Energy Fuels - Q3 2022

Transcript

Operator (participant)

Good afternoon. My name is Colin, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Energy Fuels Q3 2022 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, please press star followed by two. Thank you. Mr. Mark Chalmers, you may begin your conference.

Mark Chalmers (President and CEO)

Thank you for the introduction, and good afternoon to all of you that are joining today. Actually, it's morning for me in Adelaide, South Australia. Thanks for joining the Q3 2022 conference call. We're always excited to talk about our achievements, particularly with our focus on uranium and rare earths. I'm also pleased to say that we have a new format for our presentation today. We think it tells our story in a simpler, more compelling fashion. Even though our news flow during Q3 has been a little quiet, we're still continuing to make outstanding progress executing our business plan. Certainly, the overarching driver of the uranium markets continues to be the conflict with Russia in Ukraine.

It is now clear that Russia must be eliminated from the Western nuclear fuel supply market, and that is putting pressure on uranium conversion and enrichment, and we think will flow to natural uranium markets. The U.S. government continues to evaluate options in this regard, but most utilities are voluntarily moving away from Russian supply. As a result, and as we've said this previously, and we reported, Energy Fuels has secured uranium supply contracts, and we're looking at additional contracts at supportive pricing. For these contracts, we have significant uranium inventories, which will be fed into the contracts in the early years. We are working on investing in our mines and hiring people to resume large scale uranium production as soon as next year.

On the rare earth front, I am very pleased to say that we're installing a light rare earth separation commercial-scale separation facility at the White Mesa Mill. We believe if we do that the way we think we can do that, we'll be the first company in the U.S. commercially separating at scale. Very excited about that. The Bahia Project we expect to close at the end of this year or early next year. The main delay there is everything's been submitted to the Brazilian government. That is just the timeline they have to get those final transfers approved. We also, as most of you are aware, sold a fair amount of vanadium, over 600,000 pounds of vanadium at healthy margins. We continue to make excellent progress on the medical isotope front.

To say that a lot is going on is an understatement. Now for some administrative matters, there will be replays of this presentation available for two weeks on our website starting today or tomorrow. Also want to remind everyone, you are controlling your own slides from your own device, and I will endeavor to tell you when to advance the next slide. If I don't, I apologize in advance. At the end of the presentation, as was noted, we'll be open for questions. I'm being joined today by David Frydenlund, our Executive Vice President, Chief Legal Officer, Tom Brock, our CFO, and Curtis Moore, our VP of Marketing & Corporate Development, will join me to answer if they're required. Let's get started.

Before I get started, again, this first slide just showing the picture of the White Mesa Mill, which is really our flagship asset, and becoming absolutely leaps and bounds America's leading producer of critical materials for the energy transition. Next slide. I may be making some forward-looking statements as is contained in this slide. Next slide. Our mission is really simple, to responsibly produce the critical materials needed for this energy transition. This is an exciting space, and there is no peer group for Energy Fuels because nobody does what we do. Next slide. Today and looking at the periodic table, a number of the elements are highlighted that Energy Fuels either currently produces or has the ability to produce many of these materials.

When I say that we're focused on becoming a critical mineral hub, we are absolutely focused on that and making great strides as we go. Next slide. The products that we're currently producing or will be producing, whether it's for nuclear power, for vanadium flow batteries or renewable energy sources, permanent magnets, you know, we're covering a lot of ground here with those specialty elements. Next slide. The other thing that is so exciting about that, these are high value product lines.

I mean, uranium has been our core business, you know, for nuclear power, baseload energy, 24/7, 50% of zero carbon emissions, you know, the zero carbon emissions, rare earths, the critical elements required for magnets, wind, electric vehicles, vanadium. Mainly used for steel, but also as an electrolyte in grid-scale batteries, the medical isotopes critical for emerging cancer therapies, and then recycling, which has been a big part of our business for a couple decades now. Next slide. Our Q3 milestones is really to be first to market. We think that's important in a number of areas, both uranium and rare earths. As I said, we're commencing readying some of our facilities, one or more facilities to be ready as soon as 2023.

We've hired about 20 people in that regard. We have significant inventories of uranium already to be able to fill some of these contracts. If you add up all this, the various sources of feed we have, it's north of one million pounds. We currently have 760,000 lbs, and we're producing uranium as we speak, or packaging uranium at a total of around 130,000-140,000 lbs, and then nearly 200,000 lbs of other stockpiles around the site. We have a significant amount of uranium, either in finished goods or ability to be converted into finished goods quite quickly.

We have increased our uranium production guidance slightly with this latest run of alternate feeds, and we are still awaiting to hear the results of our bids for the uranium reserve with the Department of Energy. On rare earths, we're now receiving some additional monazite from Chemours. We're expecting around 640 metric tons showing up that we'll start processing later this year or early in 2023. I mentioned the closing of Bahia in Brazil. We are getting ready to drill and we expect, and I said, this is really big news, and it's been in our releases for the last few months, but we're getting to a lot more of the details.

In 12-18 months, we believe we'll have the ability to produce between 2,500-5,000 metric tons of REO, which is between 500 and 1,000 metric tons of NdPr. 500 metric tons of NdPr is about 500,000 electric vehicles worth of NdPr, and the 1,000 metric tons is upwards of about one million electric vehicles, so very significant. We're also planning and we call that phase II. That 2,500-5,000 metric tons, we call phase II. Phase II is a larger facility, both with crack and leach and the ability to recover the heavies in the next few years after we get this first facility up and running. Next slide. Our balance sheet remains strong.

$122 million of working capital as of the end of the quarter. $77 million in cash, nearly $12 million in marketable securities, $27 million of product inventory at book values. When you look at current values, it's about $16 million or $17 million greater than that. We also have investments in Consolidated Uranium and Virginia Energy, which is in the order of around $20 million and zero debt. We're in a very strong position. Preparing for growth both in uranium, rare earths. We posted a net loss of $9.3 million in the quarter. That is really attributed to the significant increases in development, in permitting, landholding, and other costs associated with getting this flywheel churning at full tilt. Next slide. Hidden assets, and I only touched on this a bit with our working capital.

When you take our uranium inventories, our vanadium inventories, you increase that to current prices, and also considering the investments that we have, you know, we have a very healthy balance sheet with, as I said, north of around $150 million. Next slide. Our guidance for 2022, as we said, we increased our guidance slightly up on our uranium production between 130,000-140,000 lbs. We will have, in inventory finished goods of between 760,000 and 900,000 lbs of inventory at year-end. We produced about 205 tons of mixed rare earth carbonate, and that's about 95 tons of REO.

The main reason it's smaller is because we're still Chemours is still behind on the monazite to supply us with monazite. They're running behind schedule on that. We're still working with them to resolve that. As I said, in Q4 we expect to receive around 640 tons of monazite to process later this year and early next year. We also potentially have revenue upside from possible uranium sales with the DOE, as I mentioned earlier. Looking out, our new uranium sales contracts start beginning in 2023. We've already received notices from the utility that they wanna flex up on their quantities. We plan to be able to be in a position to sell separated NdPr in 2024. Next slide.

Really, when you look at our products and practices, they fit perfectly into the ESG story. Uranium for zero carbon baseload energy, rare earths for the clean energy technologies and high efficiency magnets, vanadium for steel hardening, but also the grid-scale batteries, the medical isotopes to address emerging cancer treatments and the recycling of products that would be lost to disposal otherwise. We're very excited about the progress we're making on the San Juan County Clean Energy Foundation. We've had an advisory board appointed, so it's and we have a website that's up and running. I've reported previously, we provided financial support for a Native American STEM education initiative. We're very excited about that.

Lastly, our sustainability report still is very, very significant in what we do when it comes to focus on ESG, going forward now and going forward. Next slide. Our core business, and next slide, is always be uranium. I've been producing uranium for 46 years and will continue to be a uranium producer. When you look at this slide on our proven uranium assets, the White Mesa Mill is our hub where we can produce uranium, vanadium, and the rare earths, and potentially produce the medical isotopes. The Pinyon Plain Mine is on standby, but we are doing work at a number of our assets across the portfolio to get ready to go back into production when we think it's time to go into production.

As I said, we have these inventories that we can use as a bit of a buffer in the meantime. On the right hand, the Alta Mesa mine, ISR mine in Texas on standby, and Nichols Ranch ISR also on standby. Next slide. You know, we touched on the uranium contracts starting in 2023, and, you know, we're really excited to have those contracts. They vary. Base quantities are three million pounds, could be flexed up to 4.2 million lbs. Substantial revenue over a period of around eight years. It lets us really get this flywheel moving. We're excited to get a mine or two back into production, as I said, as soon as 2023.

We're also waiting for the U.S. government on the uranium reserve. They have delayed that a number of times currently, and we're not really sure exactly why, but we're still optimistic that we may hopefully be able to sell some of our product to the U.S. government. Next slide. This slide, again, it gets updated periodically, but we're in the middle of the pack. As a uranium producer, we still trade as a uranium producer. I always like to point out that we have zero debt. We have uranium inventories, which we produced ourselves with exception of a small quantity that we recently purchased. Everybody in that this table are uranium producers.

Again, there is no peer to Energy Fuels because none of them are in the rare earth space, none of them are in the vanadium space or the medical isotopes, or none of them have the ability to recycle like Energy Fuels. Next slide. Really the growth drivers in the rare earth front, next slide. I said this before that uranium and rare earths go perfectly together for our company, not for most companies. You know, it is, according to Constantine, my good friend Constantine Karayannopoulos, the missing link in the U.S. rare earth supply chain. We're focused on these high-value rare earth-bearing minerals, mainly monazite.

The White Mesa Mill is the only existing facility in North America currently able to process monazite, recovering uranium and removing the radioactive elements, and producing these advanced rare earth products. Next slide. I love this slide because we call it the race to the new age of clean energy. April 2022, two and a half years ago. Look at the progress we've made. We're in a position to commercially make carbonate. We've been able to pilot scale making separated NdPr, 99.8% purity. We were able to do the first stage of commercial separation of taking out the lanthanum and upgrade the NdPr in that carbonate to 32%-34%. That is good brew.

In May, we signed agreements for the Bahia Project, in Brazil, which could provide monazite to the mill for decades. You add to that our plans to produce a commercial scale, light separation facility at the mill next year and the following year, in the next 12-18 months, with the focus on a larger facility in 2026-2027. I would ask people who else out there, not just in the United States, but in the world, can show a timeline of that over the last few years and looking to the future. We are moving at rocket speed. Next slide. Again, just another, slide showing our advancements towards full integration. You can see that, you know, we're securing a natural monazite, and we're doing that now.

You know, the crack and leach, we're doing that now and have the ability to expand that as we secure more monazite. Moving forward with separation, next year and the following year, commercially. We're also focused on the metal making and alloying, and we have the Nanoscale Powders agreement that we're advancing. We are marching down the path for full integration, with the focus being upgrading that in United States of America. Next slide. Just pictures, and I think, you know, you've seen some of these pictures before. The upper left-hand corner, I like that because those are commercial shipments to Neo Performance Materials in Estonia in bulky bags. I also like to point out in the lower right-hand corner, this is our pilot facility at the White Mesa mill, for the light separations in 72 stages.

We have ran that now for multiples of months. We can do this type of work on our site. We don't have to go hire somebody to do this test. We're doing ourselves. That is part of the secret to our success and our rapid success and the low cost of advancing because we have so many capabilities internally that others don't have. Next slide. Again, most of you have seen this slide before. You know, the unique advantages, it's really our ability to unlock the value of monazite because we can handle the radionuclides and monetize them. We have the licenses. It's high value. It's mined around the world, including the United States. You know, it's really straightforward if you can handle the radionuclides.

Low operating costs and capital efficiency, we think it's staggering, the advantage that we have on that in addition to handling the radionuclides. Solvent extraction. People keep saying, "Oh, it's difficult, it's tough." Yeah, it is if you don't know what you're doing. But we know what we're doing, and we have proven a track record with SX, and that's what we're focusing on for the separation of the lights and the heavies. Again, we're proud to say Utah is where our facility is located. Next slide. Again, when you look at our market position with other rare earth producers or wannabes, we're kind of in the middle of the pack. And I always like to emphasize the basket values.

The prices of some of the rare earths have come down a bit, but you're still talking about Chemours equivalent material of around $18,000 a ton. Very, very high value. We are chasing the likes of the Lynas, the Lynases, and the MPs. I think that is where we have substantial opportunity to uprate value to our shareholders, is in the rare earth as well as uranium. I think there's bigger opportunities to uprate on the rare earth side. Next slide. Looking at long-term growth in vanadium and medical isotopes. Next slide. You know, look at vanadium and medical isotopes. These are things that none of our peers have. We have the only commercial conventional vanadium plant in the United States.

You know, as I mentioned, you know, we've sold some of that vanadium this year, and we still have about one million pounds of vanadium in inventory that we can sell at any time that we want to with regard to. It depends on the pricing. We're always going for higher prices than the current market, and we have the ability to go back into vanadium production pretty much in the next few months or years, depending on when the market condition warrants that. Medical isotopes, you know, we've talked about this over the last number of months. For emerging cancer therapies, very exciting, and we really are positioning White Mesa to be a source for those isotopes.

You know, it's an exciting space and we hope to have more news flow on that in due course. Next slide. really, that's the new presentation. here we are back at the White Mesa Mill with these multiple elements. As I said, we're currently recovering or have the ability to recover. It is an exciting story, and I'd now like to open it up for any questions anyone might have, with regard to where we are as a company. Thank you.

Operator (participant)

Thank you. Ladies and gentlemen, we'll now conduct a question-and-answer session. If you'd like to ask a question at this time, please press star followed by one on your telephone keypad. If you'd like to withdraw your question, please press star followed by two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment for your first question. Okay, your first question comes from Puneet Singh from Eight Capital. Please go ahead.

Puneet Singh (Metals and Mining Equity Research Analyst)

Hi, thanks for taking my question. In the release, you talk about hiring a bunch of new employees to perform work needed for, recommencing production. Maybe just expand on what type of work they're conducting. Assuming you make a restart decision, what kind of timeline are you looking at? Or is that asset specific? Thanks. Yeah. I mean, a lot of these assets have been on standby for a number of years, and, they require, maintenance and work. You know, when people say we're ready to start, we want to be like push button ready to start. When you look at uranium production, like the mill right now, we're currently producing and packaging product at the mill, and we have other inventories we can run at the mill right now. From the mill, we're currently producing now.

Mark Chalmers (President and CEO)

We can ramp that up now. At the sites, you know, we're working on a number of our sites. But when I say push button ready, I mean push button ready. I mean, I'm talking about having the facilities, the maintenance done, you know, things cleaned up, you know, pumps rebuilt. We're rebuilding equipment. We have a shop in Cortez that we have mechanics at. We're doing all the things you need to do to restart. As I said, we have these existing inventories that we can fill in to these contracts starting in 2023, and we can kind of initiate the actual physical production, new production, whenever we want to.

I mean, it's really about getting everything in order and being able to push the accelerator down when we decide to do that.

Puneet Singh (Metals and Mining Equity Research Analyst)

Okay. You know, let's say you do that and you get it ready and the uranium price hits the price that you're looking for, again, is it asset specific or, you know, how long kinda would it take to get back into production on, say, one of your conventional assets?

Mark Chalmers (President and CEO)

Around 12 months or less.

Puneet Singh (Metals and Mining Equity Research Analyst)

Okay. Thanks, Mark.

Operator (participant)

Ladies and gentlemen, as a final reminder, should you like to ask question, please press star followed by one. Okay. There are no further questions at this time. I'll turn it back to Mark for closing remarks.

Mark Chalmers (President and CEO)

Well, that was short and sweet. Again, for those that are listening, thank you for your interest in Energy Fuels. We're a unique company. You know, most people, and I say this, would either invest in a uranium company only focused company or a rare earth focused company. With Energy Fuels, you get this wide spectrum of elements that others are not focusing on. You know, if you're interested in the energy transition, and you're interested in the kind of elements that we're recovering or plan to recover, Energy Fuels is a unique investment. Again, thank you. We look forward to our next updates.

We plan and hope to have a news flow over the coming months that may be a little higher level of news flow in the next couple of months than we had this last quarter. Don't think that it's not because this last quarter, like, that we're not working hard. We are working hard. Our people are working hard. I wanna say we've got great people. We've got great people. We've got great inertia and momentum, and I'm very proud of that. Thank you very much. Have a good day.

Operator (participant)

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