Energy Fuels Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2023

There are 6 speakers on the call.

Operator

Good afternoon, and welcome to the Energy Fuels Second Quarter 2020 3 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. 2. I will now hand the call over to Mr.

Operator

Thomas, CEO of Energy Fuels. You may begin your conference.

Speaker 1

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 2023 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 2 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 decarbonization electrification, while we also emerge as a clear leader in U.

Speaker 1

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.

Speaker 1

And we're doing this while we continue to maintain a very strong balance sheet with 0 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 Friedland, our Executive Vice President, Chief Legal Officer and Tom Brock, our CFO, will be available to answer any questions I can answer.

Speaker 1

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 2.

Speaker 1

Next slide. So Energy Fuels is a leading 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 decarbonization 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 8 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.

Speaker 1

So it's very important. It's the future of decarbonization 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.

Speaker 1

0 carbon electricity, which is very important for decarbonization and it's almost impossible to meet the goals of decarbonizing without nuclear energy, rare earths 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-two twenty six and 2 28 for emerging cancer therapies. We also continue to recycle uranium and vanadium bearing Nobody else in the U.

Speaker 1

S. Has ability to do that like energy fuels. It's been an important part of our business, in up and down markets, particularly down markets. And we're always very proud of our financial strength with significant cash and inventories, and I'll talk about that more later. Next slide.

Speaker 1

So now for the Q2 highlights and the picture of the Pinion 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 $134,000,000 of working capital. That is made up of $35,000,000 of cash, $64,000,000 of marketable securities $33,000,000 of product inventory. If you adjust To current commodity prices, you can easily add another $18 or so,000,000 to that working capital at current market value of that inventory.

Speaker 1

As I mentioned, 0 debt, which we're very proud of because we have probably somewhere in the order of $1,000,000,000 with the assets and we still hold £766,000 of finished uranium, about £900,000 of finished vanadium and about 37 tons of finished high purity partially separated rare earth carbonate in inventory. Next slide. During Q2, we did sell some uranium to a major U. S. Nuclear utility, about £80,000 That was around $4,300,000 at around $54 a pound, but a gross profit And I want to highlight this with a gross margin of about 46%.

Speaker 1

We're still producing or still readying 4 conventional uranium vanadium mines. That includes LaSalle Complex, the Beaver Shaft, the Whirlwind and the Pinon 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 $3,100,000 We had bought the PFN for around £500,000 so we made a gain of £2,750,000 on the sale 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.

Speaker 1

And in addition to the £766,000 of finished uranium inventories, We have nearly £400,000 of uranium in circuit and in raw materials at the White Mesa Mill. So we really have in the order of £1,200,000 of uranium in the 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 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.

Speaker 1

On our Phase 1 rare earth separation project, which should be operational last quarter this year or Q1 next year. We're very excited about that. We are modifying and 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, we'll 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 of up to 1,000 metric tons of NDPR per year.

Speaker 1

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 $25,000,000 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 further engineering work on that 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.

Speaker 1

Phase 3 is focused on 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 TP, Have more heat sensor capabilities than the DY and the TB or the disposium and the turbine 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. We have the potential in time to produce between 3000 to 10000 tons of monazite sands. We've done our Phase 1 drilling.

Speaker 1

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 and 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.

Speaker 1

And as I said, we have nearly or approximately £900,000 of vanadium in inventory. Next slide. And again, looking at our working capital, the $134,000,000 of working capital and 0 debt, I mentioned the uranium inventory that we have both finished process and in progress and the vanadium inventories. And if you adjust for current prices, the inventories were in the

Speaker 2

order of

Speaker 1

$20,000,000 more than what's included in the working capital. And I want to add that it does not include very, very strong and enviable position with our balance sheet. Next slide. So looking at our guidance, We'll sell approximately £560,000 of uranium this year at an average price of between $58 $60 a pound. We already sold £300,000 to the U.

Speaker 1

S. Uranium reserve. We sold £80,000 I mentioned earlier, and we'll sell another £180,000 which is equivalent to about another $10,000,000 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 earth sector at the mill this year, we're not planning to produce any uranium vanadium in 2022.

Speaker 1

We still plan to process around 600 metric tons of monocyte and recover around 150 tons of REO in 2023. And we plan to advance and commission our Phase 1 separation plant later this year or early next year. We are also Seeking rare earth offtakes, 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 will be a really good day when I can give more information on that in advancing The Bahia project, as I mentioned earlier, and we'll advance it through SK 1300 assessment reports and 40three-1 101. So in closing, next slide, just the sun setting in Southern Utah, very pretty picture here.

Speaker 3

2nd

Operator

Your first question is from Heiko Ihle from H. C. Wainwright. Please ask your question.

Speaker 3

Hey, Mark. Can you hear me okay?

Speaker 1

Yes, you're fine, Heiko.

Speaker 3

Perfect. I'm calling you from some little island down in Italy, so apologies if the reception isn't 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 40 and £3,000 of U308 that you have in raw materials and work in progress inventory.

Speaker 3

Walk me Through where we might stand by the end of the year, both even on the vanadium level as well, but also at U308 level, please.

Speaker 1

You want me to walk you through in the $400,000 of raw materials and unfinished uranium?

Speaker 3

Correct, like end of the year plans.

Speaker 1

Okay. Well, we're not planning to do any additional finished product of uranium this year, HEICO. We mentioned the £400,000 because We have alternate feed, 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 into finished goods to complement the £760,000 we already have.

Speaker 1

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 2 when we decide we want to do the mill run for uranium ores and potentially vanadium ores.

Speaker 3

That's helpful. Thank you. You want to go through maybe some longer term expectations as well?

Speaker 1

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 £1,500,000 £2,000,000 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 a year.

Speaker 1

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 per year. So we're going to continue to underpin that with more contracts, but we can get up to that £1,500,000 to £2,000,000 with limited capital, really just working capital. Now on the rare earth front, we have the ability or will have the ability In Q1, to produce up to 1,000 metric tons of NDPR, We believe we're starting to have line of sight to get to maybe half of that. We hope It's 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 of monazite, hopefully in a material way to get Phase 1 completely booked out and at full capacity in the next year or so.

Speaker 1

Meanwhile, we'll continue to engineer and permit where required for Phase 2, which will be 3x to 4x the Phase And that will 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 2, securing enough feed It's 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.

Speaker 3

That's helpful. Thank you. Moving on from all of that, I mean, one sentence in your release really struck my curiosity When you were talking about the engineering of the enhancements for the plans for the NDPR, and I assume the Same probably holds true for most people on this call. I mean, you're trying to get the 3,000 metric tons by the end of 'twenty six with your Phase 2. Can you maybe walk me through some of the investments into the area?

Speaker 3

What exactly you have to spend on your plans for the future year by year as much as you can? And also the lower term monetary impacts that you are just mentally working with what you're sort of expecting to see?

Speaker 1

Yes. Well, the Phase 1, as I said, that's around $25,000,000 and that gets us up to Say up to 1,000 tons of NDPR per year and that's low because we're doing the crack and leach in the mill and we're using existing SX building for the separation stage. So that's very low and it's But it's a very attractive strike rate obviously on capital. We do not have all the final engineering completed on Phase 2, But we believe it could be between $250,000,000 to maybe $350,000,000 somewhere in that order. That would provide a facility that would do 3000 to 4000 tons a year of NDPR, but it doesn't mean that the Phase 1 facility also wouldn't still potentially be operational.

Speaker 1

But the Phase 2 facility will include its own crack and leach circuit, So we don't have to do any flip flopping of the current uraniumvanadium mill Between uranium runs and earth runs. So we believe that our operating costs are going to be Low and really as competitive, not as low as anybody outside of China. And But we have to show that we've secured enough monazite to run that on through.

Speaker 3

Fair enough. That's very helpful. I'll stop hogging the question queue here and get back in But thanks so much for answering your questions and keep on going all the different directions that you're going. I think it's very impressive.

Speaker 1

Thank you, Heiko.

Operator

Thank you. Your next Question is from Mike Heim from NOBLE Capital Markets. Please ask your question.

Speaker 4

Thanks. Hi, Mark. Hey, you just said that you believe your operating costs for the NDPR Should be as low as anybody outside of China. If I were to look at Linus or one of those and talk about gross margins, which we've never really talked about, is it reasonable to be thinking about 50, 60, maybe even 70?

Speaker 1

Well, yes, it depends a lot, Michael, On, I mean, we have and again, the reason we haven't gone into real details is we're still I mean, we have a good handle on what we believe they are, but we're Still doing some of our engineering studies, but we believe that it's the robust margins, A big part and I talked about this before and I've been criticized a bit before, but it depends what you Acquire your Monazite for and we're looking at a blended price of Monazite That includes purchasing and from our own sources, sort of a hybrid model, a little different. So those are all factors that come up with what the ultimate cost is. But yes, I believe we are going to be In the same order of competitiveness of others, people that you just mentioned and others. And really a lot of it's going to be focused on the fact that We're operating in an area that has low water cost, low power cost, very good people skills, labor skills in the United States and compared to Australia, very favorable jurisdiction for low operating capital costs.

Speaker 4

Now I can do the math on the 100 metric tons or 1,000,000 kilograms and see the potential of $65,000,000 if we were running at peak or so, but that's just for the NDPR. During Phase 1, what Happens to the other heavy REEs. Can they still be sold off or will you kind of inventory until you get 2?

Speaker 1

They can. The SM Plus, we call it, Sumerian Plus in heavier, we will make a concentrate They can either be sold or we can hold it. And the most likely scenario is we'll probably hold it. And because really the DY and the TB are a couple of the elements that particularly U. S.

Speaker 1

Government is very, very interested in. And actually a lot of people in the world are very interested in those elements. So as I said, It's a very tricky business here. The and I believe The Chinese continue to manipulate the market at some level because they want to continue to be the dominant force in rare earths in the world. And so we're trying to position ourselves in a way that provides us and decouples From to have our own capabilities internal as much as possible.

Speaker 4

Can you give us any indication how much the NDPR represents in terms of the overall value of the heavy metals,

Speaker 1

Yes, in NDPR and it varies because not all ore sources have heavies in them. For example, basonite has very little heavies. But the NDPR is generally speaking around 75% of the total value Of the rare earth oxides that you recover, a lot of people try to count every element in the like in the rare earth feeds. We really count the neodymium, praseodymium, disposium, terbium. And so the heavies are generally about 25% of that value And the NDPR is around 75%.

Speaker 1

It could be 80%, 70%, somewhere in that order.

Speaker 4

Okay. And final question for me, you said twice that Talking about Phase 2 and Phase 3, if you get enough monsoidite, does that imply that you feel if Contracts are lived up to you have enough for what you want to do with Phase 1?

Speaker 1

Well, as I said, I think we're rounding up what I'm Believing is around 50% of our sort of line of sight to Phase 1. We are talking to multiple parties. And I know I've said this before, but we're talking to probably half a dozen different groups. And those all have the potential, Any one of them to fill up Phase 1, but again, we've got to get them signed up. One of the things I found is that a number of Parties that were kind of looking at where and who they could do business with, a lot of them have come back to us because they feel The Energy Fuels offers something that others don't and the main thing we offer is operating in the United States of America, Processing in the United States of America and also being able to operate in an environment where we don't have to pay these extraordinary Operating costs like you're seeing currently in Australia.

Speaker 4

Okay. All right. Thank you, Mark.

Operator

And your next question is from Joseph Reagor from Roth MKM. Please ask your question.

Speaker 2

Hey, Mark and team. Thanks for taking the questions.

Speaker 1

No worries, Joe.

Speaker 2

So first thing, and a lot of stuff I wanted to touch on already was, but just kind of a little bit of a housekeeping thing. Your G and A expense seems that the last four quarters has been quite a bit elevated. Is there anything driving that? Or is that kind of like the new normal?

Speaker 1

Well, the new normal is we're under increased operational activities across the company. So we've hired, I think, last since the beginning of the year, I think we've hired like 30 some people. We're developing a number of different projects in different locations. We're capitalizing some of that, But it's I think it's just the new normal of getting the flywheel going on the various projects that we have. So, it doesn't just happen without making it happen.

Speaker 1

And when you go from more of a standby mode to an operational mode, There's a certain amount of burn rate that you just have to increase to get there. And Tom, I don't know if you Tom Brox, our CFO is on the line. I don't know if he has anything to add there.

Speaker 5

No. Mark, thanks. Thanks for the question. I agree. As we move out of this standby care and maintenance mode into an earnings mode, of course, we've upgraded some talent, added more boots on the ground to those projects that are underway.

Speaker 5

And I'd also add in that G and A you've got for the 3 months ended or 6 months ended June 30, you've got stock based compensation of $2,700,000 So with additional heads comes additional units, but again, that's non cash.

Speaker 2

Okay. That's helpful. Second thing, there were some reports a couple of weeks back about There being a potential moratorium on mining uranium for a certain section of Arizona. Does that impact you guys in any way or all of your assets like outside that specific area?

Speaker 1

We don't believe so because we have valid existing rights. We've have a number of assets That are fully permitted, ready to go like the Pinion plane. We're advancing that right now. And we're Just full tilt on that project. There is discussion of a monument.

Speaker 1

We haven't heard exactly what the outcome is going to be there, But we do not believe it's going to change our activities at all with the Pinion Plain mine period.

Speaker 2

Okay. So to be clear, your asset is outside where the proposed monument is or is it just cut out as an exemption.

Speaker 1

It's inside, but it is a project that is fully permitted, Been supported by the U. S. Forest Service for 35 years. They've defended that. So we believe the valid existing rights are sound and we're going to go forward with the project.

Speaker 1

Dave Friedland, our legal counsel is on the call. Dave, do you have any comments? Mark, I think you summarized it. Under the law, you can't the President cannot Any national monument proclaimed is subject to developing existing rights. The area where our mines in Arizona R is subject to mining withdrawal right now, which is subject to valid existing rights.

Speaker 1

We've established valid existing rights, which have been upheld by the court For the Pinion Plain mine. So we expect that those will be honored in if a new monument is proposed.

Speaker 2

Okay. I appreciate the clarity there. And I was under the impression you guys were exempt, but I just wanted to make sure we're clear on it. And then kind of a last thing, as you guys look at current operating expenses and growing the business, How should we think about when you guys will start to sell extra inventory Or restart operations. Are we at the point where you guys do have a fixed price in mind even if you can't disclose it?

Speaker 2

Or is there a fixed timeline that you guys are aiming for? How should we think about that?

Speaker 1

Well, We're really kind of focused on building a book where we have at least a $20 margin on our uranium production. And as you can see with number of our inventory sales, we're getting more than that currently with a lot of our inventories. Now a lot of that's come from alternate feed, but we're trying to build a book with at least that $20 margin, Likely more with some of our operations like Pinion Plain. So, but that's kind of how we're trying to approach it is Everybody's got to get to a point where they're making money here. And we're not out there to do recreational mining, But we're just trying to build the book and really frankly, with the increased cost, the difficulty of getting additional labor, reagents, we really need uranium prices to go up somewhere in the 70s plus before we'll continue to build that book.

Speaker 2

Okay, thanks. Appreciate the color. I'll turn it over.

Operator

Your next question is from Reed Rubin from sorry, he is a private investor. Please ask your question.

Speaker 5

Mark, Nigel. I gathered a produced 5% of uranium worldwide And the mine is owned by a French company. Do you have any intelligence as to what might break there?

Speaker 1

Look, I mean, there's certainly unrest, coup going on in Niger. It does it's to the coal face there to figure out where that's going. But it does highlight a number of things, doesn't it? When you look at where the uranium comes from around the world, places like Niger, in Russia, in Kazakhstan, Uzbekistan, There's risk in a lot of these developing countries. So, yes, I don't have any real optics.

Speaker 1

I mean, I've been reading some of the releases from like Global Atomics and others, but I don't have a crystal ball on where that's going.

Speaker 5

Any implication in today's fashion?

Speaker 1

You say any implications on current prices? Is that what you're saying?

Speaker 5

Yes, sir. Yes. Yes.

Speaker 1

Well, I think that whenever you look at historically, if you look at the uranium market, When the price starts to move, it usually isn't any one thing. I mean, if you go back to 2,005 and 2006, We had a number of floods in Athabasca, had some flooding in at the Ranger mine in Australia. And so a lot of times, the number of these things working in concert really can move the price. Now I think that A couple a number of things that are likely to move the price is, 1, the price is too low for replacing uranium at current prices. You got the increasing demand, you got reactors staying online, you got Japan firing up and then you have something like Niger putting a bit of a red flag over that country.

Speaker 1

And I think when you start looking at these things in concert, It has the potential to really move the price where it should be, which is at 70 or north of 70 to get additional new production coming to the market.

Speaker 5

Thank you very much, sir.

Speaker 1

Thank you, Reit.

Operator

Thank you. There are no further questions at this time. Please proceed, sir.

Speaker 1

All right. Well, firstly, again, thank you for your interest in Energy Fuels. It is a unique story, as I said earlier. We're working hard. We're working really hard.

Speaker 1

As a company, we're working well as a company. And we have got what I believe is an extraordinary future. It's difficult out there To actually deliver new production and our company is a company that delivers new production. We're not a promotional company And we're trying to build these fundamentals on something that will basically capitalize on the clean energy tech going forward and the energy transition. And I think we're well on our way.

Speaker 1

And but I do appreciate our shareholders and the support of our shareholders. So thank you very much and have a good day.

Operator

Thank you. Ladies and gentlemen, the conference has now

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