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

Thank you very much, and welcome to everybody who's on the call. This is an exciting day for both ASM and Energy Fuels, and we are very happy to be presenting to you today together on the announcement that we've had this morning of Energy Fuels' offer to acquire Australian Strategic Materials. We do have a disclaimer, which I would encourage you to read at your own leisure. And I'm going to go straight into what, for me, is a very exciting day as we are really delivering on what we've been working on here in ASM since we listed in mid-2020 to deliver on our mine-to-metal strategy. What we've got here with this transaction, we believe, is an opportunity in combination with Energy Fuels to deliver a near-term Western mine to metal and alloy rare earth champion. And again, we are very excited about it. The transaction overview is that we have entered into a scheme implementation deed with Energy Fuels that has an implied value as at Friday of AUD 1.60 per ASM share. Under the scheme, what ASM shareholders will be entitled to receive is a fixed ratio of Energy Fuels' shares. That ratio is 0.053. And I think this has been important for us within ASM that we wanted to make sure that shareholders had the opportunity, the ASM shareholders had the opportunity to be able to benefit from the synergies that we know that we're going to be able to create in the combined assets of ASM and Energy Fuels. So it is a fixed-ratio deal as at Friday when we looked at it on a 14 -- or 15-day VWAP, that represented an implied value of AUD 1.47 per share. And then in addition to that fixed ratio share offer, there is also a AUD 0.13 in cash per ASM share dividend, special dividends that will be paid. So I do want to just emphasize that because I've had some calls already with people who haven't understood the implication of that. But what that does mean is that as the Energy Fuels share price lifts as we would hope that we would continue to see as the market starts to realize the strength of this deal for Energy Fuels, then that increased share price does then flow through directly to improving the value of this deal. And in fact, if we were to value it as of close, Energy Fuels close this morning, actually, that implied value rather than AUD 1.60 is actually closer to AUD 1.98. So that obviously is a very significant premium to where we have been trading over the recent times. And that in itself is very positive. The -- but one of the reasons why the Board is excited about this and has unanimously recommended it to shareholders is because we do see that this is a platform for us to accelerate our strategy and grow value for both the Energy Fuels and ASM shareholders going forward. So in absence of a superior proposal coming forward and subject to the independent experts, we are recommending that we go forward with this. All of the ASM directors intend to vote in support of this, subject to those other events. And importantly, Ian Gandel, our Chairman, is also our major shareholder. He owns approximately 13.6 of ASM's issued shares, and he also is intending to vote for it and is fully supportive of this proposed acquisition. The transaction highlights that I really just want to emphasize, I think the combination of our assets with ASM and Energy Fuels does create a near-term Western mine all the way through to metal and alloy supply chain and importantly, delivers both heavy and light rare earth all the way through that chain into the magnet producers that are producing these high-performance magnets that are so critical for our clean energy and defense and advanced technologies for the world. What we're building on here in addition to the ASM's proven operational record, particularly in metal and alloying is that we are through this transaction, getting direct access to Energy Fuels' proven operating track record in the United States with both mining, but also importantly, solvent extraction. And we have a number of projects across other jurisdictions in Australia and in Africa and in South America that we will get access to as well through this transaction to feed those metals plants. The combined assets will also have a strategy that is very aligned to government interests and in particular, very aligned to the framework agreement between Australia and the U.S. We will transfer our ownership because this is largely a conversion of equity from ASM into Energy Fuels that allows our shareholders to have ownership in a larger group with significant funding capacity. We do think this is going to be a very attractive entity to be able to access government funding, but also Energy Fuels have significant funding capacity from private sources as well. And because it's an established business with an established uranium revenue, we do see reduced risk through asset and commodity diversification. The offer, as I said before, has a significant and attractive premium and allows our shareholders to continue to participate and have exposure to this strong growth pipeline. So I just want to go through each of those points and then what I will do because I also have Mark Chalmers, who is the Chief Executive for Energy Fuels; and Ross Bhappu, who is the President for Energy Fuels, on the call with me as well. And then I will give them an opportunity to introduce Energy Fuels to you, who -- perhaps Energy Fuels is as well known in the Australian market. But what we have here, first of all, is we have in the combination of assets, the opportunity to very rapidly establish the end-to-end supply chain that is completely independent of the existing supply chain in China. And the world needs this supply chain. There's a lot of people challenging how it's going to get done. Here's a solution with real credibility where we can show that we have got near-term capability to provide this Western mine to metal solution across these jurisdictions. The 4 sources or 4 sort of projects that Energy Fuels have with the Donald Project in Australia, the Vara Mada in Madagascar and Bahia in Brazil are all projects that will be source feed. But what we have is an opportunity to add our Dubbo project in as a source feed into that chain as well. And those products can all flow through to the White Mesa Mill, which is the established processing facility that Energy Fuels have in Utah. There, they separate the rare earths into both a neodymium, praseodymium oxide, but also those 2 heavy rare earth oxides for dysprosium and terbium. And that then can flow through to our Korean metals plant where we have got established capability to be able to metallize those products into the high-purity metals and then combine them into the specialist alloys that then can be exported to the emerging magnet producers globally. We also have the opportunity to leverage the capabilities that Energy Fuels have in the U.S. for establishing the second metal plant, which we have been planning to do, leveraging the established capability that we have in Korea into the U.S. And indeed, Utah is one of the states where we have done significant due diligence on locating that plant. So this would enable that to progress leveraging the relationships that Energy Fuels have. The second sort of key area that we spoke about is that we would have access to the proven operating track record of Energy Fuels and that we would be aligned to our government interest. And I think, again, we'll hear more from Mark and Ross shortly about what they do have there. But I had the opportunity to visit those facilities in recent weeks and was deeply impressed. The White Mesa Mill has got -- it's not -- this is not a project that's just talking about doing the separation of rare earths. This is an operation that's been operating for 45 years already and has got deep capability in solvent extraction for uranium and is already well progressed in leveraging that for producing rare earth oxides and already has volumes of product coming through. So we're very excited to be able to leverage that capability as well as the rest of the operating discipline that we can see is a core component of Energy Fuels. But we're also very conscious of the fact that there's a very strong alignment between the U.S. and Australian governments with the U.S. Australian Critical Minerals framework and that what we're building here is a business that is going to be right in the sweet spot of what that policy is hoping to enable. And so we really anticipate that we will be very attractive for government funding as we go forward developing the various different projects. And in part, that's exciting to have that kind of government support. But what we also anticipate is that we will be a leading producer of rare earth. There will be very few businesses that can compete with getting the established production in the time frame that we're going to be able to when we work together. And that is going to give us the opportunity to also have access to private funds as we become a leading rare earth producer in this emerging market. It is going to be valuable for ASM shareholders to be part of a larger group that has that significant funding capacity. And this slide just gives a sense of just what the opportunity is. But from a key point here, we obviously -- prior to announcement, we're sitting at about a AUD 200 million market cap in Aussie dollars. Energy Fuels was sitting at closer to USD 5 billion. So that's over AUD 7.5 billion. And we're very excited about what we will continue to see and how that can grow as we work together going forward. There is strength that comes from growth, but there's also strength that comes from a reduced risk. And that reduced risk through the asset diversity that we've already spoken about, there is the jurisdiction diversification that we will see, and this is very much building a business that is through Australia, Korea, Madagascar, Brazil and the U.S. So that's exciting in itself. But then also what we see is the commodity diversification where you have uranium, you have the heavy mineral sands and you have the rare earth. So it is going to be a very robust entity to be able to face into the challenges as we develop these projects going forward. And we have an offer that is a significant and an attractive premium for ASM shareholders. The implied value of AUD 1.60, I think, because of the structure of the deal with the way that it's been managed with the fixed ratio; gives the ASM shareholders a real opportunity for upside. And you can see there how neatly our assets fit into this development pipeline that Energy Fuels were already well advanced on developing. So the ASM shareholders get the opportunity to have exposure -- continued exposure to the work that we've been doing on our assets, but also enhance that with ongoing exposure to the whole of this very strong growth pipeline. So I now want to pass over to Mark and to Ross to give you a bit more of the Energy Fuels story. So over to you, Mark.

Thank you, Rowena. And first of all, it's my pleasure and Ross' pleasure to be able to participate in this conference call with you. And look, we're very excited about this transaction. And we believe that we are stronger together because the way we complement where we're trying to get for integration with the diversification, Rowena, that you talked about, I just think makes all the sense in the world. So I'll go to the next slide, which just gives a little bit of a corporate overview of Energy Fuels. And we are a dual-listed company on the New York Stock Exchange American under UUUU and also on the TSX under EFR. We're Denver-based. We're a critical mineral company that is built around our uranium business, but also rapidly emerging in the rare earth space and also the ability to eventually mine heavy mineral sands that provide the monazite. So we are very well positioned in the United States. We're the largest producer of uranium in the United States. And the White Mesa Mill is very unique because it is a uranium mill and vanadium mill that we converted to also be able to process rare earth into the oxides, both the lights. And we're piloting the heavies, but we have plans to be recovering heavies later this year. We are licensed to produce over 8 million pounds of uranium. We have just recently submitted what we call Phase 2 rare earth separation, processing plant at White Mesa that we will be able to take the existing uranium rare earth processing. It's all done in one mill. We call that Phase 1 and have a complete separate rare earth processing facility we call Phase 2 and also the uranium processing separate from the rare earths. And we see that as a very big step happening in around '27 or '28. We've been making and successfully produce commercial quantities of many of these rare earth products, mainly from monazite feedstock and hopefully, through -- we see Dubbo in the future. And we're rapidly advancing all these things with this Phase 1 that I talked about in the current uranium mill where we share the uranium and the rare earths, but we have the capability of producing 1,000 tonnes per annum of NdPr oxide and later this year to recover both the Dy, the Tb heavies with the addition to that Phase 1 in the mill. We also recently, in October of '24, we acquired Base Resources, which was another ASX-listed company based in Perth that has the Toliara project, which we have renamed Vara Mada. And we also have the joint venture with the Donald Project, which is permitted in Victoria, where we're earning 49% interest, but getting 100% of the rare earths. We have a very, very experienced leadership team with myself, who I've spent half my life in Australia, worked for Paladin Energy and ran Heathgate Resources. And so I've spent a lot of time in Australia, still have a home in Australia and an Australian citizen. Ross will join in a minute as President, work for Resource Capital Funds and also has had a lot of exposure to Australia. David Frydenlund, our Executive Vice President and Chief Legal Officer; Curtis Moore, Senior VP of Marketing; Nathan Longenecker, Senior VP; and [ Nathan ] Bennett. Rowena touched on the company itself. We're very, very strong. We have -- the share performance has been outstanding. And Rowena, you mentioned you got a nice kick today with the uptick of our shares. We're up almost 7% today alone. And we have a very, very strong balance sheet where we have about $300 million of working capital, but we also -- and I'm talking U.S. dollars here. We just had a convert issued with Goldman Sachs for $700 million at a coupon rate of 0.75%, which we're very proud of because that is very cheap money that we have. We're trading very strong like a gorilla on the New York Stock Exchange. We trade about USD 300 million, USD 400 million per day. So a very liquid stock. And we've been on a very significant uptrend, particularly over the last year. And actually, we were the best performing. If you compare this just to a uranium peer, we are the best-performing uranium stock I know of in the world globally. So what I'm going to do now is this next slide on the portfolio summary, I'm going to hand it over to Ross, our President. And Ross, go ahead and take it away for the next couple of slides.

Thank you, Mark, and thank you, Rowena. I'm thrilled with this announcement today and the partnership with ASM. I think it's an incredible match. The portfolio of assets within Energy Fuels includes 7 mines and development lines. We have 2 that are currently operating. We have an ISR project that's currently on standby. We have 2 permitting projects that are in the permitting phase and 1 project that's in the development stage. Those mines largely feed the White Mesa Mill. And the White Mesa Mill, as we've talked about earlier, it's the only operating conventional mill in the United States today. It has a capacity of -- well, it's licensed for 8 million pounds, as Mark said. It's got a capacity of 6 million pounds. We will be the largest producer of uranium in the U.S. today, and that's been a great springboard into the rare earth side of the business. And we have an incredible technical team at our White Mesa Mill. And what they discovered over time was that they could convert the processing technologies that they have for uranium to treat rare earth minerals. And we discovered in particular, that it's ideally suited to monazite. And the beauty of monazite is monazite is heavy -- in both the heavy minerals and the light minerals. So it's a very nice match when you're producing neodymium iron ore on magnets. And so the White Mesa Mill today, we're going to talk about it on the next slide. But when we discovered that we could treat monazite, we said, well, how do we get access to more monazite and our own controlled monazite? And through that, we entered into agreements to partner with Astron to secure all the monazite offtake from the Donald Project in Australia. That project is very near FID. We, as Mark mentioned, acquired Base Resources last year. That gave us the Vara Mada project, formerly called the Toliara project, arguably the best source of monazite in the world, a world-class project by any standard. And then prior to that, we had acquired the Bahia Project in Brazil. Those three projects are all heavy mineral sands project and produce monazite sands as a byproduct of the heavy mineral sands. So a tremendous springboard for us into rare earths by supplying monazite feed to our White Mesa Mill. And if we jump to the next slide, the White Mesa Mill is really a crown jewel within our portfolio. You can see it there in the center. On the left side of the page, you'll see that we treat both uranium and vanadium ores from our various mines. And as it flows through the White Mesa Mill, we produce uranium yellow cake, U3O8. We have the ability to produce vanadium. We've produced quite a lot of vanadium historically. And we're also in the process of expanding our ability to produce medical isotopes, which is a fascinating treatment for cancer using targeted alpha therapies. As I mentioned, we discovered that we could process monazite. And so with our heavy mineral sands project -- projects, the monazite now would flow through the White Mesa Mill and produce various rare earth oxides, specifically NdPr, terbium and dysprosium, but we are also exploring the potential of producing and processing other [ SEG ] minerals and heavy minerals. And then you can see the heavy mineral sands projects also produce titanium and zircon. I think the interesting thing here is when you look at the right side of that page, everything we're doing falls into the critical mineral category. And so we're very much a diverse supplier of critical minerals to the Western world, and it puts us in a very, very unique and exciting position. So with that, let me turn it back to Mark and -- to finish off on Energy Fuels.

Okay. Thank you. And look, I'm just going to talk a bit more about the White Mesa mill, as Ross said, has really become the centerpiece of our company with the flexibility that it has to treat all these critical minerals. I go back many years with this facility. I actually worked for the family that built this mill in 1980. And I still get messages on Facebook from some of the former owners that they're really pleased that still have some involvement with it. But the picture is worth a thousand words. You can see the existing facility. It's 45 years old, but in really good nick, been well maintained. The Phase 1 is what I was talking about earlier that can do uranium, vanadium and the rare earths, and it's in that building that you see closest to you. But in the background is the Phase 2. In the Phase 2, we have submitted the permit applications, as I mentioned, for that expansion, and that will be a completely separate rare earth plant on its own, the size of Lynas, so about 6,000 tons of NdPr per year and also the capability to recover nearly 300 kilograms or tonnes of Dy and around 80, 90 tonnes, I don't know the exact numbers, of Tb. So it is a very, very substantial plant. And then when we have the Phase 2, we can run the Phase 1 plant as a uranium vanadium plant only, and the Phase 2 can run rare earth. So very aggressive strategy here. We produced a lot of uranium over the years, over 40 million pounds of uranium and nearly 50 million pounds of vanadium. Ross touched on it, has a license capacity of about 8 million pounds. And I talked about the Phase 1, Phase 2. So it's a very unique facility. Utah is a great place to do business, low power costs, low water cost, excellent workforce, very motivated workforce. And so what we did is we saw this ASM transaction has taking us another step down the line with the metallization, which we think is very, very critical to show integration and then having the double project become a pipeline project to complement our existing projects. And we think Dubbo fits uniquely into our company because the synergies that we have between that project and the White Mesa Mill. So again, very excited. Rowena, I'll turn it back to you. And I just thank everybody for listening to our pitch from our end, but we are very focused on creating value for all our shareholders. So again, thank you.

Thanks very much, Mark and Ross. And for those on the call who've been on this ASM journey all the way through, you would know that we have been very strong on the fact that the only way that we're going to establish this alternative supply chain -- to be able to really compete with the existing supply chain, the only way that's going to happen rapidly is through partnership. But the challenge for us is to find partners of substance. I spoke about it in the AGM, there's a lot of what I think I referred to at the time as puffery out there in the market at the moment. There's certainly a lot of people who are promoting things that are at best talk and don't have substance. And we were very intent for ASM shareholders and also for these assets to make sure that we were partnering with a team who we really felt would be able to do something really extraordinary with us with these projects. And hopefully, listening to Mark and Ross, you can understand why we're so pleased to be presenting this transaction because we really believe that we have got a very strong partner here for us to proceed with. So I'm very happy now to open to questions.

Excellent. Thanks, Rowena. So the first question I'm going to take you to is regarding the actual structure of the consideration for the deal, specifically the fixed ratio. Assuming that if the share price of Energy Fuels goes up, does then the implied value in the takeover or the transaction increase and vice versa?

Yes, that's exactly the way it's structured. So obviously, the offer that we've got from Energy Fuels does have a cash component. It has a AUD 0.13 cash component. So that's fixed and that will come through as an unfranked special dividend. But the rest of the offer is in a fixed ratio of Energy Fuels shares. So when we provided the materials and we signed off on them, we included an implied total value of AUD 1.60 per share, which was based on the 15-day VWAP of Energy Fuels value as of Friday. But if we were to do that implied value for -- based on close as of this morning, then that implied value would actually be [ AUD 1.98 ]. And the premium that would be being offered to ASM shareholders on our close for our share price yesterday would be 173%. So as we see the Energy Fuels share price gets stronger, we will see the implied value of this offer increase and the reverse, if it comes down, then it will reduce it.

Excellent. Thank you. And the next, we've received a few questions regarding the implications of this transaction on the Dubbo project. And where do you see this going in the future?

We've been working hard on derisking the Dubbo project. Again, those that have been on this journey with us have heard me talk about this a number of times. Recently, we looked at how we could reduce the capital hurdle to bring Dubbo online more rapidly, and we issued the study, the heap leach study that shows that we've got a really credible pathway forward based on very strong recovery results that would enable us to reduce the capital by over half. So that brought it down to $740 million, and we're continuing to do that study work at the moment. But the assumption has always been at Dubbo that we would take the product all the way through to separated oxides. One of the opportunities that this provides for us if we proceed with this transaction is that we could -- instead of taking it to oxide in Dubbo, we could take it all the way through to an intermediate product instead, which would reduce the capital requirements for Dubbo further, something in the order of $200 million. And that intermediate product could then be go directly into the White Mesa plant for processing. So there are synergies there. And one of the other lovely synergies of that is that, that intermediate product would also contain low levels of uranium which the -- obviously, Energy Fuels have a special expertise in. The -- not only are they able to take it, but they're able to create value from it. So this could be -- in addition to having a supply chain for the Dubbo project to come into, it's actually also potentially going to enhance the economics of Dubbo because we've got a lower capital option with additional revenue options. And it's also just a much easier process to be doing this of a much stronger funding platform. And there's no doubt that the combined entity will attract both government and private funding in a way that ASM has not got the same access to.

Excellent. And this is probably a good segue. We've had a few questions about the AMP project. So can you please provide, firstly, a brief overview of where we're at and what the implications are of this transaction on that? So the integration benefits and also the potential benefits of this would be to any DoW investment?

Yes. So I think the immediate focus at the moment for us is on the expansion of the Korean facility, and that we are progressing well. We got additional funding late last year, and we are well progressed on acquiring or in final negotiations on securing the additional equipment to expand that facility from 1,300 tonnes to 3,600 tonne per annum rate. And that is where we would anticipate initially the product from the energy fuel supply chain will be coming through and supporting that expansion. But we're very excited about what this transaction can do for the American Metals Plant. We've been very positive about leveraging the established capability that we have in Korea into the States. We've been exploring 6 different states. But again, I've said repeatedly that we would choose the final state based on what's going to work best with whomever we choose to partner with. And so that obviously will be a conversation that we will continue to have as this transaction progresses. But Utah has always been one of the states that we have looked at. We met with the governor of Utah late last year as part of our due diligence. There's a lot about doing this in Utah that was attractive before we were having these conversations with Energy Fuels. And obviously, this enhances that. So there are other states that will still compete, and it is a very competitive process. But yes, this obviously leveraging the relationships that Energy Fuels have is going to be great. And then you asked about the Department of War. There's no doubt that the discussions with any government department are going to be stronger when we have such local representation and when we have a much stronger, integrated solution to provide and where we have a much stronger balance sheet. So I definitely think it's going to enhance the discussions that we already have underway with the DoW.

Excellent. And then what is the impact of this transaction on the company's current discussions with the export credit agencies and specifically U.S. and Export Development Canada?