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

Good afternoon, ladies and gentlemen, and welcome to the Energy Fuels Q1 2021 Conference Call. [Operator Instructions] This call is being recorded on Monday, May 17, 2021. I would now like to turn the conference over to Mr. Mark Chalmers, President and CEO. Please go ahead.

Thank you very much, and good afternoon, and thank you for joining our conference call and webcast today. We're excited to discuss our Q1 achievements as well as the accomplishments after the quarter closed. For those of you that cannot join the call, we will have replays of this presentation available for 2 weeks on our website. Those should be up in a day or 2. We continue to make extraordinary progress on many fronts. And we believe Energy Fuels has and continues to emerge as the clear leader of U.S. critical mineral production. I realize some of you joining the call today and our shareholders that are not on this call have invested in Energy Fuels for different reasons. It could be mainly uranium. It could be mainly rare earths. It could be both, perhaps even vanadium. And this diversity may confuse some investors. But the bottom line is this: that an investment in Energy Fuels represents a unique investment in clean energy, low carbon emissions and critical minerals. And the likes, I don't think, is possible in any other single investment. Many of you know that we have a long and successful history as a current largest U.S. producer of uranium with more past and current production, capacity facilities, resources and experience more than any other U.S.-focused uranium producer. On top of this, one of our facilities is now able to produce rare earths at scale as well, and that's quite remarkable. This year, we expect to produce an intermediate rare earth product containing rare earths equal to 10% of U.S. requirements, and we're very proud of that. But we're not just comfortable with 10%. We're targeting 50% of U.S. requirements soon. And it is not out of our reach to increase that to over 100% in time once we secure adequate sources of monazite feeds, which we believe are available. To -- so to say that we're making incredible progress is an understatement. We have started commercial mixed rare earth carbonate production at White Mesa. And our first shipments to Estonia should be in June. We also continue to build our relationships with groups like Chemours, Neo, Hyperion, Carester and other leaders in the rare earth space. And we're gaining global recognition. And if the quantity and quality of inbound calls is any support for that, we are really amazed at the inbounds that we're getting as a company. And we are not just stopping at mixed rare earth carbonate production. We also plan to absolutely develop full integrated U.S. rare supply -- rare earth supply chain at the White Mesa Mill, providing both low CapEx, low OpEx and responsibly sourced rare earth products. The scoping studies have also begun in this regard. In addition, uranium/vanadium prices continue to inch up, and this increases the value of our significant U.S.-produced inventories. And I want to repeat, U.S.-produced. We did not buy any of these inventories. And finally, I believe that we're getting increasing recognition for industry-leading recycling programs. All this taken together means that Energy Fuels is one of the best ESG business stories in the United States to produce responsibly produced raw materials, producing clean energy for advanced technologies right here in the United States of America. So before I begin, I just want to remind people that you will be controlling the slides in the presentation from your own device, and I'll try to remember to tell you when to advance the slides. And then in closing, there will be time for questions at the end of the presentation. And we'll have Dave Frydenlund, our CFO, General Counsel; Curtis Moore, our VP of Marketing, Corporate Development; and Sarai Luksch, our Controller, to help answer those that I cannot answer. So let's jump in. Next slide. So I may be making some forward-looking statements, and those are included at the back of the presentation. Next slide. Energy Fuels, and many of you have seen this slide before, but it really just summarizes on one sheet of paper our business case with uranium as our core business and the addition of rare earths that we're ramping up at this point in time. Vanadium, which we were the largest producer of vanadium in 2019, and we have the only primary conventional vanadium processing plant in the United States, the recycling that I mentioned getting increasing attention and our significant financial strength and 0 debt. Next slide. If you look at our finances, they're robust. And if you look at what we reported at quarter end plus some of the funds that we've raised in our ATM, we have in the order of about $85 million in cash, securities or inventory. The inventory is valued as that small table on the right, with uranium valued at $24.46 on the books and vanadium at $5.15. Both uranium and vanadium prices are substantially higher. So you can basically add on, at current market prices, another $7 million to $10 million on that $84.8 million. You can see the large inventories we have of uranium and vanadium for -- at the end of the quarter, we had $350,000 of revenue that was mainly from cleanup of an abandoned mine. It's actually not an abandoned mine but a private mine in New Mexico. We did post a net loss of $10.9 million. But I want to remind people that about $3.5 million of that was noncash liabilities from the warrants that we have that currently mature later in the year at $2.45. And we also had about $2.7 million in development expenditures related to the rare earth production business. And again, I want to emphasize 0 debt, and shares outstanding are about 143 million. So our guidance for 2021 is between 30,000 and 60,000 pounds of uranium. That should leave us north of 700,000 pounds of uranium inventory at year-end. And then we also expect to produce between 2,000 to 3,000 tons of mixed rare earth carbonate production, which represents between 1,000 and 1,600 tons of total rare earth oxides. Next slide. Now I just want to talk about some of our 2000 (sic) [ 2021 ] Q1 milestones. With uranium, we continue to be the clear leader in the U.S. uranium space. We expect White Mesa to be the only facility in the United States to produce uranium in 2021. We're continuing to maintain our 2 ISR properties and other substantial uranium assets on standby. And we will continue to maintain our market-leading inventory, as I mentioned earlier, of U.S.-produced, U.S.-origin uranium. We're ready to supply the U.S. uranium reserve when called upon, and we hope that is soon. And we're also making progress on selling a package of noncore uranium assets to a third party, and several of these assets are very significant uranium assets that have produced in the past. On the rare earths, we're ramping up production of the rare earth product, the mixed rare earth carbonates that I mentioned. And we believe we are further advanced than anybody else in North America when it comes to processing of the rare earth product. We launched our U.S.-European supply chain announcement, that was on March 1, with Neo Performance Materials in Europe. And that basically includes integration by sourcing U.S.-produced monazite from Chemours in Georgia, making the mixed rare earth carbonates at the White Mesa Mill in Utah and then shipping it for separation and other value adding of rare earth products in Estonia. The reason that product has to go to Estonia, because there is no separation in the United States currently. So we received our first monazite sands from Chemours on the 9th of March. Late March, we began ramping up the mixed rare earth production at the mill towards the end of April. And so this is after the quarter. We signed the MOU with Hyperion that has a property in Tennessee that we believe has substantial potential for future monazite production and processing at White Mesa. And April 23, we also signed a contract with the U.S. Department of Energy to complete a rare earth feasibility study. The total of that contract is $1.75 million. And then just at the end of April, we engaged Carester. Carester is the world leaders in separation technology and design. They're based out of France, and they have started a scoping study for rare earth separation at the White Mesa Mill. So literally, in just a short period of time, a little over a year, Energy Fuels has made enormous progress in restoring U.S. rare earth supply chain to the United States of America. Next slide. Just talking a little bit about our sustainability focus as a company. We're very proud of what we do and how we do things in the long history we have in that regard. And our sustainability report dated December 2020 is on our website. I would recommend any of you that are interested in sustainability to look at that document. We're very proud of what we do there, and we think we do more for a company our size than anyone I know of. Next slide. Now many of you have seen this. It's just our footprint from Wyoming down to Texas, showing our 2 ISR facilities, in situ recovery facilities that are the green stars in both Wyoming and Texas. And then the White Mesa Mill where we do our uranium, our vanadium and our rare earth processing down in the Four Corners region. I am very excited about the attention, the positive attention that the Biden administration has been placing on nuclear power and the importance of nuclear power, remembering that 20% of electricity in the United States is from nuclear power, and that's 55% of the carbon-free electricity in the United States. So I'm buoyed with the support we're getting out of the new administration. Next slide. Again, many of you have seen this. It shows sort of our -- some of our key assets, our 3 producing assets, at least the White Mesa Mill, which is currently producing. Alta Mesa, which is on standby. Nichols Ranch is on standby but also our Pinyon Plain Mine. And Pinyon Plain is what I call a momentum project. It is the highest-grade underground conventional mine in the United States. We believe it's the lowest cost in the United States. And the shaft is sunk, and it's ready to go into production within about 6 months of notice. And this is one of our flagship first-to-production assets in the United States but also backed up with the 3 production facilities that I mentioned, White Mesa. All of them are fully paid for, debt-free. Next slide. Again, many of you have seen this slide. I think it says a lot. And it shows uranium production in the United States over the last 15 years, and it shows uranium production by some of the uranium producers in the United States. The 2 most noteworthy is Cameco. It's sort of in that kind of light gray. It says a $25 million. That's Cameco's production from the U.S. assets. And then the blue is from Energy Fuels assets, $16.2 million. And if you look at both our assets and Cameco's assets combined, 85% of the uranium produced in the United States over 15 years was produced by 2 companies. If you add Ur-Energy, that's at $2.7 million and you add Uranium One at $2.6 million, between 4 companies, 97% of the uranium produced over the last 15 years has come from 4 companies. So we believe that those with a successful history of producing uranium in the United States are best placed to produce uranium in the future. Next slide. Now this next slide shows where Energy Fuels fits in with our uranium peers even though I think it's sort of misleading because there really are no peers for Energy Fuels. If you look at from Cameco down to Peninsula, you can compare the market caps. You can compare the cash, working capital, debt, inventories. But what is really a standout for Energy Fuels is, one, current uranium production; two, vanadium production. No one on that list has vanadium production. No one on that list can recycle the products that we recycle, the natural uranium and the vanadium. And this is a massive one: no one has the ability to process rare earths. So that's an interesting table. And again, we still seem to trade in that -- in with our uranium peers, but again, we really don't have any peers, as I said earlier. Next slide. Now just a bit on how rare earths and uranium fit perfectly together. It's really because of the fact that we have a long history of producing uranium that we can actually produce the rare earths. And this is where it's a really remarkable story. You can see on the right there a sample of rare -- mixed rare earth carbonates produced at the White Mesa Mill. And we have focused on the monazite plan because the monazite minerals that we're processing is the highest-value rare earth minerals. It also contains uranium. The uranium grades are basically equivalent to what we would typically process at the mill. So it is absolutely in our wheelhouse when it comes to processing. And White Mesa has all the licenses and capabilities to process the rare earth carbonate right now. Certainly, I don't need to go into all the 17 naturally occurring elements that make up the rare earths. But they're the building blocks of modern advanced technologies in clean energy, and we could not be more excited about this opportunity. And depending on whose forecast you look at, the demand for rare earths is projected to increase in the order of fivefold over the next 10 years. And White Mesa is an existing facility that can restore U.S. rare earth production capacity. Next slide. Why monazite? And as I say, it's really simple. It's the monazite plan. It's exactly what China is doing to maximize the ability to recover uranium, rare earths. And in their case, they're recovering the thorium. There are large quantities of monazite around the world, in the United States, in Australia, Brazil, Africa and elsewhere. It is mainly a by-product of heavy mineral sand operations that are recovering zirconium and titanium. And monazite is a by-product. So the beauty of monazite for us is that it includes and contains uranium and radionuclides that we're -- which is normal for us to handle and treat and recover the uranium. So the material that we're securing from the southwest or southeast of the United States from Chemours is between 53% to 55% total rare earth, this is high-grade brew, and 0.2% uranium. And there are some monazites out of places like Australia that are over 60% total rare earth. So it is very high-grade. And I call it sort of the equivalent of the McArthur River and Cigar Lake of the uranium business. The monazite plan that we're executing is the equivalent but in the rare earth space, and it's much higher grade than what is typically mined with the bastnäsite ores. Next slide. So the White Mesa Mill has these unique capabilities. Absolutely, we're going to try to advance our strategy because of these unique capabilities. And many call it the missing link to the U.S. rare earth supply chain. So as I said, we've got the licenses. We've got the facilities. We are able to modify the mill for a couple of million dollars of capital. We have ample processing capacity. The tonnages that you talk about for rare earths are just literally a few percent of the capacity of the facility. And we also have the tailings disposal cells that are designed for 1,000 year at rigorous standards. So it's absolutely doable with our existing infrastructure. And so that's what, again, makes it so exciting. If we do get up to our -- sort of our short- to medium-term target of 15,000 tons of monazite sands, that's equivalent to about 50% of U.S. current demand. And at the same time, as I said earlier, it is our goal to continue to ramp that up because we do not feel that we have any limitations on the amount of monazite that we can process through rare earth carbonate. So next slide. So anyways, again, we have our short-term business plan, which is this U.S.-European Union supply chain that is basically in place right now. We're purchasing this material from Chemours, the rare earth monazite sands with the uranium in it. We are seeking additional purchase of monazite supply around the world, and we believe it's out there. And we're currently producing the carbonate that I mentioned, and we plan to sell our rare earth carbonate to Neo in Europe for separation. But -- however, having said that, we do plan to have a U.S.-centric supply chain established in the medium to longer term, 2023 to '24, as we plan to develop full integration in separation and perhaps metals and alloys at the White Mesa Mill in due course and capture the full value of the rare earth supply chain. And we're collaborating with Carester to help us in that regard as well as Neo. And White Mesa, as I said earlier, has a long history of recovering uranium, vanadium using SX technology, which is likely the direction we'll go for separation of these rare earth streams at the mill. Next slide. This is just a graphic showing what I just talked about for 2021 now and then in the midterm to longer term, looking at full integration. And again, we're very excited about how quickly this is progressing. And this will happen in Southeast Utah, which has the potential of becoming America's clean energy and critical minerals hub. And we're very, very proud of doing it in Southeast Utah. They need the jobs. They need the economic development. It's a great place to do business. So we're really looking forward to our best days ahead of us in Southeast Utah in San Juan County. So next slide, please. Now this is a new slide that most of you will not have seen -- some of you might have seen. But it kind of on one page is a snapshot of what we've done in just 12-and-a-bit months. It shows the professionals that we've engaged with and are working with to come up with the most efficient strategy and execution of our plan, including Constantine Karayannopoulos, Brock O'Kelley, Jack Lifton and the recent addition of Carester's. We're securing the monazite sands, which we've already done with Chemours, which they still believe that they can upgrade the quantities by 2 to 2.5-fold in time. Hyperion out of Tennessee, another very encouraging potential source of monazite. And we've got a lot of inbounds with people and talking to others around the world about supplying monazite to White Mesa, and there is keen interest to do so. I talked about ramping up the mixed rare earth carbonate at the mill, which is ongoing. We are moving towards separation, I mentioned, with Carester. We have the long-standing history with SX at the mill. This is very normal for people at the mill. We've got a number of collaborations going on with some of the national labs. We're also looking at the rare earth metals and alloys in due course, and we will probably go after some of the potential proposals that the DOE is looking at in that regard. And then I mentioned, we've already received nearly $2 million of support from the U.S. government. We are kind of late to the party. We've only been formally working in the rare earth space for a little over a year, but we think we're getting on the radar screen with the U.S. government right now as we speak. Next slide. So this slide just kind of shows where we fit in with some of the rare earth producers in terms of their market cap and the value per ton, the basket value recovered of the various rare earths in the basket price. You can see Energy Fuels with the monazite from Chemours is the highest-value monazite basket price on this table, followed by Iluka in Australia and Lynas. You could also see that the value of the bastnäsite with these other -- either current producers or developers is substantially less. So again, we think that is a key differentiator in our plan, in the monazite plan for the monazite sands that we're trying to secure at the mill. So last slide. Really, in closing, we have unmatched ability to increase our uranium production from proven assets. We've done it for years. We'll do it again. We have more capacity. Nobody in North America, in the United States is producing a mixed rare earth carbonate. We're more advanced, and we plan to continue ramping that up. The U.S. uranium reserve, we hope to get some support from that shortly and government support, additional government support for critical minerals. We also have this industry-leading recycling cleanup program. We're well financed, strong balance sheet, 0 debt, and we also have vanadium. So that is the conclusion of my presentation. I'll now open it up for questions if anybody has questions from the field.

[Operator Instructions] Your first question comes from Heiko with Wainwright.

It's Heiko Ihle with Wainwright.

You must be in Germany.

I am indeed. Congratulations on your stock being up 50% year-to-date. You're successfully undertaking a pretty wide range of rare earth element operations for the firm. There is natural monazite ore. There is the U.S.-European rare earth production initiative, the solvent extraction. In fact -- and I just added this part to my question, looking at Page 5 of your presentation, there actually were 7 talking points for rare earth and only 5 for uranium. Share price certainly seems to approve of all of this, and I'll reiterate that you're up 50% year-to-date. Now looking ahead, just conceptually, where do you see the firm in 3 months, 3 years and, if you would venture a guess, even longer term? Is there a world where you essentially not focus on uranium all that much and instead really just to rare earths because there's higher multiples and more demand and whatnot? Or do you think uranium will always be a core thing to Energy Fuels?

Geez, Heiko, that's not an easy question to answer real quickly. But look, uranium is always going to be a key focus for us. And again, uranium is why this opportunity exists because of our ability to process the rare earth, the monazite sands for the uranium. I think the key thing from my perspective is that the world needs higher uranium prices probably in the order of at least 50% but probably more like 75%, 80%, maybe up to $50 a pound or greater, to truly have a sustainable uranium industry. And what we see and what we believe is that the rare earth is an opportunity right now because the prices are high enough now to have the sustainability and the profitability probably equal to the $50-plus uranium prices that will hopefully be around the corner in the not-too-distant future. So I don't want to start overspeculating on where we go and how we go. But where we are going is we're going to cash flows as quickly as we can get to cash flows. And we think that right now, the best way to get there is with the rare earths. So I don't know if that answers your question, but still with the long-term uranium focus as a company.

That's where it does answer the question. Now since you said this question was long-winded and a big answer, I have a very simple clarification for you. The $13 million you raised under the ATM program in Q2 so far, can you just give us the average price per share?

I think we provided it in our report. I think it was around $6. Dave or Sarai, please correct me if I'm wrong, but it was about $6.

Yes. That's correct, Mark, $6.01.

$6.01. Wonderful.

Your next question comes from Joseph Reagor with ROTH Capital.

I guess first thing, on the uranium front, given you just stated to Heiko you guys want to stay in that business and the fact that a lot of your peers are out there buying up loose supply, would you guys consider doing the same? And if you did, would there -- would it be only if you could get U.S. supply? Or would you consider buying international supply just to build your stockpile?

Yes. Look, Joe, we'll do whatever makes sense. And right now, because we have around 700,000 pounds already of U.S. origin that we produced and we believe we could build to that with either stockpiles we have at the site that we can process at White Mesa or even from our ISR sites, we're not actively kind of -- got that in our business plan. Could we? Yes, we could. But -- no, look, I think that the fundamentals look good on a hopeful bounce on the uranium price. And we need it to bounce because we need to go back into production. So look, we'll always keep it open. But right now, with the over 700,000 pounds and ability to increase that to, say, 800,000 or greater fairly quickly, we're in a pretty good spot right now with our potential lift to increased uranium prices.

Fair enough. On the rare earths front, if -- you said you guys are starting these scoping studies especially for like the separation plant possibility, can you give us any kind of maybe framework of where you think the capital budget is now? A lot's changed since the last time we discussed it, and I just want to make sure it's still kind of in the same ballpark. And then as you conduct these studies, is there a certain, like, ROI threshold you need to see from the third-party studies before you would go forward with it? For instance, if the study suggests the ROI is sub-10%, would you guys still pursue it because of the critical nature? Or would -- does it have to meet a certain return for Energy Fuels to spend the money?

Yes. Well, look, I'll start off with the capital. That's one of the reasons we started the scoping, is to try to get a better idea of what the capital is. We publicly stated it could be between -- for separation, between $150 million to, say, $250 million. We may be able to do it on the lower end of that because we may do it in phases. And we think, though, that that's a very attractive strike rate for capital because of the fact that we basically have a crack and leach facility already paid for and operating right now. That would be -- to put it into context, you'd probably be looking at $1 billion to $1.5 billion to get a facility that, say, if we invested $200 million to $250 million -- and I'm just using these as hypotheticals. Don't quote me on this. So we think the strike rate for the CapEx is very good. Our initial models indicate that we have robust economics here from an operating cost perspective. We don't yet -- haven't really focused on a trigger point for the ROR. But I can just say that our -- we believe it's higher than what you mentioned as a low point. And we think it's robust, and we think it's as competitive as it can be outside of China. So we're very encouraged with what we think are robust economics both from an OpEx and a capital strike rate perspective. And we think that places us in an excellent position here in North America.

[Operator Instructions] It appears there are no further questions at this time. You may proceed.

Okay. Well, in closing, first, I appreciate your interest in Energy Fuels. As I mentioned, there is no peer for us. If you invest in Energy Fuels, you're getting the whole clean energy story and the critical mineral story with what is what I believe a very extraordinary opportunity in critical materials in clean energy. So we're very excited about the future, and we're very focused on the future. And it is our goal to become a multibillion-dollar company fairly quickly if we can execute our strategy the way we think we can execute. There still is always risk in everything you do in this business, but I don't think we could be placed any better at this point in time and look forward to talking to you all in the future. And I hope to have people like Heiko saying, "Well, you just went up another 50% in the next 6 months." Now I can't predict the future, but we're very excited in Energy Fuels. So again, thank you in closing. And everybody, stay safe.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.