Energy Fuels (NYSE: UUUU) - Controls the Only Uranium Mill in the District

Energy Fuels Inc. is a leading US producer of uranium- the fuel for carbon and emission-free nuclear energy. Nuclear energy is expected to see 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 US producer of vanadium and an emerging player in the commercial rare earth business where its work is helping to re-establish a fully-integrated US supply chain. With a truly unique portfolio, the company has more production capacity, licensed mines and processing facilities, and in-ground uranium resources than any other US producer. It boasts diverse cashflow-generating opportunities that include vanadium production, uranium recycling, and rare earth processing.

Matt Gordon caught up with Mark Chalmers, President, and CEO, Energy Fuels. From 2011 to 2015, Mr. Chalmers served as Executive General Manager of Production for Paladin Energy Ltd, a uranium producer with assets in Australia and Africa, including the Langer Heinrich and Kayelekera mines where, as Head of Operations, he oversaw sustained, significant increases in production while reducing operating costs. He also possesses extensive experience in ISR (in-situ recovery) uranium production, including management of the Beverley Uranium Mine owned by General Atomics (Australia), and the Highland mine owned by Cameco Corporation (USA). Mr. Chalmers has also consulted for several of the largest players in the uranium supply sector, including BHP Billiton, Rio Tinto, and Marubeni. Until recently served as the Chair of the Australian Uranium Council, a position he held for 10 years. Mr. Chalmers is a registered professional engineer and holds a Bachelor of Science in Mining Engineering degree from the University of Arizona.

Company Overview

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 majority of the vanadium production comes from 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, and rare earth metals production and processing. It is also involved in vanadium production and recycling. The company’s 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, United States. It is listed on the New York Stock Exchange (NYSE: UUUU) and the Toronto Stock Exchange (TSX: EFR).

Energy Fuels is a remarkable opportunity for investors that are looking at decarbonizing and improved electrification. The company’s representatives recently attended the PDAC (Prospective Developers Association of Canada) conference. This year, the conference was the busiest it’s ever been for Energy Fuels. It was a well-attended event where the company had a number of meetings with a number of interested parties. The company is making significant advances on the rare earths side of the equation. It had an exceptional 2022 and 2023 is expected to be even better for the company.

Cash Position

Energy Fuels is currently valued at $1.3Bn. The company is cognizant that it needs to expend capital in order to advance its projects. The team is currently working on the underground operations, getting 4 mines ready. The mines are ready to start producing. Recently, the company closed the acquisition of Bahia in Brazil. Notably, this $21.9M deal provides Energy Fuels ownership of 17 mineral concessions that are located between the town of Prado and Caravelas in Bahia, Brazil.

At the same time, the company is building out the separation plant at White Mesa. The company considers this as an investment for the future. Notably, Energy Fuels sold the three wholly-owned subsidiaries that make up the Alta Mesa project in Texas to enCore for $60M in cash at closing and $60M in a secured convertible note, that is payable in two years. This deal has enabled the company to acquire additional funding without any dilution. The company also has uranium contracts that start in 2023.

Notably, the long-term uranium contracts are signed for an 8-year period. Since the hiring process has become increasingly challenging in recent times, the company is getting people on board, training them, and advancing the project forward to maintain momentum. On the uranium front, the company now has the contracts in place and it is now going back into production. This serves as a fallback to secure the company’s position to go forward.

On the rare earths side of the business, The company is focused on developing a processing facility in the United States. It is also working on securing the raw materials including monazite sands for production. The company has been confident on all fronts which is reflected in the contracts, and the sale of uranium reserves. The company spent a substantial amount of capital last year as a reinvestment into its future.

One of the uranium contracts was signed with the US Uranium Reserve. Here, the company is expected to sell $18.5M of uranium. Additionally, the company has a toll milling agreement with International Consolidated Uranium Inc. (CUR). As part of the deal, CUR has entered into a definitive asset purchase agreement with certain wholly-owned subsidiaries of Energy Fuels, where CUR will acquire a portfolio of conventional uranium projects located in Utah and Colorado from Energy Fuels. In connection with the closing of the transaction, the companies have also agreed to enter into toll-milling and operating agreements with respect to the project, positioning CUR as a potential near-term US uranium producer subject to an improvement in uranium market conditions and/or CUR entering into acceptable uranium supply agreements. It is important to note that Energy Fuels is the largest shareholder in CUR.

Following the Alta Mesa sale, the company was looking at a buying schedule. In this case, a buying schedule is an agreement to buy the uranium supply or ores that are yet to be produced. The company is anticipating a slight uptake in pricing before executing the buying schedule.

Essentially, the company will buy the ore for between 40% to 50% of the contained value. Following this, the uranium is processed and the company gains ownership and marketing rights for the ore. This way, people can deliver the ore to the mill, assuming that the party has all the regulatory permits in place. The 40%-50% buying schedule is dependent on the material grades. According to the company, uranium and vanadium are fairly priced. This is because the costs incurred in processing uranium and vanadium are quite high. Replacing it would probably cost around $500M. The company is open to allowing other parties to take part in the buying schedule.

Energy Fuels isn’t worried about competition from the market. This is because it could potentially take up to 10 years for an upcoming project to get permitted. Furthermore, such an operation requires a substantial cash flow. There have been attempts by other companies to build a new mill, however, this was never accomplished. Meanwhile, Energy Fuels has an operating mill. The company’s staff is skilled in uranium processing. Furthermore, being debt-free differentiates the company from the competition. According to Energy Fuels, there is no need for another mill in the United States as White Mesa can easily fulfill all the uranium requirements.

The company is confident that the region only needs a single mill. Other companies that are looking to enter the space can expect a massive undertaking, especially from a cost perspective. In the meantime, Energy Fuels is looking to put out a competitive buying schedule, which is expected to be similar to what’s been offered in the past. This assumption is based on the buying schedules that go back 40-50 years in the region. At this point in time, the company isn’t worried about potential competition.

Strategic Partnerships

Energy Fuels is looking to feed the mill from the supply that originates from its own mines. Over the last cycle, there was a small amount of feed that came from other parties with a buying schedule. This feed was around 10%-20%. Considering White Mesa’s overall capacity, this supply is considered negligible. The company is open to a mill run consideration in case there are additional companies that are looking to process feed. In the new cycle over the next decade, the company is looking to run the mill 24x7, processing feed around the clock. In this scenario, every permitted mine in the region would need to run at full capacity and they still won’t reach White Mesa’s processing capabilities.

A lot of government agencies were present at the PDAC conference. The company had a number of meetings with various government agencies. It is looking to find the right vehicle, whether it’s a loan or a grant that is offered by the government. The source of the capital will be the deciding factor for the company. The company has plans to capitalize on the rising geopolitical tensions.

The company has already ordered all the parts required for the phase 1 separation plant. The operations team is currently building out the asset. The company anticipates that the project will be built and completed in less than a year’s time. Interestingly, the company has received a lot of inbound interest from potential partners. A lot of the company’s investors are waiting for the news on this front. The company anticipates that in the near future, it will be in a position to publish updates to the market. The Bahia acquisition opens the door for additional opportunities as the company seeks to operate on a global scale. According to the company, there is no one else that is in better shape than Energy Fuels in North America or around the world.

The company has a lot of strategic partners to choose from. The parties that have the infrastructure and the permits in place along with the ability to ramp up the monazite sands feed are of particular interest to the company. From a balance sheet and capital perspective, the company currently has the ability to carry out all the capital improvements needed for both rare earths and uranium.

However, the company’s main focus continues to be on critical elements. Here, the company is driving the project and is utilizing the available infrastructure. Based on conservative estimates, the company would need to invest $25M to build the strike rate for the first phase of the separation plant. Currently, there is no other player in the market that can build a separation plant at such a low capital cost. The capital rate for Energy Fuels would likely be $0.25 on the dollar of what others would need to spend to build the plant. This serves as a huge advantage for the company.

Sourcing Monazite Sands

Energy Fuels hasn’t had the need to raise capital directly for a long time now. The sale of Alta Mesa further strengthens its position. The key to accessing capital is to demonstrate that the company is making material progress and is achieving the set goals. Given the scarcity of product to invest in, there is no shortage of money that can go into the right kind of investment.

Currently, the company is looking at all the available opportunities. It is looking to build the story based on the amount of monazite sand that can be secured. This can be done through companies that are either cash-strapped or struggling to raise cheaper capital to meet their needs. This can serve as an additional supply of monazite feed for the company. The company is more than happy to infuse some investment into such companies to help them meet their goals. The company does not have a shortfall of interested parties at the moment, which gives it plenty of flexibility.

Targets 2023 and Beyond

Energy Fuels has closed the Alta Mesa sale, which provides it with an additional $60M in the bank. It has $18.5M in uranium sales revenue. The company also has upcoming sales contracts in June or July, for the US government uranium supply agreement. It also has a number of other smaller transactions that add to the existing cash flow.

EnCore has shown interest in working with Energy Fuels. This could lead to more uranium, vanadium, and rare earth carbonate sales, bringing the company to a true rotation point. Interestingly, the company is building its revenue stream faster than anybody else in the sector, particularly in North America. The company intends of hitting additional targets this year that were missed in 2022. It has great relationships with Neometals, Chemours, and utilities. Energy Fuels considers itself a project builder.

To find out more, go to the Energy Fuels website