. At full production, this could generate an annual EBITDA of $350-400 million, making it a financially robust operation even before considering the upside of rare earths.

Interview with President & CEO, Mark Chalmers

Base Resources Assets Deliver Scale

For Energy Fuels, securing access to this large-scale, long-life monazite supply is a key step in its strategy to become a leading global rare earths producer. The company is already in the process of commissioning its Phase 1 rare earths separation circuit at the White Mesa Mill in Utah, which will have the capacity to process 2,500 tons of monazite per year. With the addition of Toliara, Energy Fuels will have enough feedstock to support a much larger Phase 2 and 3 expansion, potentially positioning it as one of the largest non-Chinese rare earths producers.

Another benefit of the transaction is the addition of Base Resources' experienced management team and operating expertise. The base has a proven track record of developing and operating heavy mineral sand projects, most notably the Kwale mine in Kenya, which has been a consistent cash flow generator. This should help de-risk the development of Toliara and provide valuable knowledge sharing as Energy Fuels ramps up its own rare earths operations.

The merger enhances Energy Fuels' geopolitical positioning from a macro perspective. With the US and other Western countries increasingly focused on securing critical mineral supply chains outside of China, having a large-scale rare earths project in Madagascar helps diversify global production. Energy Fuels' White Mesa Mill in Utah is the only licensed and operating conventional uranium mill in the US, making it a strategic asset for the domestic processing of uranium and rare earths. The combination of US processing capabilities and non-Chinese monazite feedstock should be highly attractive to Western governments and end-users looking to shore up rare earths supplies.

Long-Life Supply into the US Market

Overall, the merger with Base Resources checks many boxes for Energy Fuels. It provides a large, long-life source of low-cost monazite feedstock to fuel the company's rare earths ambitions. It adds geographic diversity and operating expertise in heavy mineral sands. It also enhances the company's positioning as a strategic Western supplier of critical materials. For shareholders, the transaction brings significant rare earths exposure and growth potential, complementing Energy Fuels' existing uranium business. As the world focuses on electrification and decarbonization, Energy Fuels positions itself as a key player in supplying the necessary critical minerals, which should create meaningful value over time.

Uranium is an often overlooked but critical commodity that plays a vital role in clean energy production worldwide. As a key fuel for nuclear power plants, uranium demand is poised to grow in the coming years as the world seeks to decarbonize electricity generation and combat climate change. For investors, the uranium sector presents a compelling opportunity to gain exposure to the clean energy transition while also benefiting from constrained supply and rising prices. This article will delve into the investment case for uranium.

The Role of Nuclear Power

Nuclear power provides a steady, emissions-free source of baseload electricity. Unlike intermittent renewables like wind and solar, nuclear plants can operate around the clock, making them a critical part of a decarbonized grid. Many countries now recognise the importance of nuclear energy in achieving their climate goals. The International Energy Agency projects that global nuclear power capacity will need to double by 2050 to limit warming to 1.5°C.

Uranium Demand Growth

As nuclear power expands globally, uranium demand is forecast to increase steadily. Current annual consumption of about 180 million pounds is seen rising to 220 million pounds by 2030 and nearly 300 million pounds by 2040 in a high-case scenario. This will require a major ramp-up in uranium production to meet demand.

According to Mark Chalmers, CEO of uranium producer Energy Fuels: "We're focused on long-term value for shareholders, not just to run up in the share price, just for the sake of pushing the share price up. So we're builders and doers, we're not promoters.

Supply Constraints

At the same time that demand is rising, uranium supply has declined for several years. Low prices forced curtailments of higher-cost mines, while the end of the US-Russia Highly Enriched Uranium agreement removed a major secondary supply source from the market. Today, mines produce only about 130 million pounds annually, far below consumption levels, with the gap being met by drawing down inventories and other secondary sources. However, this situation is unsustainable, and mines will need to restart, or new production will need to come online to meet projected demand.

Uranium Price Outlook

After a prolonged bear market, uranium prices are finally starting to recover. The spot price has risen from a low of nearly $18/lb in late 2016 to the current $90/lb level, with further upside likely as the market continues to tighten. Prices in the $60-$100/lb range are thought to be needed in the long term to incentivize enough new production to meet demand. Uranium equities have responded positively to the improving fundamentals but remain well below their highs from the last bull market.

Investment Vehicles

Investors have a few options for gaining exposure to uranium. Holding physical uranium is possible through vehicles like the Sprott Physical Uranium Trust. Alternatively, investors can buy shares of uranium mining companies. An ETF like the Global X Uranium ETF offers broad exposure to the sector. For those willing to take on more company-specific risk, individual names like Cameco, Kazatomprom, and Energy Fuels are some of the leading producers globally.

Risks to Consider

Like any commodity investment, uranium is not without risks. Being a highly regulated industry, changes in government policy and public sentiment toward nuclear power could impact the demand outlook. And as a relatively small sector, uranium equities can be volatile. Cost overruns, operational issues, and other challenges can impact mining companies. Investors should be aware of these risks.

The uranium sector has emerged from a long bear market and looks poised to benefit from growing demand and constrained supply in the years ahead. For investors, uranium offers exposure to the global clean energy transition and compelling supply-demand fundamentals. Though not without risks, uranium presents an asymmetric opportunity for potentially strong returns in what is still a relatively under-the-radar contrarian investment theme.

The Investment Thesis for Energy Fuels

• Exposure to both uranium and rare earths, two critical mineral themes
• Acquiring assets and monazite feedstock to become a top-tier global rare earths producer
• Utilizing its White Mesa Mill to process uranium and monazite, capture value-add margins
• Potential to benefit from higher uranium and rare earth prices as markets tighten
• Actionable Way to Invest: Buy shares of Energy Fuels (NYSE: UUUU) for exposure to the uranium and rare earths theses

Uranium and rare earths are two critical mineral investment themes that are gaining attention as demand rises for clean energy materials and geopolitical tensions put a focus on supply chains. Energy Fuels provides unique exposure to both themes as it expands its uranium business while also building a major rare earths franchise through acquisitions and utilizing its existing milling infrastructure. Investors can gain leveraged exposure to uranium and rare earths prices by owning shares of Energy Fuels.

The global clean energy transition is a powerful macro force that will require vast amounts of critical minerals to build out technologies like renewables, electric vehicles, and energy storage. Governments have recognized the need to secure supplies of these key materials and are providing incentives and implementing policies to support domestic production. This has created a compelling investment opportunity in critical mineral producers.

Two sectors that stand to benefit are uranium and rare earths. Nuclear power is seen as crucial for decarbonizing baseload electricity, spurring demand for uranium. Meanwhile, rare earths are essential for permanent magnets used in EVs and wind turbines, but the market is dominated by China, raising concerns about security of supply. Companies in North America and other allied nations that can produce these materials should be well-positioned to capitalize on growing demand and favorable government support.

Energy Fuels CEO Mark Chalmers sums up the opportunity: "Everyone has their own business plan. Lynas has been successful in what they do. Lynas is focused on hard rock monazite. MP is also a significant mine in the United States. We're focused on monazite sands from heavy mineral sand operations. We all need each other to be successful to provide enough elements for this energy transition and electrification."