Energy Fuels (UUUU) - Sold Asset Better Than 50% of Existing Companies

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, rare earth metals production and processing, and vanadium production, along with recycling. 

We met 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. Mark also served as the Chair of the Australian Uranium Council for a decade. 

Company Overview

Energy Fuels is a uranium and vanadium mining, development, and production company. Their 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). 

Uranium Price Fluctuations

The current uranium market pricing is between $32lb-$33lb. However, a price of $50lb is ideal for companies to deliver fresh uranium supply with a healthy margin. 

There have been indications in the market that the price of uranium will appreciate. This coincides with the launch of Sprott Physical Uranium Trust and announcements from Terrapower, under the ownership of Bill Gates on building a small modular reactor in Wyoming. Additionally, the worldwide focus towards reducing dependence on carbon-emitting sources of energy has caused a renewed interest in uranium.

Energy Fuels has received multiple proposals from uranium buyers and they are holding off the sales for a better price point. As the support for nuclear power continues to grow along with the construction of new reactors, the market pricing of uranium is likely to appreciate. 

The Deal with ICU

Energy Fuels recently entered a deal with International Consolidated Uranium (ICU) where the company sold a part of their existing projects. The company will continue to manage these properties and have a milling agreement in place. The company is the largest shareholder and will serve as an integral part of the advisory board. 

As Energy Fuels continues to manage these properties, they'll assign a management, advisory, and maintenance team to the projects, which will fetch a fee from ICU along with a holding cost. This unique deal will lead to substantial value creation for both parties. 

This deal includes advanced assets including the Rim project, the highest-grade vanadium project in the world. Since the company is involved with a multitude of projects, this agreement will enable them to enter production within months with a limited capital investment along with a competitive price point. As per the milling agreement, ICU will pay around 15% to Energy Fuels to use the facility. 

Energy Fuels has an ownership stake in ICU and has struck a unique arrangement with them where the milling facility will be utilized on a pay-as-you-use basis. This enables the company to incentivize the feeding of the mill while still being able to mill the ores and function as a shareholder.

The company intends to hold the shares and cash amounting to $15M-$16M, which can function as working capital in the future. At the current share prices, the company's stake in ICU amounts to $25M. Energy Fuels sees this as an attractive investment. Over time, the company is seeking to build mines in the region and develop similar partnerships. 

Energy Fuels has several projects in its portfolio that are fully permitted and ready to enter production. The company does not plan to divest additional uranium assets. The uranium projects include the Le Sal complex featuring 5-6 underground mines along with Sheep Mountain, Roca Honda, and Pinyon Plain.

The Partnership with Neo

Energy Fuels has partnered with Neo to export rare earth carbonate, uranium, thorium, crack and leach material to Estonia. This partnership will enable the company to bring rare earth processing capabilities back to the US. This is made possible by securing more feed and planning additional partnerships with global suppliers. 

The company has an opportunity to process Monazite sands and separate the oxides at their White Mesa Mill. This will enable the company to quickly reach a multi-billion dollar market cap. Energy Fuels aims to become a US-based Rare Earth material supplier and processor within the next 2-3 years. 

The White Mesa Mill

The White Mesa Mill is the only fully licensed and operating conventional uranium mill in the United States. This mill is under 100% ownership of Energy Fuels. 

Energy Fuels is currently operating at a scale of 100t, where the first batch run through the mill was close to 400t. Over time, they are looking to bring the operations to a 1,000t scale for rare earth carbonate. This plant has the licensing to produce up to 700,000t annually. The company intends to reach a production of 20,000t - 40,000t from Monazite feed. 

The company's focus is on building a separate rare earth carbonate facility at White Mesa while simultaneously developing materials separating facilities similar to Neo's Silmet facility in Estonia. 

The company is scaling up operations while ensuring a sustainable process. They are currently carrying out a scoping study with Carester in France to determine the capital cost of separations at White Mesa. In order to construct a separation plant, the company requires a consistent supply of 5,000t - 10,000t Monazite feed. The expected timeline to set up a separating plant at White Mesa is 3 years. This includes full integration of the production and separation process at the lowest possible cost. 

Since the company's plant is already carrying out the crack and leach process, the scaling up would require limited financial resources. The company already has an experienced team in Utah for carrying out solvent extraction. The cost of living and power in Utah is significantly lower and the facility is located centrally within the US. Over time, the company intends to monetize uranium and potentially get value out of thorium. 

Monazite Sourcing Challenges

The majority of Monazite is currently being processed in China. The supply often varies in shapes, forms, and qualities. Energy Fuels is currently in the process of sourcing Monazite from multiple suppliers from projects located across the globe. 

There is a possibility for a future bidding war to procure the Monazite supply with China. Even though there's a high chance that the government will step in to provide assistance, Energy Fuels is looking to run its business operations based on its own capabilities. The company's financial models and strategy is based on self-sufficiency.

To find out more, go to the Energy Fuels Website