Energy Fuels Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 9, 2023

There are 5 speakers on the call.

Operator

Good morning. My name is Brian, and I'll be your conference operator today. At this time, I would like to welcome everyone to Energy Fuel's First Quarter 2023 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. Mr. Chalmers, you may begin your conference.

Speaker 1

Thank you, Brian, and good morning or good afternoon depending on where you're joining this conference call from. Thank you for joining the Q1 2023 conference call and webcast today. As always, we're very excited to discuss what's been a very busy kickoff in Q1 to 2023, as well as to also update you on the significant accomplishments we continue to make. For those that cannot join the call today, We'll still have the replays of this presentation available for 2 weeks on our website, either later today or tomorrow. Every quarterly call, I comment on the fact that we're making extraordinary progress on many fronts.

Speaker 1

And Certainly, this quarter is no exception if you have read our Q1 result press release. I believe it is Very apparent that Energy Fuels has emerged as the clear leader in U. S. Critical mineral production at a time when this has never been more important. Many of you have also heard me make the comments that we will always be aggressive but not reckless.

Speaker 1

And I believe that Q1 is a testament to this. While we have made significant strides to further strengthen our uranium and rare earth production capabilities along with our balance sheet in ways that I believe are value accretive, disciplined and staying several steps ahead of our competition. I also think the title of our quarterly press release speaks volumes. Net income of 114,000,000 and $143,000,000 in working capital, nearly $20,000,000 of uranium, vanadium sales and the commencement of development of rare earth separation capabilities in Utah. Today, I'll elaborate on these accomplishments during the quarter and provide some details on what I believe the rest of the year looks like.

Speaker 1

And it's also pleasing to say that we had a very good day on the with our stock today. I haven't seen where it closed out, but it was up somewhere in the order of 8% for the day. And so we've been on a really nice run here with people starting to realize how important the uranium business is and the rare earth business is and our role and where we plan to take this company. Before I begin, I also want to remind people that you are controlling the presentation from your own device, and I'll endeavor to tell you when to advance to the next slide. There will be questions at the end of the presentation, as Brian mentioned.

Speaker 1

And David Friedland, our Executive Vice President and Chief Legal Officer Tom Brock, our CFO and Curtis Moore, our Senior VP of Corporate Development and Marketing will be available to answer any questions I cannot answer. So let's just go ahead and jump into the presentation right now. So on this First slide, and again, many of you have seen this slide before, picture of White Mesa in Southern Utah. There really is no peer group to compare to because nobody does what we do with uranium production, rare earth, vanadium, isotopes and recycling. So next slide.

Speaker 1

I may be making some forward looking statements and those are included on this page. Next slide. Energy Fuels is the leading producer of uranium in the United States and has been for a number of years as well as vanadium and advancing rapidly with our rare earths and all these elements basically help create a cleaner, Clean Energy for a Better World. Next slide. Now I've talked about the periodic table previously.

Speaker 1

And looking at these specialty elements that nobody cared about, looking back even 10 years ago, whether it be uranium, rare earths, vanadium or radium. And so it is a new era. And I Probably mentioned to some of you that might be on this call that when you look at a career in the mining business, It has changed dramatically because there's these new elements that if you went back 20, 30 years ago, people were focused on things like copper and gold and coal and uranium and other elements. But today, there's this whole suite of new elements, including things like lithium, cobalt, graphite, in addition to the rare earths that people just really didn't care about. Next slide.

Speaker 1

So All of our product lines are high value businesses, uranium for nuclear energy In the order of 50% of the 0 carbon electricity in the United States and there's a lot of Very encouraging news coming out of places like China starting to amp up and ramp up There are nuclear power in the country as well as many other countries around the world, including the United States and the focus on small modular reactors. Rare Earths, you're hearing a lot about rare earths when it comes to electric vehicles and uses of these powerful magnets that are also used for wind generation and other high-tech appliances. Vanadium getting increasing attention for grid scale batteries, but primarily used for high strength steel, medical isotopes that we continue to advance, potentially for emerging cancer therapies for new therapies under development and under review by the FDA. We also have had a long history of recycling and again a lot of this is not new for you Many of you on this call, which basically kept the White Mesa Mill open during periods of low prices. We always pride ourselves in finance with our financial strength in 0 debt and pleased to say that we have $143,000,000 of working capital at the end of Q1, including $104,000,000 of cash or marketable securities and significant inventories uranium and vanadium.

Speaker 1

Next slide. So now I'd like to just talk about the Q1 highlights. Next slide. So this is really pleasing to talk about the fact that we had earnings of $114,000,000 Now this is significant people and I think that the share price really recognized it today, didn't recognize as much yesterday. But In my opinion, this is probably and to the best of my abilities, this is probably one of the best quarters that this company or the predecessor companies has ever had since the days when the White Mesa Mill was built.

Speaker 1

So Sure. It was primarily due to the sale of the Alta Mesa property, but it certainly gave us a really nice boost to our balance sheet in the queue and really puts us in a perfect opportunity going forward. We had gross margins on of around 57% on our product sales, which included 58% margin on our uranium and 37% on our vanadium sales. Our strong balance sheet, the $143,000,000 $44,000,000 again, In total, dollars 44,000,000 of cash, cash equivalents and the marketable securities about 60,000,000 and $38,000,000 product inventory. And if you adjust that product inventory for current values at current commodity prices, It's well north of $50,000,000 0 debt.

Speaker 1

We have more infrastructure than anyone I know of in United States when it comes for uranium production and soon to be rare earth production at larger scale. Total assets and current assets increased by 37% and 10%, respectively. Total liabilities and current liabilities decreased by 44% 72%, respectively. At the end of the quarter, we had nearly £850,000 of finished uranium and about £900,000 of finished vanadium and 250 tons of finished high purity Partially Separated Mixed Rare Earth Carbonate in Inventory. Next slide.

Speaker 1

So uranium transactions, We've announced that we sold the £300,000 to the U. S. Uranium reserve, gross proceeds of nearly $18,500,000 at $61.57 with a basis of uranium prices about $26 per pound. So we got a gross margin of 57% or $35 $36 per pound. We also purchased some U.

Speaker 1

S. Origin uranium about 120 pounds for around $50 per pound because we're trying to make sure we've got plenty of inventories to cover all our requirements over the next few years as we ramp up our uranium production. We are very advanced at refurbishing and developing Our conventional uranium, vanadium mines in both Colorado and Arizona at the LaSalle Complex, the Whirlwind Mine and the Pinon Plain Mine in Arizona. And we will ramp up production based on our contract requirements, inventory levels and market conditions when we decide to do this. In February, February 15, we completed the sale of the Ultomasa project to Encore for $120,000,000 With that, we received a cash payment of $60,000,000 We have a $60,000,000 note that's 2 years, that's secured and convertible and it bears an interest rate of 8%.

Speaker 1

Just a few days ago, we sold or completed sale of our PSN, PromptVision Nuclear Technology to Encore Energy for $3,100,000 We purchased that during COVID for about $500,000 We no longer needed the PFN technology, but we did secure or have rights for 20 year usage of that technology in the future if needed. So we had a gain about $2,750,000 on the sale of the PFN. And again, I think that all shows different ways how we've creatively been creating and building to our balance sheet through various different ways that others haven't tried to even attempt to build their balance sheet the way we've been trying to do so. Uranium inventory. We have the £850,000 of finished inventory, but we have nearly £400,000 of in circuit and other raw materials at the mill, totaling nearly £1,250,000 of uranium either finished or in circuit or raw materials.

Speaker 1

So we are in an excellent position when it comes to our uranium inventory. And also I want to note that even though we did sell the Ulta Mesa project, we are absolutely not going out of the uranium business and we are looking for other potential opportunities in the uranium space globally. Next slide. So let's talk a bit about the rare earths. So We produced in the queue about 250 metric tons of high purity partially separated rare earth carbonate, containing around 115 metric tons of total earth oxides.

Speaker 1

And this is the most advanced rare earth material being produced commercially in the United States. And this is also around 32% to maybe 35% NDPR, So it is really good stuff that we're producing. Now the Phase 1 rare earth separation project is well underway. We hope to have completed in Q4 of 2023 or perhaps Q1 of 2024. And this is where we're advancing the ability to separate in our existing solvent extraction building to produce separated rare earth oxides, the NDPR oxide in SM+ concentrate that can be further sold in other markets.

Speaker 1

And we expect the capacity to be in the order of given enough secured feed of monazite around 800 to 1000 tons metric tons of separated NDPR oxide per year. This work is well advanced at the mill. Most major components have been ordered and are expected to be delivered at the mill in Q3, and we expect that the cost to put in what we call Phase 1, the ability to separate at in the existing SX facility to be approximately $25,000,000 which is an incredible strike rate. Next slide. So with in addition to Phase 1, we are doing engineering studies on a Phase 2, which is estimated it could be in operation around 2026.

Speaker 1

And this would be somewhere in the order of 3 times plus Phase 1. So very material scale. And we're advancing that. We also in Phase 2 would include a dedicated separate crack and leaf circuit at the mill. So it allowed to have both the uranium, vanadium circuits at the mill completely separate from the crack and leach facilities during Phase 2.

Speaker 1

Phase 3, which we're targeting somewhere around that 20 27 time period. We'll also be doing engineering on that and we're planning to do further test work on that this year where we'll be focused on the heavy rare earth oxides, primarily DY and TB, disposium and terbium, which are also very important for electrification and it helps and improves the heat aspects of the high efficiency permanent magnet motors. February 13, we completed the acquisition of the Bahia project in Brazil. That is the heavy mineral sand deposit that we secured. We announced back in May.

Speaker 1

It took a while for us to get it closed. It's a very large land position encompassing about 60 square miles. It has the potential to produce between 3000 to 10000 tons of metric tons of monozite per year. So about 8000 to 10000 metric tons is what we believe that will be the capacity of the Phase 1 crack leach and separation in Phase 1 of our rare earth program. So we also completed about 2,000 266 meters of sonic drilling at Bahia.

Speaker 1

We also purchased a sonic drill rig that will be transported to Brazil in the next month or so. And we are looking at advancing and doing more drilling starting in Q3 of this year. And we are also very much looking at other acquisitions similar to Bahia in other parts of the world, including the United States. Next slide. We'll talk a bit about vanadium.

Speaker 1

We had some small vanadium sales during the quarter. We were able to secure average sales price of about 10.98 dollars so nearly $11 per pound. We also were able to obtain a gross margin on vanadium sales of about 37 And we have what we call the carbide plan, which is that we hold vanadium until the vanadium prices go up and then we sell it. And that is a very effective way to sell vanadium because it's such a spiky element to put into the market. We still have in the order of £900,000 of finished vanadium in inventory, and we have the ability to go back into vanadium production quite quickly if we decide to do so, and we have between £1,000,000 to £3,000,000 perhaps more of solubilized vanadium in our tailings solutions.

Speaker 1

Next slide. So Let's talk a bit more about the working capital, the $143,000,000 of working capital, 0 debt. I talked about the uranium inventory, both finished uranium inventory and inventory we have on the ground at the mill of around £1,250,000 and the vanadium inventory. But if you adjust all these inventories To current prices, you would get an uplift in that working capital of somewhere in the order of $20,000,000 to $25,000,000 because if you look at this table, The uranium inventory we have on the books, the finished goods is currently valued at about $29.19 per pound with the current uranium price currently being about $54 a pound. So when we sell uranium at current prices or higher prices, We have a very significant margin and the same thing for vanadium.

Speaker 1

But the other thing I want to highlight to people And when you look at our working capital at that $143,000,000 when you adjust it for the current value of inventories, The investments like we have like consolidated uranium, the note and convertible note that we have with Encore, The interest on that note, the fact that we sold the PFN, our uranium sales are beginning this year in 2023 and continue on for 8 years. We are in an outstanding position financially and probably better than any of our peers that I know of. So we are in a great space here and we have a lot of levers to pull when we need it and these not just our current working capital, but other sources of investments that we have going forward. Next slide. So when you look at our 2023 guidance and focus, If you look at the uranium sales that we sold to the U.

Speaker 1

S. Government in our initial contracts, we plan to sell around 500 and £60,000 of uranium in 2023 at expected sales price of nearly $60 a pound, dollars 58 to $60 via blended price. So again, if you look at the value of our uranium inventories on the books, you can see that we are going to have a really, really nice margin. We will put when we decide to put a new uranium project under into production, At least one project in late 'twenty three or 'twenty four, maybe more depending on the market. We continue to seek out Additional long term supply agreements at increasing and higher prices, we will build our book in an aggressive but not reckless way.

Speaker 1

In 2023, we're mainly focusing on the rare earths in terms of processing. So we're not planning at this point in time to produce any uranium or vanadium, but we could if we wanted to, we'll continue to process some of the rare earth. We expect to produce a process during the year in the order of around 600 metric tons of monocyte. And we also are advancing and constructing this Phase 1 separation circuit that I've already talked about. And we will and I talked about that the expected processing capacities around that 800 to 1000 metric tons per year of NDPR at about a $25,000,000 investment.

Speaker 1

We're also going to be looking and talking to people about rare earth offtakes. We'll continue to advance the Bahia project, particularly with our own drill rig, the Sonic rig, and we look to And we have engaged various consultants and we're looking at preparing SK1300's initial assessments and 40 three-1 101 technical reports. And then the last slide is a really pretty sunset in the vicinity of our White Mesa Mill in San Juan County. And all I can say is we've got such Great opportunities ahead of us. We're well funded as I've gone through.

Speaker 1

We'll be aggressive, not reckless, and I look forward to further updates. And I'll now open it up for questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from Heiko Ihle with H. C. Wainwright.

Operator

Please go ahead.

Speaker 2

Hey, Mark. How are you?

Speaker 1

Good, Heiko. How are you?

Speaker 3

Not too bad. To answer your earlier question to yourself, the stock closed at 6.55%, so up 8.5%. Company realized total gross margin of 57% on your sales during the quarter and that consists of 58% of uranium, 30% 37% of vanadium. Where do you think this figure could go for the remainder of the year? And what, if any, efficiency or the focus that you or utilizing to possibly get them up a little bit more?

Speaker 1

Well, Heiko, a lot depends on the prices of uranium. A lot of our uranium contracts are hybrid, so they can go up and down, but they have They have floors and ceilings on them. I think they'll be pretty steady at that right now because of the inventories we have. When we're looking at the various uranium projects that we can put into production, we do have some production that is probably in the order of around $35 to $40 per pound. So I would say that they should be probably pretty Denny for the year.

Speaker 1

Curtis, do you want to make any comments in that regard?

Speaker 4

Hi, good. How are you? I was going to say, we put out guidance for our remaining sales this year of $54 to $58 per pound on that extra £260,000 So, yes, I think like Mark said, for the rest of this year, it will be steady. Later when we have to put in produced material into these contracts, Assuming we don't get an uplift in prices, you'd see those margins go down. But I think there's extremely strong justifications to believe that uranium prices are going to go up And we're going to capture that value in our existing contracts because we have market related components in those contracts plus Future contracts that will be hopefully secured at higher prices.

Speaker 3

Got it. No, that's fair.

Speaker 1

So Heiko, we also we try to make sure we're trying to build Margins of $20 $25 a pound, but it really depends on how the market's responding and whatnot. So But yes, we're very pleased with what we can secure on both the combination of our sales, our new uranium production, our inventory and the ability to add in uranium production from both rare earths and Alternate Feed. So we are a different story when it comes to how you build the book in terms of where our margins can be.

Speaker 3

Very good. Changing gears 180 degrees, you always say you have a 1,000,000 things going on with The farm right now, I find it pretty impressive and commendable. Just some longer term thinking, where do you see management's Time broken down in a couple of years between uranium, vanadium and rare earths. And if you could also maybe percentage Twice, where do you see financial investments going by segment over the next even couple of quarters? Yes.

Speaker 1

Well, that's a tough question to answer with a lot of accuracy. But look, I think right now, When you look at our time, I would say, you look at what we've got in Wyoming, what we've got in With our conventional mines and stuff, it's probably around sixty-forty or something in that order, 60% or 40% uranium, Somewhere in that order. Now, when you look to the future and you roll out the future, a lot depends on both of those markets, right? If the uranium price goes crazy or the rare earth business continues to do well, We'll have to we'll flex it according to getting the best margins, the best return for our shareholders. We'll be dynamic for the circumstances.

Speaker 1

And that's one of the things that you can appreciate that energy fuels, you get a much more diversified investment where we have some flexibility to shift and swing a bit depending on which markets we should spend our time on. So I don't know if I can answer it any more accurately than that at this point in time, but it will always be driven on the best outcome for

Speaker 3

Right. No, I was cognizant that there wasn't going to be a scientific answer to this. And I mean, obviously, you're a very big shareholder yourself. So I Would assume that this is going to be very much driven by shareholders. Thanks a lot.

Speaker 3

I appreciate the questions. I'll get back in queue.

Speaker 1

Thank you, Heiko.

Operator

Thank you. Next question, we have Joseph Reagor with Roth and Kilometers.

Speaker 2

Hey, Mark and team. Thanks for taking the questions. I guess, firstly, Mark, you mentioned that obviously you're not moving away from being a uranium company And that you're looking at opportunities there. Do you think that some of the assets that are still in the portfolio Might not make the most sense for you guys and could potentially sell an asset to generate cash to buy a different asset?

Speaker 1

At this point in time, the existing assets, Joe, that we have, We're not planning to sell any of them at this point in time. They're good assets. In fact, we're looking at Re initiating, we've actually reinitiated permitting on further permitting evaluation on a number of them, including Roca Honda and Sheep Mountain, and we feel that there's a big value lift just by advancing those and getting those fully permitted. Now the Sheep Mountain project It's fully permitted to mine, but to go to the Sweetwater Mill that's nearby, we're looking at evaluating whether that could potentially be heap leach. So we're not planning to sell anything at this time.

Speaker 1

But again, whatever we do, We'll be focusing on trying to uplift and improve whatever investments that we have or assets that we have, And we'll do that dynamically as is prudent for the circumstances in the market.

Speaker 2

Okay. Fair enough. And then thinking about the assets that you do have, What do you think the maximum production rate you guys could reach would be between the Nichols Ranch facility and the Wait Mesa Mill If pricing were to cooperate?

Speaker 1

Well, when you look at including LaSalle, Whirlwind, Pinion Plain, When you look at them, I tell people that without major capital investments, We can get up to around £2,000,000 per year because most of these projects are fully constructed, fully paid for. They don't require a lot of capital. They require some working capital. But If you start, say the uranium market really gets improves and really frothy In terms of demand for uranium and we start investing say 100,000,000 another 100,000,000 or 200,000,000 Maybe $300,000,000 in capital, we could take it up to somewhere in the order of £5,000,000 per year. So The beauty that in the place we're at, it's such a sweet spot right now, is having the flexibility to call on these different projects that we have based on whatever contracts we have in place in the market with limited new capital, which is becoming very expensive as you can appreciate.

Speaker 2

Yes. Tell me about it. So I guess last thing is on the Phase 1 for the railroad separation plant, Are you guys planning to put out like PEA or feasibility study or something before you go forward with it or you're just using the internal study?

Speaker 1

We're doing it all internal. I mean, we've been cracking and leaching with the material that we've received in Chemours And we've got really all the data that we need in terms of crack and leach. We have a very extensive and long term piloting we've done on Sx And we feel that if we were to do those studies at this point in time, it really be kind of a waste of time because of the limited strike rate of $25,000,000 or less really with regard to the capital costs. So we're comfortable doing that on our own and out of treasury because it's a low strike rate for us.

Speaker 2

Okay. Thanks for taking my questions. I'll turn it over.

Operator

Thank you. There are no further questions at this time. I'll turn the call back over to Mr. Chalmers for any remarks.

Speaker 1

Well, in closing, look, I really appreciate the opportunity to update everyone who's on this call or who may be listening to this call later on the outstanding results that we had this quarter. And I'm very proud of that. We've got a great team. People are working hard and they're working smart. And there is a very, very bright future ahead for our company because of the things we're doing.

Speaker 1

There really is no peer group, as I said earlier. But again, we appreciate the support of our shareholders, And we really like to have days like today, because of these changing improving markets for the critical minerals and also having good results. So thank you very much for your time and look forward to giving further updates in due course and no later than next quarter, but we plan to continue to move forward and update the market as as often as we can when we've got material news flow. Thank you very much.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask you to please disconnect your line.

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