Energy Fuels (NYSE:UUUU) – Does The NFWG Report Change The Game?

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

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

Energy Fuels is America’s premier uranium producer, and Mark Chalmers was one of two CEOs who originally petitioned the U.S. government under section 232. That petition has led to this moment: the DoE’s NFWG report that carries recommendations for the U.S. government to restore America’s competitive nuclear energy advantage.

Chalmers is very pleased. Some investors have been disappointed by the lack of detail and specifics, but Chalmers is happy with the report considering it is merely a policy document with more to come.

Will the report help the American uranium space. Will it help uranium producer, Energy Fuels. Chalmers certainly thinks so. Uranium could be in for 2H/20.

We Discuss:

  1. Nuclear Fuel Report Announcement: Opinion and Expectations
  2. Shareholder & Investor Concerns: Near-Term Impact
  3. Ur-Energy and Energy Fuels: Direct Beneficiaries or One of Many?
  4. $60 Uranium: The Process of Getting There
  5. Nuclear and Renewables on a Level Playing Field: Who Gets the Subsidies?
  6. Utilities: Time to Stop Being Used to Cheap
  7. The Future for Energy Fuels

If the uranium space is your kind of thing, why not read one of our recent uranium articles, or watch one of our latest uranium interviews?

Company Website:

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

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

The Energy Fuels company logo

Energy Fuels (NYSE:UUUU) – I believe in new beginnings (Transcript)

The Energy Fuels company logo
Energy Fuels Inc
  • Shares Outstanding: 115M
  • Share price US$1.78 (01.05.2020)
  • Market Cap: US$205M

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

Off the back of the promising NFWG report, Chalmers was keen to talk about what this could mean for US uranium producers and Energy Fuels. The report talks about restoring America’s competitive nuclear energy advantage. What is Chalmers’ take on the report?

Energy Fuels was one of the two American uranium CEOs (Ur-Energy was the other company) to petition under section 232 petition, he must be feeling quite pleased of himself. They managed to get a Nuclear Policy document out of the US Govt Department of Energy. Chalmers states it not very often that a sector can be this impacted by something like a report from the US government, but uranium is a unique case.

Was the document what Chalmers was expecting? He thinks it’s the boldest position the US government has taken on the nuclear fuel cycle in decades. Many uranium retail investors have been concerned at the lack of detail in the document, but Chalmers is clear: this is a policy document. There are still things that need to be filled in, but the language and narrative that is being created appear to be strong: American uranium mining and operations must be supported.

For Energy Fuels, a company ready to pull the production trigger, this latest catalyst could lead to real growth. They have 500,000lbs of material in inventory at surface, and as much as 700,000 by the end of this year, waiting to be processed at the right time, in the right price environment. If the US Govt does re-energise its nuclear industry, American uranium producers who are ready to move will benefit the most. Those are the companies that will be able to sit at the table with utility companies and negotiate long-term supply contracts. The uranium juniors that are left floundering around with lengthy permitting processes and explorative drilling will be left out in the cold.

Energy Fuels appears primed to move; its White Mesa Mill is capable of processing 2,000t of material per day. This is likely to be key to rebuilding the North American uranium industry: the only fully-functioning conventional mill in the entire country. The first step will be U308 purchases, but Chalmers is observing the situation calmly. Chalmers thinks the government needs to focus on a few producers by being selective, rather than spreading uranium budget to lots of small uranium explorers and developers.

Does America need to focus on the few to restore its uranium prestige? Chalmers states the regime of the government should be a buying schedule focussed on a limited number of ISR projects and the White Mesa Mill: the government should not be giving everyone a piece of the pie.

The spot price is up around c. US$33/lb, but Chalmers points to the price he feels is fair for “a pound of uranium produced in the western world:” US$60, or greater. This appears to be the “sustainable” figure that an industry can be rebuilt upon, though not all uranium companies will survive in such a price environment. Chalmers feels the US uranium space will continue to struggle until it hits long-term prices around US$60/lbs. Chalmers states that while Cameco may negotiate some contracts at US$40/lbs, the uranium giant will struggle unless prices rise much higher. The message is definitive: utility companies need to stop being used to dirt cheap uranium.

Moving onto specifics for Energy Fuels, what is the short-term focus? Cashed-up with 3 good assets, an experienced management team, and a great mill, Energy Fuels has a lot going for it, but what will it do to add value for shareholders? Chalmers will seek clarity from the DoE on the report and will advocate for themselves, being the producers of 35% of American uranium supply in the last 15-years. Selling inventories and working on alternate feed remain are other priorities; the rare earth elements play could be a real gamechanger.

What did you make of Chalmers? Comment below: we will respond.

We Discuss:

  1. Nuclear Fuel Report Announcement: Opinion and Expectations
  2. Shareholder & Investor Concerns: Near-Term Impact
  3. Ur-Energy and Energy Fuels: Direct Beneficiaries or One of Many?
  4. $60 Uranium: The Process of Getting There
  5. Nuclear and Renewables on a Level Playing Field: Who Gets the Subsidies?
  6. Utilities: Time to Stop Being Used to Cheap
  7. The Future for Energy Fuels

CLICK HERE to watch the full interview.

Matthew Gordon: Hey Mark, how are you doing, Sir?

Mark Chalmers: Very good, Matt, how are you?

Matthew Gordon: I’m fine, but I haven’t had the kind of couple of days that you have had since yesterday. So, we got a bit of an announcement from the US Department of Energy yesterday. How’s that been for you?

Mark Chalmers: Well, it’s been a wild, it was a wild day, that’s for sure. There was a lot of shares that transacted, I think, across the globe. You know, it’s not very often that you’re in a sector that can’t be pushed around by things like a report from the US government. But look at the interest that you know, it kind of, and how it played out in the last 2-days, everywhere in the Uranium space in the world. So you know, I’m kind of proud that at least some of our involvement, you know, may have kind of created some interest in this space.

Matthew Gordon: Well, it has certainly done that. I mean, since the moment you submitted the section 232 petition through to now, I guess the Uranium space has been holding its breath, unfortunately, almost figuratively, and literally in some cases, holding its breath and trying to work out what was going to happen. That finished then of in the middle of last year, the nuclear fuel working group then put its head, or heads together to try and come up with a recommendation that it did yesterday. So, this discussion document and recommendation was talking about how to restore America’s competitiveness in the nuclear fuel, and I think, nuclear fuel advantage, they used, but the competitiveness globally. It was a very bold document in terms of the macro, but was it what you were expecting?

Mark Chalmers: Well, look, we are pleased with the document, Matt, and you know, it’s probably the boldest position the US government has taken on the front end of a nuclear fuel cycle in decades. Okay. It doesn’t have a lot of details in it, but I think you have got to go back to the fact that it is a policy document. Okay. You know, there’s still things that have to be filled in here but there was some very strong language about the importance of the whole nuclear fuel cycle including Uranium mining and how Uranium mining had to be supported and needed assistance. So, look, as I said, we’re pleased with the document. Yes, would we all like more details? Yes, we would, but you know, we’re proud that we had a significant role in getting the United States government to take a policy position that hadn’t been taken for decades. So yes, we’re happy with the document but we are awaiting more details.

Matthew Gordon: Okay. I know you have just come off of a call with shareholders and people listening in this afternoon, what were the kinds of questions that you were fielding? Were people concerned that this document has done nothing for you? That there’s no clarity about what it means for Energy Fuels? What were they concerned about?

Mark Chalmers: Yes, look, I think that you know, initially, some that reviewed the report thought it didn’t have a lot of detail in it and they were disappointed with that but I do think that once we kind of explained to people that it’s a policy position, it’s a stepping stone, a very significant stepping stone, they become more comfortable with that. You know, I think that some of the questions are just, well, so how does it all work? And we say, well, we don’t know yet, but we think that it’s focused on keeping the front end alive and prosperous. But it’s also not trying to overdo it too. I think that there’s a focus, or will be a focus, and again, I’m speculating a little bit that, you know, it should be focused on proven existing producers, existing infrastructure but it also says that they will review it periodically to make sure that they are achieving the objectives. So, it’s really kind of a policy roadmap for the whole front of the fuel cycle; recognising you need all the steps in that process: Uranium mining, conversion and enrichment. But you also need a healthy nuclear fleet to have all those legs covered. And that was the purpose of nuclear field working group. It was a more holistic approach than the section 232.

Matthew Gordon: No, I mean, that’s for sure, but with that macro picture that they’ve painted, and we will focus on what it means domestically firstly, it means that they’re trying to get actually get their house in order for the first time in 30 to 40-years. And they do talk about taking China and Russia head on, and I get all of that. It’s a very ambitious program. Those ambitious programs cost money, they take time, a huge amount of planning and working out the economics of these things. So, me as an investor, people watching as investors thinking, well, what does that mean for US mining companies today? And I think some of them have latched on to the phrase, or the line that was used – direct purchase starting 2020. Is that going to be beneficial to you? Do you understand what it means?

Mark Chalmers: Well, look, we don’t entirely know what it means, but we think that 2020, we don’t think that was an accident. The budget package that was submitted by the president for the 10-year program was starting in 2021, so we’re asking and still advocating for immediate action, perhaps through some executive process, you know, that may be available to the president. And in our case, and probably in your energy’s case, matter of fact, I know in their case, our two companies have inventory and we would like to be able to sell that inventory at a premium price this year in 2020. You know, we think that’s the best way to stimulate those particularly existing producers because we have held that inventory because, you know, it didn’t have fair value in the marketplace. And you know, that could give us a huge boost in the near term. So, we hope for purchases as a first step, but we’ll see. We don’t know.

Matthew Gordon: It also refers to, at least to US producers, I mean, Ur-Energy and yourselves are the petitioners, do you think that they are referring to you specifically or was that just a throwaway phrase? Could be anyone?

Mark Chalmers: It looked good. I don’t think it’s specific to the two companies. It says at least two, it could be more than that. But I do think that when you look at the nuclear fuel stockpile and the demand that that would have, I don’t believe it’s been meant to be split 8 or 10 ways, for 8 or 10 producers. I think it needs to be fairly selective, focused on a few producers. I think that it certainly should be focused on some ISR production. But I also think it should be focused on White Mesa as the only conventional mill in the United States and the fact that not only is it the only conventional mill, it is the only primary Vanadium facility, production facility and that the other benefits that that project has now, or potentially could have in the future.

Matthew Gordon: Okay. So when you talked to us a moment ago about a premium, are you talking about a premium to today’s price, presumably if you’re, if you’re looking for a number, what number are you picking?

Mark Chalmers: Well, look at the spot price is up to about USD$33/lbs today, I believe, which is certainly much improved from that USD$24/lbs, $25/lbs, but it’s still not high enough to provide for sustainable production. You know, we have always said and continue to say that the fair price of a pound of Uranium produced in the Western world is USD$60/lbs or greater. That’s a sustainable price for proven low-cost producers. Many companies cannot produce Uranium for that, as a matter of fact, a lot of them cannot produce Uranium for that in a sustainable way. So, look, we think it should have a sixty handle on it plus, we think USD$65/lbs is sort of the real number.

We can produce Uranium for less than that. You know, some of our projects, like the Canyon mine can be much, much lower than that but you know, we have had these assets for a number of years and we don’t want to hydrate them and not get the margin that we deserve on these assets, and the money that has been spent on those assets over the course of many, many years. So, you know, even companies like Cameco, you know, they don’t talk up with, you know, with four handles on a lot of their production. They might sign some contracts within the forties if they can trade into them. So yes, we need sustainable Western world costs and values on the inventory.

Matthew Gordon: Okay. So, if you are to get that, you need to be part of a dialogue, part of a process where there’s some form of negotiations and explanation as to why you need the price that you want. Our conversations like that are already in the works because I’m looking at this policy document. I think that’s a great phrase that you used earlier; it is a policy document. It’s going to need to engage stakeholders, you being one of them, Uranium miners being one of them. Have they set those up? I mean, how quickly are things going to move into motion? Have you any idea that they’re even going to do that?

Mark Chalmers: Yes, look, I think that getting this document out kind of sets the stage for going into more details, you know, so it hasn’t really started yet. Personally, from our company’s perspective, we like the concept of a buying schedule, which is how the United States bought Uranium for like 30 years. It was very successful. They just basically set a price and they said you know, any company, now you start talking about 2 or more companies, but any company that can provide Uranium at a price can participate. We think that’s the fairest way of doing it. Even though, as I said earlier, we don’t think it should be split, you know, 10 ways because it’ll dilute it too much. But we think that a commitment by the government over several years to purchase Uranium, it’s the equivalent of a contract where those that can deliver. And I think that is a very straightforward, very simple way to make sure that the money spent goes to those that can deliver.

You know, there’s people out there that say they can produce economically in the United States for USD$40/lbs. We can do that. We can do that with production from Canyon or we can do that from alternate feed. We could probably do it from our ISR facilities, but with no margin. So, the best way for the government set it up is to just set a price at what’s available and let people compete for it. Okay. Some people don’t want to compete. We’re fine with that.

Matthew Gordon: They also talk about creating a level playing field between nuclear energy and renewable energy. I mean, do you think that applies to the Uranium miners or was that more to do with the reactor side of things? I mean, who is going to be picking up the subsidies? Because I assume they’re not going to stop subsidising renewable energy. So where are the subsidies going to be distributed to? Who is going to be the beneficiary?

Mark Chalmers: I’m not completely clear on that. I think they certainly made a point of having a fair and balanced fuel market for the nuclear reactors for, in some cases they’ve had to try to unfairly compete against renewables with some of the subsidies there. And look, we’re not really, you know, I’m not a believer in subsidising industries that shouldn’t survive. But, you know, that’s why I kind of go back to this Western world. You know, the report is very focused on computation with state owned enterprises. If you look at, you know, in the sixties, many of us that were producing, had contracts with utilities just even a year or two ago that were USD$60/lbs or greater because utilities were willing to pay that five or six or seven, 8-years ago. Okay. So that was the fair price of Uranium at the time before Fukushima, or just after Fukushima. So look, you have got to kind of look at it in the context of the market, the extra inventory that was available after Fukushima, you know, everything had kind of geared up, and focus on the true value of what is a fair price and in jurisdictions that have the regulatory framework, safety frameworks and whatnot, to produce Uranium responsibly.

Matthew Gordon: Okay. Okay. Is there a little bit of you that is glad that this is finally over? You know, this is the report, this is how they have chosen to respond to the market and now you can let the market decide the supply-demand fundamentals, decide how Uranium gets priced?

Mark Chalmers: Yes, look, we see this as a big step in the right direction, Matt. It is not the only step, as you said, there’s going to be a lot of work behind the scenes on, you know, the devil’s in the details as they say. So, we know there’s a lot of work to do here, but we are glad they have released a report, and it echoes what we have been saying for several years now.

Matthew Gordon: Right, so the US government gets it. So, that’s fantastic. But I’m trying to wonder, well, I’m wondering what it means now for utility buyers. It gives them maybe some comfort that there is a plan in place, potentially. I know it’s got to get through Congress. It’s got to get financing approvals and so forth, but it is going through a process, they have finally set out a policy document, so that’s great. But what are utility buyers now thinking in terms of this massive burgeoning gap between supply and demand numbers? We have been going through some of the UxC numbers, trade tech numbers, estimates, which are bouncing around the market about what that gap is, but whichever number you listen to, it’s big. So, when do we think we’re going to start seeing utilities recognising that they are going to just have to step up to the plate and actually pay more for Uranium?

Mark Chalmers: You know, I think it is important to sort of separate some of the recommendations in this report from the commercial market, for example, the nuclear fuels stockpile is US government material. It is basically unobligated material that they can use for their purposes, not necessarily in power generation, but they could use it for power generation. You know, I think that one of the issues that we have been addicted to; foreign Uranium, particularly state-owned enterprise Uranium, a lot of utilities have gotten addicted to the low price. And you know, I think that’s dangerous. And they’ve done that for a number of years. I think that certain things like the Russian suspension agreement, which is mentioned in the report is currently being renegotiated. That’s becoming more focused on enrichment capabilities and I think that that’s where the utilities want the cheapest product they can get enriched.

And so, you know, it all is sort of separate but not separate. So, I don’t know when the utilities, and I understand utilities, some of these plants are struggling, you know, and small amounts of money, you know, are difficult. But you know, we think that they need to have a portion of their product coming from Western producers and right now that is really not the case. You know, there’s some residual contracts that are out there, but they’re going to be falling off in the next year or two completely. And we cannot just say we’re going to get the cheapest producers, these state-owned enterprises, primarily in Russia, and Kazakhstan, Uzbekistan, and growing in China.

Matthew Gordon: Okay. So, they’re addicted to cheap prices and they’ve got an aging reactor fleet, which is, I can see it, you know, those are not good things. But how do you think they are looking? We will come back to the policy document. They haven’t got the reassurances that they want, that they’re going to receive subsidies for their aging fleet either, so that is going to affect the decision making, surely?

Mark Chalmers: Well, look, I think some of the stronger statements in the report were support for FERC to try to level the playing field for them and everything. And I think that’s fantastic. I think it’s great. I don’t want any of their reactors to go out of business because of the price of fuel. Now, the price of fuel is not the big issue for these reactors, you know, I mean, sure, it’s a piece, a very small piece, but a lot of it is the markets that they are operating in. The natural cost of natural gas is so low and there’s a lot of different factors, so, it’s a lot bigger than the front end of the nuclear fuel cycle. It’s just a small piece of it. But I understand it is a piece and if they can manage that to the best of their abilities, they’re going to try to do that. But it should not be at the expense of losing the front end of the fuel cycle.

You know, I think that, again, you know, with the words in the report, the government is saying, we need all of this. We need mining, conversion, enrichment and a healthy nuclear generating fleet as well. So, the beauty of the report is it’s holistic and it’s saying we need it. You know, it’s proven fact that there is no such thing as a sustainable nuclear fuel cycle in any country without a level of government support. And a lot of that support disappeared over the last couple of decades because it ceased to be a priority. This report is making it a priority again. So, again, I wish all the best for the utilities, but let’s not get addicted to cheap.

Matthew Gordon: Okay. You have said that to me before. I know you believe it. What’s the next thing you’re going to do? Next week, what is the focus for you as a business? So, there are things there that you can control and there are things that you cannot. And again, we have talked on a few occasions before, you have got money in the bank, you timed that right. You have got an experienced management team, you have got three good assets, you have got a great mill, so you have got all a lot of things going for you. But what are you going to focus on next week so you can turn to your shareholders and say, right, my number one priority for you is, what?

Mark Chalmers: You have heard me say this multiple times; we are first and foremost a Uranium producing company. So, we’re going to try to get more clarity out of the DOE report. That’s kind of the next steps. You know, we’re certainly going to be advocating that we think that our history of producing nearly 35% of the Uranium in the United States over the last 15-years should give us attention for the right reasons, but we are still going to be multitasking these other aspects of our business as well too, but at a lesser focus than Uranium business central.

Hopefully, the price of Uranium will continue up to go up. I think there are some really positive signs on the settling out of supply demand issues globally. You know, in a perfect world, everybody can float, their boat will float because of the right reasons on the front steps of the nuclear fuel cycle, right on through the whole process. But so, we’re going to try to, you know, and we’re not building our company around just the government because we have more things to our business than others: most others are 100% focussed on Uranium. So, you know, we will get more certainty. We will start to look at how we can capitalise on immediate relief from the government, selling the inventories and preparing for filling a significant portion of the national stockpile.

We will continue working on our alternate feed land clean-up and then the rare earths. We are still getting huge interest. I know people kind of go, well, why are they getting into rare earths? But you know, this is exciting for us. This is exciting for us. And I’m hoping to show people that we’re building another complete and, hopefully, a significant business in the future for our shareholders, but we will always be first and foremost a Uranium producer.

Matthew Gordon: Okay. Got it. So just on that, because we talked last week about the rare earth components, which again, you know, it took everyone by surprise. What sort of calls are you getting? Are you getting inbound calls from railroad companies saying, can you process? You’re getting inbound phone calls from investors going, what are you doing? What kind of calls are you handling?

Mark Chalmers: A little bit of both, but we’re getting a lot of inbounds from rare earth experts. We’re getting inbound calls from people that have projects around the world. You know, and one of the key inbounds, and I said this on one of my last interviews with you is that dealing with the Uranium forum and radioactive products has been a substantial impediment for a lot of these rare earth companies over decades, and to find out that all sudden you have a facility that’s been around for 40-years and has experience in doing that and has a lot, not all our permits to do a lot of this processing, is out there and open for business people go – you’re connecting the dots.

Now, in the last few days, you have heard that the Department of Energy has released some funds to other companies that are more advanced in rare earths, or you know, as their core business, you know Linus out of Australia got a grant from the government, Mountain Pass Minerals got a grant from the government. I think these are fairly small: I don’t know the exact magnitude, but no, I think they’re, I’m just guessing around USD$5M or something, to design, you know, at least some initial concepts on facilities.

But there are various phases of these projects, of these steps and we think that we were maybe a little late there, but we still have a facility that can do a lot of these things that they need to do anyways. So, look, it has been significant, and I don’t blink when I say that. When I say significant, we’re excited about it. And as I said, we don’t think it gets in the way of our core business. We have got a very large facility. We have got a lot of land. We have got a supportive jurisdiction and we have been doing it for years. You know, I think I told you we have, we have already taken low level material from Mountain Pass for Uranium, from Cabot, Fan Steel. There are other rare earths and there are a few in the queue for the future. So we have been pretty close to it already with the material that we have taken from other sources for the Uranium values.

Matthew Gordon: No, I have to say that I did like that story. I liked that you came up with that idea for a new revenue stream, because we speak to a lot of rare earth companies who talk about, you know, trying to get the railroads stranglehold that China has, in a way, but they’re struggling to get all the components in place to be able to get their business up and running. So no, I think, well done on that one. Interesting to see how you get on with that.

Mark Chalmers: If you go to the World Nuclear Association’s website, and that is a great website. I go to it a lot. There’s a section there on Uranium in rare earths on the World Nuclear Association’s website. So, we’re not jumping off the track here. I mean, this is known, and we’re just planning to capitalise it in a bigger, greater way than we have in the past. So, you know, when you look back to these dependencies on China and Russia and critical minerals and critical materials and all that, just all sudden the band is playing pretty loud here. And if we are still first and foremost a Uranium company, and we can complement this with even something that’s on the World Nuclear Association’s website as a source of Uranium; I’ve said this to you before, why not?

Matthew Gordon: Why not? Why not indeed. Well, look, I know you have got a bit of work there. You were quite clear last time we spoke, you have got a bit of work to do around the economics and trying to understand the process, the options available to you. But as soon as you start understanding those numbers do let us know. I think it is a very exciting space. It’s a very high margins space. It’s a space where there’s a lot of people trying to get their economics to work and I think you could be an important part of that, a nice cog to help them as well. So yes, stay in touch about that one, for sure.

Mark Chalmers: Well, I’m definitely going to let you know, Matt, because you know, I mean, we have got a reasonably sized organisation, but I’ve taken very personal interest in this. I want the market to see that we’re going to do this in a smart way, and we will align with the right kinds of people with the right expertise to show that this is not a flash in the pan. This is a long-term focus that we think can really help the bottom line again, for our shareholders.

Matthew Gordon: Okay. Well Mark, I’m going to let you go because I know you have got a lot of calls lined up, but well done. I think people don’t realise what you have done, that you have got a policy document out of the US government for your industry, which is no mean feat. We just need to see how it is going to benefit the industry, but also benefit you this year. Keep pounding those doors and let us know if something interesting comes up. Okay,

Mark Chalmers: Will do Matt

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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.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

The Energy Fuels company logo

Energy Fuels (NYSE: UUUU) – The White Mesa Mill: A Trump Card Investors Shouldn’t Ignore

The Energy Fuels company logo
Energy Fuels Inc
  • Shares Outstanding: 115M
  • Share price US$1.81 (29.04.2020)
  • Market Cap: US$208M

We’ve conducted and watched a lot of interviews recently in the relatively small, but extremely passionately held and followed uranium space.

Green uranium reacting in a glass vial with a uranium symbol and a nuclear symbol next to it

Passion Or Mania?

Sometimes, for some investors, the word passionate is interchangeable with the word maniacal.

What we have noticed, and have had discussions with institutional investors about, is how this passion (mania) can sometimes negatively affect investment decision making. We will come onto that later in this article.

Another thing that is quite often interchangeable is the statements from the CEOs of junior uranium explorers: “We have uranium in the ground and when the spot price returns our share price is going to through the roof!  We need a little bit more G&A funding while the market returns. Trust me. Just wait.”  I paraphrase, but you get the idea.

Clearly, not all uranium CEOs can be right. The truth of the matter is that the uranium market outlook is irrelevant for some of these companies because they’ll be going underwater even if the uranium spot price hits US$100/lb. Let me put it another way: just as when the gold price is high, like it is now, not all gold explorers and developers feel the benefit. The same is true for uranium.

Uranium: A Complex Space

The uranium industry also has the unwanted accolade of being extremely political.

East VS West still lingers in the mind. The rise and fall of nuclear powerhouses used to signify the nuclear arms race; now, it signifies the energy business. The US continues to fall behind China and Russia in the construction, supply and, in some cases, operation of nuclear reactors for a new wave of nuclear energy demand from all around the world. We are big supporters of the macro story for nuclear energy and therefore the uranium industry, but we are also conscious that we need to make money on our investments.

nobody has understood the inventory levels globally for the past 2-3 years

Share price stagnation has become endemic in the uranium industry. With the spot price of U3O8 only now creeping past the US$30/lbs mark, and with meaningful price discovery unlikely until Q4/20, investors in both uranium juniors and established producers have been left frustrated for the last 2-3 years. Some see the recent mine closures due to the COVID-19 pandemic as the final nail in the coffin for the utility buyers’ strategy. This remains to be seen. We do not understand the inventory levels out there.

A nuclear power station

It is now clear nobody has understood the inventory levels globally for the past 2-3 years. Even the best market commentators, fund managers, and uranium CEOs have been left scratching their heads as to why this clear, macro-driven supply-demand story has been able to defy the odds and cold hard logic. So, whilst it is fun to speculate on the timing, the wisest heads have hunkered down and, in some cases, doubled down on the uranium thesis, retreating from the chattering classes online. There is nothing to do but wait.

The Undeniable Macro Story

The uranium macro story is one that resonates.

There is an appreciation of the statistics pertaining to greenhouse gas emissions and climate change, and the reality is somewhat reassuring: the world will need much more uranium in the near future. Some 450 nuclear reactors in over 30 countries are hungry for uranium. Industry commentator and CEO of Bannerman Resources, Brandon Munro, recently stated that around 50% of total future energy production by 2050 would come from nuclear in an interview with us.

However, this does little to help investors today who are operating in a void. Should they cut their losses and bail, or do they continue playing the waiting game that may be increasingly detrimental to their individual investment strategies, financial security, and even their sanity?

We are told the only people who truly know when uranium will see a surge of demand for new material are utility companies, who have been depleting and replenishing their unknown level of reserves at a highly secretive rate. Speculation about their inventory is rife, with data and hard facts low on the ground. Catalysts have been aplenty, yet failed to even slightly affect the equities markets for the last 3-years. Truth be told, no-one has got this right….yet. So, with the closure of Cameco’s facility at Cigar Lake for an indeterminate period, KazAtomProm’s 3-months shutdown, Rossing and Husabs’ closure in Namibia, and the reduced output in Q1/20 from BHP’s Olympic Dam, could this be the moment uranium investors have been waiting for?

There is one particular piece of knowledge uranium investors MUST come to terms with.

Not All Boats Will Float on A High Tide

Sorry to keep beating this drum.

A sinking ship

There is a chance the uranium company you are currently invested in is going to lose your money. Can you remember why you invested in it? Do those reasons still hold up? Why that company VS its peers? We believe that some uranium companies that we have studied and spoken to will not survive without partnerships being formed and money being injected (money they can’t seem to find), in addition to some luck. Some have inherently flawed models, inexperienced teams, insufficient cash or access to leverage, lacklustre assets, a deficiency of options, and really aren’t positioned to ever get into production!

There is still an undoubtedly exciting upside for the Uranium market, although we are dubious that it will reach the c. $140/lb spot price heights that some are pushing; in fact, in a recent interview, Rick Rule himself expressed his skepticism, as did Brandon Munro in his CRUX Investor interview.

Back to basics

Elaborate ideas are always nice, but pragmatic optimism is usually more rewarding. Last year we had an article written on our platform by regular contributor, a Curious Investor.

Energy Fuels, America’s premier uranium producer (and a potential producer of vanadium), impressed us with its fundamentals: an experienced team who have been there and done it before, sufficient cash to see them through until uranium price discovery, a set of good assets, and the bonus White Mesa Mill, which could give them a strategic advantage, perhaps even a monopoly, over other juniors in the region.

Recently, we spoke with CEO, Mark Chalmers.  We wanted to talk to him about his company’s current situation. First, we’d like to take a look at Energy Fuels’ White Mesa Mill; ‘if you own the mill, you own the region’ is a common quotation. As one of three mills capable of processing uranium in the US, and the only one that is operating, not too many people would argue with Chalmers’ assertion that Energy Fuels is well-placed for when the market turns.

That said, some criticism has been thrown as Chalmers for the strong talk about the conditions under which he would allow US uranium producers to use his mill, and also about the age of the mill. Firstly, in the same position, I’d be surprised if other CEOs didn’t demand the same terms. Plus, he is looking out for his shareholders.

As for the age of the mill, it reminds me of a classic car sale a few years ago. The car sold for c. US$3M. It was a stunning looking car from the 1930s. Then, the buyer complained that there was only one original part in the car and that he had been duped and wanted his money back. There was indeed only one original piece traceable to the car, but it had been maintained and restored several times over the past 80 years. It looked great and ran like clockwork. Mills go through continual maintenance all of the time. We’d be surprised if there was one original part left. White Mesa is vast. It operates, and probably always will, at less than half capacity.

The facts and numbers:

Energy Fuels’ White Mesa Mill:

Arial Photo of White Mesa Mill, Utah
  1. The mill has a licenced capacity of 8Mlbs pa of uranium.
  2. The age of the mill is much discussed (as per above), but again Chalmers doesn’t believe this is an issue. Keeping the mill operational is low cost according to Chalmers. Regular maintenance keeps things ticking. Could it be more efficient? We’d like to know.
  3. It has a peak historical operational capacity of 5Mlbs pa. Chalmers claims the company was and is limited by a lack of feedstock. Tolling is probably the solution but agreeing on a price and terms with other US uranium producers, or aspiring producers, is a hot topic.
  4. Historically, the owner of a mill typically holds the upper hand on pricing for tolling but uranium is a very political and emotive topic, so will there be pressure for Energy Fuels to play ball on pricing? Who knows? Chalmers doesn’t seem to think so.
  5. The mill can generate income independent of uranium and vanadium prices.
  6. In addition to licences to process uranium and vanadium ores, Energy Fuels has around 18 licences to allow them to process additional feeds that are not primary ores. Energy Fuels has received material from producers for several decades, including low-level tolled uranium from Cameco amongst many others. They are currently accepting feed from a uranium mine in New Mexico.
  7. Energy Fuels’ profits from alternate feed are fairly consistent but are not constant. Historically, the company has made anywhere between US$5-15M from alternate feed/clean-up operations. Given enough feed, Energy Fuels could exceed US$15M per year in revenue. The company tries to expand its feed resource by taking part in additional mine clean-ups in the region.
  8. When operational, White Mesa Mill has recycled 4-500,000lbs of uranium per year on average.
  9. White Mesa Mill needs a certain critical mass to be in an optimal state. This is said to be around 1.5-2Mlbs of primary ores per annum, with the capability for an increase proportional to the company’s primary ore levels. The economics of scale mean commercial operations would be best served at 6-8M lbs per annum. It is worth noting this capacity has not been achieved in many years.
  10. The mill is designed to process c. 2000t per day, but investors will want to see this output manifest in reality before they trust the numbers wholeheartedly. Chalmers has stated the mill will not come into play until at least 100,000t of feed is available.
  11. White Mesa Mill has a large enough capacity to process all feedstock “within the region.” This appears to make White Mesa Mill the only gig in town and may give Energy Fuels a unique trump card.
  12. In terms of the toll fee for feedstock from other uranium producers, Chalmers has been explaining to the market how the mill could provide a JV opportunity for the last year. Historically, Energy Fuels would end up with c. 50% of proceeds from tolled ores. These charges would be for processing, marketing, and then sale either to the U.S government, or utility companies via contracts or alternate purchasing arrangements. While this may have been fruitful historically, it remains to be seen whether an arrangement like this can be constructed in the here and now. Possible new arrangements include ores of a high-enough grade being processed for free, and some ores being sold by the producers themselves, rather than Energy Fuels, for a fee. In the past, there were private companies who could turn a good profit off ore tolling, but it remains to be seen whether this is true of today’s market. Will White Mesa Mill pay its way? We’re hearing quite a lot of ‘back in my day’ rhetoric, but we want to see how this applies in a new bull market. Options are one thing, but action is quite another.
  13. Conversations regarding JVs are happening regarding the mill, but there are no concrete arrangements yet. There are several producers interested, but they are currently hunkered down in negative cash flow, so we will see how things develop. The mill becomes much less profitable if market conditions aren’t economically viable, and this is a worry. Low-grade ores from clean-up contracts can only generate so much revenue. Alternate feed can’t be Energy Fuels’ primary source. Based on Q3 financial results, Energy Fuels earned anywhere from US$700,000 up to US$3M for their role in the New Mexico clean up contract.
  14. During its 38-year operating history, the Mill has produced over 45 million pounds of vanadium – or over US$500 million of vanadium at today’s prices.
  15. Energy Fuels is currently in discussions with the Navajo Nation EPA regarding clean-up operations of abandoned uranium mines in operation from 1944 to 1986. ‘Nearly 30 million tons of uranium ore were extracted from Navajo lands under leases with the Navajo Nation,’ and this appears to be a problem White Mesa Mill can help solve.

Energy Fuels’ ISR Facilities

  1. Sitting in situ, Energy Fuels has 100% ownership of both Nichols Ranch ISR Mine & Plant, and Alta Mesa ISR Mine & Plant.
  2. Nichols Ranch has a total licensed capacity of 2 million pounds of uranium per year.
  3. Alta Mesa has a total operating capacity of 1.5 million pounds of uranium per year.

While all these production capacities look impressive, we still haven’t seen if they can be made economic in the market. Only time will tell.

Latest news at Energy Fuels’ mine resources and other assets

The permitting process is continuing at the Roca Honda Project, which is claimed to be able to provide up to 2.7 million pounds of annual uranium production with a 9-year mine life.

However, Chalmers himself admits the completion of permitting is still several years away. Does this mean Roca Honda will be irrelevant in the next bull cycle? Is this true of many of Energy Fuels’ assets? It’s no good having so many strong, high-grade assets if they won’t be ready in time for the company to produce and sell anything.

Chalmers is right in saying that when you have fully constructed, fully permitted mines and production facilities, it costs money to keep them in compliance and good standing. We imagine it has been a battle to keep Energy Fuels’ many costs down, while also keeping as many assets as possible ready to fire at the right moment. We understand Energy Fuels’ status as the most strongly positioned U.S uranium producer, but we wonder if keeping hold of all these assets will benefit the company in the long run.

As far as vanadium goes, the spot price has dropped c. 25% since the start of 2019. Energy Fuels is putting most of its vanadium into inventory. They have produced around 1.5M lbs of high-purity vanadium (c. 99.7%). A small amount has been sold, and they are targeting premium markets than can afford the extra expenditure to acquire such a high-grade resource. While Energy Fuels has shown it is capable of churning out vanadium, the macro story of vanadium appears even more long term than that of uranium. Energy Fuels is painting the picture of itself as a slow burner, but one that could satisfy investors who can live without short-term returns. Is the company telling the market it is stockpiling vanadium the wisest play? We shall see.

General Figures

Chalmers has previously said the spot price needs to be at US$55/lb before Energy Fuels can get moving, and it needs to be at US$65/lb before new acquisitions and growth can take place.

This is clearly some way off, but what would a price like this mean under ideal market conditions? Chalmers sees Energy Fuels becoming a US$1B+ market cap company, meaning the company could be at least a four-bagger for patient investors. Chalmers bases this valuation off Energy Fuels’ portfolio and their long-term production capacity.

Upon completing our review of the company’s current situation, Energy Fuels has demonstrated something to us: even for the uranium producer with the strongest standing in the U.S, the future has elements of uncertainty. If this is the case, imagine what the future looks like for other uranium juniors and producers the world over. This is an industry that is going to have a few winners and many, many losers. Energy Fuels has provided some numbers to back up its claims, but there are many variables before these figures can be realised. Energy Fuels looks like one of the best bets in the sphere of uranium investment, but investors should act with caution before entering a market with pronounced risks and an abundance of companies consigned to failure.

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Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

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