Energy Fuels (UUUU) - High Margin Isotopes & Rare Earths for US Market

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 building a critical minerals hub in the United States for uranium, vanadium, rare earths, and potentially medical isotopes. Raising capital has been difficult in the last couple of months due to a downturn in equities. People are now looking to reduce dependence on Russia and China, which is a significant paradigm shift. At the same time, people are looking for ways to reduce carbon emissions. In order to achieve this, the industry needs to improve its ability to electrify equipment that is used in vehicles and also increase the use of wind generators.

Governments around the world are now focusing on electrification and reducing carbon emissions. This is being achieved through a focus on de-globalizing the world on a number of critically important materials. In recent times, the US government has signed bills worth hundreds of billions of dollars in order to push toward a greener economy. Energy Fuels is currently moving up in the queue for government funding. Interestingly, the initial funding offered by the US government was limited to rare earth metals. The funding was organised before Energy Fuels started operating in the rare earths space. The company is currently amping up its presence in Washington DC for uranium and rare earths. The average person in America is now beginning to understand the new government initiatives and their implications.

Energy Fuels is majorly focused on the rare earths front, where it is looking to secure more monazite feed. The company is looking to close the deal on the Bahia Brazil project by the end of this month. It has an ongoing relationship with Chemours. The company also has a relationship with Iberinox 88 S.A and other business entities. These companies are expected to come on board in due course. Since the company has proven all the other steps, securing monazite will help differentiate it from the competition. It has already proved the crack, the leach, and the separation process. It is now looking to move towards large-scale operations.

The company anticipates that it will achieve large-scale separations in the next few years. The company recently hired John Uhrie, a Ph.D. metallurgical engineer as a COO. John is well known in the Denver community and is highly experienced when it comes to processes. His contribution will enable the company to achieve full integration on a global scale.

The Rare Earths Business

Energy Fuels are currently producing mixed rare earth carbonates. It is supplying carbonates to Neo Performance Materials. Notably, in 2021, the two companies announced a Joint Launch of the US-European Rare Earth Production Initiative. The current supply is being carried out at a small commercial scale. Energy Fuels is looking to secure additional material feed. It is in the process of designing a crack and leach facility for monazite processing that will be separate from the mill. Currently, the company is sharing the infrastructure and the mill with the uranium plant. The next step up will be in the form of a commercial-scale crack and leach facility. In the first phase of operations, the company seeks to produce 10,000t REO (Rare Earth Oxides) yearly, which will be a large-scale operation. To put it into perspective, Lynas Rare Earths Ltd. currently produces 16,000t-17,000t REO.

The first step in the process is to source the monazite. The company is simultaneously working on the crack and leach process along with lab-scale separations. It is carrying out commercial separations on the material that is being shipped to Neo Performance Materials. This is being considered as an intermediate step where the company would have small commercial separations so that it can work on NdPr (Neodymium-Praseodymium) quicker than the large-scale separation plant. While this process is expected to take a lot of time, the company is progressing in the right direction. The company has come a long way since it began operating in the rare earths space 2 years ago.

Energy Fuels is looking to achieve crack and leach separation in the next 12-24 months in order to develop carbonates up to 10,000t REO. It is important to note that the timeline will be dependent on the amount of monazite secured. The yearly supply is much higher than Neo Performance Materials’ capacity. This can possibly serve as an intermediate step to the final separation. The company is looking to sell the additional supply to Solvay in France, or other interested buyers in China, Thailand, or Japan. It is operating in a purposeful manner and has the potential to generate cash flow. Securing a large-enough monazite supply will enable the company to achieve profitability from the carbonate alone.

Over the next few months, the company will update the market on its project economics. It currently has a robust understanding of the crack and leach process and the cost of carrying out the separations. It has experience working on-site and in France, in the coming 2 months, the company is looking to publish the project economics.

Energy Fuels does not require subsidies from the government. However, if it does get a loan package or infusion of money from the government, it will be taken into consideration. The company has already processed close to 1,000t of monazite through a really good pilot plant. It is cognizant of the recoveries, reagent consumption, retention times, and final quality. The next step in the process is achieving separation.

Working with the DoE

Energy Fuels moved some of its uranium to ConverDyn, a general partnership between American multinational firms Global Atomics and Honeywell. Notably, ConverDyn has a facility to convert the supply to UF₆ (Uranium Hexafluoride). The material transfer from ConverDyn will be a simple process. Energy Fuels signed contracts with 2 utilities back in May 2022. The delivery is expected to commence next year.

The DoE (Department of Energy) recently put forward a proposal to purchase uranium reserves from Energy Fuels. Notably, this has been the first proposal of its kind from the DoE in over 50 years. One key requirement for this proposal is that the company should have a conversion facility.

The DoE is currently considering the proposal. Several US companies have submitted proposals to sell. The DoE is expected to make a decision in the next 2 months. Energy Fuels has uranium at the conversion facility that can be transferred to the DoE very quickly. The company is looking forward to selling some of its product to the DoE this year.

It is often a common practice to have a converter holding inventory which can either be in storage or at a conversion facility.  In order to apply for the proposal, an inventory at the conversion facility is mandatory. Additionally, the material needs to be of US origin. If accepted, the proposal will infuse additional cash flow into the company. It has worked really hard on Section 232, however, the process wasn’t expected to take such a long time to start.

20% of the US utilities secure nuclear products from Russia. However, the current Ukraine-Russia conflict has caused utility providers to seek domestic supply. The government’s involvement in the process is highly favourable as it comprises all the targeted elements that Energy Fuels intends to supply.

In recent times, the US government has put forward the Inflation Reduction Act, and the Climate and Energy Bills. These bills are expected to have a positive impact on nuclear energy and uranium. These bills would also benefit the global drive toward clean energy and nuclear power, which, in turn, would increase the demand for critical elements such as rare earths, uranium, and vanadium. As per the company, governments are now beginning to realise the importance of de-globalization and the development of on-shore capabilities in order to address the growing demand. While government-supported is highly-appreciated, the company has the resources and capital to advance the projects on its own.

As the price of uranium continues to grow, the market sentiment towards nuclear energy has improved as well. This development has led a lot of companies to take positions and acquire projects. It has also caused an increase in M&A (Mergers and Acquisitions) activity. Traditionally, summertime often sees a reduced interest in the space, however, compared to the previous year, there has been a notable increase in long-term contract signings.

A lot of companies are now signing long-term contracts, particularly with US utilities. The cycle is currently on an upswing. The company anticipates that the inflationary environment has increased access to skilled people and new facilities. There are several companies that haven’t built new facilities due to increased costs. Interestingly, the incentive pricing 3 years back was around $50-$55, while currently, these prices are moving north of $75. The Russia-Ukraine crisis was an unexpected hit to the market. This led to the shrinking of the available workforce and about a 10% rise in inflation.

The White Mesa Mill

Over the past 6 years, there has been a considerable shift in sentiment towards the White Mesa Mill. It has the potential to handle natural uranium products that most other facilities simply cannot process. In the current environment, getting a project permitted is a challenging prospect. In fact, some of the projects in the Athabasca basin took 10-15 years to acquire the necessary permits. The permitting process in the US is also becoming increasingly difficult. Energy Fuels’ White Mesa mill has a leg up against the competition as the construction is already completed and paid for. The project is located in Utah, a place known for having a favourable cost of business. Furthermore, the project also has a robust workforce availability.

In the past 5 years, the White Mesa Mill has seen a substantial shift, where it has become an ideal project for the uranium and rare earths business.

Energy Fuels is currently looking to separate the crack and leach process from the mill. This process is expected to take some time. The company currently has a lot of stockpile out of the mill that requires processing. The facility is currently staffed with 60-70 employees that are working full time. Having the White Mesa Mill in the asset portfolio has put the company in a very strong position.

Uranium Pricing

The utilities are looking to secure long-term uranium supplies. The majority of current contracts are signed at a little over $50/lb. This price point isn’t favourable for companies that are looking to start new projects. Energy Fuels is already a part of the business where everything has been paid for. It also has an inventory stockpile along with an alternate feed supply. The company is waiting for an increase in price before it considers starting a mine.

The uranium spot prices have been within the mid-to-high $40 range, while long-term contracts are being signed at $50/lb. While the prices are favourable, they aren’t high enough to justify new production. While securing multiple sources is important, the price needs to go higher in order to sustain a profitable operation. Energy Fuels is closely observing the market on a daily basis. Once the prices start to increase, the company will secure additional contracts.

Financial Considerations

Energy Fuels has an entrepreneurial growth strategy. It is currently allocating capital to its uranium and rare earth assets. The company anticipates that the rare earths part of the business will be the most capital-intensive over the course of the next 3 years. It already has a lot of mines constructed and ready to go. However, the uranium mines would still require about $40M-$50M in working capital.

For the rare earth assets, the company has plans to deploy between $100M-$200M in capital. The current profit is being generated through uranium and vanadium sales along with stock trades. At the same time, the company is reinitiating a number of projects that require permits. One such example is the Roca Honda project. It is starting a new permitting initiative on a number of existing assets that hadn’t been under focus over the last 5 years.

Targets 2022 and Beyond

Energy Fuels seeks to become a multi-billion dollar company. On the uranium front, the company has a strong focus on the US market as it fulfills the majority of its requirements as a uranium company. It is currently the largest uranium producer in the United States.

Being in a unique position, the company is looking to reach a global scale for its rare earths business. Rare earths are expected to offer much better margins than uranium. While the political inclination and support for uranium have changed dramatically in recent times, rare earths continue to have bipartisan support. The company is looking for opportunities that can generate the best return for shareholders. Capital deployment is driven by shareholder returns, profitability, and margins.

To find out more, go to the Energy Fuels website