Energy Fuels Inc

AMEX:UUUU

Earnings Call Transcript 2022-Q3

[Operator]

Good afternoon. My name is Colin, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Energy Fuels Q3 2022 Conference Call. [Operator Instructions]

Mr. Mark Chalmers, you may begin your conference.

[Mark Chalmers, President and CEO]

Thank you for the introduction, and good afternoon to all of that are joining today and actually, it's morning for me in Adelaide, South Australia. Yes, we're -- thanks for joining the Q3 2022 conference call. We're always excited to talk about our achievements, particularly with our focus on uranium and rare earth.

I'm also pleased to say that we have a new format for our presentation today. We think it tells our story in a simpler, more compelling fashion. Even though our news flow during Q3 has been a little quiet, we're still continuing to make outstanding progress executing our business plan. Certainly, the overarching driver of the uranium markets continues to be the conflict with Russia and Ukraine. It is now clear that Russia must be eliminated from the Western nuclear fuel supply market. And that is putting pressure on uranium conversion and enrichment, and we think will flow to natural uranium markets.

The U.S. government continues to evaluate options in this regard, but most utilities are voluntarily moving away from Russian supply. As a result, and we've said this previously and reported, Energy Fuels has secured uranium supply contracts and we're looking at additional contracts at support of pricing. For these contracts, we have significant uranium inventories, which will be fed into the contracts in the early years. And we are working on investing in our minds and hiring people to resume large-scale uranium production as soon as next year.

On the rare earth front, I'm very pleased to say that we're installing a light separation commercial scale separation facility at the White Mesa Mill, and we believe if we do that the way we think we can do that, we'll be the first company in the U.S. commercially separating at scale. So very excited about that. The Bahia project, we expect to close at the end of this year or early next year. The main delay there is everything has been submitted to the Brazilian government, that is just the timeline they have to get those final transfers approved.

We also, as most of you are aware, sold a fair amount of vanadium, over 600,000 pounds of vanadium at healthy margins, and we've continued to make excellent progress on the medical isotope front. So to say that a lot is going on is an understatement. Now for some administrative matters. There will be replays of this presentation available for 2 weeks on our website starting today or tomorrow. I also want to remind everyone, you are controlling your own slides from your own device, and I will endeavor to tell you when to advance to the next slide and if I don't, I apologize in advance.

At the end of the presentation, as was noted, we'll be open for questions. And I'm being joined today by David Frydenlund, our Executive Vice President, Chief Legal Officer; Tom Brock, our CFO; and Curtis Moore, our VP of Marketing, Corporate Development will join me to answer if they're required.

So let's get started. And before I get started, again, this first slide just showing the picture of the White Mesa Mill, which is really our flagship asset and becoming absolutely leaps and bounds America's leading producer of critical materials for the energy transition.

Next slide. I may be making some forward-looking statements as is contained in this slide.

Next slide. Our mission is really simple, to responsibly produce the critical materials needed for this energy transition. And this is an exciting space, and there is no peer group for energy fuels because nobody does what we do. Next slide. Today and looking at the periodic table, a number of the elements are highlighted that Energy Fuels either currently produces or has the ability to produce many of these materials.

So when I say that we're focused on becoming a critical mineral hub, we are absolutely focused on that and making great strides as we go.

Next slide. So the products that we'll -- we're currently producing or will be producing, whether it's for nuclear power, for vanadium flow batteries or renewable energy sources, permanent magnets, we're covering a lot of ground here with those specialty elements.

Next slide. So -- and the other thing that is so exciting about it, these are high-value product lines. I mean uranium has been our core business for nuclear power, baseload energy 24/7, 50% of zero carbon emissions in -- of the zero carbon emissions. Rare earths, the critical elements required for magnets, wind, electric vehicles. Vanadium, mainly used for steel, but also as an electrolyte in grid-scale batteries.

The medical isotopes critical for emerging cancer therapies. And then recycling, which has been a big part of our business for a couple of decades now.

Next slide. So our Q3 milestones is really to be first-to-market. And we think that's important in a number of areas, both uranium and rare earths. So as I said, we're commencing readying some of our facilities, one or more facilities to be ready as soon as 2023. We've hired about 20 people in that regard.

We have significant inventories of uranium already to be able to fill some of these contracts. If you add up all this -- the various sources of feed we have, it's north of 1 million pounds. We currently have 760,000 pounds, and we're producing uranium as we speak or packaging uranium. That's a total of around 130,000 to 140,000 pounds and then nearly 200,000 pounds of other stockpiles around the site. So we have a significant amount of uranium either in finished goods or ability to be converted into finished goods quite quickly.

We have increased our uranium production guidance slightly with this latest run of alternate feeds, and we are still awaiting to hear the results of our bids for the uranium reserve with the Department of Energy.

On rare earths, we're now receiving some additional monazite from Chemours. We're expecting around 640 metric tons showing up that we'll start processing later this year or early in 2023. I mentioned the closing of Bahia in Brazil. We are getting ready to drill, and we expect -- and I said, this is really, really big news, and it's been in our releases for the last few months, but we're getting to a lot more of the details, but in 12 to 18 months, we believe we'll have the ability to produce between 2,500 to 5,000 tons of -- metric tons of REO, which is between 500 and 1,000 metric tons of NdPr. 500 metric tons NdPr is about 0.5 million electric vehicles worth of NdPr, and 1,000 metric tons is upwards of about 1 million electric vehicles, so very significant.

So we're also planning -- and we call that phase 1, that 2,500 to 5,000 metric tons we call phase 1. Phase 2 is a larger facility, both with crack and leach and the ability to recover the heavies in the next few years after we get this first facility up and running. Next slide. Our balance sheet remains strong. $122 million of working capital as of the end of the quarter, $77 million in cash, nearly $12 million of marketable securities, $27 million of product inventory at book values.

When you look at current values, it's about $16 million or $17 million greater than that. And we also have investments in Consolidated Uranium and Virginia Energy, which is in the order of around $20 million and 0 debt. So we're in a very strong position.

Preparing for growth, both in uranium, rare earth, we posted a net loss of $9.3 million in the quarter. That is really attributed to the significant increases in development, in permitting, land holding and other costs associated with getting this flywheel churning at full tilt.

Next slide. Hidden assets, and I already touched on this a bit with our working capital, when you take our uranium inventories, our vanadium inventories, you increase that to current prices and also considering the investments that we have, we have a very healthy balance sheet with, as I said, north of around $150 million.

Next slide. Our guidance for 2022, as we said, we increased our guidance slightly up on our uranium production between 130,000 to 140,000 pounds. We will have inventory finished goods of between 760,000 and 900,000 pounds of inventory at year-end. We produced about 205 tons of mixed rare earth carbonate, and that's about 95 tons of REO. The main reason it's smaller is because we're still -- Chemours is still behind on the monazite that -- to supply us with monazite, they're running behind schedule on that.

We're still working with them to resolve that. But as I said, in Q4, we expect to receive around 640 tons of monazite to process later this year and early next year.

We also potentially have revenue upside from possible uranium sales with the DOE, as I mentioned earlier. So looking out, our new uranium sales contract start beginning in 2023. We've already received notices from the utility that they want to flex up on their quantities. And we plan to have -- be able to be in a position to sell separated NdPr in 2024.

Next slide. So really, when you look at our products and practices, they fit perfectly into the ESG story. Uranium for zero carbon baseload energy; rare earths for clean energy technologies and in high-efficiency magnets; vanadium for steel hardening, but also the grid-scale batteries, the medical isotopes to address emerging cancer treatments and the recycling of products that would be lost in the disposal otherwise. We're very excited about the progress we're making on the San Juan Clean Energy Foundation. We've had an advisory Board appointed, so it's -- and we have a website that's up and running.

And I've reported previously, we provided financial support for Native American STEM education initiatives, so we're very, very excited about that. And lastly, our sustainability report still is very, very significant in what we do when it comes to focus on ESG going forward now and going forward.

Next slide. So our core business -- next slide -- is always be uranium. I've been producing uranium this year, 46 years, and we'll continue to be a uranium producer. So when you look at this slide on our proven uranium assets, the White Mesa Mill is really -- is our hub where we can produce uranium, vanadium and the rare earths and potentially produce the medical isotopes. The Pinyon Plain Mine is on standby, but we are doing work at a number of our assets across the portfolio to get ready to go back into production when we think it's time to go into production. But as I said, we have these inventories that we can use as a bit of a buffer in the meantime. And then on the right hand, the Alta Mesa mine, ISR mine in Texas on standby and Nichols Ranch ISR also on standby.

Next slide. So we've touched on the uranium contracts starting in 2023, and we're really excited to have those contracts. They vary, base quantities are 3 million pounds, could be flexed up to 4.2 million pounds, substantial revenue over a period of around 8 years, and it lets us really get this flywheel moving. We're excited to get a mine or two back into production, as I said, as soon as 2023. And we're also waiting for the U.S. government on the uranium reserve. They have delayed that a number of times currently, and we're not really sure exactly why, but we're still optimistic that we may hopefully receive -- able to sell some of our products to the U.S. government.

Next slide. So this slide, again, it gets updated periodically, but we're in the middle of the pack as a uranium producer. We still trade as a uranium producer. But I always like to point out that we have 0 debt. We have uranium inventories, which we produced ourselves with exception of a small quantity that we recently purchased.

So everybody in that -- this table are uranium producers. But again, there is no peer to energy fuels because none of them are in the rare earth space, none of them are in the vanadium space or the medical isotopes or none of them have the ability to recycle like Energy Fuels.

Next slide. So really, the growth drivers in the rare earth front -- next slide -- and I've said this before, that uranium and rare earths go perfectly together for our company, not for most companies. It is, according to Constantine, my good friend, Constantine Karayannopoulos, the missing link in the U.S. rare earth supply chain. We're focused on these high-value rare earth-bearing minerals, mainly monazite and the White Mesa Mill is the only existing facility in North America currently able to process monazite, recovering uranium and removing the radioactive elements in producing these advanced rare earth products.

Next slide. So I love this slide because -- we call it the race to the new age of clean energy. April 2022, 2.5 years ago and look at the progress we've made, we're in a position to commercially make carbonate. We've been able to pilot scale making separated NdPr, 99.8% purity. We were able to do the first stage of commercial separation, taking out the lanthanum and upgrade the NdPr in that carbonate to 32% to 34%.

That is good brew. And then in May, we signed the agreements for the Bahia project in Brazil, which could provide monazite to the mill for decades.

And then you add to that, our plans to produce a commercial scale light separation facility at the mill next year and the following year, in the next 12 to 18 months, with the focus on a larger facility in '26 to '27. I would ask people who else out there, not just in the United States but in the world, can show a timeline of that over the last few years and looking to the future. We are moving at rocket speed.

Next slide. So again, just another slide showing our advancements towards full integration. You can see that we're securing a natural monazite and we're doing that now. The crack and leach, we're doing that now and have the ability to expand that as we secure more monazite. Moving forward with separation next year and the following year commercially.

And then we're also focused on the metal making and alloying. And we have the Nanoscale Powders agreement that we're advancing. So we are marching down the path for full integration with the focus being upgrading that in the United States of America.

Next slide. So just pictures and I think you've seen some of these pictures before. On the upper left-hand corner, I like that because those are commercial shipments to Neo Performance Materials in Estonia in bulk packs. And I also like to point out in the lower right-hand corner, this is our pilot facility at the White Mesa Mill for the light separations in 72 stages. And we have ran that now for multiples of months.

Multiples of months. And we can do this type of work on our site. We don't have to go hire somebody to do this test. We're doing it ourselves, and that is part of the secret to our success and our rapid success and the low cost of advancing because we have so many capable -- capabilities internally that others don't have.

Next slide. So again, most of you have seen this slide before, the unique advantages. It's really our ability to unlock the value of monazite because we can handle the radionuclides and monetize them. So we have the licenses. It's high value.

It's mined around the world, including the United States. It's really straightforward, if you could handle the radionuclides. Low capital cost and capital efficiency -- low operating cost and capital efficiency, we think it's staggering the advantage that, that it -- that we have on that in addition to handling radionuclides.

Solvent extraction. People keep saying, "Oh, it's difficult, it's tough." Yes, it is, if you don't know what you're doing, but we know what we're doing, and we have a proven track record with SX, and that's what we're focusing on for the separation of the lights and the heavies. And again, we're proud to say Utah is where our facility is located.

Next slide. So again, when you look at our market position with other rare earth producers or wannabes, again, we're kind of in the middle of the pack. And I always like to emphasize the basket values, the prices of some of the rare earths have come down a bit, but you're still talking about Chemours' equivalent material of around $18,000 a ton, very, very high value, and we are chasing the likes of the Ilukas, the Lynases and the MPs, and I think that is where we have substantial opportunity to upgrade value to our shareholders is in the rare earth as well as uranium. But I think there is a -- there's bigger opportunities to operate on the rare earth side.

Next slide. So looking at long-term growth in vanadium and medical isotopes -- next slide. So look at vanadium and medical isotopes, these are things that none of our peers have. And we have the only commercial conventional vanadium plant in the United States. As I mentioned, we've sold some of that vanadium this year.

And we still have about 1 million pounds of vanadium in inventory that we can sell at any time that we want to with regard -- that depends on the pricing. We're always going for higher prices than the current market and we have the ability to go back into vanadium production in -- pretty much in the next few months or years, depending on when the market condition warrants that.

Medical isotopes, we've talked about this over the last number of months for emerging cancer therapy, it's very exciting. And we really are positioning White Mesa to be a source for those isotopes. And so it's an exciting space, and we hope to have more news flow on that in due course.

Next slide. So really, that's the new presentation, and here we are back at the White Mesa Mill with these multiple elements that we can -- as I said, we are currently recovering or have the ability to recover. It is an exciting story.

And I'd now like to open it up for any questions anyone might have with regard to where we are as a company. Thank you.

[Operator]

[Operator Instructions] Your first question comes from Puneet Singh from Eight Capital.

[Puneet Singh, Eight Capital]

In the release, you talked about hiring a bunch of new employees to perform work needed for recommencing production. Maybe just expand on what type of work they're conducting. And assuming you make a restart decision, what kind of timeline are you looking at? Or is that asset-specific?

[Mark Chalmers, President and CEO]

Yes. I mean a lot of these assets have been on standby for a number of years, and they require maintenance and work. So when people say we're ready to start, we want to be like push-button ready to start. When you look at uranium production, like the mill right now, we're currently producing and packaging product at the mill, and we have other inventories we can run at the mill right now. So from the mill, we're currently producing now.

We can ramp that up now. At the site -- we're working on a number of our sites. And -- but when I say push-button ready, I mean push-button ready. I mean I'm talking about having the facilities, the maintenance done, things cleaned up, pumps rebuilt. We're rebuilding equipment.

We have a shop in Cortez that we have mechanics at. We're doing all the things you need to do to restart. And as I said, we have these existing inventories that we can fill into these contracts starting in 2023, and we can kind of initiate the actual physical production, new production whenever we want to. So I mean it's really about getting everything in order and being able to push the accelerator down when we decide to do that.

[Puneet Singh, Eight Capital]

Okay. And then let's say you do that and you get it ready and the uranium price hits the price that you're looking for, again, is it asset-specific? Or how long kind of would it take to get back into production on, say, one of your conventional assets?

[Mark Chalmers, President and CEO]

Around 12 months or less.

[Operator]

[Operator Instructions] There are no further questions at this time. I'll turn it back to Mark for closing remarks.

[Mark Chalmers, President and CEO]

Well, that was short and sweet. Again, for those who are listening, thank you for your interest in Energy Fuels. We're a unique company. Most people, when I say this, would either invest in a uranium company-only focused company or a rare earths-focused company. And with Energy Fuels, you get this wide spectrum of elements that others are not focusing on.

So if you're interested in the energy transition and you're interested in the kind of elements that we're recovering or plan to recover, Energy Fuels is a unique investment. So again, thank you. We look forward to our next updates. We plan and hope to have news flow over the coming months that -- maybe a little higher level news flow in the next couple of months than we had this last quarter, but don't think that it's not because this last quarter like -- that we're not working hard. We are working hard. Our people are working hard.

And I want to say we've got great people. We've got great people. We've got great inertia and momentum, and I'm very proud of that. So thank you very much. Have a good day.

[Operator]

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