Energy Fuels - Q4 2023

Transcript

Operator (participant)

Good morning. My name is Joelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Energy Fuels Fiscal Year 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 address 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, Joelle, for that introduction. Good morning or afternoon, wherever you're joining this call from. I really appreciate you joining the conference call and webcast today for Energy Fuels' 2023 annual results. We are very excited to discuss what has been an extraordinary 2023 and a very busy start to Q1 of 2024. For those that cannot join the call today, we'll have replays of this presentation available for two weeks on our website, either later today or tomorrow. I don't believe I have ever been more excited to update you on both our 2023 results as well as a snapshot of where we are driving the company in 2024. I hope it is apparent, based on our actions, that Energy Fuels has emerged as the up-and-coming leader in U.S. uranium and critical mineral production at a time when this has never been more important.

Many of you have heard me say we will always be aggressive but not reckless, and I believe 2023 is a testament of how our company is striving to build a world-significant uranium-critical mineral company in a way that is unique to Energy Fuels' assets and our expertise. In short, we believe 2023 clearly demonstrates that we are company builders, not promoters. Our goal is to become a company that generates sustainable and significant, high-margin cash flows from the production of advanced critical materials centered around uranium and other elements found in nature with uranium. 2023 represents a major step in that direction. Just a few highlights from the press release and year-end financials: net income of nearly $100 million, $222 million of working capital, $37 million in sales of both uranium, vanadium, and rare earths, and no debt. We have over $1 billion worth of assets.

If you add, or you can add, another $45 million of liquidity if you look at our inventories at current market prices. In short, the company is achieving record uranium-based profits and has never been stronger financially with over $250 million of liquidity based on today's commodity market prices. All this is happening while we have been restarting mining. At three of our mines, we began preparing two additional mines for future restarts. We have secured or in the process of securing future additional rare earth feeds of world significance, and we're advancing our phase one separation capacity to be commissioned in April as well as our radioisotope initiatives. We are financing most of these through cash flows for growth and diversification milestones organically with limited shareholder dilution. I am aware of no other uranium-focused company that can say this.

Before I start the presentation, I want to remind you that you are controlling the presentation from your own device, and I'll try to remember to tell you when to advance with next slide. There'll be time for question and answers at the end of the presentation. David Frydenlund, our Executive Vice President, Chief Legal Officer; Nate Bennett, our interim CFO and Chief Accounting Officer; and Curtis Moore, our Senior Vice President of Corporate Development and Marketing, will be available to answer any questions I cannot answer. So let's jump right into the presentation. Now, most of you have seen this slide of White Mesa in Utah. This is the hub of our critical mineral strategy. We can recover uranium, rare earths, vanadium, potentially medical isotopes, and has a long history of recycling. And this, again, like our results, is an extraordinary asset for the company. Next slide.

I may be making some forward-looking statements, and those are included on slide 2 of this presentation. Next slide. This is what's extraordinary about what we're doing: we are a uranium-focused company, and we are creating, these other opportunities all centered around our uranium production capability with rare earths, vanadium, recycling, and the medical isotopes. Again, I don't know of any other company, outside of China that can say this and do this the way we're doing it. Next slide. Everything we do is a high-value product line, uranium. I want to point out that Energy Fuels has been the leading U.S. producer. In the last 5 years, two-thirds of all uranium produced in the United States come from Energy Fuels.

We're restarting the three uranium mines I mentioned and producing ore as we speak at a run rate of between $1.1 and $1.4 million per annum by the end of this year. So we're mining ore right now at three operations, and we're getting other operations ready to advance as market conditions support. We have over $10 million of licensed production capacity. Rare earths used for the critical elements for the powerful electric magnets required for electric vehicles, wind, and other high-tech appliances. In April, we will be and have the capacity to produce up to 1,000 metric tons per year of separated NdPr oxide, which is equivalent to the amount of elements required for the high-efficiency electric motors for up to 1 million electric vehicles. Vanadium, again, a critical element mainly used for high-strength steel, but it's also got substantial attention for grid-scale batteries.

We have the only primary producer of vanadium, recovery plant, in North America. Medical isotopes, which are critical for emerging cancer therapies and the ability to recover radium while we're processing uranium and rare earths, is a very exciting place for us. Recycling, and I've said this to most of you that have listened before, the fact that we've been able to recycle uranium and vanadium at the White Mesa Mill is why the mill has remained in good standing with the expertise for 40 years. Financial strength: I hit the high points already, $222 million in working capital at the end of the year. That includes a lot of cash and marketable securities and significant uranium and vanadium inventories. Next slide. So I'll talk about our financial highlights in a bit more detail here. Next slide.

So again, I know I'm repeating myself a bit, but $100 million of net income, $0.63 per share, driven by uranium. We sold 560,000 lbs in 2023 with a gross profit of $18 million. In addition, we sold the Alta Mesa uranium property and associated PFN tools, which were non-core, for a gain of $120 million. So those strong earnings have been funding our growth of uranium and rare earth activities and sales as we ramp up our uranium production and developing our ability, the bolt-on, of commercial rare earth separation capabilities. Again, over $250 million in liquidity at current commodity prices.

So when you look at our working capital, and I think this is the envy of the sector because we are so strong with zero debt and have assets that can come on with limited capital, and you look at the, and as I said, if you include for the value of our current inventories, it's north of $250 million. At year-end, we had nearly 700,000 lbs of finished uranium, 900,000 lbs of finished vanadium, and about 11 tons of separated pure rare earth carbonate. In addition, we have over 400,000 lbs of uranium as raw materials, which is ready for processing. So we have $1.1 million of uranium in finished good or ready for processing. Next slide. So uranium highlights. Next slide. So look, I've already talked about we sold the 560,000 lbs at a 54% gross margin. It's a very nice margin. That comprised 300,000 lbs to the U.S.

government sales at $61 a pound, and we also sold 260,000 lbs under long-term contracts that weighed out at around $57 per lbs. We also brought the La Sal Complex, which includes the Pandora Mine and Beaver Mine and the Pinyon Plain Mine in Arizona, back into production. As I already said, between 1.1 million lbs-1.4 million lbs per year by the end of 2024. We're expecting to produce—now, when we mine these mines, we bring the ore to the mill and weigh it, and it awaits for processing. But in 2024, we're projecting between 150,000 lbs-500,000 lbs of finished goods to be processed at the mill. And it all depends on, as we commission the phase one separation plant, when we start producing. And we hope to do better than that, but that's the ranges that we're giving right now.

As I mentioned earlier, we're getting two additional mines ready for potential production in 2024/25: Nichols Ranch and Whirlwind. I talked about our uranium inventory of 1.1 million lbs, 700,000 lbs of that's finished, and the other is material ready for processing, which a lot of that will be processed this year. Next slide. We're building up our ability to produce around 2 million lbs of annual production by 2025. And again, this is with limited capital, 2 million lbs at the mines I mentioned, including the ones that we're getting ready, and this will also include some alternate feed production, which only Energy Fuels can do. And we're also planning on having an ore purchase agreement from third-party miners that are in full compliance, also this year to secure feed from those that would like to actually monetize ore that they have in mines that are owned by them.

In addition to starting up these mines, we are reinitiating exploration, drilling, and delineation at Nichols Ranch, the ISR project, and underground delineation drilling at our Pinyon Plain Mine in Arizona. On top of all that, we're advancing permits at our large Roca Honda Mine in New Mexico, Sheep Mountain in Wyoming, and the Bullfrog Project in Utah. And those have the potential to produce 4 million lbs, an additional 4 million lbs of uranium per year in the coming years. In 2024, we sold 200,000 lbs under contract at $50 or $75 per pound at a 51% margin, and that was under contracts. And these contracts have floor and ceilings and escalate with prices as the prices go up. So they went up materially higher than last year.

But in addition, because we have uranium inventory, we sold 100,000 lbs on two transactions that averaged $102.88 a pound at a gross margin of 64%. So if you combine the contract sales and the spot sales, we've sold 300,000 lbs at an average price of about $84 a pound already in Q1 of this year. For the remainder of 2024, we're going to continue to monitor spot market sales opportunities. We also have potentially a sale for another 100,000 lbs under contract, but we are going to look at how we can take the inventory we have, the alternate feed we have, and continue to take advantage of the spot sales combined with our contract portfolio, which only our contracts are about 25%-30% of our production capacity, at the 2 million lbs per year. Next slide. Rare earths. Lots going on in the rare earth space. Next slide.

So, you know, I want to emphasize too that the rare earth production does not diminish the company's uranium production capabilities. We produce high purity mixed rare earth carbonate this year and sold to Neo for about $3 million. We're completing phase one separation this quarter. We plan to be commissioning that on April 1st. We've been telling the market that that was going to cost about $25 million. Right now, it looks like it's going to come in between $16 and $18 million, $7 million-$9 million under budget, which is rare to hear in today's inflationary environment. We're very proud of that and have the capacity to produce up to 1,000 tons per year of NdPr oxide subject to receipt of sufficient monazite. And we also expect to be producing around 25-35 tons of separated NdPr oxide.

While we're doing this, we're also advancing our phase two and phase three separation capabilities. And that is whatever we design it to be, but it'll be between 3-5 times the capacity of phase one with a separate crack and leach facility and the ability to separate dysprosium and terbium and other heavies in phase three. Next slide. So we've also been very active at securing low-cost monazite supply chains during 2023. We secured the Bahia Project in Brazil, which has the potential to produce between 3,000-10,000 tons per year of monazite to provide material to White Mesa for decades. We're currently doing exploration and securing our mining permits. It's a very well-defined, heavy mineral sand deposit, and we have a new sonic drill rig that the guys are being trained on as we speak and potential for production in 2026.

In addition, recently, we announced a non-binding MOU for a very significant deposit, in Australia, in Victoria, Australia, where we would have 49% ownership and have access or secure 100% of the monazite from that project. The project has the potential to supply between 7,000-14,000 tons of monazite per year for decades. So we are looking at significant scale. It has all major licenses and permits in place and is in advanced stages to go into construction. It's well-defined. And as I said, we will secure the rights to all the monazite and potential production in 2026. So I've been saying for a long time, we're securing our sources of rare earths, and we'll continue to do so in an opportunistic way.

Right now, with the price of uranium being so high and the price of monazite, or particularly the rare earth oxides, NdPr, dysprosium, terbium being lower, is a great time to acquire these rare earth projects because the prices are down because they've been beaten up. So that puts us in a unique opportunity to capitalize on the strength of our balance sheet and the fact that we've been profitable, and we plan to do everything we can to continue to be profitable going forward. Next slide. Vanadium and medical isotope highlights. Next slide. Again, you know, we have the only primary production facility for vanadium. It's probably number 4 on our list of our market strategy, but we have the ability to produce and refine substantial quantities of V₂O₅.

We did sell a little bit of vanadium earlier in the year at a gross margin of 37%. I want to emphasize gross margins, 37% versus up to 60% when we're doing these spot sales. We're still evaluating, you know, when the price of vanadium comes up, how we can respond accordingly. We have about 900,000 lb of finished V₂O₅, and we plan to sell it as the price, when the price goes up, typically over $10 a pound, we'll sell some more vanadium. But we also have the ability to recover 1-3 million lb of vanadium from our tailings. When we're mining La Sal and Pandora, we're also mining uranium vanadium ore. So, we very much are in the vanadium business, but we will capitalize on the vanadium business when the price of vanadium is higher. Next slide. Medical isotope highlights.

We have an R&D license to recover radium-226. We're also looking at an R&D license to recover radium-228, and the company, it continues to advance this. We're completing engineering on a pilot facility to produce research and development quantities of radium-226 to be tested by end users. Next slide. So we'll talk a bit about our recycling and our commitment to the community. Next slide. Community outreach. We continue to share our success with our neighboring communities. We have set up the San Juan County Clean Energy Foundation, where we initially made a contribution of $1 million into that foundation account and have agreed to ongoing funding equal to 1% of annual revenues from the White Mesa Mill. We've made grants up to around $300,000 thus far.

A lot of this has gone to various initiatives with, in indigenous communities in the region, with American Indian Services, a Native Guide Program with Canyonlands, putting a solar project on the Dinosaur Museum. We've spent, and, and funded the Navajo Nation chapters, a couple of the chapters, fine arts of San Juan County in high schools and whatnot. So anyways, all these programs are focused on education, environment, health, wellness, economic advancement, and as I said, significant focus on Native American priorities. The mill's recycling programs continue to reduce carbon emissions and save the world's finite resources, and we're very proud of how this all fits together. Next slide. So 2024 guidance and focus. I already mentioned that we're planning to produce 150,000 lbs-500,000 lbs of finished uranium production. Now, remember, we still have substantial inventories of uranium and vanadium to sell.

We're going to do everything we can to beat those guidance numbers, but that's our guidance numbers right now. When it comes to Q1 2024 sales, I talked about the 200,000 lbs that we sold under contract at around $75 a pound and the 100,000 lbs that we sold at over $100 a pound for a weighting of around 300,000 lbs at $84-$85 per lbs. We're going to look at uranium sales for the remainder of 2024 on an opportunistic basis. We have another potential sale of 100,000 lbs under contract this year. We're going to continue to ramp up our production at our uranium mines that I already mentioned, the three mines that are currently in production, including on top of that alternate feed and an ore purchase agreement.

We're looking at, you know, preparing Nichols Ranch and Whirlwind to also go back into production to get us up to approximately 2 million pounds of uranium production per year. Again, with limited capital, limited capital, we're commissioning or will be commissioning soon the Phase 1 separation circuit. And this is a world material size circuit. It is larger than Neo's Silmet facility in Estonia, so we're very excited about that. And as I said, under budget, we're continuing with the engineering of Phase 1 and Phase 2, advancing the Bahia project in Brazil, continue to evaluate, finalize our due diligence on the Donald Project in Australia. And on top of that, we're looking for other opportunities. So to say that we've been busy last year, this year is an understatement. I've never been busier. I've never been in a position where our company has been stronger.

We are going for it, people. We're going for it, but we're going for it in a responsible way to build long-term value using our assets, our people, our expertise, and our momentum in a way that nobody else can do like Energy Fuels. Thank you very much. Happy to be open for any questions from the floor.

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 pulled 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, please, for your first question. Your first question comes from Mike Heim with Noble Capital Markets. Please go ahead.

Mike Heim (Securities Analyst)

All right. Thank you. Good morning. Mark, well, let me ask a couple of questions. Let me start with the rare earth elements. Some of the verbiage in the press release talks about the 25-35 tons of NdPr oxide in the second quarter and then it says that you expect to begin processing uranium after that. Is the implication that you probably are not going to be doing more NdPr oxide after the second quarter?

Mark Chalmers (President and CEO)

Yes, Michael. That's correct. I mean, right now, we're the only source of monazite we have is from Chemours. And so we have secured about 500 tons of material that's ready to be processed to allow us to commission phase one. So yeah, we plan to just commission the phase one plant and then switch the mill back over to uranium production. We plan to run as much uranium through the mill, particularly at a period where the price of uranium is so high, to maximize the revenue and profitability, while we're securing larger, longer-term sources of monazite. So again, right now, rare earth prices are quite a bit down from where they were, you know, a year or two ago. We're going to maximize our profitability by pushing as much uranium through that mill in the meantime. But we'll continue to do this phase two, phase three engineering.

We'll continue to advance Bahia, potentially, you know, the Donald Project in Australia and other projects to be ready to bring in significant quantities at world scale, but we'll be pushing the uranium through in the meantime.

Mike Heim (Securities Analyst)

Is there kind of a date in mind when you have a go decision on phase two while you're doing all this, prepping? Well, what we're doing is getting the engineering completed. We'll have to submit that to the state of Utah. And so it's, from our perspective, we're doing all that work right now.

The go decision is get the engineering done, be ready to submit it to the regulatory bodies. And so we're not holding back on that at all.

Can you talk a little bit more about the under budget on phase one? And specifically, would that have any implications for the cost of a phase two expansion?

Mark Chalmers (President and CEO)

Well, I think I think the key thing about phase one and the fact that we're doing this work in Utah, a low cost of doing business area with very, very skilled people that understand solvent extraction, yeah, we were able to do a lot of that work internally in a very efficient way. And it does, I think it does, bode well for phase two and phase three. You know, I don't want to extrapolate out that far on those at this point in time because phase one is where we actually added additional solvent extraction capabilities in the existing SX building at the mill.

So phase two, phase three will be completely separate new facilities, so it will require complete new buildings and whatnot, where phase one didn't require all that. But again, I think it bodes well when you look at, you know, what we can do in a jurisdiction like Utah, Southern Utah, as compared to others in the other parts of the world, particularly in places like Australia, you know, where people are seeing significant cost overruns on their projects.

Mike Heim (Securities Analyst)

All right. And then one question on uranium, and I'll get back in queue. And I almost hate to ask this because you've done so much, but given what's gone on with uranium prices, if we were to try and expand even faster, what are the bottlenecks to getting production going even faster than what you're projecting?

Mark Chalmers (President and CEO)

Well, on our existing sort of stable with permitted projects, you know, there really aren't any bottlenecks. You know, we can get up to about 2 million lbs per year. When you start going greater than that for us, it requires a combination of a couple of things. It requires larger capital expenditures, and it also requires securing some of these additional permits on things like Roca Honda, Bullfrog and Sheep Mountain partially permitted. So our bottlenecks is we can get to about that 2 million lbs, maybe a little higher with capital investment. But to go to, you know, 5 million lbs per year, we're going to need both significant capital investment and additional permits for our company.

Mike Heim (Securities Analyst)

All right. Thank you, Mark.

Mark Chalmers (President and CEO)

Thank you. Your next question comes from Joseph Reagor with Roth MKM. Please go ahead.

Joseph Reagor (Managing Director and Senior Research Analyst)

Hey, Mark and team. Thanks for taking the questions. So, first thing, on that $16 million-$18 million guide for the total cost for the phase two, how much of that was spent as of year-end so we can kind of have an idea of what's left for this year?

Mark Chalmers (President and CEO)

Let me ask Nate Bennett, our interim CFO, Chief Accounting Officer. Nate, can you give me a number of what was spent to year-end?

Nate Bennett (Interim CFO and CAO)

Yes, I can. Yep, I can pipe in there. So we've spent $8.2 million through the end of 2023, and the rest of that will be spent in 2024.

Joseph Reagor (Managing Director and Senior Research Analyst)

Okay. Thanks. That's helpful. And then looking at the Dy as you're doing this separation of it as well with this, what do you expect kind of the pricing to be on these 25-55 tons that you're going to sell?

Mark Chalmers (President and CEO)

Well, because it's Joe, because you're talking very small quantities and everything, it really isn't even appropriate to say, you know, what the pricing's going to be on it right now. We, you know, one of the reasons that we're securing these other large projects is that we get both the revenue from the heavy mineral sands and absolutely low cost, in some cases, no cost for monazite. So with Chemours, you know, we've said this publicly. We've been working with them to kind of reconcile the fact they've been short on supplying this monazite. And so we're going through a couple exercises there on how we rectify that. It's not over yet, so I'm not prepared to tell you what it's going to cost for this small run.

But what it does demonstrate is it will demonstrate that we can do this commercially, at the required purities if everything goes as per our plans. And that in itself is extremely material. We will secure additional monazite, and that's all part of our strategy is how we come up with a blended price, that is, very attractive, in a world perspective. Okay. Fair enough. And then, I realize with the uranium production guidance that it's all dependent on when you get started with producing. But can you tell us what are the assumptions that lead to, like, the 150,000 lbs versus the 500,000 lbs? Like, is there a certain month that you would need to start up with by to get the 500,000 lbs, and then a certain month you're assuming is the latest startup to get the 150,000 lbs? Yeah. It's really timing.

You know, we're going to get this phase one commissioned, as I mentioned, running this 500 tons through it. And when that is complete, we'll flip the mill over to uranium production. And depending on how much time is remaining in the year, we will put more uranium through if it's, you know, if we're able to flip that sooner rather than later. You know, we have the alternate feed and the sources, you know, to basically, you know, we'll get well in that range. And we're also planning to be delivering or currently delivering feed from our other mines like La Sal and soon, you know, the other sites like Pinyon Plain. So, there, there's a lot of moving parts of just making sure the timing is in order.

It's all coming together, and we're just being what I believe quite conservative giving that range at this point in time. You know, it's my personal goal, and I make that it's a personal goal, to do better than that. But we just have to see how the year kind of rolls out here.

Joseph Reagor (Managing Director and Senior Research Analyst)

Okay. One final one. So you've contracted near-term to sell an additional 100,000 lbs this quarter at kind of spot prices. Yeah, are you planning to do more of that in Q2, Q3, Q4, or are you guys planning to just stick to the long-term contracts?

Mark Chalmers (President and CEO)

It is our goal to opportunistically sell uranium as we have it, you know, taking into account what our contracted deliveries are looking out next year and following years, and maximize the benefit of these higher prices in a way that others can't because they don't have, one, the inventory, two, the ability to produce this year. So, just watch this space. I don't want to make promises that I can't keep, but we are going to be looking at how to absolutely maximize our company position with these higher uranium prices.

Joseph Reagor (Managing Director and Senior Research Analyst)

Okay. Sounds good. Thanks, Mark. I'll turn it over.

Operator (participant)

Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the one. There are no further questions at this time. Please proceed.

Mark Chalmers (President and CEO)

Yeah, I'd just like to thank those of you that have joined the call. You know, I hate to use the word extraordinary too many times, but we really are on a focused path for a long-term critical mineral hub. There really is no investment like Energy Fuels that can on the back of uranium, adding on the ability to produce the rare earths for a very significant world-significant strategy is our objective. You know, look at our balance sheet. Look at the fact that we're producing uranium now. We've got very good margins on our uranium, sales and cost. It is a very exciting time. I cannot tell you, as I said at the beginning of the call, how excited I am to present this story. You know, just watch this vehicle because we are focusing on building a company. We are not promoters.

If you want us to be promoters, we're not going to be promoters because we're building a company, and we're doing it step by step. Thank you very much. Again, I look forward to further updates and due course during the year. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line.