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

Good afternoon, and welcome to the Energy Fuels Second Quarter 2023 Conference Call. [Operator Instructions] I will now hand the call over to Mr. Chalmers, CEO of Energy Fuels. You may begin your conference.

Thank you very much for the introduction, and good morning or afternoon, depending on where you're joining from. And I want to thank everyone for joining the Energy Fuels Q2 '23 conference call and webcast today. We are always excited to discuss our results and our significant accomplishments that we continue to make. For those that cannot join the call today, there will be replays of this presentation available for 2 weeks on our website starting later today or tomorrow. Every quarter, I say we're making remarkable progress on many fronts, and this quarter is no different. Energy Fuels is likely one of the biggest success stories on decarbonization, electrification while we also emerged as a clear leader in U.S. critical mineral production. And this is at a time when it has never been more important. We are a unique investment. No other company I know, has the ability to advance uranium, vanadium and rare earth production capabilities, while at the same time, advancing our medical isotope aspirations. And we're doing this while we continue to maintain a very strong balance sheet with zero debt. Today, I'll elaborate on these accomplishments for the quarter and provide details on what I think the rest of the year will look like. I also want to remind everyone that you are controlling your slides to the presentation from your own device, and I'll try to remember to tell you when to say next slide. There will be time for questions at the end of the presentation and -- during the question-and-answer session, David Frydenlund, our Executive Vice President and Chief Legal Officer; and Tom Brock, our CFO, will be available to answer any questions I cannot answer. So let's jump into the presentation. This first slide showing a picture of the remarkable White Mesa Mill, which is the critical mineral hub. It's our main asset for the company, producing critical materials for the clean energy transition, and there is really no facility like it that I know of in the world. Next slide. I may be making some forward-looking statements and those are included in the Slide 2. Next slide. So Energy Fuels is a leading U.S. producer of uranium, vanadium and rare earth elements, creating clean energy for a better world. Next slide. And I've talked about the periodic table before, but it is also good to talk about it again because I want to remind people of all these new elements that are required for decarbonization and electrification that nobody even talked about 10 or 15, 20 years ago. In Energy Fuels between our uranium activities, rare earth activities, vanadium and potential to recover radium for medical isotopes is going to be or currently is or will be able to recover between 8 and 10 of these elements on the periodic table. And I don't know of any other company that will be able to say they'll be able to recover that many elements in due course. So it's very important. It's the future of decarbonization, electrification, and we're very proud of that and the way that we've been able to place and position the White Mesa Mill and our assets to do this effectively. Next slide. So again, just to remind people, uranium for nuclear energy, which provides 50% of the U.S. zero carbon electricity, which is very important for decarbonization and it's almost impossible to meet the goals of decarbonizing without nuclear energy, rare earth critical elements used for the powerful magnets used in electric vehicles, wind and other high-tech appliances. And it is truly remarkable, if you want the highest efficiency electric vehicle it needs rare earth to be the most efficient. Vanadium primarily used for high-strength steel, but also used in getting increasing uses for grid-scale batteries, the medical isotopes, as I mentioned, we're advancing our strategy to recover primarily Radium 226 and 228 for emerging cancer therapies. We also continue to recycle uranium and vanadium bearing materials and nobody else in the U.S. has ability to do that like Energy Fuels. It's been an important part of our business in up and down markets, particularly down markets. And we're always very proud of our financial strength with significant cash and inventories, and I'll talk about that more later. Next slide. So now for the Q2 highlights and the picture of the Pinyon Plain Mine that I built in 1987, and it's really, again, a remarkable deposit. Next slide. So we ended the quarter June 30 with $134 million of working capital. That is made up of $35 million of cash, $64 million of marketable securities and $33 million of product inventory. If you adjust to current commodity prices, you can easily add another $18-or-so million to that working capital at current market value of that inventory. As I mentioned, zero debt, which we're very proud of because we have probably somewhere in the order of $1 billion worth of assets. And we still hold 766,000 pounds of finished uranium, about 900,000 pounds of finished vanadium and about 37 tons of finished high purity, partially separate Rare Earth Carbonate in inventory. Next slide. During Q2, we did sell some uranium to a major U.S. nuclear utility, about 80,000 pounds. That was around $4.3 million at around $54 a pound, but a gross profit, and I want to highlight this with a gross margin of about 46%. We're still producing or still readying 4 conventional uranium vanadium mines. That includes La Sal Complex, the Beaver Shaft, the Whirlwind and the Pinyon Plain Mine in Arizona, and final production decisions on these projects will be made based on our inventory levels and market conditions. We also sold PFN technology to enCore for $3.1 million. We had bought the PFN for around GBP 500,000. So we made a gain of $2.75 million on the sale of the PFN but we also have the rights to use that if we need it in the future. And right now, we don't have any projects that require the PFN. So we made some -- a nice little profit on the sale of PFN. And in addition to the 766,000 pounds of finished uranium inventories, we have nearly 400,000 pounds of uranium in circuit and in raw materials at the White Mesa Mill. So we really have in the order of 1.2 million pounds of uranium in the inventory in-circuit or in raw materials. Next slide. Rare Earth production, we produced approximately 99 metric tons of high purity partially separated rare earth carbonate from monazite and that included approximately 44 metric tons of total rare earth oxides and we are producing the most advanced rare earth material being produced in the United States today. On our Phase 1 Rare Earth Separation Project, which should be operational last quarter this year or first quarter next year. We're very excited about that. We are modifying and enhancing the existing solvent extraction circuit at the mill to produce separated oxides. And I think this is the only example of this that I know of in the world where we will have a uranium circuit, vanadium circuit and rare earth circuit, all in one building. We expect to have the production capacity of the rare earth circuit up to 1,000 metric tons of NdPr per year. Development work has begun. We have ordered most components that are expected to be delivered in Q3, and we expect the Phase 1 cost to build out the separation plant to be a remarkable $25 million, which is absolutely very low cost relative to others because we're doing it in existing infrastructure. Next slide. Our Phase 2 separation project, we're doing further engineering work on that. To be in a position given enough monazite feed around 2026 to produce 3 to 4x what the Phase 1 project is capable of doing. The Phase 2 project will also include a stand-alone crack and leach circuit at the mill, enabling us to produce and refine both rare earth and uranium and vanadium at the same time. Phase 3 is focused on the heavies, but we do plan to do heavy separations later this year in the laboratory. And that will be focused on the Dy and the Tb, which are two very valuable heavy rare earths required to make the most robust electric engines that are more heat -- have more heat sense -- or capabilities than the Dy and the Tb or the dysprosium and the terbium -- excuse me, NdPr, sorry. We also acquired the Bahia project in February, and we're advancing that. We have this substantial land position around 60 square miles with the potential in time to produce between 3,000 to 10,000 tons of monazite sands. We've done our Phase 1 drilling. We have purchased a drill rig. We have people being trained on that rig right now, and we're shipping that rig down to Brazil here in the next month or so, and we'll start our Phase 2 drilling campaign with our own rig. Next slide. Vanadium sells, we didn't make any vanadium sales in Q2. And but we still have the ability to go back into vanadium production quite quickly. And we -- but what we did sell in Q1, we sold and it was about a 37% margin. And it's still an important part of our business plan, but it's not the main focus of the company, but it is the only conventional vanadium processing facility in the United States. And as I said, we have nearly approximately 900,000 pounds of vanadium in inventory. Next slide. And again, looking at our working capital of $134 million of working capital and zero debt. I mentioned the uranium inventory that we have, both finished process in progress and the vanadium inventories. And if you adjust for current prices, the inventory is worth in the order of $20 million more than what's included in the working capital. And I want to add that it does not include our note that we hold with enCore or some of our other investments so we are in a very, very strong and enviable position with our balance sheet. Next slide. So looking at our guidance we'll sell approximately 560,000 pounds of uranium this year at an average price of between $58 and $60 a pound. We already sold 300,000 pounds to the U.S. uranium reserve. We sold 80,000 pounds, I mentioned earlier, and we'll sell another 180,000 pounds, which is equivalent to about another $10 million of revenue that is already contracted to be sold. We expect to put at least one new uranium mine in production later this year or early next year. We're seeking additional long-term supply agreements at higher prices. And we're really focused on the Rare Earth sector at the mill this year. We're not planning to produce any uranium vanadium in 2022. We still plan to process around 600 metric tons of monazite and recover around 150 to 170 metric tons of REO in '23. And we plan to advance and commission our Phase 1 separation plant later this year or early next year. We are also seeking rare earth offtakes. We're looking to continue to build our supply of monazite. We continue to talk to a number of parties in our advanced discussions with a number of them. It will be a really good day when I can give more information on that in advancing the Bahia project, as I mentioned earlier, and we'll advance it through S-K 1300 assessment reports and 43-101. So in closing, next slide, just the sunsetting in Southern Utah, a very pretty picture here. And I'd like to open it up for any questions anyone may have.

[Operator Instructions] Your first question is from Heiko Ihle from H.C. Wainwright.

Perfect. Anyways, excited for all these arrows in your future to have some money, so let's keep that going. Walking through the 403,000 pounds of U-3O8 that you have in raw materials and work in progress inventory. Walk me through what you might spend by the end of the year, both -- on a vanadium level as well, but also a U-3O8 level, please?

You want to walk -- you want me to walk you through in the 400,000 of raw materials in unfinished uranium?

Correct, like end of the year plans.

Okay. Well, we're not planning to do any additional finished product of uranium this year, Heiko. We mentioned the 400,000 pounds because we have alternate feed, but we also have various uranium ores. For example, we have material that came from the Mount Taylor project, and it's sitting in stockpile at the mill, and we can process that when we decide we want to process that to make that 400,000 pounds into finished goods to complement the 760,000 pounds we already have. We're mainly focused on the Rare Earth of getting this Phase 1 up and running during the end to last half of this year and early next year. And then we're looking at a potential mill run in the next year or 2 when we decide we want to do the mill run for uranium ores and potentially vanadium ores.

That's helpful. You want to go through maybe some longer-term expectations as well?

Yes. As we said, when we look at the -- let's start with the uranium business. We have the assets to get up to between 1.5 million and 2 million pounds of uranium production per year. We want to build that out when we get more contracts. Right now, our contracts are going to be in the order of around 500,000 pounds a year. So we really don't have the need unless the price of uranium goes up substantially to produce a whole lot more than that 500,000 pounds per year. So we're going to continue to underpin that with more contracts, but we can get up to that 1.5 million to 2 million pounds with limited capital, really just working capital. Now on the rare earth front, we have the ability or will have the ability in Q1 to produce up to 1,000 metric tons of NdPr. We believe we're starting to have line of sight to get to maybe half of that. We hope it's not guaranteed, but we hope to be able to get up to about half of that looking to 2024. And we plan to continue to build additional feeds of monazite hopefully in a material way to get Phase 1 completely booked out and at full capacity in the next year or so. Meanwhile, we'll continue to engineer and permit where required for Phase 2, which will be 3 to 4x the Phase 1. And that will all be subject to securing a significant amount of monazite to require the build-out of Phase 2. And so, but we are aggressively -- when we start looking at who we're talking to and the kind of quantities that we're talking to the various parties, we think that Phase 2 securing the feed is very possible in the not-too-distant future, but we still got to get a few more of these coordinates lined up here in binding arrangements and commitments.

That's helpful. Moving on from all of that. I mean one sentence in your release -- released struck my curiosity when you were talking about the engineering of the enhancements for the plans for the NdPr. And I assume the same probably holds true for most people on this call. I mean you're trying to get to 3,000 metric tons by the end of '26 with your Phase 2. Can you maybe walk me through some of the investments into the area, what exactly you have to spend on your plans for the future year by year as much as you can and also longer-term monetary impacts that you are just mentally working with what you're sort of expecting to see?

Yes. Well, the Phase 1, as I said, that's around $25 million, and that gets us up to, say, up to 1,000 tons of NdPr per year. And that's low because we're doing the crack and leach in the mill, and we're using existing SX building for the separation stage. So that's very low. And it's -- but it's a very attractive strike rate, obviously, on capital. We do not have all the final engineering completed on Phase 2 but we believe it could be between $250 million to maybe $350 million, somewhere in that order. That would provide a facility that would do 3,000 to 4,000 tons a year in NdPr, but it doesn't mean that the Phase 1 facility also wouldn't still potentially be operational. But the Phase 2 facility will include its own crack and leach circuit. So we don't have to do any flip flopping of the current uranium vanadium mill between uranium runs and rare earth runs. So we believe that our operating costs are going to be low and really as competitive, not as low as anybody outside of China. And -- but we have to show that we've secured enough monazite to run that on through.

Fair enough. That's very helpful. I'll stop hogging the question queue here and get back in queue. But thanks so much for answering your questions. And keep on going all the different directions that you're going, I think it's very impressive.

Your next question is from Mike Heim from Noble Capital Markets.

You just said that you believe your operating costs for the NdPr should be as low as anybody outside of China. If I were to look at Lynas or one of those and talk about gross margins, which we've never really talked about, is it reasonable to be thinking about $50 million, $60 million, maybe $70 million even?

Well, yes, it depends a lot, Michael, on -- I mean, we have -- and again, the reason we haven't gone into real details is we're still -- we have a good handle on what we believe they are, but we're still doing some of our engineering studies. But we believe that it's -- they're robust margins, a big part, and I talked about this before, and I've been criticized a bit before, but it depends what you acquire your monazite for. And we're looking at a blended price of monazite that includes purchasing and from our own sources sort of a hybrid model, a little different. So those are all factors that come up with what the ultimate cost is. But yes, I believe we are going to be in the same order of competitiveness of others people that you just mentioned and others. And really, a lot of it is going to be focused on the fact that we're operating in an area that has low water cost, low power cost, very good people skills, labor skills in the United States and compared to Australia, very favorable jurisdiction for low operating capital costs.

No, I can do the math on the 100 metric tons or 1 million kilograms and see the potential of 65 million if we were running at peak or so. But that's just for the NdPr. During Phase 1, what happens to the other heavy REEs? Can they still be sold off? Or will you kind of inventory until you get to do?

They can. The SM Plus, we call it [ Sumerian Plus ] and heavier, we will make a concentrate that can either be sold or we can hold it. And the most likely scenario is we'll probably hold it. And because really the Dy and the Tb are a couple of the elements that particularly, the U.S. government is very, very interested in. And actually, a lot of people in the world are very interested in those elements. So as I said, it's a very tricky business here. The -- and I believe that the Chinese continue to manipulate the market at some level because they want to continue to be the dominant force in Rare Earths in the world. And so we're trying to position ourselves in a way that provides us and decouples from -- to have our own capabilities internally as much as possible.

Can you give us any indication how much the NdPr represents in terms of the overall value of the heavy metals?

Yes. NdPr, and it varies because not all ore sources have heavies in them. For example, basanite has very little heavies. But the NdPr is generally speaking, around 75% of the total value of the rare earth oxides that you recover. A lot of people try to count every element in the -- like in the rare earth feeds, we really count the neodymium, praseodymium, dysprosium and terbium. And so the heavies are generally about 25% of that value and the NdPr is around 75%. It could be 80%, 70%, somewhere in that order.

Okay. And final question for me. You said twice that talking about Phase 2 and Phase 3, if you get enough monazite. Does that imply that you feel if contracts are lived up to, you have enough for what you want to do with Phase 1?

Well, as I said, I think we're rounding up what I'm believing is around 50% of our sort of line of sight to Phase 1. We are talking to multiple parties. And I know I've said this before, but we're talking to probably half a dozen different groups. And those all have the potential, any one of them to fill up Phase 1. But again, we've got to get them signed up. One of the things I found is a number of parties that we're kind of looking at where and who they could do business with. A lot of them have come back to us because they feel that Energy Fuels offers something that others don't. And the main thing we offer is operating in the United States of America, processing in the United States of America and also being able to operate in an environment where we don't have to pay these extraordinary operating costs like you're seeing currently in Australia.

[Operator Instructions] And your next question is from Joseph Reagor from ROTH MKM.

So first thing, and a lot of the stuff I wanted to touch on already was, but just kind of a little bit of a housekeeping thing. Your G&A expense seems that the last 4 quarters has been quite a bit elevated. Is there anything driving that? Or is that kind of like the new normal?

Well, the new normal is if we're under increased operational activities across the company. So we've hired, I think, last -- since the beginning of the year, I think we've hired like 30-some people. We're developing a number of different projects in different locations. We're capitalizing some of that. But it's -- I think it's just the new normal of getting the flywheel going on the various projects that we have. So it doesn't just happen without making it happen. And when you go from more of a standby mode to an operational mode, there's a certain amount of burn rate that you just have to increase to get there. And Tom, I don't know if you -- Tom Brock, our CFO is on the line. I don't know if he has anything to add there.

No. Mark, thanks for the question. I agree, as we move out of this standby, care and maintenance mode into an earnings mode, of course, we've upgraded some talent added more boots on the ground to those projects that are underway. And I'd also add in that G&A, you've got for the 3 months ended -- or 6 months ended June 30, you've got stock-based compensation of $2.7 million. So with additional heads comes additional of units. But again, that's noncash.

Okay. That's helpful. Second thing, there were some reports a couple of weeks back about there being a potential moratorium on mining uranium for a certain section of Arizona. Does that impact you guys in any way or all of your assets like outside that specific area?

We don't believe so because we have valid existing rights. We have a number of assets that are fully permitted, ready to go, like Pinyon Plain. We're advancing that right now. And we're just full tilt on that project. there is discussion of a monument. We haven't heard exactly what the outcome is going to be there, but we do not believe it's going to change our activities at all with the Pinyon Plain Mine period.

Okay. So to be clear, your asset is outside where the proposed monument is or just cut out, as an exemption?

No, it is inside, but it is a project that is fully permitted, been supported by the U.S. Forest Service for 35 years. They've defended that. So we believe the valid existing rights are sound, and we're going to go forward with the project. Dave Frydenlund, our legal counsel is on the call. Dave, do you have any comments?

Mark, I think you summarized it. Under the law, you can't -- the President cannot -- any national monument proclaimed is subject developed existing rights. The area where our mines in Arizona are is subject to mining withdrawal right now, which is subject to valid existing rights. We've established valid existing rights which have been upheld by the court for the Pinyon Plain Mine. So we expect that those will be honored in if a new monument is proposed.

Okay. I appreciate the clarity there. And I was under the impression you guys were exempt, but I just wanted to make sure we're clear on it. And then kind of a last thing. As you guys look at current operating expenses and growing the business, how should we think about when you guys will start to sell extra inventory or restart operations? Are we at the point where you guys do have a fixed price in mind, even if you can't disclose it? Or is there a fixed time line that you guys are aiming for? How should we think about that?

Well, we're really kind of focused on building a book where we have at least a $20 margin on our uranium production. And as you can see with a number of our inventory sales, we're getting more than that currently with a lot of our inventories. Now a lot of that's come from alternate feed. But we're trying to build a book with at least at $20 margin, likely more with some of our operations like Pinyon Plain. So -- but that's kind of how we're trying to approach it is everybody's got to get to a point where they're making money here. And we're not out there to do recreational mining, but we're just trying to build the book. And really, frankly, with the increased cost, the difficulty of getting additional labor reagents, we really need uranium prices to go up somewhere in the 70s plus before we'll continue to build that book.

[Operator Instructions] Next question is from Reed Rubin from -- sorry he is a private investor.

Mark, Niger. I gather they produce 5% of uranium worldwide, and the mine is owned by a French company. Do you have any intelligence as to what might break there?

Look, I mean, they're certainly unrest. Coup going on in Niger. It does -- it's a country that has a long history of uranium production read. And -- but I really don't -- not close enough to the [ coal ] face there to figure out where that's going. But it does highlight a number of things, doesn't it, that when you look at where the uranium comes from around the world, place like Niger and Russia, Kazakhstan, Uzbekistan, there's risk in a lot of these developing countries. So yes, I don't have any real optics. I mean I've been reading some of the releases from like Global Atomics and others. But I don't have a crystal ball on where that's going.

Any implication in today's pricing?

You say any implications on current prices? Is that what you're saying?

Yes, sir. Yes.

Yes. Well, I think that whenever you look at -- historically, if you look at the uranium market, when the price starts to move, it usually isn't any one thing. I mean, if you go back to 2005 and '06, we had a number of floods in Athabasca had some flooding in at the Ranger mine in Australia. And so a lot of times, a number of these things working in concert really can move the price. Now I think that a number of things that are likely to move the price is, one, the price is too low for replacing uranium at current prices. You got the increasing demand. You got reactors staying online, you've got Japan firing up. And then you have something like Niger, putting a bit of a red flag over that country. And I think when you start looking at these things in concert, it has the potential to really move the price where it should be, which is at 70 or north of 70 to get additional new production coming to the market.

Thank you. There are no further questions at this time. Please proceed, sir.

All right. Well, firstly, again, thank you for your interest in Energy Fuels. It is a unique story. As I said earlier, we're working hard. We're working really hard as a company. We're working well as a company, and we have got what I believe is an extraordinary future. It's difficult out there to actually deliver new production and our company as a company that delivers new production. We're not a promotional company and we're trying to build these fundamentals on something that will basically capitalize on the clean energy tech going forward and the energy transition. And I think we're well on our way and -- but I do appreciate our shareholders and the support of our shareholders. So thank you very much, and have a good day.

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect.