Energy Fuels (UUUU) - Uranium Contracts Signed and Producing Rare Earths

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 company's major vanadium production is 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, along with vanadium production, and recycling. 

Matt Gordon caught up with Mark Chalmers, President, and CEO, Energy Fuels. Mark previously served as an Executive General Manager of Production at Paladin Energy Ltd. Mark has a strong background in situ recovery (ISR) uranium production. He serves as a consultant for BHP Billiton, Rio Tinto, and Marubeni. For the past decade, he has served as the Chair of the Australian Uranium Council. 

Company Overview

Energy Fuels is a uranium and vanadium mining, development, and production company. Its 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, the United States. It is listed on the New York Stock Exchange (NYSE: UUUU) and the Toronto Stock Exchange (TSX: EFR). 

Energy Fuels is focused on critical minerals production in the United States of America. These minerals include uranium, vanadium, and the rare earth oxides used for electrification and reducing carbon emissions.

New Contracts

Energy Fuels recently signed a binding agreement, acquiring a very large project in Brazil called Bahia. The company has 90 days of due diligence to confirm the purchase. It has been looking to enter the rare earths business for the past 2 years. 

The binding agreement is for a very large deposit of heavy mineral sand that contains monazite. Due to the size of the deposit, the company anticipates that the deposit has the potential to supply between 3,000t-10,000t of monazite on a yearly basis. This enables the company to have its own monazite source. It is looking to complement this monazite with other sources. It already has an agreement with Chemours and an MoU (Memorandum of Understanding) with Hyperion Metals Limited. Hyperion’s project is based in Tennessee. 

Energy Fuels’ ultimate goal is to achieve world-scale in size, production costs, operating costs, and capital costs. The company will provide more updates on the 2022 monazite source by way of news flow over the next few months. 

The company paid $2.7M in non-refundable deposit for the Bahia project. It has carried out preliminary testing and sampling, which has been sent for analysis. The results of the analysis seem promising so far. The company is looking to carry out additional sampling in order to cover the extensive 60-square-mile area starting next week. It is highly confident about the deposit’s potential, and it’s highly likely that the deal will be closed. 

Energy Fuels is looking to replicate the China plan, where the country has 10-20 different suppliers of monazite plants within its borders. The company is looking to employ this strategy with a number of projects. It is estimated that the current projects can meet up to 25%-50% of the company’s requirements in due course. It has a really good working relationship with Chemours and is sourcing supplies from the Georgia plant. Notably, Chemours has under-utilised facilities. 

Energy Fuels is looking to showcase the potential of the White Mesa Mill, which is already permitted, constructed, and producing carbonate that can be shipped anywhere in the world. The company is also producing 99.8% pure NdPr (Neodymium-Praseodymium) in a White Mesa laboratory that is running 24/7.

Cash Considerations

Energy Fuels’ Bahia deal in Brazil is valued at $27.5M. White Mesa has a $200M-$300M project CapEx (Capital Expenditure) including upgrades. The company anticipates that the acquisition of the Bahia project alone will help it meet full integration in the United States in due course. It is focused on generating value through the integration of the rare earths supply chain. The company’s major focus is on the monazite and oxides. In addition to the 99.8% NdPr, the company is also commercially producing 35% pure carbon NdPr. Here, the company is currently conducting the first stage of separation on a small, commercial-scale, taking the lanthanum out, resulting in a very high-purity carbonate. 

The company has gathered information on the cost, the recoveries, reagent consumption, and material handling. It anticipates that at the moment, no one in North America has the technical expertise and an advanced project to come up with a successful outcome.  

Guidance Metrics 

The timeline for guidance is estimated at 3 years. The company has decided to take an intermediate step that involves the processing of monazite. Notably, pure monazite with high grades of NdPr is very marketable in the company’s operating region. It is looking to secure additional monazite within the next 6 months or a year in order to develop it into carbonate, which has revenue generation potential. 

This would enable the company to generate revenue until it reaches full integration over the next 3-4 years. In the meantime, the company can make revenue from the carbonate and rare earths program while developing and expanding it further downstream, while also working on the uranium side of the business. 

The Uranium Business

Energy Fuels’ uranium business has improved dramatically in the last 2 weeks. The company has signed 3 major contracts for uranium purchases from 2023-2030 with major US utilities. This uranium supply is estimated at 4.2Mlbs. This effectively generates an additional source of revenue for the company. 

Normally, one can invest in either rare earths or uranium. It is highly unlikely to get both in a single company. The company is looking to show the market that it can quickly generate a positive cash flow. In order to achieve this goal, it needs to cross a number of bridges, which include uranium, vanadium, producing carbonate, and oxides. 

Notably, the 4.2Mlbs uranium supply is spread across 2 US utilities and 3 contracts. The company currently has a 700,000lb of uranium inventory. It has plans to process some alternate feed, which would require an additional 150,000lb material in 2022. The company also has other feed out in front of the mill that it is looking to process. It currently has sufficient inventory at the mill to fill the contracts for 2-3 years. As a result, the company does not have any immediate pressure to mine. It is focusing on making investments and carrying out improvements at its mines by way of increased preparedness and new hires. 

Notably, skilled labour is seeing a shortage at the moment. The company is currently evaluating ways in which it can fill the contracts. It is a common mistake in the uranium business where institutions get greedy and wait for the prices to get a bit higher before entering new contracts. The company has plans to build its book based on its current expertise, profit generation, and asset-building as it goes up. 

Since the company has all its projects permitted, constructed, and operable, entering these contracts is a move in the right direction. The company’s inventory on its books is at around $24lb. It is important to note that this uranium is self-produced and not purchased. The contracts are from utilities that are looking to source US inventory produced pounds as opposed to material originating from Russia or Kazakhstan. 

Energy Fuels has an alternate feed. As a result, the material can be very low-cost, or in some cases, free. The combination of the company’s projects, inventory, and other alternate feed allows for a very material margin. Notably, all the contracts signed with the US utilities have inflated adjustments and escalated for inflation over time clauses in it. Furthermore, the contracts feature some market components that provide downside protection and flex up in case of price increases. The company is confident that it will earn significant revenue through these contracts. The utilities approached Energy Fuels as the company is known to be a reliable supplier and uranium producer for over 45 years. 

Energy Fuels currently has one toll milling agreement with Consolidated Uranium. It does not have plans to enter additional tolling agreements. However, the company is open to considering a purchase agreement. In order for a purchase agreement to be finalised, the company is looking for an institution that will commit to a quantity, and be in full compliance with all the regulatory requirements. The company does not want to tarnish its’ market standing by working with someone that isn’t reputable. 

There’s a global shortage of people and ongoing inflation. The company currently has 110 people with very good skillsets. It is looking to hire additional people and develop the critical mass at the earliest. Meanwhile, other companies in the uranium business are waiting for a higher market pricing. 

Since Energy Fuels has diversification in its business through uranium, vanadium, and rare earths, it has risk mitigation. Notably, the focus on nuclear energy has changed dramatically over the past 2 years, and the company is looking to get the best outcomes for its shareholders. It is planning to work closely with utilities to help mitigate some of the exposure to Russia, while at the same time serving as a reliable vehicle to conduct business with. 

Energy Fuels has the mill, the infrastructure, and the ability to process. It is also open to processing material for other companies for a margin that is workable. The company is looking to demonstrate that it is building a supply of monazite for its mill. Through the 3 US utilities contracts, it will be able to shift large quantities of uranium. Interestingly, some of the uranium is clean-up material that is essentially free for the company. Combining this with the $24lb inventory cost and the new production provides a highly material margin. 

To find out more, go to the Energy Fuels website