Energy Fuels Inc. (EFR) Earnings Call Transcript & Summary

Good morning. My name is Joanna, and I will be your conference operator today. At this time, I would like to welcome everyone to Energy Fuels discusses fiscal year 2019 results and other initiatives. [Operator Instructions] Thank you. Mr. Chalmers, you may begin your conference.

Good morning, and welcome to today's Energy Fuels investor webcast. My name is Mark Chalmers, President and CEO of the company, and I'm excited to host my first company webcast as CEO. Joining me today are Paul Goranson, our Chief Operating Officer; Dave Frydenlund, CFO and General Counsel; and a couple of others for support if required. The company believes it is critical to maintain open lines of communication with the investor community at all times, especially with what we are seeing today with the COVID-19 virus, hence, the webcast. To maintain investor communications while travel is restricted, we are also planning to have future calls and/or webcasts to keep people informed or as we have significant news. Lastly, and before I start the presentation, I want to thank our shareholders and everyone on this call. We fully understand that the virus and the current marketing conditions are unprecedented. It is my hope that this call will help explain how we are managing these circumstances confidently, critically and deliberately in order to provide the very best outcomes for our shareholders, our employees and the communities where we operate. Also, if you're viewing the slides on your computer, you will be controlling them. We will endeavor to tell you when we flip to the next slide. Now for the presentation. Next slide. We will be making forward-looking statements today. Please review the disclaimers at the end of the presentation and the risk factors in our recently filed 10-K. Next slide. Today's presentation will be structured as follows. I'll first give an overview of the investment themes for Energy Fuels. Next, I'll give some brief remarks about our view of the uranium market in light of today's COVID-19 crisis, along with some remarks on U.S. supply chain risk that appear to be emerging. I'll also say a few words about the status of our U.S. government support -- or the status of U.S. government support for U.S. uranium miners. I'll then turn it over to our CFO, Dave Frydenlund, to give some brief remarks about our 2019 financial results and current financial position. Paul Goranson, our COO, will then discuss activities at our main uranium production sites, along with some remarks about vanadium production, progress on land cleanup front and potential for rare earth recovery. Then I'll close with some remarks about Energy Fuels' market position in the U.S. uranium market. After the presentation, we will open the floor to callers who would like to ask questions. And lastly, as always, I'm just a phone call away if you would like to ask me directly questions off-line. Now this first slide on investment themes, most of you have seen this before, but we're very proud to be the largest uranium producer in the United States from 2017 to 2019. We undoubtedly -- and no one can challenge us on this, we have more assets, more resources and can respond quicker and faster than any of our peers. We're also proud that we were able to be the only primary U.S. uranium producer last year. We produced large quantities and high-quality V2O5. And we have shut that down recently because of vanadium prices that can restart very quickly when the market calls for that. We're also very proud of the fact that we have led the way with the government announcement to create the U.S. uranium reserve. We don't think that would happen without our mini activities and mini trips in Washington, D.C. That is currently announced to be included in the 2021 budget totaling $1.5 billion, $150 million per year, over 10 years. We're also very, very proud of the diverse business opportunities that our company has in front of itself. In addition to uranium, which is our main focus, we have a long history of alternate feed recycling of uranium for probably 2 decades. We're also very excited about the opportunities in front of us for land cleanup and potentially rare earth processing as well. And lastly, on that slide, we're very proud of the strong cash, working capital and inventory positions, and we'll talk about that more. Next slide. Again, this slide many of you have seen, showing how we've emerged as the largest producer of uranium over the last few years. We have a proven track record. We have proven people. We have the capacity to significantly increase uranium production as called upon with demand and pricing. We have 3 production sites, White Mesa, Nichols Ranch and Alta Mesa, 2 of which are producing currently. White Mesa, we find is a national strategic -- national security asset, and we have the only uranium-vanadium processing facility in the United States. And we're also very excited about the potential for rare earth processing at White Mesa. Next slide. Well, let's talk a little bit about our big picture thoughts on the current crisis. To say today's market is challenging would be an understatement. I don't need to tell you about the equity markets or the volatility in Energy Fuels' shares. Though at the end of the day, Energy Fuels is as strong today as we were before the crisis, we still have a number of game-changing opportunities in front of us. In our view, any semblance of normalcy won't return to markets until we have some progress towards containing the pandemic. As you know, U.S. government is taking unprecedented measures to support the economy and contain the spread of the virus. We believe a large and, more importantly, effective U.S. government aid package is required. As of today, as you -- again, you're aware, U.S. Congress is considering a $1 trillion aid package. This would constitute a massive infusion of liquidity into the economy. Importantly, for us, there is an increased recognition that the U.S. has become overly reliant on imports of certain critical products and materials from China and other geopolitical rivals. I'll have more to say on this in a moment as it relates to uranium. Indeed, some lawmakers are talking about conditions receipt of government money on buying America and helping America rebuild some of our critical infrastructure. This could be important for us if U.S. utilities receive aid, which we believe they will ask for. Next slide. Let's talk a little bit about the emerging supply risk for U.S. nuclear utilities. For those of you who have followed us over the past few years, Energy Fuels has been sounding the alarm for good reason on just how dependent U.S. is on imports of uranium in nuclear fuel, especially from rivals like Russia. What else have we heard? China has been making threats to halt export of important drugs to the United States. And don't think for a second that Russia or the future China -- or in the future, China, might do something with uranium fuel if they thought such an action would gain leverage over the United States. Important -- or imports of nuclear fuel from Russia into United States, they also increase significantly as soon as 2021. The Russian Suspension Agreement, an agreement that limits imports into the U.S. and Russia, expires at the end of this year. And Russia is seeking to significantly expand their market into the U.S., and this should shock people further. Also, look at what we are seeing with Russia in oil, in the recently announced currency devaluation, which also will make the uranium imports into the U.S. cheaper. We believe that this is an example of Russia's long history of manipulating energy markets to gain geopolitical advantage. Longer term, China continues to buy formerly free market uranium mines in Africa, and they are significantly expanding their uranium enrichment capabilities. If nothing changes, the U.S. could be almost completely dependent on Russia, China and their allies for our nuclear fuel. This is not a good spot for the United States. We also think that U.S. nuclear utilities are facing other major supply challenges. It was announced just this week that Kazakhstan, by far the largest producer of uranium in the world, might have to shut down production due to COVID-19 virus. The province of Saskatchewan has declared a state of emergency. And what does that mean to Cigar Lake? And ongoing issues with transportation and nuclear fuel might get worse. At the same time, no nuclear power plants are expected to cease operation during the crisis, at least in the short term. In short, uranium and nuclear fuel demand will likely not change, but supplies still could drop, putting even more pressure on an already stressed market. Next slide. So let's talk about Energy Fuels' priorities. We will continue to lead industry efforts to obtain U.S. government support for U.S. uranium miners immediately. We'll continue to keep -- maintain our industry-leading uranium production portfolio. We will continue to pursue other cash flow-related activities where possible, including our long history with alternate feeds, land cleanup, vanadium and other rare earths. Paul will talk about this a little bit later. And finally, we will maintain strength of our balance sheet at all times and to the greatest extent possible. We will always manage the downside, while at the same time, maintaining our significant upside to, again, the greatest extent possible. We are also aggressively pursuing cost-cutting measures right now. So now I'd like to turn it over to our CFO, Dave Frydenlund, to discuss some financial highlights from 2019. Over to you, Dave.

Yes. Thanks, Mark. To repeat, Energy Fuels is committed to focusing on financial flexibility and a strong balance sheet. We ended 2019 with $40.5 million of cash, marketable securities and inventories. Included in that number is 515,000 pounds of uranium inventory valued at $24.85 per pound and 1.6 million pounds of vanadium inventory valued at $5.33 per pound. However, not reflected on our 2019 financials are the financing activities we completed during Q1 2020. We strengthened our balance sheet by completing a bought deal financing in February for net proceeds of $15.1 million, and we also raised $4 million on our ATM at an average price which far exceeds our recent share prices. These 2020 activities added $19 million in cash to our existing $40.5 million in cash, marketable securities and inventory balances at December 31, 2020. And our inventory has considerable upside, especially our uranium inventory, which we might be able to sell to the U.S. government under this U.S. purchase program. You'll note that our working capital dropped on our 2019 financials, mainly because $16 million in convertible debentures became a current liability on December 31, 2019. We have the ability to redeem all or any portion of the debentures for cash at any time and the ability to redeem them for cash or shares on maturity. We are evaluating a number of ways to address the convertible debentures, including paying them off in cash, refinancing them, extending them or paying them off with shares when due or any combination of those options. Our strong cash, marketable securities and inventory balances give us flexibility in this regard. As Mark indicated, we're also aggressively evaluating cost-cutting measures in light of today's market uncertainty. We always want to maintain an adequate glide path to provide liquidity in the event today's market weakness persists for longer than we expect. However, any additional cuts we may make today would be made in a manner that maintains a level of our operational readiness that far exceeds any of the U.S. uranium miner. I'll now turn it over to Paul Goranson to talk about some of our 2019 operations.

Thank you, Dave. On this slide titled, strategic uranium production assets in the U.S., you can see Energy Fuels' footprint in the U.S. We have 3 production facilities that included the White Mesa Mill in Utah, which is the only operating conventional uranium mill in the U.S., we also own 2 fully licensed and constructed ISR facilities. The Nichols Ranch Project in Wyoming is a great project currently in operation. It has produced 1.2 million pounds of uranium since 2014. However, production's been declining since we have deferred adding new wellfields. And subject to government implementing their proposed uranium purchase program in the near future, we plan to put it on standby during Q2 2020. We also have the Alta Mesa Project in Texas, which is currently on standby. This is also a great project, which produced almost 5 million pounds from 2005 to 2012. I'm not going to go through all of these projects and details, but I would like to say a few words about the White Mesa Mill. Next slide, please. The White Mesa Mill is perhaps Energy Fuels' most strategic asset. And due to its flexibility -- and I don't think investors are able to truly appreciate its value. It is the only conventional uranium mill operating in the U.S. today. It is also the only conventional vanadium mill operating in the U.S. today as well. Vanadium, which I'll disclose in a moment, is another critical mineral. We're also talking to a number of parties about the potential of the White Mesa Mill to process certain rare earth elements. The White Mesa Mill is a strategic asset, not only for Energy Fuels, but for the United States as well. Mill has produced an average of 1 million pounds per year of uranium since 2010 and has a license capacity to produce over 8 million pounds per year. However, during 2019, the mill produced no uranium. Instead, we chose to focus on producing vanadium from our tailing solutions. Many don't know this, but the White Mesa Mill has produced about the same amount of uranium as well as vanadium during its history, roughly 45 million pounds each. As I'll discuss in the next slides, the White Mesa Mill is an extremely flexible facility. In addition to uranium and vanadium, it can also recycle alternate feed materials and materials generated from land cleanups. We're also looking at processing certain rare earth elements. Next slide, please. Vanadium is a critical mineral used in steel and high-strength alloys. This also has applications in the chemical and battery industries. White Mesa Mill's vanadium campaign in 2019 was a great success, except for the price of vanadium unexpectedly plummeting early in the year. We produced 1.8 million pounds of high-purity, chemical grade vanadium in 2019. We also made a number of equipment upgrades and process improvements. We sold about 2,000 -- 200,000 pounds of vanadium early in 2019 at an average net price of just over $11 per pound. In Q2 of 2019, due to drop in prices, we decided to stop selling vanadium and instead build inventory. We now have about 1.6 million pounds of high-purity vanadium product in the can and inventory right now that we can immediately sell into the future improved market. We also believe we have significant additional quantities of vanadium and the White Mesa Mill ponds that we can produce from at a later date, market conditions warranting. Finally, if the U.S. uranium mining gets going again, we have several permitted belt mines on standby on the Colorado-Utah border that also have 32 million pounds of high-grade vanadium resources that can be processed at White Mesa Mill. Next slide. Next, I'm going to talk about some of the other -- the land cleanup opportunities. This is another potential business opportunity for the White Mesa Mill. During the cold war, lots of uranium -- small uranium mines operated in the four corners of every region of the U.S., and many of them are causing environmental contamination today. The U.S. Environmental Protection Agency and the Navajo Nation are leading efforts to clean up these legacy sites. EPA has access to about $1.7 billion for the cleanup for just a fraction of these sites. Our White Mesa Mill is a perfect landing spot for a lot of this material. We are fully permitted to receive and recycle this material today. We can do it at a very attractive cost. We're in close contact with EPA and Navajo Nation, and we're demonstrating our capabilities on 2 fronts. First, we are assisting the cleanup of a private mine in New Mexico, performing the exact services as the EPA needs. Second, we agreed to participate in a small pilot scale cleanup project for the Navajo Nation. We believe these 2 projects will show the EPA and the Navajo Nation the value we can provide. Next slide, please. Lastly, I'd like to say a few words about rare earth elements. Similar to uranium, the U.S. is heavily dependent on rare earth elements imports from China. The Trump administration has made it a priority to rebuild American capabilities in this sector. Energy Fuels has been approached by several entities, including the U.S. government, to evaluate the potential processing of certain uranium-bearing rare earth elements at the White Mesa Mill. We are continuing to talk to people and evaluating the opportunity, but early indications are that we can play a significant part in bringing rare earth element production back to the United States. With that, I'll turn it back over to Mark to finish up. Next slide.

Thanks, Paul. I'll finish up by talking about Energy Fuels' market position in the U.S. and give some concluding remarks. The table in this slide really shows where Energy Fuels fits into the North American uranium space. We believe we are in a great position versus our peers by almost any metric, including many of the things that Paul just talked about. I'd also like to point out some of the balance sheet metrics, including working capital and debt. As Dave Frydenlund said, our cash, marketable series and inventories totaled just a bit in excess of $40 million at the end of 2019. And again, remember, we raised the $19 million early in 2020 through the bought deal and our ATM. Therefore, our converted debentures are now hitting our balance sheet as a short-term liability. But, no, Energy Fuels has no long-term debt, and the convertible debentures can be redeemed in cash or shares, as Dave discussed earlier. In addition, no other U.S. company has the proven capabilities, the track record and the optionality as shown in that table. Next slide. This is one of my favorite slides of all times for the Energy Fuels assets, explaining them in more detail. It shows uranium production in the U.S. from 2006 through 2018. The assets owned by Cameco and Energy Fuels have clearly been the leaders in U.S. uranium production, producing 85% of all uranium in the U.S. during that period of time. Cameco is in the gray. We are in the blue on that sheet. If you include Uranium One and Ur-Energy, also, that adds an additional 13% to the 85%. So bottom line, the assets of Cameco, Energy Fuels, Uranium One and Ur-Energy produced 97% of all uranium produced over the past 15 years. The remaining companies produced a total of 3%. I think that says volumes. We firmly believe that companies with proven assets, with proven production histories are the ones that will capitalize and improve markets or receive U.S. government support, including supplying the new U.S. uranium reserve that President Trump has proposed. Energy Fuels is proud to count itself among those proven producers. Next, and last slide, and this is just really a summary of Energy Fuels. We have unmatched ability to quickly increase low-cost U.S. uranium production. We have more facilities, more resources, more production capacity than any other uranium company in the United States. We have been the largest producer of uranium over the past 4 years. We have a strong balance sheet and no long-term debt. Vanadium, alternate feed, recycling, land cleanup and focusing on future opportunities with rare earth puts us in a league of our own, and we're very proud of that. And I'd just like to say that I have been in this business for over 44 years, and many of those assets I have worked with back in the '70s. And the reason many of these assets have survived the test of time, because we have this flexibility and optionality that nobody else has. Thank you very much, and we'll now open it up for questions.

[Operator Instructions] And the first question is from Heiko Ihle of H.C. Wainright.

Mark, in your release, you're talking about activities aimed towards increasing the uranium production at the White Mesa Mill and Nichols Ranch ISR. Can you just be a little bit more specific in regards to what exactly you're doing? And at what point in time you did it? And what you're willing to do in, call it, 60 days?

Okay. You're saying, what we're doing in terms of increasing the abilities to produce at both of those facilities?

Correct.

Okay. Well, look, one of the things -- one of the priority projects at Nichols Ranch is some of the flow increases, increasing the ability for the plant to flow more production fluid when the time is right that we need to ramp up production. We've already purchased some columns for that. So we're always looking at what we can do to do -- productively do work in a down market, to be better ready than we already are. At White Mesa Mill, you -- we're kind of in this mode where we are -- we didn't produce uranium last year, but we're also looking at doing more recycling from our tailings solution, this year for uranium rather than vanadium. Last year, we focused on the vanadium recovery, and this year we'll focus on the uranium recovery, which has been and proven to be a very low-cost opportunity for us for uranium production.

Got it. And in regards to the third-party toll milling, I mean, as per your presentation, there are currently no agreements in place. Is this just a function of no interest from sellers? Or are the big ask spreads too big? What's the hold-up? I mean, is there just no interest, and everybody is afraid of the evil virus outside, not leaving their house? I mean, one would think that this is revenue sources for communities that right now are -- places, communities, enterprises that right now, could use money quite badly.

Yes. Well, look, we have a long history of doing toll milling, but we really need the demand and we need the pricing. Without both of those, we don't have any plans to toll mill. Now to a certain extent, some of the ore that we are actually receiving from one of our cleanup operations -- this is not a toll milling agreement, but we get paid a fee and we receive uranium for free. But -- look, and it would be my pleasure, at some stage in the future, particularly with this improved market conditions or fulfilling or filling or partially filling the government reserve, that we have high enough demand and high enough prices that we could be looking at that more seriously and being able to spread sort of the benefits of that around, particularly in that part of Southern Utah and Southwestern Colorado at the appropriate time.

[Operator Instructions] The next question comes from Mark Reichman of NOBLE Capital Markets.

I just have two questions. The first question is, since the release of the president's budget proposal, have you received any more information regarding how that plan might work or the status of the U.S. nuclear fuel working group?

Not any, significantly more information. It's pretty much what's been released, is what we've seen. I mean, certainly, with sort of the chaos that we're seeing with the virus and the financial markets, it's gone fairly quiet. But we do know that we've got very strong support on The Hill, very strong support with Secretary Brouillette. And so we think we're well up, on the top of the pile as far as you can be in the current circumstances.

Okay. And then the second question is, I mean, it seems to me that if the government's objective is to preserve the nuclear fuel supply chain, then you really don't need to send aid to the entire industry, but just focus on the top few players. But when you think about that, I think the price for the uranium would be key. So I was just wondering if maybe you could talk a little bit about your cost on a per pound basis maybe in 2020 and how you see that unfolding, and how competitive that is to maybe the other players that would be under consideration for a program initiated by the government.

Yes. Well, look, again, we think that it should be focused -- relief should be focused on existing, constructed, proven facilities for the right reasons. I mean, why would you build a new facility in this market particularly if there's limited demand? I mean, our costs are competitive. Our costs at the mine sites -- and it varies, they're about $30 to $40 per pound. It probably averages out between about $35 to $37.50. But that is directly at the site. That is going-forward costs. That does not include general and administration, interest, costs, so things like convertibles and whatnot. So we -- those are competitive costs. I mean, I know there are some people out there that say that they can do it for less than that. And, frankly, go back to the graph that I had at the end of the presentation showing who has delivered. If you look at that graph, and there's also a line that shows the price of uranium during that 15 years, there were a lot of people that had prices that they're now saying they can produce at and they can't. So look, we think, again, we're in the best position. And the fact that we have White Mesa Mill 100% owned as the last of its kind in the United States will put us at a very distinct advantage for filling, at least that first initial level of demand.

Thank you. There are no further questions at this time. You may proceed. At this time, we do not have any further questions. You may proceed with closing comments.

Well, again, I just want to thank everybody that joined us today on the call. As I said earlier, many of you know my phone number. Feel free to call me if you have questions that you didn't want to ask in a large group. We will survive. This isn't our first rodeo. I'm very proud of the team that we have. We have the most experienced team out there, in addition to the various opportunities that the company itself presents with our assets and optionality. So let's just get through this crisis, and let's move forward. And I can assure you that we are focused on that regard, and we're optimistic for the future and where we fit in the nuclear fuel cycle going forward. Thank you very much. And everybody, please be safe. Many of us are doing this call from our homes for obvious reasons. And it was our first call, and we look forward to updating everyone as we get more information available because the conference call is really the only way we have to communicate with our investors. Thank you very much.

Ladies and gentlemen, this concludes the conference call for today. We thank you for participating, and we ask that you please disconnect your lines. Enjoy rest of your day.