Energy Fuels (NYSE: UUUU) - Front Foot Planted, We Don't Move Backwards (Transcript)

March 13 2020, 14:14 GMT

Energy Fuels made an announcement last week about a $16.6M Bought Deal, which closed on Thursday, some shareholders do not seem pleased. We ask Chalmers why he did it and why on those terms.

What does Chalmers know that we don't about the DOE announcement? What are his use of proceeds? And what is his strategy? Is there M&A planned, yes or no? And how does he plan to monetise the White Mesa Mill? Insider buying in the market for UUUU has been heavy in the last couple of days.

Interview highlights:

  • 1:31 - News Release: Why Did They Do it?
  • 4:05 - DOE Announcement: Does Energy Fuels Know Something the Rest of Us Don't?
  • 6:33 - Financial Position at Present and Valuations of Stock
  • 7:31 - Possibilities to Sell Vanadium
  • 9:04 - Use of Proceeds: M&A and Project Focus
  • 13:17 - White Mesa Mill: Are There Talks of Other Companies Using the Mill?
  • 15:02 - $150M for the Creation of Uranium Reserves: Conversations with Miners on Price

Click here to watch the interview.

Matthew Gordon: Hi Mark. How has your week been?

Mark Chalmers: Oh, it’s been busy, with closing thefinancing. It’s been a very busy week for us.

Matthew Gordon: Ok so I guess I’m going to ask you thesame question you’ve been asked a lot since you put out the news release abouta week ago, which is Why did you do it, and why those terms?

Mark Chalmers: Well Matt, you know, it was expensivemoney, but as I’ve said to you and multiple times, as I’ve said toshareholders, we want to be on the front foot rather than the  back foot. We’re very encouraged that thegovernment has announced planning to buy Uranium again, it’s the first timethey’ve been planning to buy it since 1983. So we want to be as ready as we canfor that because we think we’re best position to capitalise on that. But theother thing that probably a number of people didn’t understand or realise isthat we had a convertible debenture that matures at the end of 2020, and itbecame a current liability at the beginning of this year. So we wanted to be inthe position that we can show that we had enough funds to cover that on our ownterms and abilities; without having the convertible drive us, we wanted to bein a position to drive the convertible.

Matthew Gordon: Ok but did that convertible contribute towardsCantor Fitzgerald being able to negotiate quite tough terms now? I getthe point that if you didn’t, your negotiation stance towards the end of theyear was going to be pretty difficult, you know, I’ve been there myself. Butwere they pushing you hard now because they could?

Mark Chalmers: Well you know, it was our decision, weweren’t being pushed, we discussed it certainly at board level quiteextensively, and we just decided that it was going to be better to go now andget the funds and be ready for the future. But you know, no one wants to go andget into financing that… and I want to say that it was a bought deal, it was straightcommon shares, no warrants, but no one wants to be in a financing that pushesthe share price down like it did for us. But again, we believe that we’re inthe strongest position of anyone else, and we think there’s other people who aregoing to go to market probably quite soon and we wanted to be there sooner thanthey were. And as I said, this announcement by the government to buy Uranium, noone is in a better position to capitalise on that than Energy Fuels.

Matthew Gordon: Lots of questions. And I’m going to throwthese at you in no particular order. You keep saying the word ‘front foot’,what do you mean by that? Are you talking about being able to capitalise on theDOE announcement? In which case, what do you know that we don’t?

Mark Chalmers: I think the demand…You know, wehaven’t heard the whole story yet out of the working group on terms of the wholethree steps of Nuclear fuel cycle, so we’re still hopeful that there’s more tocome here. But we want to be in a position that right now the government’sannounced that this USD$150M for this strategic reserve, we want to be in aposition to get the majority or at least a large share of that ahead of… thereis going to be lots of competition for it. But no one has the history, theproven history in the facilities like we do. Ur-Energy are in a pretty goodspot too because they are a proven producer, but we are in the best position todeliver into that initiative.

Matthew Gordon: Ok so you’re making a bet, you don’t knowanything that the market doesn’t know? Just so I am clear.

Mark Chalmers: Correct. We have released everythingwe know about where we are in this process and where the government is in thisprocess. But there have been statements through Secretary Brouillette, andothers, that there should be additional information forthcoming on the Working Group’sfindings in the next few weeks or so. But we’ve also been waiting a couple ofyears for information flow, and it’s been delay, delay, delay.

Matthew Gordon: Ok, so are you expecting more money to bementioned in these future announcements? Or more confirmation on the USD$150M?

Mark Chalmers: Well you know, we think that Nuclear FuelWorking Group, and I’m speculating a bit here…agrees that they need to dosomething to re-establish the Nuclear fuel cycle, the front 3 steps throughenrichment. So we believe that they’ve come up with findings, but I don’t knowexactly what those findings are Matt. But we, as I’ve said, what we do know is whatthey have released and we want to be in the best position to capitalise on thatthan anyone else.

Matthew Gordon: Okay, and I want to talk about use ofproceeds in a second but if you don’t mind, what is your position now? Becausewhen we’ve talked in the past you’ve had about USD$40M between cash andinventory, you’ve topped it up with another USD$16.6M..what position are you inwith regards to your cash today…I know you’ve got the convert coming through,but what does it look like today?

Mark Chalmers: You know, we’re going to announce ourfinancials in March. But yeah, in the order of magnitudes that you’re talkingabout…in the USD$40’s, plus this capital raise, you’ve got the convert at theend of the year. We’ve got around USD$20M of that is inventory, about half invalue is Uranium that we value at around USD$25lbs, and about half is Vanadiumwhich we’re valuing at around USD$5lbs which incidentally is coming up a littlebit…last I saw it was in the USD$7s, so we’re hoping to get another kick there.

Matthew Gordon: So you are not tempted to sell theVanadium today? Because it has been as low as USD$3 and as high as USD$30…sowhat do you do?

Mark Chalmers: Well exactly. I’ve said to you thatwe’re trying to do the Carbide plan which is to have inventories that we candeploy when we want to deploy quickly. And a big part of our plan, our strategyis to have inventories available packaged, ready to go. And that’s anotherreason for financing, because if you had in the order of USD$40M of cashworking capital, the convert becomes a current liability, then you’re down inthe mid USD$20s or so, of which USD$20M was inventory. So we believe we’regoing to get a bigger bounce out of that inventory at the right time. Iunderstand that the average person who is a shareholder may not fullyunderstand our motives, but we wanted to keep that inventory, because whateverthe government purchases, assuming they purchase inventories, you could get a2X or maybe even more than that in flexing up on the value.

Matthew Gordon: Ok so thanks for sharing your motiveswith us. I appreciate that and it makes sense. Can I talk about use of proceeds?There are two strands here; one I need to deal with. Are you going to use anyof your current cash available to you, you closed yesterday, to do any M&Awork? Are you going to buy any of your peers?

Mark Chalmers: You know, it’s always a possibilityand I’m never going to say ‘no’ because that’s an absolute. It puts us in astronger position to do the M&A, so I’m never going to say no but I’m notgoing to say yes either. How’s that?

Matthew Gordon: That is very politic of you. Letme ask you another way. Today are there any plans to do any acquisitions?

Mark Chalmers: Not at this point in time

Matthew Gordon: Got it. Second strand; you talk inyour press release about use of proceeds, obviously focus on the ISR project, Iassume because that could go into production soonest? Is that right? What’s theorder of play because you talk about all four assets but ISR was number one.

Mark Chalmers: We’ve got quite a diversified set ofassets, but there’s some work at Nichols Ranch, we’ve got some work inincreasing the flow capacity at Nichols Ranch, we’ve got some drilling thatneeds to be done at Alta Mesa, you know, we’ve got other work that we’re stilldoing, design work on the Canyon mine, we’ve got the shafts sunk there butwe’ve still got to put in some facilities around the shafts, so. I can tell youthis much, we’re not going to spend all that money until we get a little more clarityon the outcome from the purchase program, but there are things with a longerlead time that we will put some money in so we are better ready than we arenow, even though we’re as ready as anybody out there.

Matthew Gordon: Yes you said you were best placed withinUS companies to take advantage of that announcement, but you’re not ready to gotoday without spending some money to get everything up to speed? So whatdoes that mean, how much money are we talking about?

Mark Chalmers: No look, we’re ready to go today onsome of our assets, they are ready to go today. But there are a lot ofdifferent variables here that we don’t know in this government purchasingprogramme. For example, are they going to buy inventory? And I think theyabsolutely should, because otherwise we’re going from a colder start, not acold start but a colder start to build up production. And the clarity on who’sgoing to be able to best capitalise on that, that all will drive how muchinvestment is required at which site or sites. So there is some uncertaintyabout how that will be distributed, the government did say that they thought hispurchasing program would basically go to 2 mines, or maybe a little more, butits not designed to go to 5 or 6 mines. It’s not. Now, there could be few moremines potentially around our White Mesa Mill. But it’s really our focus in myopinion on…and when they talk mine’s I believe they are talking productioncentres where you can actually make the yellowcake, so like White Mesa would bea mine in their terms and perhaps 1 or 2 other ISR facilities. So there isabsolutely no need to build new facilities with this current demand as we knowit today, it should be focused on existing proven facilities that have ahistory of delivery that are already constructed ready to go.

Matthew Gordon: Ok. White Mesa, it’s a huge facility andyou were saying its been a long time since it got near, or was processing atfull capacity. Long time.

Mark Chalmers: Its actually never produced at fullcapacity. It has a licensed capacity of about 8Mlbs, and the best it’s done isaround 4 to 4.5Mlbs.

Matthew Gordon: You’re never going to be able to fillthat. Are you having conversations…there was one other CEO who mentioned at apresentation he was doing, I don’t know whether it was a slip of the tongue orhas been misinterpreted, but they talked about using your mill to process ontheir behalf? Have you had conversations with other Uranium companies on thistopic?

Mark Chalmers: Not recently no. No one but us has theright to use White Mesa Mill right now. Does that change in time? Perhaps. Butno one has line of sight to use White Mesa Mill. We do have some clean-up of anidled Uranium mine that is currently going into White Mesa through an agreementthere. Once that material shows up at the site we’re stockpiling it, we havethe right to process that at our own schedule and desires. But we have fullownership of the Uranium from that material. So yeah, no one has line of sight.A lot’s going to depend on how the implementation process goes with thisinitial purchasing, we’ll see where we go from there.

Matthew Gordon: Ok. On this USD$150M, because again, there’sbeen a lot of numbers floating around. We don’t know the price at which thegovernment is going to have conversations with miners, do you know?

Mark Chalmers: Well noI don’t, other than thequantum of the USD$150M. But there is a fair amount of banter around, ‘oh itsUSD$50 or USD$45’. Well USD$45 or USD$50 is not enough, that is not a highenough price. That is not a sustainable price. And when people say they canmake comfortable margins with USD$50 in the United States, they’re full ofsomething but I don’t want to say to you…

Matthew Gordon: Smoke?

Mark Chalmers: …Exactly what they are full of. But weneed prices that are well north of USD$50. I mean sure, if we get USD$50, weare in a position at least Energy Fuels is, where we have 500,000lbs or more ofUranium that could be monetized, and that’s certainly going to be a help, andwe can run projects like Canyon. This doesn’t mean we can’t run some of ourprojects. But USD$50 isn’t a fair price, it should be north of USD$60 is a sustainableprice. It annoys me when people say ‘all we need is USD$40 or USD$50’, and theyare full of it. Like I said, we have projects we can mine before that but thatis at the site, it does not include the full loadings of a public company todeliver any kind of sustainability. And I think the key thing is that thisUSD$150M is over 10 years, so we need a sustainable solution and outcome here,not to have a flash in the pan and have people not being able to make itbecause the prices are too low.

Matthew Gordon: Ok so having had those discussions, and Ican hear its been a source of frustration with people speculating around theprice, but let’s even say it was USD$75 just for the sake of argument, that’s2Mlbs we’re talking about, its not a lot, and they still have to go out and…

Mark Chalmers: No, and again there’s a lot of movingparts here Matt that we don’t know exactly what they are right now. And as Isaid, we don’t know what follows, or if anything follows with the Working Groupwhen they get into more details. But I’m speculating here a bit, I believe thatthis first announcement is not big enough for somebody like say Cameco to comeback in and restart their operations. And if that’s the case, and I don’t knowfor a fact that it is, that makes more room for ourselves and people like Ur-Energy.I think I’ve told you this, that since 2004, 2 companies have mined 85% andproduced 85% of Uranium produced in the United States, and it was Cameco andEnergy Fuels. So the 2 of us have the longest history of production over anyoneelse. Now, there are a couple of projects like the Uranium One and Ur-Energythat didn’t produce back in 2004, they started in mid-way say 2008 or 2009, or2011 or 2012 that also contributed a material amount of Uranium. But if youinclude those 4 companies, 97% of the Uranium produced since 2004 were 4companies. So there aren’t a lot of us with any kind of track record ofproducing a material amount of new Uranium, and we are very confident that wehave that track record. And because at the moment we know the demand is small-ish,there’s no question, it should only go to those who can prove that they can doit, and have those facilities ready to go without major major capitalinvestment.

Matthew Gordon: Ok, you sound confident. If you hearanything from up on the Hill, Whitehouse or DOE please give us a call. I’d loveto hear your thoughts on how this thing’s going to progress.

Mark Chalmers: You’ve got my number Matt, you know where I’m at, and I’m always happy to have a chat with you.

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