Energy Fuels

Energy Fuels Inc. (NYSE American: UUUU; TSX: EFR) is a leading U.S.-based critical minerals company. The company is a leading producer of uranium for America's nuclear energy industry and has positioned itself as a key player in the clean energy transition, leveraging its expertise in processing naturally radioactive materials to expand into rare earth elements (REEs) production, medical isotopes, and other critical minerals. To secure low-cost feedstocks for its REE production, the company has secured positions in three heavy mineral sand (HMS) projects in the Southern Hemisphere, which also produce titanium and zirconium minerals. Energy Fuels is also evaluating the recovery of radium from its existing uranium and process streams to supply medical isotopes to the pharmaceutical industry.

In short, Energy Fuels is a leading U.S. producer of uranium, and well-positioned to become a leading global producer of REEs, titanium, zirconium, and medical isotopes. The “common thread” connecting all of these products is that they occur in, or are associated with, minerals that are naturally radioactive due to the presence of uranium, thorium and other radionuclides. Energy Fuels’ White Mesa Mill in Utah is licensed and able to process these naturally radioactive feedstocks for the recovery of critical minerals and production of critical materials.

Founded in 2005 and headquartered in Lakewood, Colorado, Energy Fuels operates the White Mesa Mill in Utah, the only conventional uranium mill currently operating in the U.S. The company also owns operating conventional uranium mines in Arizona and Utah and conventional and in situ recovery (ISR) mines on standby or in development in Utah, Arizona, New Mexico, Colorado, and Wyoming.

In recent years, Energy Fuels has diversified its operations to include rare earth element processing, capitalizing on the growing demand for these materials in clean energy technologies, including electric vehicles (EVs), plug-in hybrid EVs (PHEVs), renewable energy and defense technologies. The company has also maintained its capabilities in vanadium production (steel, alloys, and grid-scale batteries), and is pursuing research and development (R&D) in recovering radium needed for medical isotopes used in emerging cancer treatments.

Energy Fuels' strategic positioning in the uranium and rare earths sectors, combined with its established infrastructure and expertise, makes it a compelling investment opportunity as the world increasingly turns to clean energy solutions.

The investment opportunity in Energy Fuels is underpinned by several macro trends and company-specific factors. The global shift towards clean energy and enhanced energy security has reignited interest in nuclear power, driving up demand for uranium which is Energy Fuels' primary product. This trend is further amplified by supply constraints in the uranium market, resulting from years of underinvestment and geopolitical tensions affecting major producers. These factors create a favorable environment for established Western producers like Energy Fuels, especially given the bipartisan support in the United States for reducing dependence on foreign uranium supplies.

Simultaneously, the rapid growth in clean technologies such as electric vehicles, hybrid vehicles and wind energy has sparked a boom in demand for rare earth elements. Energy Fuels has strategically positioned itself to capitalize on this trend by entering the rare earth elements market. By processing a mineral called “monazite” produced as a low-cost byproduct of heavy mineral sand (HMS) mining, Energy Fuels is now producing separated rare earth oxides. To further secure these critical minerals for U.S. critical material production, the company has acquired positions in three major HMS mines in the Southern Hemisphere to create a vertically integrated rare earths supply chain where minerals are produced in the U.S. and globally, and processed into advanced materials at Energy Fuels’ facilities in the United States, addressing a critical gap in domestic capabilities. As a result of Energy Fuels’ investment in HMS mines, the company is also entering the titanium and zirconium markets, which have their own compelling investment profiles.

Energy Fuels' expansion into rare earths and potentially medical isotopes, not only provides multiple avenues for growth and cashflows, but also helps mitigate risks associated with price volatility in any single commodity. This diversification strategy, coupled with the company's commitment to sustainable practices and community engagement, aligns well with the growing investor emphasis on Environmental, Social, and Governance (ESG) factors. As a result, Energy Fuels presents a compelling opportunity for investors looking to capitalize on the clean energy transition, while supporting a company with a strong focus on sustainability and responsible business practices.

Energy Fuels is led by President and CEO Mark Chalmers, an expert in in situ recovery (ISR) uranium production, having managed both the Beverley Uranium Mine owned by General Atomics (Australia) and the Highland mine by Cameco Corporation (USA), and a key consultant to BHP, Rio Tinto, and Marubeni. in the uranium supply sector.

David Frydenlund, Energy Fuels' Executive Vice President, Chief Legal Officer and Corporate Secretary, brings over 35 years of experience in the mining and energy sectors to his role overseeing all legal matters for the company. His extensive background includes leadership positions at Denison Mines Corp., the Lundin Group, and a partnership at a prominent Vancouver law firm.

Energy Fuels is also joined by Base Resources leadership team after the acquisition. Tim Carstens, the Managing Director of Base Resources since its inception in 2008, brings over two decades of senior leadership experience in the resources sector to his role. A chartered accountant by profession, he has held key positions with prominent mining companies both in Australia and internationally, developing expertise in business strategy, financial management, and operational performance. His diverse background encompasses all aspects of corporate development, including mergers and acquisitions, financing, and organizational growth.

Energy Fuels' growth strategy is multi-faceted, focusing on expanding its core uranium business, while diversifying into complementary sectors. The company is actively increasing uranium production, with plans to achieve a run-rate of 1.1 - 1.4 million pounds of U3O8 per year by the end of 2024. This involves starting production at three uranium mines and potentially expanding to 2 million pounds per year in the near term.

Energy Fuels has secured four long-term contracts with U.S. utilities, providing a stable revenue base while maintaining exposure to market upside. The company continues to evaluate additional long-term contracting opportunities.

Following the completion of its Phase 1 NdPr (neodymium-praseodymium) separation circuit capable of processing roughly 10,000 tonnes of monazite into 1,000 tonnes of separated NdPr per year, Energy Fuels is planning significant rare earth elements (REE) expansion:

• Phase 2: Increase capacity to process 40,000 - 60,000 tonnes of monazite per year, producing 4,000 - 6,000 tonnes of separated NdPr annually.
• Phase 3: Add capacity to produce 200 - 300 tonnes per annum of separated dysprosium and terbium (and possibly other REEs).

These expansions could position Energy Fuels as a major player in the U.S. rare earths market, potentially supplying materials for up to 6 million electric vehicles per year.

The company is securing its supply chain by acquiring interests in heavy mineral sand projects globally. The company’s vertical integration in rare earths includes acquisitions like Base Resources’ Toliara Project in Madagascar, the Bahia Project in Brazil, and a joint venture on the Donald Project in Australia. For context, the Toliara Project is widely considered to be the biggest and best critical mineral development project in the World today. HMS mines primarily produce titanium and zirconium minerals (ilmenite, rutile, zircon), along with a very low-cost monazite byproduct that Energy Fuels plans to import into the U.S. for processing into advanced rare earth materials at its White Mesa Mill in Utah.

While currently not a primary focus, Energy Fuels maintains the ability to quickly ramp up vanadium production in response to market conditions. The company is also exploring the potential to recover radium and other medical isotopes from its existing process streams for use in cancer therapies, potentially opening a new market opportunity. In late 2024 or early 2025, the company expects to produce R&D quantities of radium, which will be sold to pharmaceutical companies advancing emerging “targeted alpha therapy” cancer treatments through clinical trials.

Finally, Energy Fuels leverages its existing infrastructure to recycle uranium-bearing materials, which is a very low-cost source of uranium production, and is actively engaging in community support through initiatives like the San Juan County Clean Energy Foundation.

As of June 30, 2024, Energy Fuels reported a strong financial position with $200.94 million in working capital, including $171.25 million in cash and marketable securities. The company has no debt, providing financial flexibility to fund its growth initiatives.

In the second quarter of 2024, Energy Fuels reported a net loss of $6.42 million, primarily due to transaction costs related to potential acquisitions. However, the company generated a gross profit of $4.91 million from the sale of 100,000 pounds of uranium.

Energy Fuels maintains a significant inventory of uranium, vanadium, and rare earth products, valued at approximately $30.08 million at current market prices. This inventory provides additional liquidity and allows the company to capitalize on favorable market conditions.

The company's diversification into rare earth elements is expected to create new revenue streams, potentially reducing reliance on uranium sales and mitigating commodity price risks. The planned expansions in rare earth processing capacity represent significant growth potential, although they will require substantial capital investment.

Energy Fuels presents a compelling investment opportunity at the intersection of critical minerals and clean energy. The company's established position in uranium production, coupled with its strategic expansion into rare earth elements and heavy mineral sands, positions it to benefit from multiple macro trends driving the global energy transition.

Key strengths include:

• Dominant position in U.S. uranium production with significant growth potential
• First-mover advantage in creating a vertically integrated rare earths supply chain in North America
• Securing low-cost sources of REE feedstocks at HMS mines, which also involves entering the titanium and zirconium markets.
• Strong financial position with no debt and substantial liquidity
• Diversified portfolio reducing single-commodity risk
• Alignment with U.S. strategic interests in securing critical mineral supply chains

The company's growth strategy, focused on ramping up uranium production and expanding rare earth processing capabilities, offers substantial upside potential. The planned Phase 2 and Phase 3 expansions of rare earth separation capacity could transform Energy Fuels into a major global supplier of critical rare earth elements.

Investors should be mindful of the risks inherent in the mining and processing industry, including commodity price volatility, regulatory challenges, and execution risks associated with large-scale expansions. Energy Fuels' management team will need to navigate these challenges skilfully to realize the company's full potential.

The company's commitment to sustainable practices, community engagement, and diversification into areas like medical isotopes and uranium recycling demonstrates a forward-thinking approach that may appeal to ESG-focused investors.

In conclusion, Energy Fuels represents an attractive opportunity for investors seeking exposure to the critical minerals sector and the clean energy transition. While risks exist, the company's strong market position, growth potential, and alignment with macro trends make it a compelling investment candidate for those with a medium to long-term horizon and appropriate risk tolerance.