Energy Fuels Inc

AMEX:UUUU

Earnings Call Transcript 2023-Q1

[Operator]

Good morning. My name is Brain, and I will be your conference operator today. At this time, I would like to welcome everyone to the Energy Fuels’ First Quarter 2023 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer session. [Operator Instructions] Thank you.

Mr. Chalmers, you may begin your conference.

[Mark Chalmers, President and Chief Executive Officer]

Thank you, Brian and good morning or good afternoon, depending on where you are joining this conference call from. Thank you for joining the Q1 2023 conference call and webcast today. As always, we are very excited to discuss what has been a very busy kick off in Q1 to 2023, as well as to also update you on the significant accomplishments we continue to make. For those that cannot join the call today, we will still have the replays of this presentation available for two weeks on our website, either later today or tomorrow.

Every quarterly call I comment on the fact that we are making extraordinary progress on many fronts, and certainly this quarter is no exception if you have read our Q1 result press release. I believe it is very appar’ent that energy fuels has emerged as a clear leader in U.S. critical mineral production at a time when this has never been more important.

Many of you have also heard me make the comments that we will always be aggressive, but not reckless, and I believe that Q1 is a testament to this. While we have made significant strides to further strengthen our uranium and rare earth production capabilities, along with our balance sheet in ways that I believe are value discipline in staying several steps ahead of our competition.

I also think the title of our quarterly press release speaks volumes, net income of 114 million and 143 million in working capital, nearly 20 million of uranium vanadium sales, and the commencement of development of rare earth separation capabilities in Utah.

Today, I will elaborate on these accomplishments during the quarter and provide some details on what I believe the rest of the year looks like and it is also pleasing to say that we had a very good day with our stock today. I haven’t seen where it closed out, but it was up somewhere in the order of 8% for the day.

And so we have been on a really nice run here with people starting to realize how important the uranium business is and the rare earth business is in our role and where we plan to take this company.

Before I begin, I also want to remind people that you are controlling the presentation from your own device and I will endeavor to tell you when to advance the next slide. There will be questions at the end of the presentation, as Brian mentioned, and David Frydenlund, our Executive Vice President and Chief Legal Officer; Tom Brock, our CFO; and Curtis Moore, our Senior VP of Corporate Development Marketing, will be available to answer any questions I cannot answer.

So let’s just go ahead and jump into the presentation right now. So, on this first slide, and again, many of you have seen this slide before, picture of White Mesa in southern Utah. There really is no peer group to compare to because nobody does what we do with uranium production, rare earth, vanadium, isotopes and recycling.

So next slide. I may be making some forward-looking statements and those are included on this page. Next slide. Energy Fuels is the leading producer of uranium in the United States and has been for a number of years as well as vanadium and advancing rapidly with our rare earth. And all these elements basically help create a clean energy for a better world.

Next slide. Now, I have talked about the periodic table previously, and looking at these specialty elements that nobody cared about, looking back even 10-years ago, whether it be uranium, rare earth, vanadium or radium.

And so it is a new era, and I probably mentioned to some of you that might be on this call that when you look at a career in the mining business, it has changed dramatically because there is these new elements that if you went back 20, 30-years ago, people were focused on things like copper and gold and coal and in uranium and other elements. But today, there is this whole suite of new elements, including things like lithium, cobalt, graphite in addition to the Rare Earths that people just really didn’t care about.

Next slide. So, all of our product lines are high value businesses, uranium for nuclear energy in the order of 50% of the zero carbon electricity in the United States. And there is a lot of very encouraging news coming out of places like China, starting to amp up and ramp up their nuclear power in the country, as well as many other countries around the world, including United States and the focus on small modular reactors.

Rare earth you are hearing a lot about Rare Earths when it comes to electric vehicles and uses of these powerful magnets that are also used for wind generation and other high tech appliances. Vanadium getting increasing attention for grid scale batteries, but primarily used for high strength steel, medical isotopes that we continue to advance potentially for emerging cancer therapies for new therapies under development and under review by the FDA.

We also have had a long history of recycling and again, a lot of this is not new for you. Many of you on this call, which basically kept the White Mesa mill open during periods of low prices. We always pride our self with our financial strength and zero debt. And pleased to say that we have 143 million of working capital at the end of the Q1, including 104 million of cash or marketable securities in significant inventories, uranium and vanadium.

Next slide. So now I would like to just talk about the Q1 highlights. Next slide. So this is really pleasing to talk about the fact that we had earnings of $114 million. Now this is significant people and I think that the share price really recognized it today.

Didn’t recognize it as much yesterday, but in my opinion, this is probably in to the best of my abilities this is probably one of the best quarters that this company or the predecessor companies has ever had since the days when the White Mesa mill was built.

So sure it was primarily due to the sale of the Alta Mesa property, but it certainly gave us a really nice boost to our balance sheet in the queue and really puts us in a perfect opportunity going forward. We had gross margins on, of around 57% on our product sales, which included 58% margin on our uranium and 37% on our vanadium sales.

Our strong balance sheet, the 143 million, 144 million, again in total 44 million of cash, cash equivalents and the marketable securities is about 60 million and 38 million of product inventory. And if you adjust that product inventory for current values at current commodity prices, it is well north of $50 million.

Zero debt. We have more infrastructure than anyone I know of in United States when it comes for uranium production and soon to be rare earth production at larger scale. Total assets and current assets increased by 37% and 10% respectively. Total liabilities and current liabilities decreased by 44% and 72% respectively.

At the end of the quarter, we had nearly 850,000 pounds of finished uranium and about 900,000 pounds of finished vanadium and 250 tons of finished high purity, partially separated, mixed rare earth carbonate and inventory.

Next slide. So, uranium transactions, you know, we have announced that we sold the 300,000 pounds to the U.S. Uranium Reserve, gross proceeds of nearly $18.5 million at 61.57 with a basis of uranium prices about $26 per pound. So we got a gross margin of 57% or 35%, $36 per pound.

We also purchased some U.S. origin uranium about 120,000 pounds for around $50 per pound, because we are trying to make sure we have got plenty of inventories to cover all our requirements over the next few years as we ramp up our uranium production.

We are very advanced at refurbishing and developing our conventional uranium, vanadium mines in both Colorado and Arizona at the La Sal Complex, the Whirlwind mine and the Pinyon Plain mine in Arizona. And we will ramp-up production based on our contract requirements, inventory levels, end market conditions when we decide to do this.

In February, February 15th, we completed a sale of the Alta Mesa project to Encore for $120 million. With that, we received a cash payment of 60 million. We have a $60 million note that is two years that is secured and convertible and it bears an interest rate of 8%.

Just a few days-ago, we sold or completed sale of our PFN Prompt Fission Nuclear technology to Encore Energy for $3.1 million. We purchased that during COVID for about $500,000 and we no longer needed the PFN technology, but we did secure or have rights for 20-year usage of that technology in the future if needed.

So we had to gain about 2.75 million on the sale of the PFN. And again, I think that all shows different ways how we have creatively been creating and building to our balance sheet through various different ways that others haven’t tried to even attempt to build their balance sheet the way we have been trying to do so.

Uranium inventory, we have the 850,000 pounds of finished inventory, but we have nearly 400,000 pounds of in circuit and other raw materials at the mill, totalling nearly 1.25 million pounds of uranium either finished or in circuit or raw materials. So we are in a excellent position when it comes to our uranium inventory.

And also, I want to note that even though we did sell the Alta Mesa project, we are absolutely not going out of the uranium business and we are looking for other potential opportunities in the uranium space globally.

Next slide. So, let’s talk a bit about the Rare Earths. So we produced in the queue about 250 metric tons of high purity, partially separated, Rare Earths carbonate, containing around 115 metric tons of total Rare Earths oxides and this is the most advanced rare earth material of being produced commercially in the United States. And this is also around 32% to maybe 35% NDPR. So it is really good stuff that we are producing.

Now, the Phase 1 Rare Earths separation project that is well underway, we hope to have completed in Q4 of 2023 or perhaps Q1 of 2024. And this is where we are advancing the ability to separate in our existing solvent extraction building to produce separated rare earth oxides NDPR oxide in SM plus concentrate that can be further sold in other markets.

And we expect the capacity to be in the order of given enough secured feed of monocyte around 800 to a thousand tons metric, tons of separated NDPR oxide per year. This work is well advanced at the mill.

Most major components have been ordered and are expected to be delivered at the mill in Q3, and we expect that the cost to put in what we call Phase 1, the ability to separate at and in the existing SX facility to be approximately $25 million, which is an incredible strike rate.

Next slide. So with, in addition to Phase 1, we are doing engineering studies on a Phase 2, which is estimated, it could be in operation and around 2026, and this would be somewhere in the order of three times plus Phase 2, so very material scale and we are advancing that.

We also in Phase 2 would include a dedicated separate crack and leach circuit at the mill. So it allowed to have both the uranium vanadium circuits at the mill completely separate from the crack and leach facilities during Phase 2.

Phase 3, which we are targeting somewhere in around that 2027 time period. We will also be doing engineering on that, and we are planning to do further test work on that this year where we will be focused on the heavy rare earth oxides primarily DY and TB disposing and terbium which are also very important for electrification and it helps and improves the heat aspects of the high efficiency permanent magnet motors.

February 13, we completed the acquisition of the Bahia project in Brazil. That is the heavy mineral sand deposit that we secured we announced back in May, took a while for us to get it closed. It is a very large land position encompassing about 60 square miles, it has the potential to produce between 3,000 to 10,000 metric tons of monocyte per year.

So about 8,000 to 10,000 metric tons is what we are. We believe that will be the capacity of the Phase 1 crack leach and separation in Phase 1 of a rare earth program. So we also completed about 2,000 266 meters of sonic drilling at Bahia. We also purchased a sonic drill rig that will be transported to Brazil in the next month or so.

And we are looking at advancing and doing more drilling starting in Q3 of this year and we are also very much looking at other acquisitions similar to Bahia in other parts of the world, including United States.

Next slide, we will talk a bit about vanadium. We had some small vanadium sales during the quarter. We were able to secure an average sales price of about 1,098, so nearly $11 per pound. We also were able to obtain a gross margin on vanadium sales about 37%.

And we have what we call the carbide plan, which is that we hold vanadium until the vanadium prices go up and then we sell it. And that is a very effective way to sell vanadium, because it is such a spiky element to put into the market.

We still have in the order of 900,000 pounds of finished vanadium in inventory, and we have the ability to go back into vanadium production quite quickly if we decide to do so and we have between a million to three million pounds, perhaps more of solublized vanadium in our tailings solutions.

Next slide. So let’s talk a bit more about the working capital. The 143 million of working capital, zero debt. I talked about the uranium inventory of both finished uranium inventory and inventory we have on the ground at the mill of around a 1.25 million pounds and the vanadium inventory.

But if you adjust all these inventories to current prices, you would get an uplift in that working capital of somewhere in the order of $20 million to $25 million, because if you look at this table, the uranium inventory we have on the books.

The finished goods is currently valued at about 29.19 per pound with a current uranium price currently being about $54 a pound. So when we sell uranium at current prices or higher prices, we have a very significant margin and the same thing for vanadium.

But the other thing I want to highlight to people that when you look at our working capital at that 143 million, when you adjust it for the current value of inventories, the investments like we have like consolidated uranium, on convertible note that we have with Encore, the interest on that note, the fact that we sold the PFN our uranium sales are beginning this year in 2023 and continue on for eight years.

We are in an outstanding position financially and probably better than any of our peers that I know of. So we are in a great space here and we have a lot of levers to pull when we need it in these, not just our current working capital, but other sources of investments that we have going forward.

Next slide. So when you look at our 2023 guidance and focus, if you look at the uranium cells that we sold to the U.S. Government and our initial contracts, we plan to sell around 560,000 pounds of uranium in 2023 at expected sales price of nearly $60 a pound, 58 to 60 a blended price.

So again, if you look at the value of our uranium inventories on the books, you can see that we are going to have a really, really nice margin. We will put, when we decide to put a new uranium project under into production, at least one project in late 2023 or 2024, maybe more depending on the market, we continue to seek out additional long-term supply agreements at increasing and higher prices. We will build our book in an aggressive but not reckless way.

In 2023 we are mainly focusing on the rare earth, in terms of processing. So we are not planning at this point in time to produce any uranium or vanadium, but we could, if we wanted to, we will continue to process some of the Rare Earths, we expect to produce a process during the year in the order of around 600 metric tons of monocyte.

And we also are advancing in constructing this Phase 1 separation circuit that I have already talked about, and we will - and I talked about that, the expected processing capacities around that 800 to a 1000 metric tons per year of NDPR about a $25 million investment.

We are also going to be looking and talking to people about Rare Earth off take, we will continue advance the Bahia project, particularly with our own drill rig, the Sonic rig, and we look to - and we have engaged various consultants and we are looking at preparing SK 1300 initial assessments in 43101 technical reports.

And the last slide is a really pretty sunset in the vicinity of our White Mesa mill in San Juan County. And all I can say is we have got such great opportunities ahead of us. We are well funded, as I have gone through, will be aggressive, not reckless.

And I look forward to further updates, and I will now open it up for questions.

[Operator]

Thank you. [Operator Instructions] Your first question comes from Heiko Ihle with H.C. Wainwright. Please go ahead.

[Heiko Ihle, H.C. Wainwright]

To answer your earlier question to yourself, the stock closed at 655, so up 8.5%. Company realized total gross margin of 57% on your sales during the quarter. And that consists of 58% of uranium, 37% of the vanadium. Where do you think this figure could go for the remainder of the year and what, if any efficiency or the focus that you are utilizing to possibly get them up a little bit more?

[Marcus Giannini]

Well, Heiko. A lot depends on the prices of uranium. A lot of our uranium contracts are hybrids, so they can go up and down, but they have floors and ceilings on them. I think they will be pretty steady at that right now, because of the inventories we have.

When we are looking at the various uranium projects that we can put into production, we do have some production that is probably in the order of around $35 to $40 per pound. So I would say that they should be probably pretty steady for the year.

Curtis, do you want to make any comments in that regard?

[Curtis Moore, Senior VP of Corporate Development Marketing]

Yes. I was going to say, we put out guidance for our remaining sales this year of $54 to $58 per pound on that extra 260,000 pounds. So, yes, I think, like Mark said, for the rest of this year, it will be steady, later when we have to put in produced material into these contracts. Assuming we don’t get an uplift in prices, you would see those margins go down.

But I think, there is extremely strong justifications to believe that uranium prices are going to go up and we are going to capture that value in our existing contracts because we have market related components in those contracts plus future contracts that’ll be hopefully secured at higher prices.

[Marcus Giannini]

So Heiko, we try to make sure we are trying to build margins of $20, $25 a pound, but it really depends on how the market’s responding and whatnot. So, but yes, we are very pleased with what we can secure on both a combination of our sales our new uranium production, our inventory, and the ability to add in uranium production from both Rare Earths and alternate feed. So, we are a different story when it comes to how you build our, the book in terms of where our margins can be.

[Heiko Ihle, H.C. Wainwright]

Very good. Changing gears 180 degrees, you always may have a million things going on with the farm right now. I find it pretty impressive and commendable, just some longer term thinking. Where do you see management’s time broken down in a couple of years between uranium vanadium and Rare Earths and if you could also, maybe percentage wise, where do you see financial investments going by segment over the next even couple of quarters?

[Mark Chalmers, President and Chief Executive Officer]

Yes, well, that is a tough question to answer with a lot of accuracy, but look, I think right now, when you look at our time, I would say, you look at what we have got in Wyoming, what we have got in with our conventional mines and stuff, it is probably around 60/40 or something in that order. 60% or 40% uranium somewhere in that order.

Now, when you look to the future and you roll out the future a lot depends on both of those markets. If the uranium price goes crazy or the rare earth business continues to do well, we will have to - we will flex it according to getting the best margins, the best return for our shareholders. We will be dynamic for the circumstances.

And that is one of the things that you can appreciate that, energy fuels you get a much more diversified investment where we have some flexibility to shift and swing a bit depending on which markets we should spend our time on. So, I don’t know if I can answer it any more accurately than that at this point in time, but it will always be driven on the best outcome for our shareholders.

[Heiko Ihle, H.C. Wainwright]

No, I was cognizant that there wasn’t going to be a scientific answer to this and I mean, obviously you are a very big shareholder yourself, so I would assume that this is going to be very much driven by shareholders. Thanks a lot, I appreciate the question and I will get back to queue.

[Mark Chalmers, President and Chief Executive Officer]

Thank you Heiko.

[Operator]

[Operator Instructions] next question we have Joseph Reagor with Roth MKM.

[Joseph Reagor, Roth MKM]

Hey Mark and team, thanks for taking the questions. I guess, first thing, Mark, you mentioned that, obviously you are not moving away from being a uranium company and that you are looking at opportunities there. Do you think that some of the assets that are still in the portfolio might not make the most sense for you guys and could potentially sell an asset to generate cash to buy a different asset?

[Mark Chalmers, President and Chief Executive Officer]

At this point in time, the existing assets Joe that we are not planning to sell any of them at this point in time. They are good assets, in fact, we are looking at reinitiating. We have actually reinitiated permitting on, further permitting evaluation on a number of them, including Roka Honda and Sheep Mountain. And we feel that there is a big value lift just by advancing those and getting those fully permitted.

Now, the Sheep Mountain Project is fully permitted to mine, but to go to the Sweetwater Mill that is nearby, we are looking at evaluating whether that could potentially be heap leach. So, we are not planning to sell anything at this time.

But again, whatever we do will be focusing on trying to uplift and improve whatever investments that we have or assets that we have and we will do that dynamically as is prudent for the circumstances in the market.

[Joseph Reagor, Roth MKM]

Okay, fair enough. And then, you know, thinking about the assets that you do have, what do you think the maximum production rate you guys could reach would be between the Nickels Ranch facility and the White Mesa Mill, you know, if pricing were to cooperate?

[Mark Chalmers, President and Chief Executive Officer]

Well, when you look at - including La Sal, Whirlwind, Pinyon Plane, when you look at them, I tell people that without major capital investments, we can get up to around two million pounds per year because most of these projects are fully constructed, fully paid for, they don’t require a lot of capital, they require some working capital.

But if you start, say the uranium market really gets - improves and really frothy in terms of demand for uranium and we start investing, say, a hundred, another hundred or 200 million, maybe 300 million in capital, we could take it up to somewhere in the order of five million pounds per year.

So the beauty that in the place that we are at, that is such a sweet spot right now is having the flexibility to call on these different projects that we have, based on whatever contracts we have in place in the market with limited new capital, which is becoming very expensive as you can appreciate.

[Joseph Reagor, Roth MKM]

Yes. Tell me about it. So I guess last thing is on the Phase 1 for the Rare Earth separation plan, are you guys planning to put out like a PEA or feasibility study or something before you go forward with it or are you just using the internal study?

[Curtis Moore, Senior VP of Corporate Development Marketing]

We are doing it all internal. I mean, we have been cracking and leaching with the material that we have received came for mores, and we have got really all the data that we need in terms of crack and leach. We have a very extensive and long term piloting we have done on SX.

And we feel that if we were to do those studies at this point in time, it would really be kind of a waste of time because of the limited strike rate of 25 million or less really, with regard to the capital costs. So we are comfortable doing that on our own and out of treasury, because it is a low strike rate for us.

[Joseph Reagor, Roth MKM]

Okay. Thanks for taking my questions. I will turn it over.

[Operator]

Thank you. There are no further questions at this time. I will turn the call back over to Mark Chalmers for any remarks.

[Mark Chalmers, President and Chief Executive Officer]

Well, in closing, look I really appreciate the opportunity to update everyone who is on this call or who may be listening to this call later on the outstanding results that we had this quarter, and I’m very proud of that, we have got a great team, people are working hard and they are working smart, and there is a very, very bright future ahead for our company, because of the things we are doing.

There really is no peer group, as I said earlier, but again, we appreciate the support of our shareholders and we really like to have days like today, because of these changing, improving markets for the critical minerals, and also having good results.

So thank you very much for your time and look forward to giving further updates in due course and no later than the next quarter. But we know we plan to continue to move forward and update the market as often as we can when we have got material news flow. Thank you very much.

[Operator]

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