Energy Fuels (NYSE: UUUU) – Old Timers said, “You Own the Mill, You Own the District”

Energy Fuels Inc.
  • Shares Outstanding: 118M
  • Share price US$1.50 (01.05.2020)
  • Market Cap: US$176M

Energy Fuels is America’s leading producer of uranium. The company’s portfolio is unique within the North American uranium space, with more production capacity, licensed mines, licensed processing facilities, and in-ground uranium resources than any other US uranium producer. While it is small on a global scale compared to other companies, it remains a significant player.

Chalmers is quick to point out that they are focussed on uranium. That said, the cash flow opportunities available to them are not reliant on mining uranium. The company offers up some diversity of revenue in the form of vanadium production, uranium recycling/clean-up operations and REE processing (rare earths); more on that later.

We’ve spoken with Chalmers on many occasions and the uranium picture has become more and more bullish each time. There have been numerous catalyst moments in recent months, predominantly revolving around the destruction of uranium inventories and the tightening of production generated by COVID-19 lockdowns the world over. We were interested to hear what Energy Fuels’ latest update would entail.

Matthew Gordon talks to Mark Chalmers, July 2020

Let’s start with the commercial side of things. After a year spent strengthening its balance sheet, Energy Fuels has told holders of its floating rate convertible unsecured subordinated debentures that it will be redeeming 50% of the C$20.86M total. The remainder is due at the end of this year and the company will need to address this. Chalmers discusses the options available to them in the interview. This is a smart, decisive move that will allow the company to avoid c. US$350,000 in interest payments for the rest of 2020. This decision sets Energy Fuels apart massively from most other uranium juniors who are currently running up debts to fund exploration programmes or to keep the lights on whilst the market lurches from one catalyst to the next. Instead, Energy Fuels is on the front foot, logically and systemically managing its cash position as it prepares for the uranium renaissance, whenever that may begin.

The US House of Appropriations Committee recently took the decision to block the funding of a US$150M US uranium reserve. This is a setback for North American uranium bulls after several months of positive news, but Chalmers is pragmatic; he is anything but surprised. Moreover, he doesn’t see this decision as definitive. It seems likely that the topic will be revisited once the US Department of Energy can provide more clarity about how exactly the reserve would be implemented at some point in the next 180 days, about 90 days after the US Elections take place. Chalmers is under the impression that the DoE is hard at work to address these questions right now.

Let’s get back to what I mentioned earlier: vanadium and rare earths. This is when the White Mesa Mill, Utah, serves as a real trump card. The only remaining fully-operational conventional uranium mill in the US is the subject of much discussion, but some investors may not yet have recognised the full extent of its capabilities. It is licensed to process uranium, but it is also able to process vanadium and rare earths. Uranium, vanadium and rare earths are all potentially strategic commodities on the critical minerals list for the United States, and this can only be a good thing. Now, the question is can the US govt help? If the Section 232 fiasco is anything to go off, advancing their own agenda through partnerships would see them retain control of their own destiny.

In fact, based on what we are hearing, America is aiming to build a new US-based global REE hub to rival the status quote of Chinese dominance. Supporting a cause that could rival a monopoly is usually something to be quite excited about… Energy Fuels has recently been actively pursuing the rare earths processing capabilities of the business as it looks to further monetise the White Mesa Mill, driving capital into the company’s bottom line. What partnerships with Constantine Karayannopoulos and Neo Performance materials do for them? It feels like a new Mountain Pass in the making.

A total of 5 uranium juniors have told us in recent interviews that they will be using White Mesa Mill to process their uranium. However, Chalmers hasn’t heard even the faintest whisper from any of them, and he’d quite like them to stop making such claims. This exemplifies exactly what we have been saying about the White Mesa Mill all along: it gives Energy Fuels a monopoly over other North American uranium juniors. Uranium juniors face the choice to pay a toll fee, at Energy Fuels’ leisure, or ship ore more expensively to South America. It’s an incredibly competitive situation and it is clear that Energy Fuels holds all of the cards.

We recently discussed an intriguing topic with Brandon Munro and John Borshoff. As this deep uranium bear market has dragged on year after year, expertise has been attracted away from the industry. This means there is a shortage of technically-proficient, experienced uranium minds out there. Projects will struggle to get into this production without expertise. Moreover, with a flood of new entrants, there are currently too many uranium companies for too few high-quality projects. As a consequence, the utilities aren’t taking uranium producers seriously yet. Consolidation is absolutely necessary to swing the struggle back in favour of the producers, and Energy Fuels could be an excellent candidate for this. It has a dominant position and is surrounded by many uranium minnows. It could well look at M&A in the future and appears to be the best-positioned North American uranium junior to hoover up some smaller players.

What did you make of Energy Fuels and Mark Chalmers? Comment beow and we will respond.

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