Energy Fuels - Q2 2020

Transcript

Operator (participant)

Good morning. My name's Colin, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Energy Fuels Q2 2020 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 answer or ask a question during this time, simply press star, then one on your telephone keypad. If you would like to withdraw your question, please press star, then the number two. Thank you, Mr. Chalmers. You may begin your conference.

Mark Chalmers (President and CEO)

Thank you, Colin. Good morning, everyone, and welcome to our webcast. My name is Mark Chalmers, and I'm President and CEO of Energy Fuels. Joining me today will be David Frydenlund, our CFO and General Counsel, Matt Tarnowski, our Chief Accounting Officer, and Curtis Moore, VP of Marketing and Corporate Development. To start off, I just want to say Energy Fuels is continuing to make big things happen. We strengthened our balance sheet, we resumed uranium production, and we continue to build our industry-leading uranium inventory position. One of the most exciting parts of this call is we are making phenomenal progress on rare earth elements, and I'll repeat that: phenomenal progress. I look forward to providing you with this update, and as Colin said, we'll answer questions at the end of my presentation.

Very quickly, just a reminder, everyone on this call, they're controlling their own slides, so I'll do my best to tell you next slides so that you can make sure that you don't get ahead or behind, but you're actually in control, not me. I have quite a bit to get through, so let's get started. So my first next slide. I will be making a number of forward-looking statements today. Please review the disclaimers at the end of the presentation. Next slide. This slide describes our main investment themes, and many of you have seen it before, but I just want to reiterate, we are first and foremost a uranium-producing company. We have more assets that can produce quicker, faster than any of our peers. We're also a leading U.S. vanadium producer, and actually, we're the leading and only conventional vanadium producer.

The rare earth potential that we're working on is developing very quickly, and I'm looking forward to giving you more during the presentation on the rare earth side. There is growing support, U.S. government support, for critical minerals as a whole, but particularly on the uranium front for the U.S. Uranium Reserve. The Nuclear Fuel Working Group was a very, very strong policy document, and there is a lot happening on the Russian Suspension Agreement front. We also have a significant financial strength, and we are retiring debt. We currently have in the order of $53 million of cash securities or concentrate inventory as of June 30th. Next slide. I'll start off talking about uranium. As I said, we resumed uranium production at White Mesa in the second quarter. Our guidance is 125,000-175,000 pounds of uranium production in 2020. I believe and am very comfortable with this guidance.

I hope it's conservative, but that is what our current guidance is. Second quarter, we produced 83,000 pounds. Currently, at the end of June, we had 575,000 pounds of inventory. If you value that at current spot prices, it's nearly $20 million. We expect to have 640,000-690,000 pounds of inventory at the end of 2020, and that is our guidance, but again, I believe it is conservative. Nichols Ranch ISR facility was placed on standby in the first quarter of this year, but we continue to maintain Alta Mesa and our conventional mines on standby. And as I said, we can scale up uranium production quicker, faster than any other producer. Next slide. Q2 was a busy time for uranium markets, particularly with the significant production cuts due to the COVID-19 pandemic.

I'm sure all of you are aware that uranium prices rose about 30% in March and April, mainly due to the shutdowns in Kazakhstan, Canada, Namibia, and elsewhere. TradeTech has announced that thus far there's been about 14 million pounds removed from the market. Cameco just recently announced the restart of Cigar Lake in early September, and Kazakhstan is extending with some of their shutdowns. Spot market has primarily been dominated by producers, mainly people like Cameco and even Kazatomprom and intermediaries. The spot market has been fairly light, but we are seeing some utilities coming back in looking for near-term and longer-term demand. The market is still assessing the effects of Cigar Lake restart, but also the likely extension of the Russian Suspension Agreement, which I'll talk about more later. Next slide. Now I'd like to say something about vanadium.

As I said, Energy Fuels was the largest primary producer of vanadium, actually, in the United States, and we were the largest producer in 2019, but we stopped in early 2020 due to a weak market. We had produced about nearly 2 million pounds of vanadium in 2019. We currently hold nearly 1.7 million pounds of very high-purity inventory. At current prices, that's valued at nearly $9 million. The uranium or vanadium recovery project was very successful for us, that it was the first time we recovered vanadium from our tailing solutions. We still have another 1.5-3 million pounds that can still be recovered from those sources, and we plan to produce and sell when market conditions warrant. Some of you may have heard that recently there was a vanadium Section 232 initiated by AMG Vanadium and U.S. Vanadium. We were not directly involved with that.

That could significantly benefit Energy Fuels because vanadium is a critical metal. The Department of Commerce initiated that in June, and the DOC, the Department of Commerce, has until February 27th to issue a report with recommendations to the president. The president will then have 90 days after receipt to impose trade remedies, if any. But this is something that we submitted comments on. We're not directly involved, but we could certainly benefit if there's relief given in the vanadium area. Next slide. Now, again, as I said, we're very excited about the rare earth element sector. We've been talking about it for a few months, and what's amazing to me is we announced just four months ago that we are getting into the rare earth sector, and we have made great progress since then.

We are becoming increasingly confident of the role that White Mesa Mill can play in the revival of U.S. rare earth industry. And as we said previously, one of the key elements is in our proposition, our value proposition, is many of the rare earth ores contain uranium, and that uranium must be recovered before that rare earth ore stream can be further processed or separated, and that's where we fit in. Currently, China is the only country that is recovering the uranium from the rare earth monazite streams that we're looking at. And the White Mesa Mill, as we all know, is existing. It's constructed, it's paid for, and it can process rare earth ores and recover uranium under existing licenses or routine amendments. So that places us in a very unique position. Our ongoing test work is very positive.

We've engaged a very significant team of experienced rare earth commercial and technical experts, and that is growing. We are in active discussions with several entities with regard to supplying rare earth ores to the mill and also to others with regard to selling concentrate produced by Energy Fuels. So this is moving very quickly, and it is also an area that is also potential for significant government support and very much received the bipartisan support from the Democrats and Republicans due to the critical nature of rare earths to the United States of America. Next slide. Advantages of the mill. Well, first of all, we're going to start small, but we believe we're in a unique place to cost-effectively ramp up our production as we've seen fit and as we grow. And we also look forward to separation in the future if we're successful.

The White Mesa Mill is a very flexible facility. It can be reconfigured as required. I already mentioned it has licenses, and this is something that others have a very long lead time to have a facility that can deal with monazite streams because of the lead time and the cost to develop such a facility. The rare earth ores present no additional health, safety, or environmental impacts. We have been treating uranium ores and Alternate Feed responsibly for over 40 years, so we're very well equipped to handle this material. We also have the skill sets for many of the different process steps required for rare earth recovery, and we are working to generate, and we're confident that we are working to generate positive cash flow from rare earth within 12 months. Now, we still have a number of steps to take there, but we are moving rapidly.

Next slide, please. I also want to talk about our building relationships, building relationships particularly with Neo Performance Materials. Neo Performance Materials could potentially be a buyer of concentrates from Energy Fuels in the future. In our latest announcement with our financials, we announced that we had signed a letter of intent with Neo Performance Materials just a few days ago. Neo Performance Materials has one of the world's leading producers of advanced industrial materials, including rare earth-based engineering products in global markets. We will continue the relationship with Constantine Karayannopoulos and his team at Neo Performance Materials. Constantine, when he first became an advisor to Energy Fuels, was the non-executive chair of Neo Performance Materials. He has now been appointed President and CEO of the company he founded in July of this year, and he is one of the most successful rare earth industry executives in the world.

So we'll continue working closely with Neo, developing technical and commercial aspects of the rare earth strategy. It's not an exclusive agreement, but it is a very strong agreement, and I'm very excited about how we can work together to help solve the issues of rare earth processing, not in China or the former Soviet Union. We continue to have a very strong working relationship with Brock O'Kelley as an advisor, and as I said in the past, Brock worked for many decades at Mountain Pass and is currently working at the Colorado School of Mines focused on rare earth processing. We still have a long-standing relationship with ANSTO, and recently we signed up Jack Lifton, who has decades of experience in the rare earth industry, including advising governments and serving on several technical advisory boards.

So we are putting in place, I think, an extremely impressive group of individuals who are helping us and have also decided to join us for the right reasons, people that have been doing this for decades and have done it successfully. So again, I think that bodes well for how we move forward. Next slide. Okay. Now I'm going to switch back to uranium, and I'd like to say a few words on the U.S. government front. A lot of this is not new news to you, but I think it's good to go through it again. The Nuclear Fuel Working Group issued their report on April 23rd. It was one of the strongest government commitments and documents issued for the domestic uranium industry in decades. It's a nonpartisan policy document. It supports a variety of possible solutions for the industry.

It provides strong justifications for congressional appropriations and executive actions, whether it be support of national security, clean energy, counter-Russian influence, exporting of U.S. technology abroad, promoting global safety, non-proliferation, and creating American jobs. This report has given us substantial support in Washington, D.C. I also want to say that Energy Fuels has been the main company leading this charge on these initiatives. We have been the only U.S. company continuously in this fight from the beginning, and no other company can say this. We are, however, very appreciative of others because there have been others that have also provided substantial support, and we want to thank them for their contributions. Next slide. Again, many of you have seen this, but I thought it'd be helpful to go back through it. The main recommendations are on the U.S. uranium reserve, which is $150 million per year over 10 years.

That's ongoing. We're in an excellent position to capitalize on that if there is money appropriated. In addition to that, there is nearly 20 million pounds that could be added to that from the American Assured Fuel Supply. The Department of Energy is going to end the bartering program. The Russian Suspension Agreement negotiations are ongoing, and I'll talk about that more in a minute. The NRC has the ability to deny imports of fabricated fuel from Russia. Streamlining of reform and land access to uranium is ongoing, and this could be other subsequent support will be considered as deemed necessary across a 10-year period. Next slide. Okay. I'll drill down a little bit on the uranium reserve and the Russian Suspension Agreement. It has been put in Trump's 2021 budget. As I mentioned, there are several bills in the Senate and the House working through committee and appropriations.

The U.S. Department of Energy is pushing aggressively for appropriations. The timing is still a bit unknown. Perhaps the most significant thing that is also going on at this time is the Russian Suspension Agreement limiting imports of Russian uranium into the United States. This is where the Nuclear Fuel Working Group report is very, very powerful. The current agreement expires at the end of this year, and there's currently negotiations going on to extend the agreement for 10 to 20 years. For the first time in a long time, the U.S., we believe, is playing hardball with the Russians. The Nuclear Fuel Working Group report says that the suspension agreement should be extended and perhaps reduced. We think the government is focused in that regard. There has been a threat through a preliminary administrative review to cancel the agreement that was to be potentially canceled on August 4th.

That has now been extended into mid-late September, maybe early October. If they did cancel it, it could impose tariffs on Russian imports, which could shake up the market substantially. So kind of watch this space. The Department of Commerce also found that the ending of this agreement, that there was price suppression by the Russians. And so I think we're in the strongest position we have been in years on this front. So this is, as I said, keep an eye on it, and it could be something significant to the market in the coming weeks. Next slide. Now I'd like to talk a bit about our financials. As I mentioned earlier, we had $53 million in cash and inventories at the end of June, including nearly 600,000 pounds of uranium and 1.7 million pounds of vanadium.

Currently, we do not intend to sell inventory this year unless we can capitalize higher prices and hopefully significantly higher. Just to put it into context, for every dollar increase in the price of uranium, our working capital increases by over $500,000. For every dollar increase in the price of vanadium, our working capital increases by nearly $2 million. None of our peers have this kind of leverage to these commodities. We also paid off half our debt in July 14th. So we're working away at our debt. By contrast, many of our peers are incurring more debt. On this front, I would like to talk a little bit about dilution that Energy Fuels has incurred. First, we are raising cash on our timing and our terms.

I think many of you have seen other companies that have gotten overextended on debt, and it can be disastrous for shareholders. Also, instead of diluting, there are companies that are just adding on to their debt service to fund their operations, which eventually will have to be addressed. Well, we are addressing it now to address it on our terms, as I said earlier. Much of this debt is being taken on on very tough terms, including very high interest rates. Servicing debt, as I said earlier, can be extremely destructive and burdensome for shareholders. We also have far more fully permitted operational assets than any other company in the United States. It costs money to keep these properties in good standing. There are other companies that have a project or two at best, if they're lucky, but we're maintaining several of these projects.

At the end of the day, if you're incurring losses, you're diluting, and every North American uranium company is diluting except Cameco. We believe we're doing what is best to get this lowest cost of capital in the least disruptive way possible for our shareholders, and we will be debt-free at the end of this year. So we are addressing the debt. It'll be gone, and we will not have to dilute to pay off debt looking to the future unless we have cash flow-related line of sight to cash flow for those purposes. Next slide. Now, this slide is a good slide for people to understand where Energy Fuels fits into the North American uranium space. It also shows how we should be differentiated from others. If you kind of look at us from a market cap perspective, we're kind of in the middle of the road.

The next column over, the $45 million of cash working capital, that reflects after paying down the $8 million worth of debt. The next column over, the $8 million, that is our remaining debt that will be gone at the end of this year. We're not going to refinance that. We'll pay it off at the end of the year or sooner as we elect. The next column over, the 0.58 is our uranium inventory that is building. And again, a differentiator on the amount of inventory that we're holding. And then when you go across to all these little green little ticks, we had uranium production, ISR, and conventional in 2009. The only other company that had that was Cameco. No one had vanadium production.

Then you look at the alternate feeds, which traditionally has been a $5 million-$15 million a year recycling business for us, and we still are advancing on a number of fronts on that area. Then lastly, no one has exposure to the rare earth element business. I can look at a number of companies in the rare earth element business that have market caps of $100 million up to $1 billion or potentially soon to have market caps up to $1.5 billion. I can tell you we are right in the game, and I do not believe we have really any significant recognition for the rare earth space in our stock or the value of our company.

We will first and foremost be a uranium miner, but we have several positive possible cash flow generation opportunities, most of which we have capitalized on either currently or in the past. So it is proven businesses that we have benefited from over years. Next slide. Now, again, I think many of you have heard me say this is one of my favorite slides because it shows the uranium production in the United States over the last 15 years. The gray is production from Cameco. The blue is production from Energy Fuels or our assets. The yellow line is the price of uranium, how it has declined basically since 2017. In addition, Ur-Energy is in green. Uranium One is sort of that kind of pink or red.

If you look at just Energy Fuels and Cameco, the two companies that produce 85% of the uranium produced over the last 15 years in the United States. If you include Ur-Energy and Uranium One, it's well over 95% just for companies. So I think this slide speaks volumes. We have been there. We have done it. We will do it again with our production history, with our significant project holding, including three fully operable production centers. Next slide. Okay. Again, many of you have seen this slide before, but again, I think it's helpful to highlight how we have properties from Wyoming all the way down to South Texas. The three production centers are the stars. In Wyoming, Nichols Ranch is on standby. Alta Mesa in Texas is on standby.

And again, as an in-situ recovery project, White Mesa Mill is a blue star in the Four Corners region and a number of projects that surround White Mesa Mill. But we also have other projects surrounding Alta Mesa and Nichols Ranch. So we have a very extensive footprint and the proven production districts of the United States of America. Next slide. Now, this is something that is new, and it is just being availed on this call. We are evaluating the potential to divest some of our non-core assets. The reason we're planning to do this is we do not think we're getting value for these assets. And this is a way to cut costs, generate some cash, and unlock value. We haven't decided exactly which projects it was going to be, but it'll probably be two or three fully permitted conventional mines.

Not our main mines, but our conventional mines that are fully permitted. Many of these projects, several of these projects have production histories greater than several existing uranium companies in the United States. Greater production history and probably at lower cost structures. If we divest these mines, they will come potentially with a toll milling agreement. They will be the only projects outside of our projects that will have a toll milling agreement. We'll also consider providing permitting and compliance assistance, access to the databases. Again, the rationale is cut holding costs, cut compliance, retain, and this is important, retain the milling and marketing rights. That ore still has to come to the mill, and we'll have the marketing rights and unlock value. We will probably consider if people give us sufficient consideration and are reputable cash share type transaction.

We plan to have expressions of interest in August or September. And so again, this is something that no other company, if you have 1 project or 2 projects, you're certainly not going to divest 2 or 3. And again, we have such a large portfolio. We still have the mill. We can still mill this material. We still have the marketing rights. I think it is a no-brainer, but it's also a substantial opportunity for somebody else. You will be the envy of the Western U.S. to have the only milling agreement potentially with White Mesa. No one else will. Next slide. And I'd just like to kind of go through what I've already talked about. Number 1, unmatched ability to increase low-cost uranium production from proven assets with long histories of delivery. More production facilities, more capacity, more experience than any other company in the United States.

The rare earth opportunity is moving quickly. We are building this for the future, and this is extremely exciting for us. Anyone that is really interested in critical minerals, Energy Fuels is becoming a one-stop shop for a lot of the critical minerals that the United States needs. We're well-positioned financially. We have a strong balance sheet. Our debt has been retired. We will be debt-free at the end of the year. We're evaluating this potential divestment opportunity, which again, I think can be material for the company. No one else has the vanadium. No one else has the alternate feed.

The land cleanup is still a significant opportunity on its own. It's been kind of slowed down because of COVID on the Navajo Nation, but we are currently receiving material from a private group as we speak. It's sort of in the order of $200,000 per month of revenue, which is small but material for us. That is it for my presentation. I'd now like to open it up for questions. Thank you very much.

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be polled in the order they are received. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment for your first question. Okay. So your first question comes from Mark Reichman of Noble Capital Markets. Mark, please go ahead.

Mark Reichman (Research Analyst)

Good morning, and thank you for taking my question. With respect to the rare earth strategy, would you elaborate on sources of ore for the mill and markets for the sale of the concentrates, including potential commitments with Neo Performance to buy and sell the rare earth element concentrates produced at White Mesa?

Mark Chalmers (President and CEO)

Yeah. Well, firstly, our main focus is on the United States as far as feed sources. So our first port of call is looking at sources of monazite in the United States. After we've kind of covered off on that, we'll branch out maybe to Canada or other sources. As I said, we're going to kind of do this starting small and kind of working our way up the chain.

There are a number of sources of monazite material from particularly these mineral sand operations that in many cases is very high-grade in total rare earth concentrates, TREO. So we're going to try to build on that. We may become a miner in time, but not at this point in time. When it comes into what we do with the concentrate once we've processed it, as I said, we're not exclusive with Neo, but we think that they're an excellent company. They also have the capability to take this thing further down the chain in non-Chinese and non-Russian countries. So there's nothing in place at this point in time, but that could change. As I said, we've got a very strong relationship with them, and we're looking at the possibility where we have full integration of running through the supply chain here through a company like Neo.

But as I said, we want to maintain our ability to service the U.S. market. There are a few other players that we know are trying to build up their capabilities. So we want to make sure that we stay true to getting the United States independent of China as quickly as possible. But there are only so many potential buyers of concentrate, and one of them is China. So Neo fits this really nicely because of what they do. And there are some others that might, but it's a very healthy relationship with Neo, and I think we complement each other. And I look forward to a very long and strong relationship with Neo going forward.

Mark Reichman (Research Analyst)

Well, as a follow-up, what additional steps would need to be taken to enable capability to refine, separate, and recover the elements versus just producing the concentrate?

Mark Chalmers (President and CEO)

Well, look, that's a work in progress. We don't see any reason why we can't go with some of these extra steps of separation, looking towards magnet material. The monazites have a very favorable distribution with some of the heavies in it. That's another reason why it's attractive to us, plus the fact that it has uranium that we cover. So we're going to keep it simple. We're going to take the step, and I'd say the four C's, the four U's is our trading symbol, but the four C's are concentrate on a concentrate, concentrate on a concentrate. And once we've made that step successfully and modestly, we will build from there, Mark, and then go looking at other steps and processes that are value adds.

Mark Reichman (Research Analyst)

Thank you, Mark. That's very helpful.

Operator (participant)

Your next question comes from Heiko Ihle of H.C. Wainwright. Heiko, please go ahead.

Heiko Ihle (Managing Director and Equity Research Analyst)

Hey, thanks so much for taking my questions. I apologize for the lousy connection here. I'm still over in Europe.

Mark Chalmers (President and CEO)

That's okay, Heiko. Far away.

Heiko Ihle (Managing Director and Equity Research Analyst)

Perfect. Hey, more of a comment than a question, but I mean, in regards to something you said earlier, I agree with you that you don't get enough recognition for the vanadium and rare earth capabilities that you have. And my gut feeling is that that's going to change over the next couple of quarters. So again, more of a question than a more of a statement than a question, but I just figured I'd point it out.

Off of the questions, given the recent impact of COVID-19 and the border closures it has led to, and you sort of alluded to this in your presentation a little bit with nonpartisan support for uranium, have you heard or seen any impact on the global uranium market as countries in general just seem to be a little bit more focused on themselves right now? I mean, clearly, you'd be a huge benefactor of more domestically sourced supply. Can you just provide a little bit of color if you've seen anything, please?

Mark Chalmers (President and CEO)

Yeah, you were kind of breaking up there a bit, Heiko. You're saying color kind of on the impacts of COVID in various countries in terms of. In regards to exactly. White Mesa, White Plains, and whatnot. Is that correct?

Heiko Ihle (Managing Director and Equity Research Analyst)

Exactly. In regards to company, in regards to countries just focusing more on themselves rather than one global marketplace.

Mark Chalmers (President and CEO)

Yeah. Well, look, I think that certainly COVID's been a wake-up call for everyone, all countries, and how fragile all these industries can be, particularly in the cases with this pandemic. I think it has also highlighted this whole issue of critical minerals of all types and materials, not just minerals. So I think it's woke up a lot of people and woke up a lot of politicians, including, like I said, from a bipartisan perspective. And so even though, as I said, Heiko, we're first and foremost a uranium-focused company with more assets and more history and more cash and cleaner balance sheet than any of these other people, we think this critical minerals area hub, adding with the vanadium and the rare earths, is really becoming a no-brainer.

And I think it's going to be greater value placed on that in the future because of COVID has helped us, but other situations as well too. So it's all dynamic, but I think that I think people are starting to get it that you cannot be completely dependent on state-owned enterprises and going to the cheapest supplier of certain materials, whatever they are, in the world.

Heiko Ihle (Managing Director and Equity Research Analyst)

Yep. Fair enough. And then just a clarification, can you provide us with a little bit of breadth of what you think your balance sheet might be looking like by the end of the year? I mean, you mentioned earlier on the call and on slide 17 of that presentation that you plan to have the remaining $8 million that retired by the end of the year. But just with and without divestitures, just walk us through scenarios that you see your balance sheet looking like, please. Thank you very much.

Mark Chalmers (President and CEO)

Yep. Well, look, I won't go into details, and I've got David Frydenlund on the call. He might have to jump in here. But yeah, we plan to have that residual $8 million addressed, and we have the ability to pay that off in cash and shares. We may pay it off sooner. Just kind of as a company policy, so we'll have no debt at the end of the year.

We always try to keep ourselves in the order of around minimum ±$40 million of cash or working capital to make sure that we have plenty of capacity to not get flagged with a going concern. Heiko, so and so look, I've learned for being in this business for 40, 45 years, it's never sell too close to the wind, particularly with debt. So Dave, do you want to chime in here on your thoughts as CFO?

David Frydenlund (CFO)

Yes. Thanks, Mark. I think I'll echo what you say that we strive to keep about at least $40 million in working capital at all times. And our plans right now have us paying off the debt by the end of the year and maintaining that level. I think that's about all we can say right now.

Heiko Ihle (Managing Director and Equity Research Analyst)

Very good. Thank you for taking my questions and apologies for that lousy connection. I'm not sure what's going on with that. Thank you.

Your next question comes from Joseph Reagor of Roth Capital Partners. Joseph, please go ahead.

Joseph Reagor (Managing Director and Senior Research Analyst)

Hey, guys. Thanks for taking the questions. A couple of things. I guess first thing, a little bit more info on your guys' view on the Russian Suspension Agreement. What do you see as the most likely outcome? There hasn't been a lot of reporting on this given other bigger issues in the world. And then second part, if it were to be canceled or not continued, do you think there'd be a carve-out for pre-existing contracts? I know a lot of the utilities have contracts with suppliers who use Russia as the basis of the low-grade uranium.

Mark Chalmers (President and CEO)

Yeah. Look, I think, and again, we can't get into a lot of the details because a number of us are participating in this process. But I think, generally speaking, people are assuming that the agreement will be extended. The Nuclear Fuel Working Group said that the quantity should be reduced. I think they will be reduced over time. Some of this, and this was brought out in this preliminary review, that there's been a number of groups that have overcontracted here. How to address that is part of the issues of how that gets addressed. There's still no guarantee the Russians will sign a new agreement. If it crashes and burns, I think you end up with this issue of tariffs potentially going back into place, which is not an outcome that we support or really want, but it certainly would turn the apple cart upside down. All those things are the complexities that are being looked at and considered. So I don't know. Curtis, do you have anything you'd like to say in that regard with the RSA?

Curtis Moore (VP)

Thanks for turning over to me. There are a whole lot of outcomes in this thing. It's. There's been proposals going back and forth. Again, we can't talk about what is being discussed. I mean, the U.S. government is playing hardball with Russia right now. They basically said that if you don't come to the table and be reasonable, we're willing to, as the U.S. is willing to just cancel this agreement altogether and impose 115% tariffs. And Mark said that we don't support the tariffs. We only do that; we only don't support it because it would be tough on U.S. utilities.

But if Russia is not willing to be reasonable, yeah, we support that. I mean, we need to make sure that we have a fair level playing field here. We don't know if Russia is going to sign kind of what's been put in front of them right now. They may do some brinksmanship and see roll the dice with the tariffs, see if the Department of Commerce does have the backbone to actually cancel the agreement. But yeah, we do think that it's going to be extended, I think, at some level. And that should be positive for the U.S. uranium industry.

Joseph Reagor (Managing Director and Senior Research Analyst)

Okay. Thanks for the additional color there, guys. Switching gears a bit, looking at spot prices, they're in the $32-$33 range and have been for a while. Two questions on it. One, what are you guys seeing or hearing as far as long-term contract levels compared to spot? And then two, it seems given that there was so much supply that went offline because of COVID and is still offline because of it, that the price maybe should have been higher right now. It kind of indicates or may indicate that the utilities have reduced spot market purchases in order to not cause a price spike. Is that anything you guys are seeing out there as well? Anything you can give me on those two items would be great.

Mark Chalmers (President and CEO)

Okay. Curtis, I'll let you continue on.

Curtis Moore (VP)

I can answer your probably better point.

Joseph Reagor (Managing Director and Senior Research Analyst)

Okay.

Curtis Moore (VP)

Yeah. We definitely are seeing a little bit of additional interest from utilities in the term market. The COVID pandemic did quiet things down significantly on the buying side. I mean, there was also some refueling outages happening at some of the utilities that also they just had their focus elsewhere than on procuring material. And yeah, and a lot of people are working from home. There's not been as many opportunities for suppliers and buyers to get together and come to deals.

I think that maybe that's one of the reasons that utilities carry a couple of years of inventories is to kind of protect themselves from these sort of situations so they know that they don't need to panic and run out in the spot market and start buying material. So I do think that they're going to be coming back to the market. They already are right now through the I think through the end of the year. I mean, we've heard that statement from TradeTech, for instance. They think that the utilities are going to be coming out for material through the end of the year as these refueling outages ended and also as we start to get some symbols of normalcy from the pandemic.

Joseph Reagor (Managing Director and Senior Research Analyst)

Okay. And then one final item just on spot versus long-term. Historically, the spot market's been less than 10% of world supply at times. With companies like you guys and your peers not signing new long-term contracts, it would seem to me that the indication is in the coming years, the spot market is going to represent a much bigger piece unless new contracts are signed. Do you guys have any idea roughly what we're looking at for the next, let's call it, three years as far as percent spot if they don't sign new deals?

Mark Chalmers (President and CEO)

Yeah. I mean, yeah, I mean, that's a very good point because a lot of long-term deals are coming off. Now, I do suspect that there's long-term deals that get done behind the scenes that are not reported. But with that being the case, there was a move over the last several years to more of the midterm market with intermediaries and traders and whatnot where they might do a deal with a utility and supply them for 2, 3, 4 years, and then it's really on the trader or the intermediary to actually go out and procure the material generally on the spot market. But as all this supply comes offline, that spot market is just going to become tighter and tighter for intermediaries. And there's even talk about miners like Cameco. Well, Cameco has already been buying material, but even because I don't probably need to buy material. So yeah, it's going to be pretty interesting here for the next couple of years with all these supply cuts and lack of long-term contracting.

You would like to think that utilities would sign long-term contracts to kind of protect themselves against these potential, maybe a trader can't find material to deliver into their midterm deal and cause some sort of a supply crunch that eventually will fall back on the utilities. But we haven't seen it in a big way yet. But again, maybe toward the end of the year, we'll start seeing a little bit more long-term interest.

Joseph Reagor (Managing Director and Senior Research Analyst)

Okay. Thanks for the color there. I'll turn it over.

Operator (participant)

Your next question comes from Chris Temple from The National Investor. Chris, please go ahead.

Chris Temple (Owner)

Hey, Mark. Curious about the Canyon Mine and what any near-term plans might be for that. I remember the excitement some time ago when you were discovering there was a pretty nice copper resource there potentially and some high grades that you hit. I was curious if there is a reason why with your decent financial position, I've not heard anything about any further exploration there.

Mark Chalmers (President and CEO)

Yeah. Chris, look, Canyon is still a very important project for us. I think I've termed it as a momentum project many times because it can come on quickly, produce at low cost. So it's an important project to us. It doesn't have a, well, huge long life. It might be 4 or 5 years or something. But again, as I said, it's one of our lowest cost projects. The copper, yeah, look, we're still evaluating it, and it's but it's a very high-grade, very small pod of copper. We have been looking at other sources of copper with some of our other projects.

One of the things that I guess in hindsight, 20 years ago, we probably should have had a copper circuit at White Mesa because there has been quite a lot of copper recovered from some of these uranium mines over time. So look, we're still maintaining the project in good working order. We're still doing engineering on it. We're still looking at the copper. And as I said, it is a very important project to us. But yeah, right now, it's the capital cost of putting in copper recovery versus that one very high-grade but isolated zone that we have. But there is expansion. When we go underground, we will be doing a lot more drilling. Because of the high grade, you can stuff a lot of uranium and copper in very small areas, and we will do more drilling when we get underground.

It's really hard to drill it out from the surface because it's over 1,000 feet deep, so it's expensive. But yeah, no, we're very much committed to Canyon. And I think some of you may know that I actually originally constructed the Canyon project in the 1980s. So I plan to mine it.

Chris Temple (Owner)

Neat. Thanks, Mark.

Operator (participant)

Your next question comes from Mark Reichman of Noble Capital Markets. Mark, please go ahead.

Mark Reichman (Research Analyst)

Thank you. Just a couple of follow-ups. With respect to the Russian Suspension Agreement, I think Curtis mentioned that there is a proposal on the desk in front of the Russians currently. But looking at kind of your range of outcomes or reasonable range of outcomes, are you able to quantify or kind of put some numbers around the supply impacts to the U.S. market, whether that be in pounds or percentage of the market?

Mark Chalmers (President and CEO)

I don't think so, Mark. As I said. Yeah.

Curtis Moore (VP)

Yeah. Yeah. This is Curtis again. I mean, yeah, I mean, we're subject to confidentiality, and so we really can't say too much about this right now. But we're hopeful of a positive outcome for us, so.

Mark Reichman (Research Analyst)

Okay. And I think you'd already addressed the Canyon Mine. So is there anything more to say about the non-core asset divestment in terms of kind of how you're thinking about that and kind of what's your criteria for non-core? I guess we can kind of take a pretty good stab at it. But for example, would Whirlwind meet that threshold? Just kind of what was kind of the criteria you used to evaluate your portfolio and come to this decision?

Curtis Moore (VP)

Well, again, Mark, I think when you look at our market cap and compared to our peers, and then you got all these things we do. And I know we're a complicated company for the right reasons, but we're complicated. We just don't think we get value for some of these properties. And the things that we're considering, and I'm not going to come out and say which ones at this moment. That'll become clearer in the next month or two. But they're good properties. I mean, they're proven properties. But they're not our core properties. I mean, our core properties, I think people understand. It's Nichols Ranch. It's Alta Mesa. It's La Sal Complex. It's Canyon. It's Roca Honda. It's Sheep. There's other properties we have that cost us money to maintain them. There's substantial infrastructure. As I said, they have production histories.

And in a lot of these projects, if the market recovers like we expect it to, we probably wouldn't mine them ourselves anyways. We probably would have had them contracted out, okay? We would have probably contracted them out. And if we contract them out, we would still receive the ore. And you know what I'm saying? So we think this is very, very unique. And again, it's another example of where Energy Fuels can do something that others can't, monetize these things. If we get a responsible operator where we can get a cash and share deal, if they get a re-rating because they have a producing asset or a production visibility, we can share in some of that. So look, it's a new concept for us, at least at this point in time.

We think that there will be a lot of people saying, "I want a milling agreement because I'm the only one that has one with Energy Fuels." We think that'll be a differentiator. And so we'll see where it goes. But as I said, we have to get sufficient consideration. If we don't, we'll keep them for now.

Mark Reichman (Research Analyst)

That makes a lot of sense. Well, thank you very much. That's very helpful.

Operator (participant)

All right. So there are no further questions at this time. You may proceed.

Mark Chalmers (President and CEO)

Okay. Well, look, everyone, thank you for joining the call. I think you can tell I'm very excited about where we are as a company. I've been doing this for a lot of years, and I can't believe that we have this significant optionality on all the fronts that we discussed. I understand it's a little bit complicated. If any of you have any other questions that you want to talk to me directly, feel free to call me or call Curtis. We're happy to talk to you. All I can say is watch this space and stay safe. We really want to see our shareholders do very well out of our company and how we're placing it for the future. Thank you very much.

Operator (participant)

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