Energy Fuels' Q2 2023 Financial Results

About Energy Fuels

Energy Fuels is the largest producer of uranium in the United States. The company mines uranium and produces uranium concentrates for sale to major nuclear utilities to generate carbon-free electricity. Energy Fuels also recently began commercial production of rare earth materials and plans to produce separated rare earth oxides in the future. The company has two key uranium production facilities in Utah and Wyoming and a large portfolio of uranium exploration and development projects in the US.

Earnings Highlights

Energy Fuels Inc. reported its second quarter 2023 results, highlighted by:

• Revenue of $6.9 million, up 6% from $6.5 million in Q2 2022. Revenue came from sale of uranium concentrates ($4.3 million), rare earth carbonate ($2.3 million), and alternate feed materials/other ($0.3 million).
• Net loss of $4.9 million or $0.03 per share, improved from a net loss of $18.1 million or $0.11 per share in Q2 2022. The reduced loss was primarily due to a $2.8 million gain on sale of assets and improved results for its investments accounted for at fair value.
• Operating loss increased to $10.7 million from $6.7 million in Q2 2022, due to increased costs applicable to revenues and higher operating expenses associated with ramping up activities.
• Cash and equivalents of $35.6 million as of June 30, 2023, down from $62.8 million at year-end 2022. The company believes it has sufficient cash to fund planned activities for at least the next 12 months.
• Energy Fuels produced 355 tonnes of rare earth carbonate during Q2 and sold 127 tonnes. It is continuing to enhance its capabilities to commercially produce separated rare earth oxides at its White Mesa Mill starting in late 2023.
• The company is maintaining its uranium properties on standby, ready to resume production based on sustained improvements in market conditions and/or continuation of the U.S. Uranium Reserve Program.
• Energy Fuels completed the sale of its Alta Mesa ISR uranium project in February 2023 for $120 million, recognizing a $116.5 million gain on sale. It also sold its Prompt Fission Neutron technology used at Alta Mesa for $3.1 million.
• In February, Energy Fuels closed on the acquisition of the Bahia rare earth project in Brazil, which is expected to provide feed material to support expanded rare earth production.

Energy Fuels continues to strengthen its position in uranium and rare earths while pursuing additional growth opportunities. The quarterly results reflected progress on key initiatives, offset by still weak uranium market conditions.

Results of Operations

In Q2 2023, Energy Fuels had a net loss of $4.9 million compared to a net loss of $18.1 million in Q2 2022. The reduced loss was primarily attributable to:

• A $2.8 million gain on sale of assets related to the divestiture of the Prompt Fission Neutron technology
• Improved results of $14.3 million for investments accounted for at fair value
• Revenue from uranium concentrate sales of $4.3 million

These positives were partially offset by increased operating expenses and higher costs applicable to revenues.

For the first half of 2023, Energy Fuels had net income of $109.4 million compared to a net loss of $32.8 million in the first half of 2022. The swing to a profit was largely due to:

• $119.3 million gain recognized on the sale of the Alta Mesa ISR uranium project
• $22.8 million in uranium concentrate sales
• Reduced losses of $15.2 million on investments accounted for at fair value
• Increased interest income of $2.8 million

Partially offsetting these benefits were the costs applicable to uranium sales and increased operating expenses.

Liquidity and Capital Resources

As of June 30, 2023, Energy Fuels had working capital of $134.4 million, including cash, cash equivalents and marketable securities totalling $99.7 million. The company believes it has sufficient liquidity to fund activities for at least the next 12 months.

Major cash requirements are expected to be working capital, capital expenditures, and potential growth opportunities. Cash needs are expected to be met through current cash balances, inventory sales, and common share issuances if required.

For the first half of 2023, net cash used in operating activities was $4.1 million compared to $21.4 million in the first half of 2022. The reduced cash burn was attributable to uranium concentrate sales, offset by increased operating expenses. Investing activities resulted in net cash outflows of $25.4 million mainly for mineral property acquisitions and marketable securities purchases.

Energy Fuels maintains a strong liquidity position to support its operating and growth initiatives in the uranium, rare earths, and radioisotope recovery businesses. Careful management of cash needs will be required if weak uranium market conditions persist.

Market Risk

Energy Fuels, like others in the mining sector, faces significant exposure to fluctuations in commodity prices, interest rates, and credit conditions. The company's profitability is directly tied to the market value of uranium, vanadium, and rare earth elements. Changes in interest rates impact the value of Energy Fuels' debt and equity instruments used to finance operations. The extension of credit to customers also exposes the company to credit risk. Moreover, industry-wide factors can affect the ability to fund exploration and project development, though such effects are hard to predict or quantify. Overall, Energy Fuels is vulnerable to market risk and the potential for adverse impacts on asset values or cash flows due to movements in interest rates, currencies, and commodity prices. The company actively monitors these parameters but has limited ability to control the macro forces driving them. Like its peers, Energy Fuels must manage its risks as effectively as possible while operating in a sector with inherent uncertainty.

Commodity Price

Energy Fuels' profitability is directly tied to market prices for uranium, vanadium, and rare earth elements. Prices for these commodities have been volatile historically. To manage this risk, the company may utilize hedging programs, though there are risks with relying too heavily on forward sales. Currently, uranium sales are at spot prices, while vanadium and rare earth sales are tied to prevailing market prices. There is significant uncertainty in forecasting future prices for these commodities.

Interest Rate

Energy Fuels has exposure to interest rate fluctuations on its cash equivalents, marketable securities, and restricted cash, which totalled $117.1 million as of June 30, 2023. The company does not currently use derivatives to manage interest rate risk. Changes in interest rates could impact the company's interest income earned on these assets.

Currency

Currency risk for Energy Fuels is relatively low since the U.S. dollar is the functional currency for its U.S. operations and the company maintains only a nominal balance in Canadian dollars and Brazilian Real. As of June 30, 2023, its exposure to foreign currency risk totalled $1.8 million. A 10% strengthening/weakening of the U.S. dollar would increase/decrease comprehensive income by approximately $230,000.

Credit

The company's main credit risk exposure is tied to its cash, cash equivalents, marketable securities, and trade receivables. Credit risk is managed by transacting with highly-rated counterparties and setting exposure limits. As of June 30, 2023, the maximum credit risk exposure was $122.7 million.

Overall, while Energy Fuels has significant exposure to commodity price fluctuations, other market risks appear manageable based on the company's current capital structure and risk management policies. The company will continue monitoring market conditions and adjust its sales, hedging, and risk management strategies accordingly.

Conclusion

In summary, Energy Fuels' second quarter and first half 2023 results provide several reasons for investor optimism about the company's future prospects. The successful divestiture of non-core assets like the Alta Mesa project and Prompt Fission Neutron technology generated substantial gains and bolstered the company's cash position. Ongoing growth initiatives in rare earths and radioisotope recovery point to potential new revenue streams that can reduce reliance on volatile uranium markets.

While uranium pricing remains subdued, Energy Fuels is prudently managing costs and liquidity to sustain operations until more supportive market conditions emerge. The company's diverse portfolio of production-ready uranium assets provides leverage to capitalize on a recovery when it occurs. Furthermore, the move into rare earth element separation positions Energy Fuels to benefit from surging demand for magnet metals needed in electric vehicles and clean energy technologies.

With a solid cash balance, opportunistic sales of non-core assets, and increasing exposure to rare earths and isotopes, Energy Fuels offers investors unique exposure to critical mineral supply chains vital for a low-carbon future. Despite near-term challenges in uranium, the company appears well-positioned for long-term growth and improved profitability across its diversified product mix. Energy Fuels has cultivated the optionality and partnerships needed to emerge as a more resilient integrated critical minerals producer.