Energy Fuels - Q1 2023

Transcript

Operator (participant)

Good morning. My name is Brian. I'll be your conference operator today. At this time, I would like to welcome everyone to Energy Fuels' first quarter 2023 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the star then the number two. Thank you. Mr. Chalmers, you may begin your conference.

Mark S. Chalmers (President and CEO)

Thank you, Brian. 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, 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. 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 creative discipline in staying several steps ahead of our competition. I also think the title of our quarterly press release speaks volumes. Net income of $114 million and $143 million in working capital, nearly $20 million 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. It's also pleasing to say that we had a very good day 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. 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 in 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, and David Frydenlund, 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. Let's just go ahead and jump into the presentation right now. You know, 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. Next slide. 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. All these elements basically help create clean energy for a better world. Next slide. Now, I've talked about the periodic table previously, 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. It is a new era.

I probably mentioned to some of you that might be on this call that, you know, 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. 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. All of our product lines are high value businesses. Uranium for nuclear energy in the order of 50% of the zero carbon electricity in the United States.

There's a lot of very encouraging news coming out of places like China, starting to amp up and ramp up their 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 ourself in finance with our financial strength and zero debt, and pleased to say that we have $143 million in working capital at the end of the Q1, including $104 million in cash or marketable securities and significant inventories of uranium and vanadium. Next slide. Now I'd like to just talk about the Q1 highlights. Next slide. This is really pleasing to talk about the fact that we had earnings of $114 million. Now, this is significant people, and I think that the share price really recognized it today.

Didn't recognize it as much yesterday. In my opinion, this is probably 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. 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 Q and really puts us in a perfect opportunity going forward. We had gross margins 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 $143.4 million, you know, in total $44 million of cash equivalents, and the marketable securities about $60 million, and $38 million product inventory. If you adjust that product inventory for current values at current commodity prices, it's well north of $50 million. Zero debt. 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% and 72% respectively.

At the end of the quarter, we had nearly 850,000 lbs of finished uranium and about 900,000 lbs of finished vanadium and 250 tons of finished high purity, partially separated mixed Rare Earth Carbonate in inventory. Next slide. Uranium transactions, you know, we've announced that we sold the 300,000 lbs to the U.S. Uranium Reserve. Gross proceeds of nearly $18.5 million at $61.57 with a basis of Uranium prices about $26 per pound. We got a gross margin of 57% or $35-$36 per pound.

We also purchased some U.S. origin uranium, about 120,000 lbs 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 La Sal complex, the Whirlwind Mine and the Pinyon Plain Mine in Arizona. We will ramp up production based on our contract requirements, inventory levels, and market conditions when we decide to do this. In February 15th, we completed the sale of the Alta Mesa project to enCore for $120 million. With that, we received a cash payment of $60 million.

We have a $60 million note that's two years, that's secured and convertible, and it bears an interest rate of 8%. Just a few days ago, we sold or completed sale of our PFN, Prompt Fission Neutron technology to enCore Energy for $3.1 million. We purchased that during COVID for about $500,000, and 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. We had a gain of about $2.75 million on the sale of the PFN.

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 lbs of finished inventory, but we have nearly 400,000 lbs of in-circuit and other raw materials at the mill, totaling nearly 1.25 million lbs of uranium, either finished or in-circuit or raw materials. We are in a excellent position when it comes to our uranium inventory. Also, I want to note that even though we did sell the Alta 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.

Let's talk a bit about the Rare Earths. We produced in the Q about 250 metric tons of high purity, partially separated Rare Earth Carbonate, containing around 115 metric tons of total rare earth oxides. This is the most advanced Rare Earth material being produced commercially in the United States. This is also around 32%-35% NdPr, it is really good stuff that we're producing. The phase 1 rare earth separation project is well underway. We hope to have completed in Q4 of 2023 or perhaps Q1 of 2024.

This is where we're advancing the ability to separate in our existing solvent extraction building to produce separated rare earth oxides, NdPr oxide and a Sm+ concentrate that can be further sold in other markets. We expect the capacity to be in the order of given enough secured feed and monazite around 800 to 1,000 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. We expect that the cost to put in what we call Phase 1, this ability to separate at and in the existing SX facilities to be approximately $25 million, which is an incredible strike rate. Next slide. With...

in addition to Phase 1, we are doing engineering studies on a Phase 2, which is estimated it could be in operation in around 2026, and this would be somewhere in the order of 3x plus Phase 1. Very material scale. We're advancing that. We also in Phase 2 would include a dedicated separate crack and leach circuit at the Mill. It allow to have both the uranium, vanadium circuits at the Mill completely separate from the crack and leach facilities during Phase 2. Phase 3, which we're targeting somewhere in around that 2027 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, dysprosium 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 13th, we completed the acquisition of the Bahia Project in Brazil. That is the heavy mineral sands deposit that we secured. We announced back in May. Took a while for us to get it closed. It's a very large land position encompassing about 60 sq mi. It has the potential to produce between 3,000 to 10,000 metric tons of monazite per year.

About 8,000-10,000 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. We also completed about 2,266 meters of sonic drilling at Bahia. We also purchased a sonic drill rig that will be transported to Brazil in the next month or so. We are looking at advancing and doing more drilling starting in Q3 of this year. 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. We had some small vanadium sales during the quarter.

We were able to secure average sales price of about $10.98, so nearly $11 per pound. We also were able to obtain a gross margin on the vanadium sales of about 37%. We have what we call the carry plan, which is that we hold vanadium until the vanadium prices go up, and then we sell it. 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 lbs of finished vanadium in inventory. We have the ability to go back into vanadium production quite quickly if we decide to do so, and we have between 1 million lbs to 3 million lbs, perhaps more, of solubilized vanadium in our tailings solutions. Next slide.

Let's talk a bit more about the working capital, the $143 million of working capital, zero debt. I talked about the uranium inventory of both finished uranium inventory and inventory we have on the ground at the Mill of around 1.25 million lbs and the vanadium inventory. 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 million-$25 million 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. When we sell uranium at current prices or higher prices, we have a very significant margin. The same thing for vanadium.

The other thing I want to highlight to people that when you look at our working capital at that $143 million, when you adjust it for the current value of inventories, the investments like we have, like Consolidated Uranium, the note on 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. We are in a great space here, and we have a lot of levers to pull when we need it. These not just our current working capital, but other sources of investments that we have going forward. Next slide.

When you look at our 2023 guidance and focus, if you look at the uranium sales that we sold to the U.S. government in our initial contracts, we plan to sell around 560,000 lbs of uranium in 2023 at expected sales price of nearly $60 a pound, $58-$60 a blended price. Again, if you look at the value of our uranium inventories on the books, you can see that we are gonna have a really nice margin. When we decide to put a new Uranium Project under into production, at least one project, in late 2023 or 2024, 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.

In 2023, we're mainly focusing on the Rare Earths in terms of processing. 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 monazite. We also are advancing in constructing this Phase 1 separation circuit that I've already talked about. We will. And I talked about that the expected processing capacity is around that 800-1,000 metric tons per year of NdPr at about a $25 million investment. We're also gonna 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. We look to, and we have engaged various consultants, and we're looking at preparing S-K 1300's initial assessments and NI 43-101 technical reports. The last slide is a really pretty sunset in the vicinity of our White Mesa Mill in San Juan County. All I can say is we've got such great opportunities ahead of us. We're well-funded, as I've gone through. We'll be aggressive, not reckless, and I look forward to further updates. I'll now open it up for questions.

Operator (participant)

Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touchtone phone. You will hear a 3-tone prompt acknowledging your request. If you would like to withdraw your request, you may press the star followed by the number two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from Heiko Ihle with H.C. Wainwright. Please go ahead.

Heiko Ihle (Managing Director, Senior Metals and Mining Analyst)

Hey, Mark, how are you?

Mark S. Chalmers (President and CEO)

Good, Heiko. How are you?

Heiko Ihle (Managing Director, Senior Metals and Mining Analyst)

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

Mark S. Chalmers (President and CEO)

Heiko, a lot depends on the prices of uranium. You know, a lot of our uranium contracts are hybrid, so they can go up and down, but 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-$40 per pound. I would say that they should be probably pretty steady for the year. Curtis, do you wanna make any comments in that regard?

Curtis Moore (SVP of Corporate Development and Marketing)

You know, Heiko. Yeah, yeah. Hey, Heiko. How are you?

Heiko Ihle (Managing Director, Senior Metals and Mining Analyst)

Good.

Curtis Moore (SVP of Corporate Development and Marketing)

I was gonna say, you know, we put out guidance for our remaining sales this year of $54-$58 per pound on that extra 260,000 lbs. Yeah, I think like Mark said, for the rest of this year, it'll be steady. You know, later, when we have to put in produced material into these contracts, you know, assuming we don't get an uplift in prices, you know, you'd see those margins go down. I think, you know, there's extremely strong justifications to believe that Uranium prices are gonna go up, and we're gonna capture that value in our existing contracts, because we have market related components in those contracts, plus future contracts that'll be hopefully secured at higher prices.

Heiko Ihle (Managing Director, Senior Metals and Mining Analyst)

Got it. No, that's fair.

Mark S. Chalmers (President and CEO)

Heiko, we also, you know, we try to make sure we're trying to build margins of, you know, $20-$25 a pound, but it really depends on how the market's responding and whatnot. But yeah, 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 Feeds. You know, we are a different story when it comes to how you build the book in terms of where our margins can be.

Heiko Ihle (Managing Director, Senior Metals and Mining Analyst)

Very good. Changing gears 180 degrees, you obviously have 1 million 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? If you could, also maybe percentage-wise, where do you see financial investments going by segment over the next even couple of quarters?

Mark S. Chalmers (President and CEO)

Yeah. Well, that's a, that's a tough question to answer with a lot of accuracy. Look, I think right now, you know, when you look at our time, you know, you look at what we've got in Wyoming, what we've got in, with our conventional mines and stuff, it's probably around 60/40 or something in that order. 60% Rare Earths or 40% uranium, somewhere in that order. You know, when you look to the future and you roll out the future, you know, a lot depends on both of those markets, right?

Heiko Ihle (Managing Director, Senior Metals and Mining Analyst)

Right.

Mark S. Chalmers (President and CEO)

If the Uranium price goes crazy or the Rare Earth, like, business, you know, continues to do well, you know, we'll flex it according to getting the best margins, the best return for our shareholders. You know, we'll be dynamic for the circumstances. That's one of the things that, you know, you can appreciate that, you know, 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. I don't know if I can answer it any more accurately than that at this point in time, but it'll always be driven on the best outcome for our shareholders.

Heiko Ihle (Managing Director, Senior Metals and Mining Analyst)

Right. No, I was cognizant that, there wasn't gonna be a scientific answer to this. I mean, obviously you're a very big shareholder yourself, so I would assume that, this is gonna be very much driven by shareholders. Thanks a lot. I appreciate the question, and I'll get back with you.

Mark S. Chalmers (President and CEO)

Thank you, Heiko.

Operator (participant)

Thank you. Again, if you wish to ask a question, please press star followed by the number one. Next question, we have Joseph Reagor with ROTH MKM.

Joseph Reagor (Managing Director, Senior Research Analyst)

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

Mark S. Chalmers (President and CEO)

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 reinitiating. We've actually reinitiated permitting on further permitting and valuation on a number of them, including Roca Honda and Sheep Mountain. We feel that there's a big value lift just by advancing those and getting those fully permitted. Now, the Sheep Mountain Project is fully permitted to mine, but to go to the Sweetwater Mill that's nearby, we're looking at evaluating whether that could potentially be a heap leach. We're not planning to sell anything at this time.

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.

Joseph Reagor (Managing Director, Senior Research Analyst)

Okay. Fair enough. You know, thinking about the assets that you do have, what do you think the, you know, maximum production rate you guys could reach would be, between the Nichols Ranch facility and the White Mesa Mill, you know, if pricing were to cooperate?

Mark S. Chalmers (President and CEO)

When you look at, you know, including La Sal, Whirlwind, Pinyon Plain, when you look at them, I tell people that without major capital investments, we can get up to around 2 million lbs 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. If you start. Say the uranium market really gets, you know, improves and really frothy, in terms of, you know, demand for uranium, we start investing, say, $100 million, another $100 million or $200 million, maybe $300 million in capital, we could take it up to somewhere in the order of 5 million lbs per year.

The beauty in the place we're at that'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.

Joseph Reagor (Managing Director, Senior Research Analyst)

Yeah. tell me about it. I guess last thing is on the Phase 1 for the Rare Earth separation plant, are you guys planning to put out like, PEA or feasibility study or something before you go forward with it, or are you just using the internal study?

Mark S. Chalmers (President and CEO)

We're doing it all internal. I mean, we've been cracking and leaching, you know, with the material that we've received from 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 the SX. We feel that if we were to do those studies at this point in time, it'd really be kind of a waste of time because of the limited strike rate of $25 million or less really, with regard to the capital cost. We're comfortable doing that on our own and out of treasury because it's a low strike rate for us.

Joseph Reagor (Managing Director, Senior Research Analyst)

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

Operator (participant)

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

Mark S. Chalmers (President and CEO)

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. I'm very proud of that. We've got a great team. People are working hard, and they're working smart. There is a very bright future ahead for our company because of the things we're doing. You know, there really is no peer group, as I said earlier. 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.

Thank you very much for your time, and, look forward to giving further updates, in due course and no later than next quarter. You know, we plan to continue to move forward and update the market as often as we can when we've got material news flow. Thank you very much.

Operator (participant)

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