Energy Fuels Inc. (AMEX:UUUU) Q2 2023 Earnings Call Transcript

Energy Fuels Inc. (AMEX:UUUU) Q2 2023 Earnings Call Transcript August 7, 2023

Operator: Good afternoon, and welcome, to the Energy Fuels’ Second Quarter 2023 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer session. [Operator Instructions] Thank you. I will now hand the call over to Mr. Chalmers, CEO of Energy Fuels. You may begin your conference.

Mark Chalmers: Thank you very much for the introduction. And good morning or afternoon, depending on where you’re joining from. And I want to thank everyone for joining the Energy Fuels Q2 ’23 conference call and webcast today, we are always excited to discuss our results and our significant accomplishments that we continue to make. For those that cannot join the call today there will be replays of this presentation available for two weeks on our website starting later today or tomorrow. Every quarter, I say we’re making remarkable progress on many fronts and this quarter is no different, Energy Fuels is likely one of the biggest success stories on decarbonisation, electrification, while we also emerge as a clear leader in U.S. critical mineral production.

And this is at a time when it has never been more important. We are a unique investment. No other company I know has the ability to advance uranium, vanadium and rare earth production capabilities, while at the same time advancing our medical isotope aspirations. And we’re doing this while we continue to maintain a very strong balance sheet with zero debt. Today, I’ll elaborate on these accomplishments for the quarter and provide details of what I think the rest of the year will look like. I also want to remind everyone that you are controlling your slides to the presentation from your own device, and I’ll try to remember to tell you when to say next slide. There will be time for questions at the end of the presentation and during the question and answer session, Dave Frydenlund, our Executive Vice President, Chief Legal Officer, and Tom Brock, our CFO will be available to answer any questions I cannot answer.

So let’s jump into the presentation. This first slide showing a picture of the remarkable White Mesa mill, which is the critical mineral hub, it’s our main asset for the company, producing critical materials for the clean energy transition. And there is really no facility like it that I know of in the world. Next slide. I may be making some forward-looking statements, and those are included in this slide number two. Next slide. So, Energy Fuels is a leading U.S. producer of uranium vanadium and rare earth elements, creating clean energy for a better world. Next slide. And I’ve talked about the periodic table before but it is also good to talk about it again, because I want to remind people of all these new elements that are required for decarbonisation and electrification that nobody even talked about 10 or 15, 20 years ago, in Energy Fuels between our uranium activities.

Rare earth activities vanadium and potential to recover radium for medical isotopes, is going to be or currently is or will be able to recover between eight and 10 of these elements on the periodic table. And I don’t know of any other company that will be able to say they’ll be able to recover that many elements in due course. So it’s very important, it’s the future of decarbonisation electrification. And we’re very proud of that, and the way that we’ve been able to place and position the White Mesa mill in our assets to do this effectively. Next slide. So, again, just to remind people, uranium for nuclear energy, which provides 50% of the U.S. zero carbon electricity, which is very important for decarbonisation, and it’s almost impossible to meet the goals of decarbonizing without nuclear energy, rare earth, critical elements used for the powerful, magnets used in electric vehicles, wind and other high tech appliances.

And it is truly remarkable. If you want the highest efficiency electric vehicle, it needs rare earths to be the most efficient. Vanadium primarily used for high strength steel, but also used in getting increasing uses for grid scale batteries, the medical isotopes, as I mentioned, we’re advancing our strategy to recover primarily Radium-226 and 228 for emerging cancer therapies. We also continue to recycle uranium and vanadium bearing materials, and nobody else in the U.S. has ability to do that, like Energy Fuels has been an important part of our business, and up and down markets, particularly down markets. And we’re always very proud of our financial strength, with significant cash in inventories, and I’ll talk about that more later. Next slide.

So now for the Q2 highlights. In the picture of the Pinyon Plain Mine that I built in 1987. And it’s really again, a remarkable deposit. Next slide. So we ended the quarter June 30, with $134 million of working capital that is made up of $35 million in cash, $64 million of marketable securities, and $33 million of product inventory. If you adjust to current commodity prices, you can easily add another $18 or so million dollars to that working capital at current market value of that inventory. As I mentioned, zero debt, which we’re very proud of, because we have probably somewhere in the order of $1 billion with the assets. And we still hold 766,000 pounds of finished uranium, about 900,000 pounds of finished vanadium, and about 37 tonnes of finished high purity partially separated rare earth carbon in inventory.

Next slide. During Q2, we did sell some uranium to a major U.S. nuclear utility, about 80,000 pounds. That was around $4.3 million at around $54 a pound. And by the gross part profit and I want to highlight this with a gross margin of about 46%. We’re still producing, or still reading four conventional uranium vanadium mines, that includes the La Sal Complex, the Beaver Shaft, the Whirlwind, and Pinyon Plain Mine in Arizona, and final production decisions on these projects will be made based on our inventory levels and market conditions. We also sold PFN technology to Encore for $3.1 million. We had bought the PFN for around 500,000 pounds, we made a gain of $2.7 5 million on the sell of the PFN. But we also have the rights to use that if we need it in the future.

And right now, we don’t have any projects that require the PFN. So we made some a nice little profit on the sale of the PFN. And in addition to the 766,000 pounds of finished uranium inventories, we have nearly 400,000 pounds of uranium in circuit and in raw materials at the White Mesa mill. So we really have any order of 1.2 million pounds of uranium in inventory in in circuit or in raw materials. Next slide. Rare earth production. We produced approximately 99 metric tons of high purity partially separated rare earth carbonate from monazite and that would included approximately 44 metric tons of total rare earth oxides. And we are producing the most advanced rare earth material being produced in the United States today. On our Phase 1, Rare Earth Separation project, which should be operational last quarter this year or first quarter next year, we’re very excited about that, we are modifying enhancing the existing solvent extraction circuit at the mill to produce separated oxides.

And I think this is the only example of this that I know of in the world will have a uranium circuit vanadium circuit and rare earth circuit all in one building, we expect to have the production capacity of the rare earth circuit up to 1000 metric tons of NdPr per year. Development work has begun, we have ordered most components that are expected to be delivered in Q3. And we expect the Phase 1 cost to build out the separation plant to be a remarkable $25 million, which is absolutely very low cost relative to others, because we’re doing it in existing infrastructure. Next slide. Our Phase 2. Separation Project. We’re doing a further engineering work on that to be in a position given enough monazite feed around 2026 to produce three to four times what the Phase 1 project is capable of doing.

The Phase 2 project will also include a standalone crack and leach circuit at the mill, enabling us to produce in refined both rare earths and uranium and vanadium at the same time. Phase 3 is focused on the heavies, but we do plan to do heavy separations later this year in the laboratory and that will be focused on the Dy and the Tb which are two very valuable heavy rare earths required to make the most robust electric engines that are more heat — have more heat sensor capabilities, then the Dy and the Tb or the dysprosium in the terbium — excuse me, the NdPr. Sorry. We also acquired the Bahia project in February. And we’re advancing that, we have this substantial land position around 60 square miles, with a potential in time to produce between 3000 to 10,000 tons of monazite sands.

We’ve done our Phase 1 drilling. We have purchased a drill rig, we have people being trained on that rig right now. And we’re shipping that rig down to Brazil here in the next month or so, and we’ll start our Phase 2 drilling campaign with our own rig. Next slide. Vanadium sales, we didn’t make any vanadium sales in Q2, but we still have the ability to go back into vanadium production quite quickly. And we – but what we did sell in Q1, we sold it was about a 37% margin. And it’s still an important part of our business plan, but it’s not the main focus of the company. But it is the only conventional vanadium processing facility in the United States. And as I said, we have nearly approximately 900,000 pounds of vanadium in inventory. Next slide.

And again, looking at our working capital, the $134 million of working capital and zero debt, I mentioned the uranium inventory that we have both finished process in progress, and the vanadium inventories and if you adjust for current prices, the inventories worth in your $20 million more than what’s included in the working capital. And I want to add that it does not include, it does not include our — note that we hold with Encore or some of our other investments. So we are in a very, very strong and enviable position with our balance sheet. Next slide. So looking at our guidance, we’ll sell approximately 560,000 pounds of uranium this year, at an average price of between $58 to $60 a pound. We already sold 300,000 pounds to the U.S. uranium reserves.

We sold the 80,000 pounds I mentioned earlier and we’ll sell another 180,000 pounds, which is equivalent to about another $10 million of revenue that is already contracted to be sold. We expect to put at least one new uranium mine in production later this year or early next year. We’re seeking additional long term supply agreements at higher prices. And we’re really focused on the rare earths sector at the mill this year. We’re not planning to produce any uranium vanadium in 2022. We still plan to process Around 600 metric tons of monazite and recover around 150 to 270 metric tons of REO in ’23. And we — we plan to advance in commission, our Phase 1 separation plant later this year or early next year. We are also seeking rare earths off takes, we’re looking to continue to build our supply of monazite.

We continue to talk to a number of parties, in our advanced discussions with a number of them, it’ll be a really good day when I can get more information on that in advancing the Bahia project, as I mentioned earlier, and we’ll advance it through SK-1300 Assessment Reports and 43-101. So, in closing, next slide, just the sun setting in Southern Utah, very pretty picture here. And I’d like to open it up for any questions anyone may have.

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Q&A Session

Operator: [Operator Instructions] Your first question is from Heiko Ihle from H.C. Wainwright. Please ask your question.

Heiko Ihle : Hey, Mark, can you hear me okay?

Mark Chalmers: Yes, you’re fine, Heiko.

Heiko Ihle: Perfect. I’m calling in from some little island zone in Italy. So apologies if the receptions and all that great. Anyways, excited for all these arrows in your future to have some money. So let’s keep that going. Walking through the 403,000 pounds of U3O8 that you have in raw materials work in progress inventory. Walk me through where we might stand by the end of the year, both — even on the vanadium level as well, but also a U3O8 level, please?

Mark Chalmers: You want to walk — you want me to walk you through in the 400,000 of raw materials in unfinished uranium?

Heiko Ihle: Correct, like end of the year plans?

Mark Chalmers: Okay. Well, we’re not planning to do any additional finished product of uranium this year Heiko. We mentioned the 400,000 pounds because we have alternate feet, but we also have various uranium ores. For example, we have material that came from the Mount Taylor project, and it’s sitting in stockpile at the mill. And we can process that when we decide we want to process that to make that 400,000 pounds into finished goods to complement the 760,000 pounds we already have. We’re mainly focused on the rare earths of getting this Phase 1 up and running during the end last half of this year and early next year. And then we’re looking at a potential mill run in the next year or two, when we decided we want to do the mill run for uranium ores and potentially vanadium ores.

Heiko Ihle: That’s helpful. Thank you. You want to go for maybe some longer term expectations as well?

Mark Chalmers: Yes. As we said, when we look at the let’s start with the uranium business, we have the assets to get up to between 1.5 and 2 million pounds of uranium production per year. We want to build that out when we get more contracts. Right now our contracts are going to be in the order around 500,000 pounds a year. So we really don’t have the need unless the price uranium goes up substantially, to produce a whole lot more than that 500,000 pounds per year. So we’re going to continue to underpin that with more contracts. But we can get up to that 1.5 to 2 million pounds with limited capital, really just working capital. Now on the rare earth front, we have the ability or we’ll have the ability in Q1 to produce up to 1000 metric tons of NdPr. We believe we’re starting to have line of sight to get to maybe half of that.

We hope is not guaranteed but we hope to be able to get up to about half of that looking to 2024 and we plan to continue to build additional feeds a monazite hopefully in a material way to get Phase 1 completely booked out in at full capacity in the next year or so. Meanwhile, we’ll continue to engineer and permit where required for Phase 2 which will be 3x to 4x the Phase 1. And that’ll all be subject to securing a significant amount of monazite to require the build out of Phase 2. And so — but we are aggressively when we start looking at who we’re talking to, and the kind of quantities that we’re talking to the various parties, we think that Phase two, security enough feed is very possible in the not too distant future. But we still got to get a few more of these coordinates lined up here in binding arrangements and commitments.

Heiko Ihle: That’s helpful. Thank you. Moving on, from all of that, mean, one sentence in your release really struck my curiosity, when you were talking about the engineering of the end enhancements for the plants for the NdPr. And I assume the same probably holds true for most people on this call, when you’re trying to get the 3000 metric tons by the end of ’26 with your Phase 2, can you maybe walk me through some of the investments into the area what exactly you have to spend on your plans for the future year-by-year as much at the end. And also a longer term monetary impacts that you are just mentally working with what you’re sort of expecting to see?