Transcript: Energy Fuels (UUUU) - USAs No1 Uranium Producer Chasing REE Crown

April 14 2021, 15:15 GMT+01:00

Energy Fuels

  • Shares Outstanding: 141.6M
  • Share price USD$5.73 (14.04.2021)
  • Market Cap: USD$818.66M

Interview with Mark Chalmers, President & CEO of Energy Fuels (NYSE: UUUU). Energy Fuels is the leading US producer of Uranium, the fuel for carbon and emission free nuclear energy.

Nuclear energy is expected to see strong 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 establish a fully integrated US supply chain. Energy Fuels is delighted to have recently reached the USD$1B market cap milestone. This market valuation increase tracks valuations of Uranium peers in the space which means there is also potential for further increase once their rare earths business has increased recognition in the marketplace.

With a unique portfolio, Energy Fuels has more production capacity, licensed mines and processing facilities, and in-ground Uranium resources than any other US producer. Energy Fuels has diverse cash flow generating opportunities, including Vanadium production, Uranium recycling and rare earth processing. The addition of the rare earths business is really exciting for the company as they become a diversified, green energy company that can reduce carbon emissions and increase electrification of the world.

Energy Fuels need Uranium prices to increase substantially to put their Uranium projects back into production to produce Uranium cost effectively but the rare earths business is moving forward as the company has their first Monazite contract signed. Energy Fuels are now processing Monazite and aims to increase the scale of production for economies of scale and believe that the rare earths business has potential for higher margins than Uranium in the long-term. It is early days for the rare earths business as Energy Fuels is currently making the carbonate and shipping to Estonia for separation. They plan to become fully integrated in the rare earths space and within a couple of years, the separation will also take place at White Mesa Mill as Energy Fuels becomes as independent as possible to become cost competitive with China.

Energy Fuels is in a strong position with more than USD$80M in cash or working capital and they are debt free. Uranium equities are starting to move and it is a busy time for the company as the emphasis on clean energy, carbon free energy and electrification continues.

We Discuss:

  • 1:28 - Milestone Reached: $1B Mkt Cap
  • 2:15 - Company Overview
  • 3:07 - Market Valuations: Rare Earths VS Uranium
  • 4:55 - Raising Money to Buy U308 at Spot Price: Opinions & Impact
  • 9:42 - USA & Biden's Administration: Any Developments on the Nuclear Front?
  • 11:54 - Reset & Recovery of Price: Expect Lower?
  • 13:30 - Potential for Rare Earths: Timeline, Process, & Economics
  • 19:43 - Financing it All: The Cash Position
  • 20:56 - Option for Producing Thorium: What's the Market for it?
  • 22:17 - M&A Considerations: "Open for Things That Make Sense"
  • 23:39 - Expectations & Predictions for 2021

Matthew Gordon: Give us that 1-minute overview of the business because we've got a lot more generalists in the space. I'll pick it up with some questions after that. 

Mark Chalmers: Okay, well, look, there's no peers to Energy Fuels because we're critical mineral material company and our primary business is Uranium. But the addition of the rare earths is really exciting for us. If you look at our ability to produce Vanadium and some of the recycle, we're quite diversified as a company but we're a green energy company that can reduce Carbon emissions, in help with the electrification of the world basically. So we're more diversified than only 100% Uranium focus company. 

Matthew Gordon: Let's talk about positioning because a lot of people jumping on the green bandwagon here and I get the Uranium where that is positioning itself, rare earths in the context of being a US hub, we talked about that before, but how much value are people putting on the rare earths component because Uranium has been on a tear, most companies have doubled or tripled in price, the markets done all the heavy lifting for you guys really so this billion dollar valuation is that down to the Uranium or the rare earth story?

Mark Chalmers: You'll never know exactly how you can allocate value but I think we're still tracking with our Uranium peers. I think we're probably sort of in the middle of the pack with our Uranium peers. I think that people still have a hard time figuring out Energy Fuels, if we're doing Uranium, rare earths and how that all packages up. So I believe that there's still a lot of growth to go on the rare earths side as we fail and move forward with their strategies and start demonstrating to the market that we're crawling up a ladder and we're on the top of the ladder are the MPs and Lynas and it'll take us a bit of time to get there, but we're going to go up that ladder, and that creates other growth opportunities for investors. I'm actually glad to see that if you look at the 2 sectors, that we track with the Uranium group and then we can still have that opportunity to grow with the rare earth sector. 

Matthew Gordon: I'll come to rare earths in a second because there's Uranium has had a few interesting things happen in the market in the past few weeks. Not least of all, Uranium companies, juniors raising money to buy pounds in the market, can we expect to see you do the same? 

Mark Chalmers: Well, we already have our Uranium and we produced it. We produced the Uranium at our facility. So no, we're not planning to buy a product. Does that mean that we wouldn't consider it? I don't want to say no to that 100%. But no, it's very unique. I can't recall in my 45 years in the Uranium business of all these companies going out and buying Uranium. I think it makes sense for some of the companies I really do think that, like us, price of Uranium starts to increase in value, you're going to get a lot more lift on that then having money in the bank at the current interest rate. So, I think it makes sense for some but I do scratch my head when I look at some others and think, why are they buying Uranium? It just seems like a bit of the lemmings are out there buying Uranium right now. 

Matthew Gordon: Do you think we can expect some more of it though, will more people follow suit? Because when you say you're scratching your head, do you think, oh, that's just a marketing gimmick, it's just trying to get noticed in a period where we haven't been able to as a Uranium industry haven't been able to do too much we’re being sitting around waiting?  

Mark Chalmers: I think that buying Uranium is a lot easier than producing Uranium. When you start looking at prices in the high 20s and everything, you can't go out and really mine that material for those prices. So, I think it's a way of people having some trading stock and some upside to the market. And as I said, to produce those pounds at those prices, some of these guys are buying Uranium, I think this will be the most Uranium they'll ever have in their company histories. And I'm not saying that as a negative, but that's the truth. It's product that has intrinsic value that's certainly greater than the prices that they're able to buy at so it does make sense from an investment perspective.

Matthew Gordon: I hadn't thought of it like that. I know you're not trying to be amusing, but it was quite amusing. So if I look at the market at the moment and I'm seeing all of these companies raising money to go and buy pounds in the market, I'm also seeing them get the get their beds filled really quickly. They're making and raised some money, we closed the deal. And they've transacted so again that does suggest there's a lot more Uranium out there than we perhaps realise. Does that suggest to you or should it suggest to us there's a lot more pounds out there than we perhaps have realised? 

Mark Chalmers: I don't know for sure, Matt. But I think that the market is deeper than maybe some people have thought. When you go out and try to acquire pounds that you're able to acquire them. But yeah, people have been able to acquire pounds fairly quickly. I'm not sure what exactly that signals, but it does signal to me that there is product to buy. And even companies like Cameco have gone out and been buying for some time now. If they want product they can buy it and I think that's one of the problems with this whole contracting cycle that utilities when they've needed material, they go out and they round up the pounds they need and then they're not finding it to be too overly tight. But we know it's changing now because we're producing a lot less Uranium than we're consuming the world's consuming right now. I am really pleased with sort of the growing recognition of the importance of nuclear power for baseload energy and even recently with the EU declaring it as sort of clean energy sources. I think we're on a new wave here, and it's been a long and coming over the summer last 10-years or so. 

Matthew Gordon: You're obviously based in the States, is the Biden administration's still making positive noises? What are you hearing about the Uranium reserve fund, any movement on that?

Mark Chalmers: Well, yeah, they are making some positive moves and statements on nuclear. We're still kind of waiting to see how the Department of Energy rolls out the Uranium reserve. That's been going a bit slow. I think they're still trying to fill a number of these appointed offices in these different organisations, in departments, which has slowed things down a bit. So yeah I think we're still pushing everything we can push. I'm actually quite pleased with the positive statements that the Biden administration has made on all things, critical minerals and materials so that's been good. let's see where it goes. But I think we're on a supercycle for low carbon energy and hopefully, that'll be around for a number of years here. 

Matthew Gordon: I know you've said it before but you're not counting on US government contracts, you're not counting on US Uranium reserves to bolster your fortunes. You're not expecting anytime saying you getting on with a business or doing business? 

Mark Chalmers: You're aware of all the work we did with Section 232, that's took several years now if you look back at when we started that. We haven't enabled to yet capitalise on it support from the government. We believe that it is coming, but we're just managing the business based on our own fundamentals and focusing on our ship here. So we're going to drive our ship, drive our bus whatever way you want to use analogy to use. And if we get support we'll take it if we get it. But right now time is important. Being able to move fast is important and so that's the way we're driving the company Energy Fuels. 

Matthew Gordon: We've seen obviously recovery, reset and then a recovery on spot price. And so a couple weeks ago, $27 and now up around $31. Again, it's because of this recent buying, I suspect, do you think that the spot price will reset at a lower level? 

Mark Chalmers: I don't know I mean as long as we have the imbalance and we mop up a lot of this, sort of excess material out there, I'm hoping that it continues to creep forward. We know that we need higher prices, $30 even high 30s isn't really enough. There might be a couple projects out there in the world that can cashflow on high 30s. But it's got to get up to that $50 plus range to really start to get interesting from a producer perspective to really look at putting projects back into play here, from a production perspective. So I don't know how it's going to settle out but as I said the $30/lb is cheap Uranium. Once it's gone, we're going to have to see increases in prices. 

Matthew Gordon: You've assembled quite a team of people and you've got your first Monazite contract agreement signed, when do we start seeing things? When are we looking in at your process, get a sense of what things are costing you, what the margins are, are you going to be able to manage the entire food chain there, can you genuinely compete against the Chinese or once again you're going to have to rely on the Chinese for some components?

Mark Chalmers: Well, it's early days but we believe we'll be in an excellent position probably as good a position as anyone to be cost competitive with China. Now, to do that we have to have full integration or largely full integration. We want to be as independent as we can from others in time. We have a relationship with Neo in Estonia and we're really happy about that because there is no separation in the United States. We are processing Monazite right now, we started processing Monazite a few days ago. I've said to the market previously, we believe that at the worst case, that'll be cash neutral at the mill level, perhaps generate a couple million dollars. But, again we've got to get some scale to it. Chemours’s agreement is a great starting point but we need to upgrade the feed into the mill and get the economics of scale. All indications to us is this given enough feed and getting integration in place in the mill, this is going to be very robust project for us with rare earths. So, we're really excited about it. It probably has higher margins than we see in the Uranium space. I know that people are asking for details and more information. We don't have those details yet. I mean, we're replicating what the Chinese are doing. It's happening quickly, we've got lots of inbounds of people with Monazite, whether it's already mined or potentially to be mined. And we're working through those. I hope to be able to be able to give more clarity through the course of the year, and I think people will be excited with what we're doing because this is a big deal. It's a big deal, not just for our company, but it's a big deal for the United States of America, North America and actually the whole developed world in terms of what we're doing and what we're trying to accomplish quickly and at very low cost.  

Matthew Gordon: Do you want or need to put a fully integrated solution in place? So stage 1, get an agreement for a supply of Monazite and process it. You are processing Monazite now, so you're learning how to process Monazite. What comes after that, because you can't be shipping processed Monazite and also the processed Monazite over to Estonia, as your end solution for separation, surely that will damage the economics?

Mark Chalmers: We're making the rare earth carbonate which is basically Uranium Thorium free concentrate that we're shipping to Estonia. As I said, there is no separation in United States. Estonia’s Silmet is the only separation in Europe. So we're able to move forward with a separated product working with Neo. Complementing that in time and in time, I'm not talking about 5 years out, I'm talking 1, 2, 3-years out that we'll be looking at separation at White Mesa, because we believe that the economics of separating at White Mesa and also having a relationship with Neo makes all the sense in the world. We're going to push forward and I can tell the listeners that we're going to separate at White Mesa, we're going to do it. If people think we're trying to ask ourselves if we're going to do it, no, we're going to do it, we're going to get yourself in a position to separate at White Mesa. We're looking at the market caps of Lynas and MP at $4Bn, $5Bn, $6Bn, we're crawling up that ladder, as I said earlier. We're not going to be shy here. But at the same time, we got to get the stars aligned here to be able to inform the market in a better way, in a more accurate way when we get more agreements in place that we can explain the plan more thoroughly. But look at the China plan, the Chinese are recovering the rare earths, they're recovering the Uranium and they're also recovering Thorium. Now, we're not recovering Thorium at this point in time but we're thinking about that because they're doing it for a reason in China and there may be a good reason for us to do it at White Mesa. It's probably going to take us a few more months for people to get more information on what we're doing and I look forward to being able to communicate that to market. 

Matthew Gordon: I think people want to be and you want to get excited, but there's too many unknowns at the moment. Have you got cash to be able to do this or do all this work on the rare earth side? You got the money?

Mark Chalmers: We're in a very strong position. We paid our debt off, we've got the inventories of Uranium and Vanadium, Vanadium prices have gone up quite substantially as have the Uranium prices. And then you look at the cash we have, we put in an ATM, refreshed our ATM at the end of December of 2020. We exhausted that ATM and so we're in a strong position. We've got north of $80M of cash working capital, so we're in a very strong position, particularly being debt free. We're very pleased to where we're at and we're pleased with the attention we're getting, particularly with those that understand what we're doing and not many people understand what we're doing, because particularly the rare earth spaces is sort of a very boutique, kind of quiet part of the resource business that people don't fully understand.  

Matthew Gordon: Can you just talk to me about the Thorium, we talked about the option of producing Thorium, but what was the market for that at the moment? Why would you be considering that?  

Mark Chalmers: I think the Chinese are recovering Thorium because of the interest in Thorium reactors. And there are a number of groups out there that are just looking for sources of Thorium. A lot of the thorium that people have access to or have had access to the past couple decades is old Thorium and it's had some radioactive decay and it's the purity and age and everything, is complicating things for people. So, we think that between the Thorium reactors, perhaps some medical uses, there are uses for Thorium and it's not something you go buy on the shelf at the grocery store. We think that it's something that’s worth looking into and we'll see where we go there. But I think that again, look at the China story and that's what we plan to do but we're doing it in United States of America.

Matthew Gordon: You've said to me in the past, I'm not interested in buying additional, we've got enough assets. Has your position changed on that? 

Mark Chalmers: I don't think it has changed but I'm always going to be open for things that make sense. I know that's a really simple answer but I've mined Uranium around the world for decades, not afraid of operating around the world outside the United States. So yeah, we'll see how things evolve but I want to continually focus on having the best assets we can to be as cost competitive as we can and stay as focused as we can. At this point in time, we're not running out and looking for new Uranium projects. I mean, we might look at some of the rare earth projects, again it’s not number 1 on our plate here. But there are people inbounding us with certain opportunities on those fronts. So, yeah, just step by step, we'll do what makes sense. 

Matthew Gordon: Do you think it's just going to sort of sit back now or what can you expect or what can we expect this to keep moving steadily towards the end of the year?  

Mark Chalmers: Well, we're not just sitting back, we're as busy as we've ever been. As I've told everyone, we’re not as in the Uranium business that's our core business and we've got a long history there. We're as busy as we've been, since I've been back with the company for coming up on 5 years, we're going to keep running hard here and start showing people how we're climbing that ladder that I mentioned. It's a busy time and I hope that the appreciation for clean energy, carbon free energy, electrification continues; I have a hard time thinking it won't. But yeah, just keep watching this space, but it's been a good ride so far this last 6 months.

Matthew Gordon: Mark, stay in touch, we're watching eagerly from this side.

Mark Chalmers: Always a pleasure.  

To find out more, go to Energy Fuels' Website. 

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