Energy Fuels Inc.
Q4 2022 Earnings Call Transcript

Published: 10 Mar 2023

[Operator:]

Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Energy Fuels Fiscal Year 2022 Conference Call. [Operator Instructions] Thank you. Mr. Chalmers, you may begin your conference.

[Mark Chalmers:]

Thank you, Sylvie. Good morning, good afternoon to everybody on the call. Thank you for joining our year-end 2022 call and webcast today. We are always excited to talk about our achievements and particularly our extraordinary achievements in 2022 as well as the significant accomplishments we have already made early in 2023. So, there's a lot to talk about. We have absolutely set the stage for a very exciting 2023. Energy Fuels has also absolutely emerged as a clear leader in U.S. critical mineral production. And that is at a time when this has never been so important. In the presentation, I will cover the highlights and the financials in detail. For those that cannot join the call today, we'll have replays of this presentation available for about two weeks, later today on our website. Also, I just want to remind everybody that you are controlling your slides in the presentation from your own device. And I'll try to remember to tell you when to advance to next slide. There will be questions -- or time for questions at the end of the presentation. I will be joined by Dave Frydenlund, our Executive Vice President and Chief Legal Officer; Tom Brock, our CFO; and Curtis Moore, our Senior Vice President of Marketing and Corporate Development. So, let's jump into the presentation. So the first slide is the slide showing the White Mesa Mill and also showing the fact that we are becoming America's leading producer of critical minerals for the energy -- clean energy transition. Next slide. I may be making some forward-looking statements, and those are included on the slide number 2. Next slide. Energy Fuels is the leading U.S. producer of uranium, vanadium and rare earth, creating clean energy for a better world. Next slide. Now this slide is interesting because it shows the periodic table. And Energy Fuels can currently produce or will be able to produce many of these elements that are now required for the clean energy technologies in the clean energy future. So, I'd just like to point out a few things. I mean, certainly, we have a long history as a uranium producer, but now we're emerging into this strategy of advancing our rare earth initiatives. And if you look down on the periodic table, in green, you can see a number of these elements, many of which I couldn't even pronounce back a number of years ago, but many of which are absolutely required for improvements in electrification. We also have a long history of vanadium production, and we are also going down the path looking at potentially recovering Radium-226 at the White Mesa Mill. Next slide. So really, the products that we produce or will be producing are all absolutely critical for these clean energy technologies, whether it be nuclear fuel assemblies, vanadium for vanadium flow batteries or the rare earth for high-performance permanent motor drivetrains, wind turbines or even including military defense like jets. Next slide. So, when you look at our product lines, they're all high value

[Operator:]

[Operator Instructions] And your first question will be from Heiko Ihle at H.C. Wainwright.

[Marcus Giannini:]

Hey, guys. This is Marcus calling in for Heiko. Thanks for taking our questions. So, you bought a total of 301,000 pounds of U.S. origin uranium at an average price of about $8 during the fourth quarter of 2022 and first quarter of this year. Just out of curiosity and since you pointed out this domestic origin, can you provide a bit of color on the price differential between U.S. products and imports from outside the U.S. and maybe even products from outside of North America in general?

[Mark Chalmers:]

Marcus, we're not seeing -- or at least I'm not seeing, and Curtis can chime in here if he'd like but a market differential. But if we see U.S. origin product at a price that we think is attractive to us, we'll continue to build our book with some selective purchases. Now one of the reasons, certainly, U.S. origin material now, you'd think it have a higher -- much higher value, but we know it should, but it also gives us more flexibility by doing some of those selective purchases where we can trade in to those with some of the material we have in inventory, and that can also give us some flexibility when we're mining, and we're processing the ores from our operations. Curtis, do you want to add anything there?

[Curtis Moore:]

No, no, I don't. It's just -- yes, I mean, we don't see a huge differential in price. But when we see an opportunity to pick up some U.S. origin or any material at an attractive price, we're certainly going to look at it.

[Marcus Giannini:]

Okay. All right. Perfect. Thanks for that. And then, I guess, sort of changing gears here, during 2022, you produced 205 tons of rare earth carbonate or monazite. We're mostly through Q1 at this point, and you've got another 600 metric tons of monazite in the fourth quarter. So, that gives you, say, 375 to 45 tons of rare earth carbonate. And keeping things simple, how much of that should we expect to see by quarter during the year? Should we just divide that number by four?

[Mark Chalmers:]

It's a good point. I mean, it gets a little lumpy. I think probably that production will occur. And I'm going to guess that timing will be second quarter -- first, second quarter, anyways. And then there's this other material coming in later in the year and the timing yet to be determined. We got to get the material there and get it processed and then get it moved on to Neo or wherever we move it on to. So yes, again, Curtis, I don't know if you have any comments there.

[Curtis Moore:]

No, I have nothing to add there.

[Marcus Giannini:]

Okay, perfect. Yes. That's it for me. And congrats on the year.

[Operator:]

Thank you. Next question will be from Joseph Reagor at Roth MKM. Please go ahead.

[Joseph Reagor:]

I guess, first on the uranium front. Any comments on the Senate Bill introduced yesterday with the intention of banning uranium and enriched uranium imports from Russia, and how that might impact you guys directly?

[Mark Chalmers:]

I think it's all work in progress. I mean, I think there's a huge wake-up call that look at how dependent we've gotten, and it doesn't make really any sense to continue that dependency. But at the same time, we’ve become so dependent that it's pretty hard to go cold turkey without those -- some of those nuclear products coming into the country. Yes, I haven't had a chance, Joe, to look at all that. Again, Curtis, I know you've had some other discussions in that regard. Is there anything you want to add there?

[Curtis Moore:]

Yes. I mean, I think it's positive. I don't think that U.S. utilities and we don't think that U.S. utilities should be helping fund a war in Ukraine. The news had come out last month or so that Rose Adam was directly aiding in that, the war effort in Ukraine. But we also want to make sure that U.S. utilities, nuclear power plants aren't cut short. And so, we haven't had a chance to really review the legislation yet. But as I understand, it bans Russian uranium imports by I believe the beginning of ‘28 or ‘29. But starting in -- but -- actually, the band starts in 90 days, but they can get -- utilities can get waivers from that ban going out to ‘28 or ‘29. And so, I think that -- it's a ramp-down, which I think is positive. I do -- we are seeing -- I'd say, most U.S. utilities are looking to move away from Russian supply and the risks inherent also with Kazakh supply, particularly around transportation. And so, I think that's been one of the reasons we've definitely seen an uptick in contracting interest. Again, for our next tranche of contracts, we're looking for some higher prices, but discussions are definitely ongoing.

[Joseph Reagor:]

Okay. That's good commentary. Second thing, Mark, you mentioned $25 million investment in the rare earth business for additional equipment. Any rough number on what the expected after-tax IRR is on that investment?

[Mark Chalmers:]

I don't have an IRR on that. I mean, we have to fill the molecules that feed that, Joe. And in addition to Chemours, we're getting a lot closer on a number of those fronts. So yes, I mean, what's interesting in looking at our ability to separate, a lot depends on the cost of the monazite going in. And we're building a hybrid model that isn't directly tied to what we call the China price through acquisition of Bahia, the agreement we have with Chemours and some of the purchases that we're doing. But I can say this. We're very encouraged because of this low capital strike rate on that $25 million to be able to be in a position to do those separations. And we're also -- but it's really dependent, Joe, on what the cost of the monazite we secure and how that blends together with 2 or 3 of these sources that we either have right now going forward, so. But I can tell you, the strike rate itself is extraordinarily low.

[Joseph Reagor:]

Okay. And then another thing on rare earth. Tesla made some comments a couple of weeks ago that they were -- the next generation of their cars would be going back to the engines that didn't use rare earth-based magnets. Any concern that this might impact the rare earth market domestically, the other manufacturers might follow suit for ESG reasons? Any thoughts there?

[Mark Chalmers:]

We don't see any material impact. If you want the best performing electric vehicle, there are no smoking gun substitutions at this point in time, you get the most efficient electric motor. I mean, if you look at Tesla, they started as an induction motor company for electric vehicles, which did not include rare earth. And really, I believe it was a Model 3, they started putting rare earth into it. Yes, look, the people I've talk to that are very close to the rare earth market, including some of the trade groups, don't see it as anything immediate, and they don't see it as materially impacting the market. Now, it did shake up the market on the day, but I don't see any real concern on that front at all.

[Operator:]

Next question will be from Mike Heim at NOBLE Capital Markets. Please go ahead.

[Mike Heim:]

Thanks for taking my questions, a handful of them. First one, do you have a timetable where we might start to get a little firmer cost numbers on Phase 2 or even Phase 3 at White Mesa?

[Mark Chalmers:]

We're planning to have a lot of that work done on Phase 2 this year. And so, I would say, later this year on Phase 2. We expect it to be, again, quite favorable in the scheme of developing these extra steps and extra capacity in the western world. And for the reasons that I've said that it's existing infrastructure, power, water, laboratory shops, people, all those things are already in place. So yes, I don't want to give an exact timeline at this point in time. But again, we think our strike rate is going to be -- and I think it surprises a lot of people because of the fact that it's an existing site that we're bolting on to. And in the case of Phase 1, we're in the existing SX building, and we're using the uranium mill for the crack and leach.

[Mike Heim:]

Okay. Then moving on to the medical isotopes, is that the type of thing we'll be hearing developments over the next couple of years? Or is it really somewhat dependent on completing Phase 2 or Phase 3?

[Mark Chalmers:]

No, it's not dependent on Phase 2 or Phase 3 at all. We've submitted a research and development application to the state of Utah. So, we're working through that. But the recovery of the Radium-226 is really largely focused on our mining of our conventional mines, not so much, at least at this point in time, on the rare earth processing.

[Mike Heim:]

Okay. Then, a couple of questions on the Chemours agreement. Are they technically in violation? And is there any recourse to you, or given that you're kind of negotiating to extend beyond this year that that's nothing you would consider anyways?

[Mark Chalmers:]

Well, a number of people -- certainly, yes, they didn't meet the obligations of that agreement. But we have a close relationship with Chemours, and we're working through the agreement and potentially other opportunities in due course. So, it's -- on the one hand, it's quite unfortunate because we are depending on that feed in the early days of our rare earth program. But on the other hand, they're still supplying. They're in the United States and they're working with us. And so yes, we're working it out with them.

[Mike Heim:]

And have you ever said how long it might take for Bahia to get to the point of producing monazite?

[Mark Chalmers:]

Well, we're kind of looking out 3 years-ish. I mean, we've got to complete the drilling. We do have a consulting company helping with the permits. There are some sort of smaller permits that are already in place. We're also talking to a number of heavy mineral sand producers that have expressed interest in Bahia and partnering perhaps in some capacity with us on that front. But we're thinking around three years. So again, as I said, we're -- between Chemours, Bahia, other purchases, other investments, we're trying to come up with what I call a sort of a hybrid approach to how we supply and feed the White Mesa Mill with molecules going forward.

[Mike Heim:]

I hate to throw out a hypothetical, but if the Chemours agreement ends at the end of this year, you don't reach another agreement with somebody else and Bahia is three years away. Is there a chance that the rare earth element development stalls a bit?

[Mark Chalmers:]

I don't believe so at all.

[Operator:]

[Operator Instructions] And your next question comes from Puneet Singh at Eight Capital. Please go ahead.

[Puneet Singh:]

Just a quick one on the decision not to recover uranium at the mill this year. If the price stays where it is, would you take the decision to add more alternate feed sources to produce uranium through the mill versus going to the market to build up inventory? Thanks.

[Mark Chalmers:]

Well, look, one of the things that is unique with what we do is we can fill our contracts through our existing inventories. We build up alternate feed and typically pick our time when we decide to run it. We're planning to restart our mining. So, yes. I mean, the real focus on not looking -- and things can change. Not looking at making finished product right now is to get this Phase 1 for separated rare earth oxides keep the focus on that and getting that done this year and not having too many distractions. So, it is -- in itself, just getting this Phase 1 done in a year's time is a pretty big undertaking. Now, we're confident we're going to get it done. So it's really a bandwidth issue. And -- but things can change. So -- but it's really a bandwidth issue right now.

[Puneet Singh:]

Okay. Thanks Mark. Yes. The only reason I asked is just because I know you get pretty good margins on the alternate feed. Thanks.

[Mark Chalmers:]

Yes. And -- but the alternate feed, as I said, it -- we get deliveries from various sources, and then we let it build up and then we pick our moment when we want to recover it. But as I said, we've got -- we've got existing inventories. We've got quite material stockpiles of other sources of uranium sitting at the mill that we can run when we them -- pick the time to run it. So -- but it's really focusing on getting this Phase 1 constructed, modified this year and keeping the guys focused on that.

[Operator:]

Did you have any further questions?

[Puneet Singh:]

That was everything. Thanks.

[Operator:]

Thank you. And at this time, Mr. Chalmers, we have no other questions. Please proceed with closing remarks.

[Mark Chalmers:]

Okay. Well, again, I just want to thank everyone for joining the call, and those are joining later, thank you for listening to it. We're in an incredible position here. And as I said, I don't think that a lot of people understand the long history we have as a uranium producer, the assets we have, the ability to respond, the flexibility to respond. And then when you bolt on what we're doing on the rare earth front, this is a unique opportunity in my career and many people that work with this career because you don't see this potentially in a generation, maybe two generations. So we're really excited. Yes, the 2022, we had a -- we've spent quite a lot of money to get this flywheel going again. But in the first quarter with the close of Alta Mesa, these uranium sales, both the reserve and these contracts, we are in an absolutely perfect position. We have probably the strongest balance sheet of any company in North America, the uranium miners with exception of perhaps Cameco, which is definitely exception. And we're rolling. We're going. We're aggressive company. We're not reckless. And having a strong balance sheet, having the right people, having the right relationships are very important to us. And people know that we are doers. We are doers. And we are focused on building a substantial company that covers these critical elements on a number of these fronts that no other company that I know of in the world is focusing on. So, all I can say is we're working hard. We're focused. We're busy. And we think, again, 2023 is going to be a very exciting year for us, and we look to the future with significant optimism for what we're doing and how we're doing it. So thank you very much. We'll leave it at that, and look forward to other updates in due course as the year progresses.

[Operator:]

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines. Have a good weekend.