USA Building A Critical Minerals Hub in Utah?

An aerial shot of Energy Fuels' White Mesa Mill in Utah

I spotted a news release this week which got me excited. It could be the precursor to a big move by the US government to take back control of its Rare Earth strategy. If it is, this is huge.


Rare Earth Elements (REEs)

Most people don’t actually know what rare earths are or what they are used for.

Sounds way too technical, and not as exciting as gold, or explosive (pardon the word) as uranium. Rare Earth Elements (REE) or Rare Earth Metals (REM) are used in lights, screens, glass, as catalysts, in magnets, in batteries and steel alloys and also for critical defence uses and in the manufacture of aircraft: we will write up a more in-depth article about the who and the where. But for now, let’s keep this simple.

Anyone with any semblance of knowledge about the Rare Earths space recognises its strategic importance. They will also know that 90% of the market is controlled by China. The Chinese government has got a track record of weaponising this fact against countries who do not bend to their will on given topics. It would also be fair to say that relations between the Donald Trump / USA and the Chinese government has been strained of late. So what do you do?

Energy Fuels (NYSE: UUUU)

Step forward Energy Fuels. We spoke to them a few weeks ago following an announcement that they made about processing rare earths and radioactive material at their White Mesa Mill. It was interesting but I didn’t think much of it. Just more so-so news flow, typical of companies looking for the oxygen of publicity. That was until I saw their recent announcement about engaging Constantine Karayannopoulos & Brock O’Kelley. And a light bulb moment happened.

Energy Fuels' company logo

Just the slightest amount of digging reveals Karayannopoulos and O’Kelley are big hitters in the rare earth space. Karayannopoulos the CEO and later Chairman of MolyCorp and selling it for c.$1.3Bn. Now, he is Chairman of Neo Performance Materials (TSX: NEO). O’Kelley was in operations for Mountain Pass in the 1990s and the 2000s. Both have extensive REE processing facility design, start-up experience, operations, and downstream value-added manufacturing of advanced REE products. What Energy Fuels brings to the party is a technologically sophisticated, multi-licenced, regulated and controlled environment in the shape of the White Mesa Mill. Put all the above together and you have the beginnings of something quite exciting. Let me tell you why.

Disrupting The Chinese Monopoly

Lots of companies, and countries, have talked about competing with the Chinese in the rare earths space. None have managed. But now the same US Senators who have been beating the drum about the strategic importance of uranium, also see rare earths as critical to the safety and security America. These are the same US Senators that Energy Fuels have been courting through the entire Section 232 process. Relationships have been established and formed. Ideas have been shared. A mill that can process radioactive material, such as uranium and rare earths, in the USA, will have been on the agenda. The mill can even extract uranium from rare earths. Now things just got interesting.

Energy Fuels are clearly the leading US producer of uranium, when the taps get turned back on. They also control the economics of the other US based uranium juniors, because they own the keys to the mill. Non Energy Fuels shareholders won’t like this fact, but it has always been thus in the mining. Uranium is, and will continue to be, their core business. But make no mistake, Energy Fuels intends to make a significant contribution to the bottomline line with rare earths feed business. The potential contribution will be counted in the tens of millions.

Think it is time to start paying attention to White Mesa’s potential for multiple revenue streams, and its technical advantage as the only meaningful critical minerals hub in the USA.

Let me know what you think. Can you see rare earths being at the heart of the American Dream again?

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.

An aerial shot of Energy Fuels' White Mesa Mill in Utah

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

The Energy Fuels company logo
Energy Fuels Inc
  • NYSE: UUUU
  • 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.

Company Website: https://www.energyfuels.com/

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) – Finding Value When The Market Has Lost Its Mind

The Energy Fuels company logo
Energy Fuels Inc.
  • NYSE: UUUU
  • Shares Outstanding: 115M
  • Share price US$1.90 (23.04.2020)
  • Market Cap: US$218.5M

In this series, we take a look at some of the stocks I think the market has severely undervalued during the COVID-19 crisis. Discount stocks can mitigate some of the risk for investors; that’s if they know what to look for.

Green uranium reacting in a glass container

Energy Fuels – A Uranium Gem

Today, I’m looking at America’s leading producer of uranium (and potential producer of vanadium), Energy Fuels (NYSE:UUUU).

We’ve written several articles detailing the potential of Energy Fuels in the past. For those new to the story, it might be worth checking them out of some context. In addition, there are numerous Energy Fuels interviews on the Crux Investor platform. CEO, Mark Chalmers, has kept us informed on all the latest developments in the story, including a controversial event in mid-February; will investors now be looking back at this much more favourably?

Strong Fundamentals

Several months ago, in an article from one of our contributors, the three most important considerations for uranium investors were considered, with reference to Energy Fuels. There was also a bonus point that some uranium investors may not have thought about before.

A Strong, Experienced Management Team

If a management team hasn’t dealt with uranium before, from permitting, to construction, to production, to sale, then you can walk away now.

Uranium requires specific expert knowledge, given the many problematic idiosyncrasies of the space. One such example is the situation with uranium sales; namely, negotiating long-term contracts, and transporting the radioactive material from a mine to the consumer. These are just two difficult processes that require proven experience, and Energy Fuels’ management team has been there and done it for decades. These look like safe hands. Don’t let companies learn on the job with your money.

What continues to strike me is the general lack of any discussion of the uranium market, itself.  All of the juniors are optimizing and “polishing up their single proposed projects” but what is lacking is an understanding of just how the uranium works (or doesn’t work) and the crucial role of term contracts.  As we have discussed previously in interviews with Brandon Munro, the spot price is a nice indicator of near-term market balance and can be a source of “signaling” of future conditions, but the linkage is weak and can be misleading.

We have been trying to provide a bit of enlightenment regarding the role of term contracts, as well as the process itself, which can be time-consuming especially for junior companies that are not known to the utility fuel managers (one result is the likelihood of a series of small volume agreements until a producer proves it can deliver its product on-time and on-budget).

A vast majority of the juniors are run by either technical/operational types pulled from outside of the industry or financial types that are experienced in raising funds.  Their activities tend to be biased accordingly. Energy Fuel’s experience tells us they won’t have these issues.

An Impressive Portfolio Of genuine Assets

We find Energy Fuels’ portfolio impressive. Energy Fuels has ‘more production capacity, licensed mines and processing facilities, and in-ground uranium resources than any other U.S. producer.

Energy Fuel’s 100% ownership of many promising mines across Arizona, Utah, New Mexico and Wyoming gives them a long list of valuable assets, not to mention a large inventory sitting at surface. While the vanadium market hasn’t exactly been favourable in recent times, the diversification the management team has achieved at Energy Fuels could help mitigate risk, and low-cost environmental clean-up and uranium recycling services, the recently announced rare earth elements processing capability and revenue stream, and potential involvement in the EPA clean-up of Cold-War-era uranium mines, are further examples of Energy Fuels’ multifaceted nature. All of their eggs certainly aren’t in one basket. There is a lot more than uranium at work here, unlike many other producers.

A Bonus?

Energy Fuels’ White Mesa Mill has been discussed at length by Chalmers in an interview with Crux Investor.

Energy Fuels' White Mesa Mill
Energy Fuels’ renowned White Mesa Mill

It is the only fully licensed and operating conventional uranium mill in the United States. This gives Energy Fuels something of a monopoly over the region: their mill is the only gig in town. The old adage is that he who controls the mill controls the district. In this case, this is the only operational mill in the entire United States of America. That puts them in the driving seat for processing of U308 and vanadium in the region, the district, and, perhaps, further afield. Other uranium companies have to march to Energy Fuels’ drum beat or be left out in the cold. Companies will have to pay Energy Fuels for use of their mill or face expensive shipping expenses to mills in foreign countries. Energy Fuels will also have control of the timescale of other companies’ uranium production. If I am a shareholder of UUUU, I’m going to like that news. If I’m invested in one of the companies needing to negotiate a toll mill fee, I’m probably less excited and possibly irritated.

The mill itself has a licenced capacity of 8Mlbs pa of uranium. The most it has operated at is 5Mlbs pa. It can also process multiple lines of ore (c. 17); these are licenced too. The reality is that is likely to only operate at 2Mlbs pa unless they do some meaningful upgrades.

Energy Fuels appears smartly positioned to get into production quickly when the uranium price turns, and might be the reason they made the move to raise money in the market when they did.

Sufficient Capital To Survive The Uranium Bear Market

Even before COVID-19 reared its head, uranium companies were pretty desperate for capital.

Institutional funding was incredibly sparse. With the vast majority of uranium companies now in care & maintenance, including Cameco’s producing asset, Cigar Lake, uranium companies have no cash flow from uranium sales. Until price discovery happens, and the price moves towards US$50/lbs, uranium companies will struggle to survive. Energy Fuels is one of the few uranium producers that still has cash flow, mainly in the form of environmental clean-up operations. The other that springs to mind is Global Atomic; I’ll be talking about that company in the near future.

uranium yellowcake
A photo of yellow cake uranium, a solid form of uranium oxide produced from uranium ore. Yellow cake must be processed further before it is made into nuclear fuel. Courtesy of Energy Fuels Inc.

With COVID-19’s impact on global markets, capital is now incredibly expensive, even more so than before for uranium companies. In mid-February, Energy Fuels announced an agreement with Cantor Fitzgerald & Co; the ‘innovative global financial services firm‘ agreed to purchase, on a bought deal basis, US$16.6M of common shares of the company at a price of US$1.47 per share. At the time, many investors were confused, and even angry, at the decision Chalmers had adopted. Commentators were scrutinising the decision rigorously, claiming Chalmers had raised expensive, very dilutive capital. It’s amazing how things works out. Fast-forward a month, and this suddenly looks like the best deal a uranium company could have made. Energy Fuels is now positioned more strongly than most of its peers. It has the cash to ride out the coronavirus crisis, and to see the company into what is building to be the next long-awaited uranium bull market (hopefully, for investors, in the near future).

These are exciting times again for uranium investors, but pick your team wisely.

Company Website: https://www.energyfuels.com/

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

Best Foot Forward. I want a Clean Fight

What a week for Energy Fuels (NYSE: UUUU)

US Secretary, Dan Brouillette announced a package which signalled to many that the US Department of Energy has taken seriously the cry for help from the uranium miners and the Nuclear industry. A 10-year $150M pa budget which The Office of Nuclear Energy (ONE), which sits within the Department of Energy (DOE), is asking for to “re-establish the nation’s nuclear fuel supply chain through the domestic production and conversion of uranium.  Sounds positive in the best-case scenario, but more information is required.

But it seems to have set off another event which has started a passionate debate by Uranium investors on social media. Energy Fuels (TSX: EFR | NYSE American: UUUU) has issued a new release announcing a bought deal for $16.6M through Cantor Fitzgerald. It has not yet closed, but we would expect it to close within the next week.

This isn’t the first Uranium company to sortie into the market recently looking for capital. But it is one of the largest. So what is going on? We don’t know yet, but will request a call with the CEO, Mark Chalmers, when they close the Deal, as we won’t get much out of him before then.

So why would they raise money now with their shares so depressed, and at a discount? It doesn’t make sense. Or does it?

Firstly, it’s worth remembering that Energy Fuels has around USD$16M of unsecured, convertible debentures with annual interest-only payments of c.USD$1.4M and a maturity date of 31st December 2020. That effectively is a large liability on the balance sheet which we will see in their March 2020 Quarterly Statement, so they need to do something about that.

Energy Fuels is raising $16M. They owe $16M. So maybe they are going to pay off the convertible. That would make sense wouldn’t it. Except it doesn’t. The uranium market has been hard to read for the last 4 years, it’s not any easier today. If you are company spending cash to keep the lights on, you need cash to hand, and not keep getting the begging bowl out. The smart thing to do would be to refinance the convertible and keep as much of that cash available as possible.

Also, what you can’t do is wait for the market to turn and save you. That has been the downfall of many a company. The response to the DOE announcement was mixed. It hasn’t had the super-charged effect that uranium companies needed. Don’t get me wrong, it was more positive than negative, but some doubt around the detail remains. So, in our opinion, companies need to get on to the front foot. Be in control as best they can. In the of case Energy Fuels, the USD$16.6M bolsters their balance sheet to somewhere in the region of USD$55M – $60M. Remember this is made up of cash and working capital in the shape of inventory (uranium & vanadium). About 50% is inventory, not cash, but only semi-liquid. That said the price of vanadium is creeping up again, c.$7-$7.50 at the moment, the c.1.5Mlbs of Vanadium in Energy Fuels stores is starting to look attractive again. We don’t expect that to be sold anytime soon, but is currently an appreciating asset.

Remember the $16M convertible is due at the end of 2020.

This reminds me (it’s not an exact parallel, but enough of one) of the actions of another company that we follow closely, RNC Minerals (TSX: RNX). The new CEO, Paul Huet, did a bought deal in September 2019 for USD$18.5M, much to the chagrin of his large retail following. The share price was depressed and cry from the crowd was ‘no more dilution’. But that raise turned out to be the making of one of the turnaround stories of last year. It bolstered their balance sheet and allowed them to put things in place to take advantage of the turnaround in the gold price from September 2019. It was a bold move. It didn’t win him any fans initially, but now the mood is much changed. The company is consistently producing and adding to their cash balance.

That is gold and this is uranium, but investors banging the ‘10- 50 bagger uranium drum’, probably won’t be overly concerned about the cost of this money to Energy Fuels as they will be swimming in cash, they tell us, when the market turns. The more conservative of us, who buy the macro story driving the demand cycle, may have winced at the price paid by Energy Fuels, but here is my take.

If the announcement from the DOE is the first salvo, it is a positive one. Right now, there aren’t US uranium producers capable of suppling annually the 2Mlbs – 2.5Mlbs of domestic uranium that the DOE announcement claims it will buy from 2021. Is this a case of Chalmers wanting to get on the offense to be able to claim as much of the $150M as possible? We think so. Can he do it? Well that’s going to come down to timing, luck and planning. Only one of those he can control. But if he has timed this correctly, even us conservatives would expect to make money on Energy Fuels. It doesn’t necessarily mean I’m happy today about what this does to the share price, but then I wasn’t buying into the short-term thesis for Uranium. And to be clear we do not own shares in Energy Fuels today. But after the raise next week that may change.

We talk in one of our other articles here about Energy Fuels belief that given there are only a handful of US uranium companies capable of producing uranium today, they would expect to the be at the front of the queue. And Energy Fuels, with the only working uranium (and vanadium) mill in the US – White Mesa, probably think it deserves to be at the head of that queue. In the current market it would be hard to argue against that.

So whatever your take on the DOE announcement, the conversation just got a lot more interesting.

Your opinion that matters, so please leave a comment below.

Company Page: https://www.energyfuels.com/

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.

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

A wide photo of U.S President, Donald Trump, in a suit and red tie, making a speech.

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.

Company Page: https://www.energyfuels.com/

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.

A wide photo of U.S President, Donald Trump, in a suit and red tie, making a speech.

Energy Fuels: I need your clothes, your boots, and your uranium mill.

A picture of the face of the Terminator, Arnold Schwarzenegger, who wears sunglasses and holds a gun up.

If, like me, you are a budding investor, you likely spend hours each night scouring the internet for the latest and best opportunities to make money. From economic revolutions instigated by futuristic technology, to trade embargos plummeting the prices of certain commodities, the world of investment is a complex minefield, which incites fear and excitement in equal measure.

In recent days, a commodity that has captured my focus is uranium; certain American economic news regarding it has intrigued me, in addition to the international surge of attention towards climate change. Following national news coverage in the last few weeks, it has been impossible not to notice seething commuters warring with Extinction Rebellion protestors. What could possibly cause smartly dressed commuters to devolve into a primitive mob? The answer is the increasingly intense climate change debate.

A colour photo of a crowd of colourfully dressed Extinction Rebellion protestors holding a large green banner stating: 'REBEL FOR LIFE.'

This event was one of many occurring in England’s capital in recent months. Additionally, Greta Thunberg’s damning climate change speeches have navigated themselves into the centre of international discourse. An individual wouldn’t be nominated for the Nobel Peace Prize unless their cause was especially relevant.   

One of the key components of the raging debate is nuclear energy. Nuclear-based electricity production avoids carbon dioxide and other greenhouse gas emissions. However, it has been suggested radioactive gas can cause health issues to workers and individuals from communities surrounding power plants. Furthermore, the disposal of nuclear waste is an even more controversial subject, and if one so much as utters the words ‘nuclear weapons’ they can expect a flurry of opinions to be launched at them more explosively than the warheads in question.

One of the primary materials involved in nuclear energy production and military use is uranium. In the wake of a tsunami striking a nuclear power station on the shores of Fukishima, Japan, the energy sector held a review on reactor designs and safety procedures. The resulting financial and psychological tidal wave had a detrimental effect on the industry, one which it is only slowly recovering from. As a consequence, despite offering vastly lower energy costs, uranium seems to have reached a political and environmental impasse and demand has plummeted. When combined with a lingering sense of distrust generated by incidents in Chernobyl, Ukraine (1986) and 3 Mile Island, U.S.A. (1979), and its association with nuclear proliferation throughout much of the 20th century, I was beginning to view uranium as a commodity too contentious to consider investing.

A colour photo of the dilapidated Ferris Wheel in Chernobyl's infamous abandoned playground.

However, after conducting my own research, I have concluded it is an area that can bring big returns to patient investors. The macro story is positive and encouraging. There are billions of USD being spent building new reactors across the world. New technologies mean small, more mobile reactors are being commissioned by countries who previously would have found themselves priced out. High profile individuals are vocal in their support, from Bill Gates to Elon Musk, and the vast scientific community adds additional endorsement to nuclear power being critical to the energy solution. Our current energy sources are not sufficient to cope with a rapidly increasing population and I feel nuclear power can be a green, affordable solution. 

…many of the world’s largest uranium mines are in care-and-maintenance mode.

The Uranium Cycle: I’ll be back.

Uranium is fundamental to the production of nuclear energy. However, current uranium spot prices remain far below what is economically viable to mine and produce ($23.90 as of 31/10/2019). Such market activity has depressed investment. Most of the (≈50) remaining uranium companies are struggling to stay afloat; many of the world’s largest uranium mines are in care-and-maintenance mode (1). These cold, hard facts lead prospective investors to one conclusion: why on earth would I want to invest in uranium? The answer remains the same as any other investment: it can make you money if you play your cards right.

I have studied numerous articles detailing different investment approaches to goods experiencing a low equity price. To me, the most attractive attitude towards uranium investment is the contrarian approach. After recognising where uranium is in its cycle, and the potential for an uptake in the future, this method seems prudent.

However, I can’t exactly go out and buy large quantities of uranium for myself; I wouldn’t want MI5 knocking on my door in the early hours of the morning. A wise investment will require choosing the right companies to invest in.

From an investor’s standpoint, there are 3 crucial elements a company requires to instil confidence in me, or any other investor. If any of these aspects are missing, I think the company is likely to falter and investment should be avoided. 

Investing in uranium: the secret recipe

The three ingredients are as follows:

  1. An experienced management team who have a proven track record for every process: mining, refinement and sale.
  2. Sufficient liquid assets to enable the company to survive until prices take an upturn.
  3. A genuine asset(s), not something purported to be an asset (such as a licence) that in reality is more restrictive to a company than beneficial.

Energy Fuels, the leading U.S. producer of uranium and potential producer of vanadium, has all three, but, perhaps most interestingly of all, it has an ace up its sleeve that is likely to be a real game-changer.

An Experienced Management Team

Uranium is an incredibly complicated commodity to work with. From permits, licences, safety, legislation, regulation, transportation to refinement there are numerous difficulties, not to mention the difficulty of mining itself. The sale of uranium is also far from straightforward, because the buyers are utility companies with long buying cycles and complex purchase criteria. If a management team has not already been through this process from start to finish, they are learning on the job with my money.

A colour photo of Energy Fuels CEO, Mark Chalmers.
Energy Fuels CEO, Mark Chalmers

Energy Fuels has a management team with an impressive résumé. Their CEO/President Mark Chalmers has been involved in the uranium industry since 1976. His vast experience would impart confidence to most investors. As a company, Energy Fuels has been operating since the 70s, and has nearly 40 years of experience mining and refining uranium. I find Energy Fuel’s established industry-related relationships and experience with uranium production/sales impressive.

Sufficient Cash

The brutal nature of the current market has created a tough environment for uranium companies. Murmurs from funds surround the need for price discovery: the spot price for uranium will need to start increasing before they will invest meaningful cash into companies again. It seems clear to me that utility companies have complete control of the timescale of any potential uranium price uptake. In the meantime, if a company lacks the cash to maintain their facilities, they will not be able to survive.

Handily, Energy Fuels has $40-45 million to see them through until uranium prices rise.  In a recent interview with Crux investor, Chalmers expressed a reason for investors to be hopeful of a price increase in the near future.  Energy Fuels and Ur-Energy are hopeful their petition to the United States Government under section 232 and the subsequent announcement of a 90-day Working Group may bear fruit.   

If the group’s report is favourable to the nuclear industry, it is possible President Trump could subsidise U.S. uranium companies via tax breaks and other federal financial boosts, thus allowing prices to rise and profit to be made for investors who climb aboard while prices are still low. However, despite Chalmers stating he would be “shocked” if the government doesn’t rule favourably towards the uranium sector, the judgement currently resides in a realm of definitive uncertainty; the group’s report may not be completed this year as other events take centre stage on the U.S. political platform.

Genuine Assets

A company’s assets are an excellent indicator of if my hard-earned cash will be worthily invested. Energy Fuels have a portfolio they regard as ‘truly unique.’ (2). They have ‘more production capacity, licensed mines and processing facilities, and in-ground uranium resources than any other U.S. producer.’ Energy Fuel’s 100% ownership of numerous promising mines across Arizona, Utah, New Mexico and Wyoming gives them an excellent list of valuable assets.

Furthermore, in an interview with Crux Investor at the WNA, Chalmers explained the versatility of Energy Fuels. The company tries to ‘diversify,’ to ‘keep a strong balance sheet’ and ‘protect shareholders.’(3) The quantity of projects being undertaken by Energy Fuels helps reduce the risk of investment, as if one goes horribly wrong, there are plenty of alternative options to steady the ship.

The diversity of Energy Fuels is further exemplified by their status as the largest U.S vanadium producer. Vanadium has a variety of uses in engineering and redox flow batteries to name but a few. They also provide ‘low-cost environmental cleanup and uranium recycling services, including potential involvement in the EPA clean-up of Cold-War-era uranium mines.’ Investors can find their risk reduced because the company is clearly not a one-trick pony. Energy Fuels is not completely reliant on uranium.

The Game-Changer

When first mined, Uranium isn’t functional for nuclear energy or military use; it needs to be enriched to ≈20% for power and ≈85% for military use. The enrichment process requires the mined uranium ore to be processed in a mill. Energy Fuels own the only ‘fully-licensed and operating conventional uranium mill in the United States.’ (4). This means in the event of a uranium price increase they are the only company ready to go into production immediately. It also means that any competitor will be restricted at their leisure; companies will have to pay Energy Fuels for use of their mill, or face expensive shipping expenses to mills in foreign countries. Energy Fuels will also have control of the timescale of other companies’ uranium production. Chalmers has positioned the company strongly with an undeniable leg-up on the competition.

A photo of three nuclear cooling towers in action against the backdrop of a clear blue sky and a woodland area.

An Option I Could Seriously Consider

Upon conclusion of my research into the world of uranium companies, I have reached the conclusion Energy Fuels would be a potentially sensible investment. I don’t think any other American uranium producer comes close when the management team, business model, cash and bonus mill of Energy Fuels places them in such a commanding position. In the near future, I am likely to invest. I feel my money would be much better served waiting to grow with the sleeping giant of uranium than comatose in a bank account with less interest generated than a taxidermist’s dating profile.

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

  1. https://www.iaea.org/newscenter/news/uram-2018-ebb-and-flow-the-economics-of-uranium-mining
  2. http://www.energyfuels.com/
  3. https://youtu.be/uj1VG8V3igs
  4. http://www.energyfuels.com/white-mesa-mill

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. We provide paid for consultancy services for Energy Fuels. 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.

A picture of the face of the Terminator, Arnold Schwarzenegger, who wears sunglasses and holds a gun up.