Energy Fuels Inc Q2 FY2022 Earnings Call

Good afternoon. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Energy Fuels’ Q2 2022 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. Thank you. Mr. Chalmers, you may begin your conference.

Thank you, Michelle, and good afternoon, everyone. It is always a pleasure to have people joining us for our Q2 call and webcast today. We are excited to discuss our Q2 achievements, as well as the significant accomplishments we continue to make. And as always, we have a lot to talk about. For those who cannot join the call today, there will be replays of the presentation available for two weeks on our website, either later today or tomorrow. We continue to make extraordinary progress on many fronts. I believe there is no question that Energy Fuels has clearly emerged as a leader in U.S. critical mineral production, at a time when this has never been more important. Today, I have the Q2 highlights embedded in our updated corporate presentation. But before I begin, I just want to remind everyone that you are controlling the slides from your own device, and I will endeavor to tell you when to advance to the next slide. I don't always accomplish that, but I will do my best. As Michelle mentioned, there will be questions at the end of the presentation and Dave Frydenlund, our Executive Vice President and Chief Legal Officer, as well as our new CFO, Tom Brock, who I'm very pleased to have join us today, will be available to answer any questions I cannot. So let's get going. This first slide, most of you have seen this. It is a picture of the White Mesa mill, which is really our flagship asset for the company and our critical mineral hub where we can produce uranium, rare earth elements, vanadium, and hopefully soon, medical isotopes and conduct our recycling. Next slide. I may be making some forward-looking statements throughout this presentation. The disclaimers are at the back of the presentation. Next slide. So again, most of you have seen this. Energy Fuels truly has no peer group because typically, you invest in a uranium-only company or a rare earth company, or maybe an isotope-only or vanadium-only company. In Energy Fuels, we have all these in our investment strategies, but they all contain one common denominator—uranium or radionuclides. We also have a long history of recycling and financial strength, and we pride ourselves on strong financial strength and zero debt. Next slide. Now just jumping right into the financial highlights. We have and continue to have a robust balance sheet with around $134 million of working capital. This includes $86.4 million of cash and cash equivalents and $11.8 million of marketable securities. It does not include the COR shares that are currently escrowed. Product inventories total $28.6 million of inventories, uranium and vanadium, at book value. If you adjusted those prices to current commodity prices, that is around $43 million, nearly $44 million. For the quarter, we had $6.5 million of revenues. We reported a net loss of $18.1 million, but nearly $13.4 million of that was a non-cash mark-to-market decrease in the value of some of our investments, which were consolidated uranium and Virginia Energy shares. Subtracting the $13.4 million from the $18 million gives us about $5 million. Vanadium sales during the first half of this year totaled 575,000 pounds of V2O5 at an average price of $13.44 per pound, which resulted in a nice profit from those sales. Next slide. We are also excited to announce that we entered into three new long-term contracts in May for deliveries between 2023 and 2030. The base quantities are three million pounds, but it could be as high as 4.2 million pounds if they exercise all their options. They have a hybrid pricing structure, with both the floors and the ceilings indexed to inflation. We also have exposure to rising uranium prices. Additionally, we submitted a proposal to sell uranium to the U.S. Department of Energy (DOE). This is the first time the DOE has had a proposal to buy uranium in approximately 50 years. This is a very important move by the U.S. government, and if accepted, could result in significant revenues from uranium sales this year. Rare earth-wise, we produced around 205 metric tonnes of mixed rare earth carbonate, containing between 30% to nearly 35% NdPr, and we are maintaining our guidance of about 650 to 1,000 tonnes of carbonate in 2022. The main reason we have been under in our carbonate production is that we still had shortfalls of receiving product from Chemours, but we are working through those issues. Moving on to the Brazil acquisition: I believe this is a really important acquisition for our company as we now have a mine that contains rare earth. It is a very large land package, about 58 square miles in the Bahia state of Brazil, and it has the potential to supply significant quantities of monazite for decades to the White Mesa Mill. We are continuing to have numerous discussions with several other monazite suppliers. Next slide. Now regarding some management highlights in Q2. We are very excited that we are continuing to grow the expertise in the company, and we appointed Dr. John Uhrie effective August 1st. He has only been on the job for about 1.5 weeks as COO. Dr. Uhrie has significant experience in mining and mineral processing. He was formerly VP of Metals Exploration Development for Doe Run and has held significant roles with RMP Global, Newmont Mining and Freeport McMoRan. He also has his PhD in Metallurgical Engineering. We are really looking forward to having those skill sets put to work in the company. Additionally, Tom Brock came on as CFO on Monday, August 8th. Tom has extensive experience in oil and gas, previously serving as Vice President and Chief Accounting Officer of Extract Oil and Gas, as well as working for American Midstream Partners. We are also very excited about having two new executives join the team to help us move forward with our plans. Lastly, David Frydenlund was appointed as Executive Vice President and Chief Legal Officer and Corporate Secretary effective August 8th. We are building out our team. Next slide. Again, this slide, a number of you have seen it, outlines our footprint from Wyoming to Texas. Nuclear power is on the comeback. Twenty percent of our electricity comes from nuclear, and fifty-five percent of our carbon-free energy comes from nuclear. It has never been more exciting to be in the uranium industry, and the future of nuclear is, once again, looking very bright. Next slide. Again, our frontline production assets, the White Mesa Mill, which serves as our critical mineral hub, Ulta Mesa is on standby, and we have ISR in Texas in Nichols Ranch, as well as our Pinion Plain Mine in Arizona. Next slide. I will talk a little bit more about the booking of these uranium sales contracts, providing revenues and cash flows starting next year. I think there are a lot of tailwinds pushing things along here with U.S. utilities at sustainable pricing. Firstly, intermediaries are starting to buy physical uranium. Unfortunately, the Russian invasion of Ukraine has put a focus on security of supply. When you look at some of the moves by the U.S. Department of Energy and the U.S. government regarding rebuilding the nuclear fuel cycle, it is all pointing in the right direction, and it has been a long journey. Energy Fuels offers reliable sources of uranium in the United States, with an excellent track record of on-time, on-budget deliveries and production, which is a major attraction to these utilities. The base quantity of these three contracts is three million pounds, increasing to a total of up to 4.2 million pounds, with hybrid pricing that includes escalation for inflation. Additionally, we are very excited about putting our proposal to sell uranium to the DOE, with the potential for substantial revenue this year. Next slide. We periodically update this market position. We still trade as a uranium company and are currently in the middle of the pack. I always like to point out that looking at our working capital, we have zero debt, and our uranium and vanadium inventories come from our own production rather than purchases. There truly is no peer group for Energy Fuels. When you look at the other companies often compared against us, they are uranium-focused. None of them have the ability to produce rare earths, vanadium or advance into medical isotopes like Energy Fuels. I would say that when you invest in Energy Fuels, you get significant coverage in all critical elements. Next slide. I have spoken about this previously, but for those that may be new to this story, rare earths and uranium fit perfectly together. My dear friend, Konstatin Kariopolos from Neo Performance calls us the missing link in U.S. rare earth element production because of our approach to the rare earth business coupled with uranium. Monazite is a high-grade mineral, and because it is naturally radioactive and contains uranium and thorium, we can process it at the White Mesa Mill. Monazite also has high concentrations of magnetic rare earths, which are essential for high-efficiency electric motors and wind turbines. White Mesa is the only facility in North America that can process monazite, recover uranium, and produce rare earth products. Looking at our timeline over the last year, we started processing commercially mixed rare earth carbonate and pilot separation of rare earth oxides, producing high purity NdPr. In March, we started making high-grade carbonate with nearly 32% to 34% NdPr, which we have been shipping to Neo. In May, we secured the Bahia project in Brazil and plan to build out light separations at White Mesa Mill and heavy separations in the next few years. I have already touched on the monazite's significance. It is a superior mineral, making it the right choice for all the right reasons. It is a low-cost byproduct from heavy mineral sands mines, similar to what we are purchasing in Brazil at Bahia. Currently, the feed is about 50% to 60% total rare earth oxides, which is extremely high grade and high value. The basket value of the recovered rare earth is over $20,000 per tonne. In comparison, basanite has high grades of NdPr but is low on the heavies, with a basket value of around $8,500 per tonne. Therefore, the grade is crucial in rare earth production, just like in the rest of the mining industry. The ability to recover rare earth from monazite is easier than from basanite. Once again, the White Mesa Mill is the most advanced facility for processing rare earth in the USA today. It is the only facility positioned to process and recover rare earth from monazite and uranium, which is a challenge for most others, but not for us. In fact, it adds value. It is highly scalable; we won't even touch a small fraction of the production capability of the White Mesa Mill. It generates very little waste since when we recover over 50% REO, half goes as a value-added product versus half going to tailings. Regarding Bahia, it positions us to potentially produce as much as 10,000 tonnes of monazite. I have mentioned it is a significant land position. The monazite found is associated with heavy mineral sand mineralization, including ilmenite, rutile, and zircon. There is keen interest in heavy mineral sand concentrate from other parties. The mineralization is near the surface and has a lot of drill holes. We estimate that it has, on average, nearly 3% monazite and potential for significant expansion going forward. There are other concessions we are evaluating, some of which already have mining permits in place. In the next six months, we plan to conduct substantial drilling. We are securing a sonic drill rig to perform about 100 drill holes, with depths of around 22 to 23 meters, as opposed to the historical depth of only six meters. This will enable us to drill deeper, and we hope to find substantial additional heavy mineral sands below the six meters we acquired the property on. Continuing with this slide, many of you have seen how we built out the supply chain at small commercial scale very quickly through our relationship with Chemours and Neo. We were able to accomplish this more rapidly than expected; we are moving forward towards full integration in the United States while maintaining a strong relationship with Neo. We need monazite, and Bahia plays a large part in that strategy, but I expect to provide updates in the coming months with other sources of monazite hopefully being introduced to the White Mesa Mill. Next slide. Just pictures to illustrate our advancements. I like to say that most declare victory in the rare earth business when they have a beaker of rare earth. We declare victory when we ship out in bulk bags to Neo at a commercial scale. We are advancing rapidly. Next slide. So where do we fit in among public rare earth companies? We still rank in the middle in terms of market cap. However, it is our goal to chase MP in Lynas and even Iluka, even though Iluka is advancing towards rare earth production. We believe there is significant upside potential to become a multibillion-dollar company in the future. This remains our focus, while continuing to produce uranium and perhaps vanadium. Regarding vanadium, I mentioned we sold nearly 600,000 pounds of vanadium at $11.44, which amounted to approximately $7 million to $8 million. The price of vanadium has returned to around $8 a pound. We have a strategy for managing inventories for sales when the price is favorable and plan to act when it makes sense. We retain over one million pounds available for sale when the right time arises. Medical isotopes from thorium and uranium are newer to our strategy, but we are gaining a lot of attention. We signed a strategic alliance agreement with RadTran, focusing on alpha-meeting isotopes that are currently in short supply. It is still early days for this area, but it is progressing rapidly. I hope to provide further updates in due course, so keep an eye on this exciting new direction for our company. Now, I'd like to discuss our financial strength. Our strong working capital position, uranium inventories, and vanadium inventories contribute to our robust financial health. Currently, we carry uranium on the books at about $24 a pound and vanadium at approximately $6 a pound. At current prices of uranium and vanadium, we would see a significant lift if we decided to liquidate those inventories right now. We plan to produce between 100,000 and 120,000 pounds of uranium from alternate feeds this year, projecting around 800,000 pounds by year-end, assuming we do not sell any of that inventory. I want to continue highlighting that we have zero debt. To conclude, there is truly no company like Energy Fuels offering exposure to several critical minerals. We've never seen such critical needs as we have today. Uranium provides us unmatched access to low-cost U.S. production with proven assets. The rare earths segment is rapidly advancing, and we are building that story. While vanadium remains a smaller part of our business model, it is still an essential component. I also mentioned the medical isotopes, recycling, and our continued strong financial strength. We will always maintain our strong financial position and continue to be aggressive but not reckless. Now I would like to open it up for any questions anyone on this call might have.

Thank you. First, we will take questions. The first question comes from Heiko Ihle of H.C. Wainwright. Please go ahead.

This is Marcus Jenine calling in for Heiko. There was a sentence in your release that we found intriguing stating 'having recently secured three long-term uranium contracts with major U.S. utilities, the company is beginning to perform the work needed to recommence production at one or more of its mine and ISR facilities, starting as soon as 2023.' I guess, just out of curiosity, how much work are you planning to do this year? Can you quantify your expenditures for that? And do you need a lot of labor for this? Are you having a hard time finding workers, given the current situation?

Yes. Look, we are working at probably three or four of our projects right now getting ready for production. We haven't designated which projects we will start up first, but we are doing quite a bit of work. In terms of expenditures, maybe up to $5 million or $6 million, or $7 million. Many of these projects have set idle for several years, and they certainly need some work. We have hired around 15 to 20 people to focus on getting these projects ready for production. The contracts that we have signed are beginning in 2023, so we are looking to establish production at one or two of these projects. However, work is being done on several projects to prepare for production, as we want to build on that contract portfolio in the future and open up several mines.

Perfect. Lastly, you have over one million pounds of vanadium left. You sold some for an average of $13.44 per pound in the first half, but then stopped providing pricing. Do you have a fixed price point where you would restart sales, or is it a moving target depending on the balance sheet? How much lead time do you need for these sales, given logistics?

Yes. The thing about vanadium is that it fluctuates. We don't have any intent to sell at $7 or $8 per pound. However, we can likely sell in a week when the price is favorable. We caught a good spike in prices, selling $7 million or $8 million worth at $13. That is the type of strategy we are aiming to execute. We will sell when it makes sense and hold onto it when it doesn't.

Alright, perfect. That is it for me. Thanks again for taking that question.

Our pleasure.

Thank you. The next question comes from Puneet Singh of Eight Capital. Please go ahead.

Hi, thanks for taking my question. I see you are evaluating and installing a smaller light separation circuit. What needs to happen for you to get that going in the next 18 to 24 months? Can you expand a little bit more on that?

Yes. Because we are separating in the lab at lab scale and are also conducting commercial separation of the lanthanum removal step, we have gained a lot of expertise and knowledge about that next step of separation. White Mesa is a solvent-extraction facility, and we have been doing solvent extraction for uranium and vanadium for four decades, so we are very comfortable with that. One concept is that we could potentially perform some rare earth separations in our existing solvent-extraction building. This facility is very large, and we may be able to add a second or perhaps a third floor with additional separation cells that are larger than what we use in the laboratory but smaller than in our full-scale commercial separation facility, which we are planning for approximately 10,000 tonnes of REO. This is a new idea, but it is absolutely possible that we could take the next step very quickly, as we are already licensed for solvent extraction. We are currently doing solvent extraction of rare earth. So it is not out of the question to achieve that in 12 to 18 months—we are definitely considering it.

Okay. It would be interesting for the market to see that. Thanks for the insight.

Thank you. The next question comes from Marshall Verab of BLSH Financial. Please go ahead.

Thank you for taking my call, and congratulations, Mark, on the progress you are making in these various areas. I have a couple of questions. One of them is regarding the U.S. government's RFP for uranium. Have they announced any timeline for making contract awards?

Cris Moore, who is probably on this call, may jump in, but I think it is a couple of months. Yes, please go ahead.

Yes, it is two months. We expect to hear something by September 30th or October 1st.

Would that be for deliveries this calendar year?

Yes, it would be. I believe the RFP mentioned that deliveries would need to occur within 60 days after an award. So that would certainly fall within 2022.

Okay, thank you. And regarding debt, you mentioned no debt, but I remember from the press release there was a long-term debt component of about $13 million. Can you clarify that?

Yes. Most of that is related to reclamation liabilities that are not funded. I don't have the exact numbers, but about half of our reclamation liabilities are backed by cash, while the rest involve some bonds for other reclamation liabilities. Tom Brock, do you have anything to add?

No, you are exactly right, Mark.

That clarifies it—those are reclamation liabilities, with half backed by cash or similar.

Thank you very much.

Thank you.

There are no further questions at this time. Please continue.

Again, it is always our pleasure. We are reaching for the stars here, going big but not recklessly. We do not see anything standing in the way of us expanding our business plan as we are now in leaps and bounds in the coming years. We need to secure the various steps along the way; it doesn't happen easily or for free, but we are very excited about where we are taking this company. We hope to continue providing significant updates to the market as we advance. We appreciate the support of our shareholders; we want to create value for you and move forward. We are very excited about the progress we are making with our foundation in San Juan County, our Clean San Juan County Clean Energy Trust, the advancements we are making in local communities, and the new jobs we are creating in those areas. We are thrilled about all things Energy Fuels, and thank you for your interest in our company.

Ladies and gentlemen, this concludes the conference call for today. You may now disconnect your line and have a great day.