Categories: Energy
Topics: General Energy

Energy Fuels (NYSE: UUUU) VP Curtis Moore on Rare Earths, Debt-Free Balance Sheets, and the Future for Uranium

Nov. 4, 2020

Gerardo Del Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the VP of marketing and corporate development for Energy Fuels Resources, Mr. Curtis Moore. Curtis, how are you? Did you get some rest?

Curtis Moore: Yeah, I didn't get a lot of sleep last night. Interesting times for sure. But doing well, doing well. Thanks for having me on Gerardo.

Gerardo Del Del Real: Absolutely. No, thank you for coming on. And you know what? Congratulations are in order. You had, well, frankly, you've had a lot of news this past week, but the most recent piece of news relates to the very first REE concentrate, and that's of course, rare earth elements produced from monazite sands in over 20 years in North America. That's a significant milestone for the company and one that I have to believe is going to open a lot of profitable doors for the company and its shareholders. So congratulations on that front. Do you care to opine a bit?

Curtis Moore: Yeah, yeah. Thank you, thank you. We were ecstatic when this happened. And again, this is not a lab scale test. This is a pilot scale test on one metric ton of monazite sands that we acquired from a North American source. I can't say where it came from, but it's a North American source. We do have another three metric tons that we're going to be doing more pilot scale testing on this. But the material that we produced, it was clean. It had the uranium and all the radionuclides removed from it. And so right now we believe that what we produced this weekend would be ready for separation. It would actually meet the specifications of a rare earth separation facility. So yes, we were over the moon this past weekend and you're right. This does I think present some good opportunities for Energy Fuels in the rare element space, just because these monazytes are some of the highest value rare earth minerals really in the world. And a lot of people know about these as a good source of rare earths. And so I think that with further success, which we think we're having, we might rise to the top as one of the key players in the US rare earth industry, so we're super-excited for sure.

Gerardo Del Del Real: The news release makes mention of negotiations with various parties, to potentially process on a commercial scale at the mill. Can you provide a bit of context as to how big a scale, how much can you scale out with the current infrastructure, and are there discussions about adding infrastructure to further monetize the potential here?

Curtis Moore: We haven't talked about publicly, what scale that we're talking about here. We did discuss that there's a potential that we'll be entering commercial production of a rare earth concentrate in early 2021, which again, would be spectacular progress. I think a lot of people have been under the impression that it's going to take years and years and permitting and development costs and all that to try to reestablish a rare earth supply chain in the United States. We're showing that it can actually be done right now with existing sources of rare earth feed, with existing infrastructure like the White Mesa Mill. The United States does need, if we want to reestablish a full rare earth supply chain, we do need to build separation in the United States, metals and alloy making, magnet making, some of those other high value downstream services. But we're showing that right now and here today, we have maybe a third to half of our rare earth supply chain actually in place in the United States. So again, hopefully we'll have some more news and announcements on the parties that we're talking to about securing both the feed, and also possibly purchasing the rare earth concentrate. Can't say anything about it right now, but hopefully we'll have some news on that in the next couple of months.

Gerardo Del Del Real: Fair enough. The elephant in the room of course, is the election. The reason you and I didn't get too much rest last night or this morning. But look, the bottom line for energy fuels and shareholders is there is bipartisan support for establishing an independent, critical metal supply chain that is independent of course of China. And so whether Mr. Biden or Mr. Trump is declared the winner, and whenever that happens, is there a perception throughout the company that there is bipartisan support and a clear path forward, not just with the rare earth processing side, but the uranium side, which is of course the cornerstone of the company, right?

Curtis Moore: Yeah, for sure. First and foremost, I want people to be clear, we're always going to be a uranium miner. That's always going to be our core business. We don't want anybody to think that we're shifting from being a uranium miner to a rare earth producer. That's not the case at all. But we are always going to look at complimentary businesses to our uranium business. And a lot of these rare earth feeds contain uranium, and we're going to recover the uranium and sell that into the nuclear fuel cycle. But getting back to your question about the politics, yes, there's definitely bipartisan support for critical minerals. On the uranium side, we are still working on that uranium reserve and there are efforts underway right now to get bipartisan support for funding that uranium reserve. I think all parties agree that we want to be able to source more of our uranium from the United States. And there is bipartisan support for that. I wouldn't say there's overwhelming Democrat support for it, but there are certainly a lot of Democrats that want to see that.

But then when you talk about rare earths, I think that's when the bipartisan support really widens. Because rare earths, and I'm sure you and your listeners and your readers know all about rare earths. They're in a whole host of technologies. From computers to cell phones, to electric vehicles, to renewable energy generation and all that. But also there's rare earths used in military applications and defense applications which we definitely need, and we need to make sure that we're not dependent on places like China for that. And so we do think that, especially in the rare earth side, there's considerable bipartisan support for that. So if Mr. Biden does win, I think that this rare earth potential will continue to grow for us, in addition to the uranium reserves. So yes, we're working hard on trying to get real government support for these things. And we've actually had calls with the US Department of Energy on all this. They're really excited about what we're doing at the White Mesa Mill so we'll see where it goes. Hopefully we'll have more to say in the next few months.

Gerardo Del Del Real: Let's talk balance sheet. The company is debt-free for the first time since 2012. That's a big deal as well.

Curtis Moore: It is. It is. Again, like you said, we've had a lot of really positive news we think that really differentiates us from our peers out there. And if you look at other uranium mining companies out there, most of them are racking up a lot of debt right now. It may not be due this year or next year, but eventually you have to pay the piper on that debt. And I think that the rationale for incurring debt under the terms that you have to take if you're a non-cash-flowing company, which basically every public uranium miner except Cameco is, not cash-flowing in North America, for sure. But if the markets don't recover like you think they will or you hope they will, you got to pay that piper and it can be really destructive to shareholder value. And so we've made the decision as a company that we're not going to incur any more debt until we're cashflow positive, until we have the ability to service that debt. So I think that really differentiates us from a lot of our peers out there. I won't name names, but it just really de-risks Energy Fuels, I think on that front, for sure.

Gerardo Del Del Real: Well there's not a lot of names to name because it's a relatively small sector when we talk about the quality visible uranium companies, especially if we limit them to the United States.

Curtis Moore: Right, right. US or North America.

Gerardo Del Del Real: Or North America, you got it. Let's pivot really quick. And I can't let you go without getting your take on the uranium sector. Some of the smartest money in the business has been very wrong about the uranium bull market. I keep joking that it's a coiled spring, but it's a rusty coiled spring at this point, but a coiled spring, nonetheless, right? What's your take? You had discussions I know with everyone in the space who matters. What are you seeing? What are you hearing? Do you anticipate that 2021 is finally the year that we break out?

Curtis Moore: Well, I hope so. I think so. Now I've been saying that for a few years for sure. And again, 2020 has been a funny year. I don't need to tell you and your listeners that. But it has had an impact on the uranium markets. We did see significant supply disruptions. I think TradeTech said it removed about 15 million pounds of supply in 2020, which is significant when you're talking about a market that has demand in a 180, 190 million pounds per year range. If you remove 50 million pounds, that's significant, and that's why we saw the price jump earlier this year. But yeah, there's potential for more COVID shutdowns so we could see some more supply disruption. But it also had an impact on fuel buying.

And so for instance you'd see a little bit less long-term contracting, more reliance on the spot market. You've got producers like Cameco and some of the financials out there that are buying uranium and taking it off the market. The spot market is, it's not really particularly indicative of what the real market is. It's often a vehicle for traders to churn the same pounds around and that sort of thing. But at the end of the day, these reactors are consuming uranium. At the end of the day, supply is not coming anywhere close to meeting demand. I was looking at the numbers this morning, but in 2020 alone, primary supply is going to fall short of demand by 69 million pounds according to TradeTech. That's a lot. That's a third of the total market out there.

And that means that inventories are getting swallowed up. We have some secondary supplies out there, but they're shrinking. You have mines that are shutting down. Even just in January of next year, you have the Ranger Mine in Australia is shutting down. That's going to remove a big chunk of uranium from the market. And Olympic Dam is not expanding. Cigar Lake came back online but McArthur River isn't back online. It's just these supply shortfalls and the risks are just growing and growing and growing. And so, yeah, the rusty spring just keeps getting more and more and more coiled, but at some point it's going to spring free and it's going to be loose. I was listening to the Cameco conference call this morning and they say that things look like they're setting up like they did in 2006, 2007. I won't necessarily opine on that, but I think that's a very reasonable thing to consider. So yep, we continue to be very excited about the uranium market. We don't know when it'll happen, but it has to happen at some point. We need new supply. And we need higher prices for that supply to come online.

Gerardo Del Del Real: Absolutely. And we know when it happens, the payoff is always worth the wait, right? Whether you've been waiting for two years or five years for this bull market to kick off, we know that when it goes, it goes violently. And I think the velocity of it this time around is going to be something to behold and we'll all forget how miserable it was the past couple of years.

Curtis Moore: Yep, yep. Exactly. Well, and in the meantime, at Energy Fuels we have some of the best optionality out there on uranium and a proven track record of production. More facilities, more capacity, more resources than any other new US miner out there. But we also have these other things that are out there, like rare earths, like vanadium, like land cleanup, like alternative feeds that also provide a nice upside for us. So we think that we're very, very differentiated from our peers out there. On that note, our CEO often likens it to having fishing poles in the ocean. You're trying to catch a fish. Most uranium miners out there, uranium companies, you've got one fishing pole out there and you're trying to catch a fish. But if you're Energy Fuels you've got four or five or six fishing pools out there, a better chance to catch a nice big fish. So we'll see what happens.

Gerardo Del Del Real: To that end Curtis, with the balance sheet being as strong as it is now, and the multiple doors that are opening as far as profitable operations and potential expansion, is there a discussion internally about potential M&A? You mentioned a lot of the quality names in this space are having to take on more debt to survive and you are the polar opposite of that. Is there the potential for M&A if it makes sense?

Curtis Moore: Well, we're always going to look at it if it makes sense. I wouldn't say that we're actively looking at that right now. In fact, we're actually looking to sell some of our assets right now. You and your listeners may have seen if you looked at our presentation and that sort of thing, we haven't made a big deal out of it, but we're looking to sell some of our conventional assets. They're very, very good assets. And actually whoever buys these assets, you need to take a look at whoever that is, because not only are they getting conventional mines that are fully permitted, they're fully developed, or mostly developed, but we're also likely to give them a milling agreement at the White Mesa Mill. So, if the price does come back like we think it should, that company, whoever it is, is going to be one of the prime beneficiaries because they're actually going to be able to get into production.

Curtis Moore: If the price springs back, there's a lot of companies out there that have been talking a big game for a long time, but they're going to be scrambling for permits and people and trying to build their facility and all that kind of stuff and they may miss the wave. But companies like Energy Fuels and people that are proven producers, and whatever company acquires these assets, they're going to actually be able to go in there and start mining and start monetizing that stuff. So yeah, we'll see. We haven't made any decisions right now. A few companies are in due diligence on this stuff. But yeah, we'll see. And Energy Fuels, we'd like to keep a position in whatever company that is and participate in that upside ourselves.

Gerardo Del Del Real: And the way I understand it, Curtis, you're in discussions with several parties, correct?

Curtis Moore: Yes.

Gerardo Del Del Real: How would you gauge the interest level once you publicly started to shop these assets? Was it mild, was it tepid, or did you see an eagerness by quality players in the space wanting more exposure?

Curtis Moore: Well, I wouldn't say that we had everybody in the industry jumping at it, but we had more than one or two parties interested. So I wouldn't say it was weak or super-strong, but we're happy with the response and so we're hopeful that a deal gets done.

Gerardo Del Del Real: Excellent. Curtis, thank you as always for the thorough update. Anything else that you'd like to add? I know you have a webinar that you'll be conducting later on today. We'll make sure to put a link up.

Curtis Moore: Yes. Yeah. Good. Yeah, definitely have your... Get the people on on the webinars. You'll hear from our CEO and talk about some of the things that I talked about on our call today plus a lot more.

Gerardo Del Del Real: Fantastic. Thanks again, Curtis. Appreciate it.

Curtis Moore: You're welcome, Gerardo. Talk to you later.

Gerardo Del Del Real: Bye now.