Energy Fuels (NYSE: UUUU) – I’m back and ready to go (Transcript)

Energy Fuels Inc.
  • NYSE: UUUU
  • Shares Outstanding: 115M
  • Share price US$1.63 (21.04.2020)
  • Market Cap: US$191M

Interview with Mark Chalmers, President & CEO of Energy Fuels (NYSE: UUUU)

We like the uranium space. It’s been nearly a decade of hardship, but there are now signs of life. Uranium has the potential to make investors significant multiples of their initial investments; that’s if they pick a winner rather than a loser. Risk mitigation is key to this, and one of the most important components of certain uranium stories is commodity diversification. Energy Fuels, has mitigated risk with multiple cash streams: vanadium, milling and cleanup operations. Chalmers talks about another potential revenue stream: rare earth processing. This week the company announced it was entering the rare earth element (REE) space.

The first thing Chalmers makes clear is that this is a serious commercial venture. The White Mesa Mill is the ace up Energy Fuels’ sleeve, and if it can process rare earths, it makes sense to monetise this ability.

Energy Fuels believes the fully licensed and constructed White Mesa Mill (the only uranium and vanadium mill in operation in the US), can play a key role in bringing the rare earth element supply chain back to the U.S. from China. Energy Fuels’ primary focus remains on uranium and vanadium, but it believes it can leverage its existing licenses, infrastructure and capabilities at the mill to also produce REEs. Smart.

What exactly is then mill capable of? It is primarily licensed to treat vanadium and uranium ores, but over the past 20 years, Energy Fuels has taken a variety of other feed streams that the company has permits to receive. Most of those are low-level natural uranium streams. The company has licences for 17 other streams, and can also recover uranium from other rare earth producers. White Mesa Mill is extremely large, capable of processing 2,000t per day. The mill will be operated on a batch basis. Material from a variety of different streams will be generated, collected, stored, collated, then processed. The feed arrangements are still in their early days, but Energy Fuels is mainly looking at this from a toll processing standpoint. Energy Fuels has all the tailings storage facilities necessary to make this work. The company is ready to move.

The US government is also on board with the rare earth elements play and has encouraged Energy Fuels’ venture. This is extremely positive news.

We then move to Energy Fuels’ priority. Energy Fuels has plenty of material in inventory (over 500,000lbs), waiting to be processed, so has much greater control of its production timescale than other uranium producers. As the spot price increases, so does the value of the inventory. The company is constantly working on mineralogy and pilot testing to ensure that when the time is right, Energy Fuels can move swiftly to capitalise on a resurrected uranium market. Energy Fuels is clearly ahead of the curve. They know what they don’t know. The company looks like it has the scale to attract strategic partners and the best minds in the uranium space to propel the company forward.

Chalmers doesn’t think US$40/lb will even be enough for uranium-giant, Cameco. there are some projects in Kazakhstan that could be profitable, but for the rest of the world, they need a higher uranium spot price: north of US$50/lb, closer to US$60/lb to take “full-loading on cost.” Companies like Kazatomprom would like the price to stay down so they can maintain a monopoly, and their inflated currency has also given them an advantage. The spot price has risen 25% in the last month or so, and these disruptions may start to shake utility companies up. “There is less uranium out there than people think.”

We Discuss:

  1. Getting into Rare Earths: Why, What’s the Idea?
  2. The Mill’s Capabilities: Setting it up for Different Streams
  3. Arrangements for Rare Earth Feed Stock: Making Money for Energy Fuels
  4. Impact of COVID-19 on the Uranium Market: Rising Share Prices
  5. Genesis of the Idea for Rare Earths and US Government’s Involvement
  6. Process of Understanding Economics and Timings on Moving Forward
  7. Spot Price Movement: When and How Might We See $40 and Over?
  8. Energy Fuels’ Position in the Uranium Space

CLICK HERE to watch the full interview.

Matthew Gordon: Hello, Mark, how are you, sir?

Mark Chalmers: I’m excellent. Matt, how are you? It’s been awhile.

Matthew Gordon: I know, I know. I know. I’m liking that painting behind you; what’s going on there? Is this at home? You are at home, you’re not at the office?

Mark Chalmers: When you’re airing out of your living room, you have just got to find something that looks reasonable behind you.

Matthew Gordon: You didn’t knock that up yourself then?

Mark Chalmers No, I didn’t. I don’t have any artistic skills – I’m a mining engineer.

Matthew Gordon: Okay. Good. Thanks for taking our call. First of all, we listened to the call yesterday with regards to your most recent announcement with regards to getting into the rare earth business. Can you just talk us through that? What is the idea why rare earths?

Mark Chalmers: Look, first of all, we’re very excited about this new opportunity for us, Matt, as I’ve said on the call, we’re first and foremost a Uranium producer and that’s the key focus of the business. But like Vanadium, and some of the other business opportunities that we’re always progressing, we had a lot of inbound calls from various parties that either had rare earth projects or other sources of rare earth, or the US government, and it came a point where we couldn’t turn our head to it. The White Mesa Mill was so uniquely suited with our ability to handle some of these streams, particularly those that have Uranium content, and we have a facility that can handle this low-level material, which is a real problem for other people, but they’re not a problem for us. So we decided to put out that press release. We mentioned that a few weeks ago that were looking at it. And as I said, we would not have done that release and not be pushing this if we didn’t think this has some real opportunities secondary to the Uranium business.

Matthew Gordon: So this isn’t just window dressing: something to say, just to kind of keep your name out there? This is a serious commercial venture.

Mark Chalmers: Absolutely. It’s not window dressing. And I actually think that a lot of the other Uranium guys are quite envious that we have some of this optionality. And as I said, we’re not trying to brand ourselves other than first and foremost a Uranium company, but this is a real opportunity and there is a lot of Uranium tied up in Rare Earth around the world. And why not? Why not if we’re at a head-start to, well most people, that we have this facility. Some of these rare earth opportunities can’t be developed because of the Uranium content, they can’t get the permits to process those ores. I think you’re seeing some backlash with some of the larger rare earth producers in the world. I won’t mention one of them, but they have a facility that they’re getting a lot of backlash from a number NGOs, and I don’t wish harm on anybody, but we have a facility that’s got 40-years of history dealing with these types of materials at White Mesa.

Matthew Gordon: Okay. Look, I don’t think it’s any secret that I like the fact that you have got experience in producing and selling Uranium into the market and the other component and you’ve got cash. I think maybe you got lucky or maybe it was good foresight on your part to raise the cash when you did, but it’s certainly very useful for you now. But the third thing which I liked was the mill. Now, if I’m a shareholder, I’m going to like this a lot. If I’m not, if I’m invested in one of the other companies, at one of your competitor companies, I probably don’t like it so much. But I need to understand what the mill is capable of. It’s an extremely large mill. You’ve got a series of licenses on it. So let me just start with that – what is it licensed to do?

Mark Chalmers : Okay, well look, it is primarily licensed to treat Uranium ores and Vanadium ores but over the course of the last 20 years or so, we’ve taken a number of other feed streams that we’ve had permits to receive. And most of those are low-level natural Uranium streams that could come from a number of things like for example, residues from water treatment plants. We’ve received material from other Uranium producers. We’ve received streams from some of the conversion facilities and whatnot, and recover the Uranium from those streams. So we have the ability to take a number of streams. I think we have  license amendments for 17, currently, streams other than just primary ores. And we have taken some of those streams from other rare earth producers in the past and recovered Uranium from those streams. So this is not new to us but what is the advantage, it’s a large mill; it’s about 2,000 tons per day, but most of these rare earth streams are going to be much smaller than that. So we don’t need the full capacity of the mill to enter this business.

Matthew Gordon: Okay. So you said a few things I want you to explain there. So I’ll come back to the rare earths component in a second, but when you say these streams; you’ve got 17 licenses for different types of streams coming, feeding into the mill, does that mean that these streams operate concurrently with each other or do they… how do you set the mill up to run different streams at the same time?

Mark Chalmers Well, we usually do it in a batch basis so we’ll accumulate some of this material maybe for 6-months or a year or two, and then we’ll do a run on that material through the mill. We actually, at the mill, we have the front end of the mill that you can process some of this material through, but we also have a separate alternate feed circuit that it can enter the mill in a different location or locations. So it’s very flexible, Matt, and I think I’ve told you before, it’s really the reason the White Mesa Mill has survived the test of time is because of the foresight of the people owning the mill to make sure that it was as flexible as possible. So this is not new and it’s been a good secondary business for the facility for decades. And we plan to expand that, I think I’ve said that historically, it’s probably been a USD$5M to say USD$50M a year business, but I don’t see any reason. It cannot be USD$50M a year. Who knows? Maybe more, maybe USD$100 a year extra business in addition to Uranium production.

Matthew Gordon: Okay, we’ve talked in the past about Uranium and Vanadium, people who don’t understand that should go and look at those videos, so let’s get onto the rare earths component here. So rare earths by definition are rare, so therefore they have a high value and potentially high margin. So how, I mean, and I don’t know how much work you’ve done on this, but you are looking at multiple sources of feed. How would those arrangements work? Are they JVs with people? Are they just commissioning you to just process their ore and they take all the upside? How do you make money?

Mark Chalmers :Well, look, yes, that’s it’s still early days as I said on the call yesterday. We’re mainly looking at it from a tow processing perspective. We’re also going to be evaluating a number of opportunities that are presenting themselves to find which streams that are out there that we can process. You know what I mean? One of the things with multiple streams is that it may require  different processing equipment and different sizing of equipment. So it’s very early stages but we’re looking at initially as a tow processing arrangement, but it could be something else. I mean, we mentioned in the call that we weren’t planning to become a miner of rare earths, but again, we’ll just take it a step at a time and see where it leads us.

But the key bit is, is that we’re not going to lose our capability at White Mesa for processing Uranium and Vanadium, it’s likely that we would have a separate circuit that would be literally bolted onto the facility, typically you’re not talking to tonnages that we’d have from processing traditional ores. So as I said, it’s early days, but we’re very excited and the fact that we have the facility, we have the permits, we have the tailings areas that are state of the art; designed for a thousand years, triple line. We have two cells that have a lot of capacity and we’ve been permitting two additional cells. So we’ve been looking far down the path here. And as I said, we’re very excited about this, Matt.

Matthew Gordon: No, I get it. And I get that it’s early days, but I wondered why you’d made the announcement now and therefore, how much do you know because being able to bolt on a circuit and process, presumably a much lower volume of ore, is that the case? You did sort of indicate that a second ago, like by what quantum?

Mark Chalmers: It is going to be very small quantum. I mean, instead of a facility that can process 6,000 to 7,000 tons per year, you could be talking 5,000 tons, 10,000, 20,000 tons; very small quantities relative to what you’d process through Uranium circuit.

Matthew Gordon: Right. But the margins are high because the value is high.

Mark Chalmers: Yes. A lot of it, some of the material may have been pre-concentrated, it may not be. So yes, the reason we made the announcement is that there were so many inbound calls. I mean, literally dozens and dozens of calls here of people saying, do you know what you have? Do you know what a big role White Mesa could play in this space? And I was going from call after call, so we couldn’t turn her head to it. And again, that’s one of the best opportunities when people are calling you and saying, we think this facility could play a role. Now, I don’t talk in absolutes because we’ve got to take it a step at a time but the market seemed to react positively to it. Now, we’ve had a number of different factors over the last few days: the price of Uranium is going up, this supply disruption because of COVID-19, and then we added this. So we’ve had a lot of interest in the stock, a lot of volume, and we’ve been, and we’re still getting, even after that call, a lot of inbounds from other people because of that call.

Matthew Gordon: We’ve been watching. The share price has bounced back up. I think the whole sector has done quite well, obviously. Obviously it’s terrible news; COVID-19 is not a pleasant thing for anyone to have to deal with and it’s affecting a lot of people in very, very negative ways. But for Uranium and Gold, it’s what it needed. It’s reacted strongly to this news, and I guess, with all the negative stuff aside, Uranium CEO’s must be quite pleased with the way the market has reacted. I mean, you guys have been starving for three, four, or five years?

Mark Chalmers Yes, absolutely. And I think I’ve said this to you before too, I usually find that it usually takes a number of small things to add up to a major thing in this business, you know, like you saw the shutdowns on some of these facilities, and then it started in Canada and then you saw it in Namibia and in Kazakhstan, the conversion facility, Cameco shut down their conversion facility. So it all starts building. So then there’s a shortfall of production that people were expecting. Price of Uranium starts to go up. The whole COVID-19 issue has heightened the awareness on dependency on other countries, particularly some of those that are political adversaries, so all this stuff starts feeding, and people start saying that going for the cheapest product isn’t necessarily the best option, and it is not the best option, particularly on a number of critical materials. I’m not talking minerals, I’m talking materials that are necessary for a country like the United States of America to be ready and prepared and have security of supply at different levels to not have that total dependency.

Matthew Gordon: Okay. I’ve got to ask this question – you did the Section 232 petition. You were one of the two, you and Jeff at UR-Energy. Okay. And you’ve been huddled up on Capitol Hill talking to people, knocking on doors and you’ve been pushing the security issue. Has this rare earths story come about because of conversations up on the Hill? Are you getting support for this announcement from the US government? I mean, is there some kind of connection between those two decisions? What was the genesis of this? You got calls, I get it, but what’s the genesis of this idea?

Mark Chalmers: Well, I think the genesis is the awareness over the last several years actually, that we have become overly dependent on a lot of our critical minerals. And they were basically on separate paths, separate but similar paths. Now we’ve been approached by some in government on the rare earths, even a year ago and we expressed interest in it. But again, we don’t want to lose focus; we’re not trying to morph ourselves into something that we’re not. We wanted to keep our main focus on Uranium because that’s our main game. So yes, we have made a lot of contacts with the government. Several of those contacts also have an interest in rare earths and I think, and I believe that a lot of them will be very pleased that we’re being more aggressive on the rare earth front because of particularly what we’ve communicated in the last few weeks. So I think it just highlights, I think that White Mesa has a potential to be a huge critical mineral central. When you look at the critical mineral of Uranium, Vanadium, and now we start expanding into the rare earths themselves which are also critical minerals, where else would you find that in the United States or in the world? And even though we’re still hanging our hat on Uranium first and foremost, as I said, we can’t turn our head to it and it’s a legitimate opportunity. So we’re going to be pursuing it, but when we have to make a choice between one or the other, it’s going to be first Uranium going forward but we’re definitely going to focus on this with at least a few people, a few employees trying to advance this as quickly as they can.

Matthew Gordon: Okay. When are you going to be in a position? Because actually, let’s start with, what is the process that you have to go through to understand the economics as to whether you do invest in a new circuit or some kind of upgrade to the current mill? Because you are going to need to spend some money on this thing, and obviously in this climate, money’s tight. What’s the process and when do you make that decision?

Mark Chalmers Yes. Well, look, you’ve got to start from the material that’s available to be processed. So we’ll start looking at different feeds. We have already got some feeds from other groups that we’re testing to determine what the mineralogy is and what it takes to unlock some of these minerals. We’ve got a full lab at White Mesa. We can do a lot of pilot testing at White Mesa, which gets us again, ahead of everybody else. We also have, and I have had a long relationship with ANSTO in Sydney with testing and on Uranium projects, but they’re also one of the world leaders on rare earths. I’m a firm believer that “you need to know what you don’t know”, remember that little saying –

Matthew Gordon: I love that phrase. Yes.

Mark Chalmers: Yes, but I’ve got a number of contacts with ANSTO. They can provide support where we don’t have the knowledge in some of these areas. There also could be other people here in the United States or Canada that we may tap into. We will go where we can get the best advice, but at the same time we’ve got a head-start with a full laboratory and the ability to pilot material right now, and we are testing rare earth material right now for recovery because we have facilities to do so.

Matthew Gordon: And again, timing – can you give us an idea of timing? Because okay, that’s the process you are going through but people are going to be excited about, look, you talked about USD$50 million earlier, right? So people are going to be excited about, when are we going to start seeing some movement on this?

Mark Chalmers: Yes. Look, there could be movement on this in the coming weeks. We think that it is possible, and I said this on the call, look, some of these streams we think we can treat now, okay? If they’re suitable for our process or our modified process, but we think that this is not multiples of years out, this is just a year or two out for certain processing of certain streams. But again, we are not so far ahead that we can really give any specific dates, but we are far closer to the market than somebody that’s trying to build a facility from scratch, by years and years and probably millions and millions of dollars, maybe hundreds of millions of dollars, I don’t know. It depends on the scale and the size. So we think we’re offering something unique here and scarce. And that’s a good place to be in.

Matthew Gordon: That’s a very good place to be. And so you’re going to, if it is weeks, you pick up the phone and let us know because that’s pretty exciting. That can be very exciting to everyone because if you’re able to in a few weeks, start giving us definition of the process and the numbers and the timing, that would be, that’d be great news indeed.

Mark Chalmers:  Yes, if I could say one thing; look, I mean, as I said, we’ve already started some testing and if we can have a party that we can team with, that we can go public with, we’ll certainly update the market with that at the appropriate time. So but as I said, we do have material from some projects right now that we’re looking at and we’re testing as we speak.

Matthew Gordon: Okay. And just to be clear, because you mentioned that you’ve got a lab facility. This isn’t just regular toll money. You’ve got a lab facility there, you’re dealing with radioactive material. It’s actually quite sophisticated, not just a kind of regular processing mill here we’re talking about.

Mark Chalmers : Look, I mean we’ve got the facility, we’ve got around 60 people at the facility. We have a very sophisticated lab. We have the ability to deal with those streams, dispose of those streams. We’re done testing them. Just a very, very unique position to be in.

Matthew Gordon: Okay. Well let’s move on from that. So thank you very much for explaining what’s going on and what you’re thinking. I do want more from you as it develops, please. The market actually, we touched upon it earlier, Cigar Lake, Kazatomprom, Rossing, even HUSAB are all affected. Between 20Mlbs and 40Mlbs out of the market, just like that, almost in a two-week period. Your share price recovered. Lots of Uranium juniors are feeling the benefits of that. There’s a kind of change in sentiment, so that’s all good. I want to talk to you about what’s the reality of how quickly the spot price moves to a point where you can start making the decision, because you talked about USD$40. USD$40 isn’t going to move the dial for you. How do you think, or do you think Kazatomprom and Cameco would like to control the price and make it remain somewhere around the forties, in which case, what do you do?

Mark Chalmers Yes, look, I don’t think USD$40 is enough for Cameco either. There are some projects in Kazakhstan that probably USD$40 is a nice place to be but I think that we still need that north of USD$50/lbs to be sustainable, and really need closer to USD$60/lbs to be able to take full loading on cost. If you took Cameco’s costs on Cigar Lake or MacArthur, including exploration, development and all that, they’re going to be way above USD$40/lbs. And anyone from Cameco would agree with that. Now going forward, and that’s what most people are looking for right now is they’re going for costs.

So look, I think that companies like Kazatomprom would like it not to go too high so they can kind of maintain their leading role there but they’ve also benefited from the weakening of their currency; this whole Russian oil pump, the pump it out, pushing down the rouble, pushing down the tenge does also give them an advantage. So yes, we do need higher prices, and really anyone in the Western world that says that they can do it at USD$40/lbs sustainably, I really will question them.

I think there may be one project that I know of in Australia; at Olympic Dam and maybe Heathgate Resources, projects might be able to do that at USD$40/lbs, but that’s only a certain amount of production. I mean you look at your man being starting to push towards 200M lbs per year. There’s only so many projects that can produce under that USD$40/lbs positively.

Matthew Gordon: So here’s the question, given what’s going on at the moment, when do you think its going to hit USD$40 and where do you think that’s going to settle?

Mark Chalmers: Well, that’s the big question, but I think we’ve seen that the Uranium price can move up quickly, fairly quickly. I mean, it’s gone up 25% in the last month or so. I think that these disruptions are starting to shake people up and I think it may start shaking up the utilities a bit. I don’t know if it’ll happen, but some people have been saying that Uranium could go past USD$40/lbs pretty quickly. I think there’s less Uranium out there than people think. I think that it’s also apparent to me that what you see the Russians doing with oil and gas, they also want to do with Uranium and nuclear fuel products.

The Russian suspension agreement expires at the end of this year where it was limiting the Russians to 20% of the market with the United States. I think they’d like to expand that. I think that is the absolute wrong thing to do: to allow the Russians that have a larger share of the US market. So that’s going to be an interesting saga to watch unfold over the rest of this year. But so no, it’s a very interesting time and I think it’s a time that a lot of our investors have been waiting for a long time and they’re starting to see how these little things all add up to be big things. So look, I wouldn’t be surprised if we see USD$40/lbs. I don’t know, I don’t want to speculate, but shortly in the next month or two. But we may not.

Matthew Gordon: Yes, I think that’s the big question. We need to see what the utilities are doing, and we’re hearing, we spoke with a Uranium trader, he said that he’s been getting a lot more inbound phone calls, not a lot more trading in terms of volume, small amounts, but where the utilities would typically for him sit back and just watch what the market is doing and watch it settle again, they’ve been one of the first on the phone to him. He’s a reasonably big trader so it’s kind of indicative that they, as you said at the beginning, are perhaps a little bit more unsettled than they were 3-weeks, 4-weeks ago.

Mark Chalmers: Yes, I know. Look, I think that people become complacent on the supply chains. When the price of Uranium moved in 2006/2007, very quickly, it was on the back of supply disruptions, flooding of MacArthur and Cigar Lake, and those were longer term interruptions. I’m not sure how long the COVID interruption will last but it just highlights that there’s no certainty, and it doesn’t mean that one of these mines can’t flood again. It doesn’t mean that there can’t be a civil war or something else that happens that disrupts supply. So yes, look, I think the unfortunate thing about the world, or particularly the United States is they have become addicted to cheap, cheap, cheap. The American consumer, including a lot of companies and including utilities, they go for the cheapest product they can get for the lowest dollars. And I understand why they’re doing that; everybody’s trying to push the best margins they can. But going cheap on everything isn’t necessarily the best plan. Look at what we’ve discovered with in the United States, and in the world actually, how dependent we are for a lot of our pharmaceuticals and other supplies, health supplies and whatnot, the same thing’s happening with energy and let’s watch this space.

Matthew Gordon: Yes. Well, thanks very much. I mean, the thing I wanted to catch up about was the rare earths; we should probably catch up and see what’s going on with the rest of the organisation with regards to the Uranium and Vanadium. Certainly, as this price movement carries on through. I mean, every day feels like a new story to me. There’s always something big going on in Uranium at the moment. After a few years of let’s say quiet, it’s probably very welcome.

Mark Chalmers: Well, look Matt, and also, in our position as Energy Fuels, we’ve got a lot of inventory, and every time that price goes up that inventory becomes more valuable. So we have around currently a little over 500,000lbs of inventory. We expect that to grow to around 700,000lbs of inventory. So if you do your math at 5 to 700,000lbs at USD$25/lbs, and then you do your math at say 5 to 700,000 pounds at USD$40/lbs or USD$45/lbs, we can get a lot of bang out of that. And we’d been hoping to sell that material to the US government and this national stockpile at a premium. And we still hope we can sell that at a premium. But unlike just about anybody else out there, we have inventory and none of the small players have inventory. UR-Energy has some inventory, but we have a lot more inventory than anyone out there in the world outside of the Camecos and the Areva’s we have a substantial amount of inventory. So not only do we have cash in the bank, we’ve got inventory, Uranium, we’ve got an inventory of Vanadium, and we will play those to our best advantage.

Matthew Gordon: Beautiful. I’m sure your shareholders are delighted to hear that. So let’s finish up there. I appreciate your time. I’m glad to see you are well and keeping safe and the family are well. Maybe let’s talk next week because I think next week is going to feel like a whole new story again.

Mark Chalmers : Well I hope so because when the market moves, at least when the market’s moving up, it all feels better, Matt.

Matthew Gordon: It takes away a lot of problems, right? There’s different sorts of questions, different sorts of questions. But yes. Okay, well look, we’ll speak to you soon Mark. Thanks very much for today. I appreciate your time.

Mark Chalmers: Okay, Matt, have a good evening.

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