Energy Fuels US$16.6M Deal – What Does It Mean?

Yesterday (February 13th 2020), Energy Fuels, the leading U.S. producer of uranium and potential producer of vanadium, announced an agreement with Cantor Fitzgerald & Co; the ‘innovative global financial services firm‘ has agreed to purchase, on a bought deal basis, US$16.6 million of common shares of the Company at a price of US$1.47 per share. We’ve studied the business model of Energy Fuels before, but what does this latest development mean for Energy Fuels investors and the uranium space as a whole?

Price Discovery On The Horizon?

A man we’ve sat down a lot with recently is Energy Fuels CEO, Mark Chalmers. He has found himself in the Crux hot seat in January 2020, December 2019 and October 2019, and this is just some of our encounters with the uranium veteran. He’s been very transparent with us throughout this bear market and we hope to talk with him next week to get the inside take on this agreement. So, in the meantime, we only postulate as to why Energy Fuels has done this now; what could this mean for the company?

President Trump’s apparent commitment to replenishing uranium reserves and adjusting the American military’s uranium purchasing habits towards full coverage in 2021 has got commentators excited. It proposes a budget of US$150M per annum for the creation of a US uranium reserve, as the administration seeks to help struggling producers of the fuel for nuclear power reactors. What this means precisely in terms of who and where the uranium will be purchase is still unclear. Given the security argument has been used as the main thrust of most discussions, the US uranium producers hope that the entire budget is US only and would not include Canada, Australia, European and African uranium producers and other US-friendly jurisdictions. The one certainty is that it is eventually unlikely to include Kazakhstan and Russia.

In a recent interview with us, Bannerman Resources CEO, Brandon Munro, explained that a behavioral switch by the U.S government could be a catalyst for a uranium market sentiment switch and, therefore, price discovery. So, is Energy Fuels getting into position early and readying itself for action in the near future? The press release seems to suggest so, but we will need to dig deeper than that. Why a bought deal? Who is at the table? Why not use their current cash drawdown facility?

Is this US$150M budget for the creation of a uranium reserve the beginning of uranium price discovery? Do they see a 2-tier system being created? What have they heard that has made them pull the trigger now?

Our Maths:

Munro stated in our interview that the U₃O₈ sector has operated a 20Mlbs deficit in the last few years. His logic went something like this:

  1. The United States military fleet consumes c. 50Mlbs of uranium per annum.
  2. It has been underbuying for the last few years by around 20%, or 10Mlbs.
  3. If it chooses to change its policy from underbuying to full coverage, 10Mlbs of extra demand for U3O8 will result in the current U3O8 deficit being halved.

In all our previous interviews, the absolute minimum spot price uranium CEOs have stated they could produce at (with a very small margin, if any) would be US$50/lb.

Based on this figure, US$150M of investment equates to 3Mlbs total of U₃O₈; not exactly a lot, but it’s a start.

While this clearly won’t be as significant a deficit reduction as Munro speculated, could this decision create momentum and a sentiment shift as we edge towards the next uranium bull market? Could it combine with other industry movers to create great change? We look forward to asking Chalmers. If you have any questions or thoughts, leave them below in the comments, DM us on Twitter (@CruxInvestor) or leave us a message on one of our uranium video interviews on YouTube.

The Early Bird Catches The Worm?

The announcement has certainly caught the market by surprise. It would appear that Energy Fuels may be positioning itself to get producing as quickly as possible. Will it have caught some of its peers out, and will it be able to close the deal? It could be a really valuable weathervane as to what the generalist market is thinking.

In the press release, Energy Fuels states the US$16.6M deal will be used to fund various activities required to increase uranium and/or vanadium production in response to the President of the United States’ budget for the fiscal year of 2021. How does the use of proceeds differ from what was originally planned?

Energy Fuels appears to think this announcement is a big moment. What will Chalmers have to say?

What do you make of all this? Comment below! We want to hear your take.

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If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

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10 Replies to “Energy Fuels US$16.6M Deal – What Does It Mean?”

  1. I think Energy Fuels should be sending a letter to their shareholders explaining this decision in a bit more detail. Brings up many questions.

  2. The budget needs to be passed in a vitriolic political environment. Dems have said it is DOA. Back room negotiations will ultimately determine what gets included. Nothing is guaranteed. Both sides will need to claim a victory and dems views on nuclear support has not been public. Sure, Chalmers probably viewed the iron as hot, but may not materialize. Good news is it got attention from CF and therefore mainstream Wallstreet and also gives UF first mover advantage. Waters still murky.

    1. First mover advantage is critical, unless this stalls, at which point it could become an expensive mistake. The next few weeks will determine just how clever this call was. Exciting times.

  3. My questions for him would be:
    1. Are you expecting that the uranium spot prize is not going up the next three years and with that in mind it was necessary to get the managements funding saved – as soon as possible ?
    2. Are you expecting that the management income needs to rise the coming years because of an increase in operations to come soon ?
    3. When was the 16.6m deal decided or better finished ? Was it agreed already last year at a moment, where there was no idea what the WhiteHouse would go for ? Is that possible ……
    Looking forward to read the answers …

    1. Great questions. We will ask those questions to Mark Chalmers when we speak to him next Friday. If you have any more please send them over.

  4. My question # 1 :
    ” Why did you do an equity financing at an all time historical low? Are the upcoming catalyst’s that compelling to you, to justifying a 13 percent dultion in the share price in one day? Why not wait, or us you credit facility in the short term till the share price is in a better place to justify share dilution?

    How long do you anticipate your 16 million equity financed dollars to last energy fuels 1 year 2 years of mine updating and operational expenses?

    How many pounds do you have on hand or anticipate having for delivery for year 2021.

  5. EFR’s latest 10Q says they have 500,000 of U3O8 & 1.3 mil lbs of V2O5 in inventory. So, if sold where the 10Q says their V averages $12.88/lb and the U is about $24.50/lb and the 10Q says you have cash, restricted cash and investments of $40 mil why do you really need to raise $19.1 mil to equal about $90 mil? Your news wire says to advance production so a purchases in cash and stock advances production. This is especially true if WUC is considered for EFR purchase since it can add lots of “prompt” reserves in both U&V which is so close by. Is this the plan?

  6. (a) I do not remember Brandon Munro stating (1) and (2) about US military consumption and underbuying. I would think that would be classified. I also remembered reading that the US navy had sufficient HEU ( naval reactors run at 80% enrichment to lengthen periods between fuel reloading) to last until 2060 and that tritium needed for a boosted PU239 atomic weapon. I also read that the DOE had 20,000 tons of excess weapons grade PU239 for down blending into mixed oxide fuel rods. The current trends in nuclear weapons seems to be for lower yield weapons. Since the US nuclear and thermonuclear arsenal is built around PU239 instead of U235, US military needs seems minimal. The critical issue would seem to occur in 2040 when the military needed tritium for boosted PU239 weapons. Tritium is made in a standard uranium reactor with 80% enrichment.
    (b). In your last interview, I thought Munro alluded to a structural deficit of 10 mm pounds U3O8. Some dispute may exist about that deficit since it depends on uranium accounting which divides the secondary supply into underfeeding and inventory drawdowns. I thought Munro correlated the structural deficit with the inventory drawdown.

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