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

Good morning. My name is Joelle and I will be your conference operator today. At this time, I would like to welcome everyone to the Energy Fuels Inc. acquires Base Resources Limited Conference Call. [Operator Instructions] Mr. Chalmers, you may begin your conference.

Thank you, Joelle, and thank you for those joining this conference call. We're very excited to give you an update on the combination with Base Resources. Again, Mark Chalmers. I'm President and CEO of Energy Fuels. I'm very pleased to be joined today by Tim Carstens, Managing Director of Base Resources. I'm joining this call from Zurich. And Tim is in Perth, Western Australia. So we don't have the ability to do hand signals if something goes wrong. So I'll just give you a warning in advance. We are both very excited to provide an update to all of you on what we believe is a transformational combination of both companies. Day 1 of the combination was actually on October 2, so 4, 5 days ago, and I was down in Perth all last week, and it was an absolute pleasure to meet the entire Perth team and spend time with each and every one of them to better understand their roles and responsibilities and get a bit of information on their personal lives. Both Tim and I will go through a short presentation to explain the rationale of the combination and the extraordinary opportunities that lie ahead. Those of you that are online, just a reminder, you will be controlling the advancement of your slides and either Tim or I will try to remind you when to move to the next slide. A conference call replay will be available and information is on our website in this regard. And as always, as Joelle mentioned, there will be time for questions at the end of the presentation. So we'll go ahead and get going, and I'll have Tim tag team with me throughout the presentation. So I like this first slide for a lot of reasons. It is taken near the Toliara project site in Madagascar. Toliara is widely known to be a world-class undeveloped titanium, zirconium and rare earth deposit, which we believe has the potential to be a market disruptor, in both the HMS world and the rare earth element sectors. Tim, any comments on that slide?

Yes. I mean, the obvious thing is the rather remarkable standard at Baobabs there. Its an area called Baobabs Alley. It's quite a [ future ] of where the mine site is going to be. But unfortunately, these trees are all well and truly off the mine site. But given the nature of the environment in Toliara, there's quite a unique forest there called The Spiny Forest. And it's one of the significant opportunities for us as a project to enhance the environment that we're operating in is in protecting that absolutely unique forest that doesn't exist anywhere else in the world. And that's something we're looking forward to playing a big role in. One of the collateral benefits of doing a project the way we do it.

Thank you, Tim. So let's move to the next slide. And I might be making some forward-looking statements. So those included on the second page. Next slide. The most exciting thing about this combination with Base is that Energy Fuels is well on our way to creating a globally significant critical mineral company with the ability to process advanced rare earth materials in the United States of America. And in my opinion, the market has yet to fully recognize the significance of the moves we've been making over the past few years. Next slide. The combination with Base absolutely solidifies its position. Many of these elements are required for the rapidly advancing energy transition, and Base has become a wholly owned subsidiary of Energy Fuels, but we still plan to continue to have Base's well-known identity and heavy mineral sand continue on. Base also has a recognized -- world recognized management group in the HMS sector and operations teams that have joined Energy Fuels, and that will allow the company to move quicker, faster, with more momentum and more expertise than I believe that people really fully appreciate. Because nowadays to advance the project, you need to have the expertise and skill sets to go forward cost effectively and efficiently. Base also has an exceptional track record of safety, environmental stewardship and profitability. So now Energy Fuels ends up with 100% ownership of the Toliara project. And as I mentioned previously, considered world-class by all measures. It has a massive HMS resource and Tim will talk about that later. Robust economics and has the potential to generate significant free cash flows over time. And substantial room to grow the reserves and resources. It is a game changer in my opinion. And to produce monazite will be processed into rare earth oxides at the White Mesa Mill in Utah. Next slide. So let's look at this diversified asset portfolio for long-term growth. It is substantial. In the blue is mainly Energy Fuels, uranium and vanadium deposits and our rare earth processing assets capabilities which is really the hydrometallurgy in the Northern Hemisphere. The red is Base Resources, Southern Hemisphere, mainly HMS and monazite recovery focus on physical processing, not hydrometallurgy, but physical processing. And as I said, the lower hemisphere, but now includes the Bahia and the Donald Project joint venture in this portfolio with them. This portfolio is world significant and positions Energy Fuels for long-term growth and value creation. And I want to note that Energy Fuels secured these projects in the red and the recent downturn of the rare earth market and the HMS sectors. Next slide. So I have to give credit to Tim and his team because this is a slide they produced. It illustrates how the uranium, rare earths and mineral sands, sectors fit together in our strategy. And Tim, as it is your slide, I will ask you to explain it.

All right. I mean this slide really explains what we saw in the combination in that. A lot of companies are trying to get into the rare earth space. And it's quite a challenging space to get into if you are relying on being a pure-play rare earth player and either becoming a rare earth miner or a processor because of the manipulation of sectors or pricing -- sorry, the manipulation of pricing in different components of the value chain, it can be quite difficult. But if you are going to produce rare earth supply sources, such as monazite, as a byproduct of what you were going to do anyway. So our projects are all justified on the basis of the mineral sand value, but then are able to produce significant amounts of monazite, you've taken away the reliance on whatever rare earth pricing is happening to do at that point in time. The project is going to proceed. And it's a similar story with the processing and why we initially started discussions with Energy Fuels, was that with the uranium processing capability at the White Mesa facility and the demonstrated ability to process monazite for rare earths. For them, it's a sideway step as well. It's -- you're not relying on the development of new expertise, new permitting, new anything. And when you plug those two together, you've got a much lower risk way of entering the rare earth oxide production space. The other thing that this combination does is open up all manner of opportunities for further supply to feed that rare earth supply chain because there are a number of mineral sand projects around the world. In fact, many of them that differing degrees have monazite content. And so having an ability to monetize or operate those sorts of assets and monetize the mineral sands through in our case, having a very well-developed set of customers just derisks that whole expansion of the supply chain. And so when you bring those two businesses together, you're producing effectively the best part of 9 of the 50 critical minerals on the U.S. Critical Minerals list in a way that's just utilizing complementary sideway steps in our existing businesses.

All right. Yes. And I have to say that we had another graphic and I like the Base's graphic better than ours, so we adopted it in the deck. So another example of synergies. So next slide. So this slide is really -- I've shown this a number of times. It really shows how we're focusing on integration of the rare earth supply chain and the various steps on the left there from mining beneficiation, crack leach separation. All of those three, we currently can do today. But we're also focused on continuing to move down that chain into metals alloys and further down in due course. And we see that as important because the more steps that you have, the fewer inflection points you have to be manipulated by, particularly the Chinese market, so we're very focused on going for full integration in time, but it does take time. And so yes, the next step is this Metals & Alloys. Many of you will be aware that we hired Deb Bennethum, she's the former global procurement team leader for critical minerals procurement. Was at GM, General Motors, and she joined Energy Fuels a couple of months ago, and it's just a great pleasure to have Deb with us, and she's -- her main focus is kind of the metals and alloys but also on the oxides and potentially looking at magnets and [ time ]. And she also has substantial global network and all of these steps and is recognized around the world through her past work with General Motors. So we're very excited to have her on the team. And so that just gives a kind of a snapshot of how we're moving towards integration. Next slide. And I hand this over to Tim.

Yes. Thanks, Mark. Obviously, Base Resources, we cut our teeth with the development of the Kwale project Kenya, that's been an extremely successful mineral sand development. And so we've got a really good understanding of the universe of mineral sand projects. And after we had Kwale up and running the way we wanted it to, we're looking for the next project to bring into the portfolio. And having looked at absolutely everything around the world, we've identified Toliara as just an absolute standout. It took us the best part of 3 years to finally land the acquisition for a whole raft of different reasons. We finally closed that acquisition in January 2018. And at the time we acquired it, it was very much just a mineral sand project. We knew it had monazite in it, but that was more going to be a challenge. We're going to need to manage and we're actually planning on disposing of the monazite as waste stream in -- back into the pit. But where we are today, the mineral sand component of the project had an NPV10 of up to a billion. And then now that we've added in the monazite with a relatively small CapEx required to open that opportunity up, about $70 million. It's now an NPV of $2 billion. So it's an extremely valuable project. Great IRR. CapEx is just short of $600 million and very significant free cash flow over a 38-year mine life. But one of the most important things is when you look at mineral sand mining projects, you typically look at them, in comparing them on the basis of revenue to cash cost ratio, or the cost ratio. A really good mineral sand project and Kwale sat -- our Kwale Project in Kenya sat at the top of the pile for a very long time at 3.2:1. Toliara is sitting up at [ 4.3 ] and certainly, over the first 10 years when we're in a higher-grade zone, it's considerably higher than that. So it's an extremely robust project that is underpinned by mineral sands or it can be underpinned by the rare earth component. But with those two sectors not really moving in the same direction as mineral sands tends to be, not particularly demand driven. It's more supply coming on that affects price, whereas obviously rare earths are completely different. They don't move in the same way. So the -- I guess, the hedging benefit, if you like, of those two different revenue streams is really significant. So it's a very, very robust project. If you jump across to the next slide, what underpins at all is this -- the resource -- the [indiscernible] resource. At the moment, it's 2.6 billion tonnes. But if you look at that stylized diagram there, that doesn't include any of what we call the lower sand unit which we've got to get in and do a whole lot more drilling on. But on the basis of that 2.6 billion tonnes and a current reserve subset of 900 million -- and it's only 900 because that's the drilling that's been done. We didn't need to make it any bigger because that's enough for 38 years. But you can see there is just dramatic ability to expand both the resource and the reserve, therefore, mine life also scale of the operation itself when it's up and running. Because of where it is, once we've built the access road and the bridge and the port facility, scaling this up is a relatively simple exercise just involving more frequent truck movements and more frequent use of the port. But the capacity is not limited by the sort of scale. We're looking to start off that, which would see about 1.2 million tonnes of ilmenite a year and about 70-odd thousand tonnes of zircon and around 26,000 tonnes of monazite. So that's the starting scale or the scale we're looking to kick it off at, and there's opportunity to step that up over time. Key issue, if you go to the next slide. The key issue is obviously the process of locking down fiscal terms with the government in Madagascar. It's been quite a process with -- from 2019 when the government put a suspension in place on the project to really bring us to the table to discuss fiscal terms over and above what was in the Mining Code. It's been quite a process. In part, COVID didn't help where the country was shut down for 2 years. But also, we needed the government to get some sensible advice from the World Bank and the IMF on what realistic fiscal terms look like. They've now got that. That's now being built into the new Mining Code, which was promulgated earlier this year. And we've got to the point now of having in principle agreement on the fiscal terms. And we're just now trying to work our way through, I guess, an MOU around that, an investment agreement that needs to be ratified by Parliament and the lifting of the suspension. So we're expecting that to happen over the coming month or 2. Once that happens, we've got about 14 months of work to do to reach a final investment decision. That would see us with an FID around January of 2026. 29 months of construction, we should be seeing our first ilmenite shipment leaving in around March 2028 and the first monazite shipment around August of 2028. We've not been sitting on our hands while the suspension has been in place. We've done an awful lot of the work required to make sure that we've got a really robust project, really clear execution plan, we're ready to go as soon as we get that suspension lifted. Back to you, Mark.

Yes. Thanks for that, Tim. Great roll up of those 3 slides there. So yes, let's talk a bit about this rare earth production in the United States and the processing of monazite, which is a byproduct of heavy mineral sands. I mean, first of all, monazite is a superior product when it comes to the magnetic rare earth, mainly NDPr, Dy and Tb. It contains high concentrations of uranium, roughly the same as uranium ores and we're the only one, I think, out there in the world that says the more uranium, the better because we can monetize it. Energy Fuels is the only facility in the U.S.A. and one of the few facilities in the world, really outside of China, that can process monazite and wants to process monazite and has 40 years of experience processing uranium. And so really, our expertise is unparalleled in our ability and knowledge of SX. I talked about the Phase 1 separation facility that we built and commissioned earlier this year. Now we're flipping the mill over to uranium. We produced about 35 tonnes of on-spec, separated NdPr, and we have bags of NdPr ready to go for basically qualification at some of these metal and alloy makers and even magnet makers. So we're really excited about that. We don't have beakers. We have bulky bags to send to people. We're in the process of designing, taking our PFS up to a DFS, up to 6,000 tonnes of NdPr per year, and we're really excited about that because we have a lot of information, a lot of data and operating history of how we scale this thing up, and that is equivalent to about 6 million EVs per year. And to put it in the scale that companies like General Motors, Ford talking about a couple of million EVs per year. Now one thing that I hear a lot of is people say, "Oh, the EV market isn't advancing as quickly as it should and maybe people don't like EVs." Well, first of all, the targets were a bit over aggressive. But I also want to mention that a plug-in hybrid requires the same amount of rare earths as a 100% EV. And -- so we see the outlook for demand to continue to grow. And if people don't like EVs, you're seeing a lot of hybrids out there. And so we don't see any real slowdown for this energy transition over time. And so by securing these HMS mines globally, we basically decouple ourselves from China to have our own sources of monazite at scale. When you look at the projects that we've secured, joint venture on Donald's and the relationship that we have with Chemours and others potentially to come, I think that our successes will just create other successes in the future because of what we're doing and how we're doing it. And it does not diminish our ability to produce uranium. And actually, we recover uranium as we process the monazite. Next slide. So this slide, I think, tells a very significant story on the rare earth development time line. And I mentioned we've been doing this over the last few years. Haven't gotten much, or any recognition, maybe negative recognition. So when you look at the commissioning of the Phase 1 in 2024, we're now flipping that over to go into uranium production, and it is our goal to continue uranium production straight on through and have the Phase 2, Phase 3 plants ready to go into production in due course that are completely separate from the mill. So we have two separate stand-alone processing plants, a rare earth processing plant and a uranium plant operating independently. But when you look at the scale here of what we've done, I mean, it puts us well on the path for this 6,000 tonnes of NdPr per year, which is equivalent to what Lynas is doing right now. Lynas has a market cap of $4.5 billion. And I have to say that our strategy with securing these HMS projects with the potential, in some cases, for monazite for free, puts us what I believe, an enviable position on how we're going forward. And as I said, without taking away our ability to produce uranium. So let's -- next slide, let's talk a little bit about the preliminary economics and I talked about Phase 1. And again -- and we built that for around $16 million and our existing SX building, where we have now, I think, the only facility in the world that could recover uranium, vanadium and NdPr and samarium plus carbonate in one building. And we did it for $16 million. I hear people talking about pilot plants. I mean that's not -- and that's a commercial plant. That's a commercial plant the size of Silmet or Neo Silmet plant, $16 million, and it functions and it produces on-spec material. We had a pre-feasibility study done a while back, which was looking at around 30,000 tonnes a year of monazite, which is 3,000 tons of NdPr per year. The initial PFS indicated capital cost of around $350 million and a cost of producing NdPr around $30 per kg. Now if you're getting monazite for free, or at lower cost in, say, the China [ plan ], you can bolt on to that $30 and come with something that looks very attractive in a market that's around $60 now, and that's still a low price. We think in some cases, we may be in that $30 range, $30 to $40. And we see that as an anvil position. Now again, I'm probably making a forward-looking statement there, but we're very excited about that. So we're updating that PFS to a DFS to the 6,000 tonnes of NdPr per year. Now that will probably be 5,000 out of the new Phase 2 plant including the ability to use the Phase 1 plant as well to come up with 6,000 tonnes. So we're very excited about that. And we've also started our piloting of recovery of Dy and Tb at the mill. So this next slide, and again, we've all seen this one, those that have been on these calls in the past, a diversified critical mineral strategy and company, largely focused on the energy transition. We've seen how brutal single commodity companies can be. The uranium price dropped 25% and a lot of the uranium has dropped 50%. We've seen it with lithium, graphite, cobalt. We are focused on this diversified strategy. We've been the largest producer of uranium over the last several years, about 2/3 since 2017. We're ramping up our uranium production to being about -- between 1 million and 1.5 million pounds per year by the end of this year, but also increasing that up to 2 million pounds per year. And we have proven that. We have proven that. There's a lot of people talk about uranium production, but have never produced material quantities uranium. We have. We know how to produce uranium. I've been doing it for 48 years. The rare earth, hopefully, this conference call gives people a bit more flavor of how we're ramping up our ability to source the monazite required to get to the scale of Lynas in due course. The heavy mineral sands, as Tim pointed out, the ability to generate significant cash on its own without any credits for the rare earth. Vanadium, we have the only vanadium processing plant in North America. Price of vanadium is low. The recycling is why the mill has stood the test of time. And we're building all this on substantial financial strength with zero debt, significant cash in inventories with around $200 million of working capital at the end of June 30 '24. So we are in a very, very strong position. So the last slide, Energy Fuels is 3 leading critical mineral companies in one. And we get valued as a uranium company only and probably on the lower end compared to other uranium companies. But we have the history of producing uranium, second to only Cameco in the United States. We have 3 mines that are up and running. We're looking at increasing that to 5 mines and we're ramping up our production over the next few years while we get the rest of these pieces into place for the rare earth business and the heavy mineral sands business. We plan to be a global leader in rare earth production centered in the United States with low cost structures with our own supply of raw materials from multiple sources around the world, including in the United States and a leading emerging global producer of titanium and zirconium, particularly with this combination with a great team at Base and the projects we've accumulated over the last year or 2, when the market was in a down cycle. And that does not include when we're processing uranium and monazite, that we're solubilizing radium that can potentially be used as medical isotopes and that is an exciting thing that is emerging on the horizon as well as being in a position to produce vanadium when the prices respond. So Tim, is there anything else you would add to that before we go into questions?

No. I think you nailed it.

Okay. Well, I've got a beautiful view of the Swiss Alps in the background. So now I'll just open it up for questions. I appreciate, Tim, you helping me with this call. And ready to go here.

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

Mark, I assume you guys can hear me, okay?

Yes, I hear you fine.

It's nice to meet the new members of the Base Resources team. I know you've closed a decade at this point, but I mean, this deal is really transformational one. Can you walk me through the different factors that may not be too obvious looking in for this integration and respective time lines? Things to really focus on that may not be quite as obvious. And speaking of that, is there anything about the ongoing integration that we should watch closer than others? Something that maybe gives you, I don't want say a headache, but something that you guys are watching a little bit closer?

Yes. Well, look, on the integration, I mean it was just 4, 5 days ago, the deal closed. I mean we're looking at how the Base team can be fully utilized, best utilized with a number of these assets that we've acquired in terms of assisting with the advancement of Bahia and the Donald joint venture. And not just on the projects, but also corporately too and where the skill sets integrate into the company. I think that some of the things that people should be watching for is the hopeful lifting of the suspension in Madagascar. Even though we are in this for the long play. We see this as a world material asset for the world in the United States, in particular. I think that we're getting a lot of notice from other heavy mineral sand producers. And I think there's going to be some opportunities that arise there, Heiko. So I mean the big part on the horizon here is to line up our ability to finance these projects as we go forward. So I mean, I think it's about -- really -- there's really 3 things. We're going to be ramping up uranium production. So there should be good news flow on the uranium production. The Pinyon Plain Mine is the highest-grade uranium mine, I know in the country ever. But watch the steps that we make with the integration of Base with these other assets into the rest of the company and look for opportunities or news flow in terms of people looking to either partner with us or help us with the financing in due course. Does that answer your question, Heiko?

I think that's fair...

Can i just add one little bit to it. I think it's probably worth everyone understanding is that this is kind of not like the classic takeover integration in terms of management terms. Where these discussions started was very much us looking for an offtake partner with whom to sort of create a supply chain. And then as we explore that, it became increasingly apparent that the real opportunity here was a combination. And so the entire Base management team is coming into this with a high degree of excitement about bringing our model of operation and our expertise in mineral sands. And indeed, our Toliara project into something that we're pretty excited about building. So we're not really facing a lot of those issues. We're trying to work out how you hang on to a team or looking at how you downsize or change shape or whatever. So as Mark said, it's very much about how do we get best-of-breed expertise from around and now combined group to bear across the entire group. So it's a much more exciting and less risky integration in that sense.

I think that's fair and encouraging to hear at the same time. A bit more of a philosophical. Now that the deal is closed -- hello -- yes, sounded like a car was going by. A bit more philosophical question. Now that the deal is closed, can you walk us through where you see the most potential for growth in resources? And just where your teams see the most amount of potential. Mark, please?

Well, I mean you're talking about at like Toliara. I mean there's resources in the uranium space, there's resources in the HMS space. I mean, I think getting on the ground, there's certainly a huge opportunity, as Tim said, Toliara. I mean, we're drilling at Bahia with looking for a resource estimate in Bahia. I mean in the uranium space, we are drilling at Nichols Ranch right now. And we're expanding the drilling. We're having some really good results. We released some a few weeks back. So Heiko, we're planning to increase our resources on a number of fronts in due course. We're actually starting to drill the Juniper zone at the Pinyon Plain Mine, I think, any day now. So the drilling part has kind of fallen to the wayside, in down markets, everybody quits drilling. But we have drill starting again, and we'll have more drills turning again at these various sites when we can get on the ground and get them going again.

Your next question comes from Joseph Reagor with ROTH Capital Partners.