Q4 2019 Earnings Call
Hi, My name is Joanna I will be up quite a change.
I would like you're welcome everyone to energy kills discussion the school year 2019 myself [laughter] all lines have been placed on mute to prevent any background noise.
Because she much there won't be a question and answer session. If he would like to ask a question. During this time.
The press Star then the number one on your telephone keypad.
He would like to what type of question. Please start the number.
Thank you Mr. Thomas you, maybe can you comment.
Good morning.
Welcome to today's energy fuels investor webcast.
My name is more Chalmers, president and CEO or the company and I'm excited to Whos quite first company webcast as CEO.
Joining me today or pull goranson or chief operating officer, Dave Friedland CFO in General Counsel.
A couple other sports support if required.
The company believes it is critical to maintain open white city indication, what's the investor community at all times, especially what we're seeing today.
What's it called that night to ours, it's the webcast.
Do you maintain investor Communications will travel is restricted.
Also planning to have future calls at a webcast to keep people informed.
Yes, we have significant news.
Lastly, and before I start to presentation I want thank our shareholders and everyone on this call.
We fully understand that the virus in the current market conditions are unprecedented.
It is my hope that this call will help explain how we are managing these circumstances.
Confidently critically and deliberately.
In order to provide the very best outcomes for shareholders.
Employees in the communities, where we operate.
Also if you're feeling the slides on your computer.
You will be controlling.
We will endeavor to tell you when we get to the next slide.
No the presentation.
Next slide.
We will be making forward looking statements today.
Please review with the disclaimers at the end of the presentation and the risk factors in our recently well tend to.
Next slide.
Today's presentation will be structured as follows I'll first give an overview of investment themes for energy fuels.
Next I'll give some brief remarks about our view of the uranium market.
Right, it's a day's cope with Nike crisis, along with some remarks on U.S. supply chain risk that appear to be emerging.
Well also see if your words about the status of our U.S. government support or status of U.S. government support for U.S. uranium miners.
Okay and turn it over to our CFO, Dave Freedom I should give some brief remarks about 2019 for an answer results current financial position.
Goranson Rcs will.
Well then discuss activities at our meet uranium production sites, along with some remarks about the need production progress on lay cleanup spot.
Potential for rare Earth recovery.
Ill close with some remarks about energy fuels market position in the U.S. uranium market.
After the presentation, we will open the floor to callers who would like to ask questions.
Lastly, as always.
I, just a phone call away if you'd like to ask me directly questions offline.
No. This first slide on the Desmet things, mostly you assume this before but we're very proud to be the largest uranium produce the United States 2017 to 2019.
We undoubtedly and I'm sure no one can challenges all this we have more assets more resources, <unk> response quicker and faster than any of our peers.
We're also proud that we were able to be the only primary U.S. uranium producer last year, we produce large quantities and high quality beat to fight.
And we have shut that down recently, because it's an agent prices. They can restart very quickly when the market calls for that.
We're also very proud of the fact that we have led the way.
The government announced what the government announcement.
To create the U.S. uranium reserve.
We don't say that would happen without our many activities in many trips.
Washington D.C.
That is currently announced to be in a included into 2021 budget.
Totally $1.5 billion 150 million per year over 10 years.
We're also very very proud of this device diverse business opportunities that our company has in front of itself.
In addition to uranium which is our main focus we have a long history of ultra exceed recycling of uranium for probably two decades. We're also very excited about the opportunities and some of this we're laying cleanup it potentially rare earth processing as well.
And lastly on that slide we're very proud of the strong cash working capital in inventory positions and we'll talk about that more.
Next slide.
Again.
This slide use many of you have seen showing how we've emerged as largest producer of uranium over the last few years, we have a proven track record. We have proven people we have the capacity to significantly increase uranium production, that's called upon with demand and pricing.
We have three production sites.
They said Nickels ranch and also basic chill, which are producing currently.
Right now so we fly is a national strategic National security asset, we have the only uranium Canadian processing facility in the United States. We're also very excited about the potential for rare Earths processing.
So.
Next slide.
Well, let's talk a little bit about our big picture thoughts in the current crisis.
Just say today's market is challenging would be an understatement.
I don't need to tell you about the equity markets, where the volatility in energy fuel shares.
So at the end of that they actually fuels is a strong today, that's where we're before the crisis, we still have a number of game changing opportunities in front of us.
In our view any semblance of normalcy will return to markets until we have some progress good contains dependent.
As you know U.S. government is taking unprecedent measures to support the economy it could take a spread of the virus.
We believe the large more importantly effect if U.S. government eat package is required.
That's it today as you get your where you're <unk> Congress is considering a trillion dollar package. This would constitute a mass it's usually the liquidity into the calling me.
Importantly for US there is an increased recognition that you have to become overly reliant on imports of certain critical products in materials from China and other geopolitical rivals.
I have more to say on this at the moment as it relates uranium.
Indeed, some lawmakers are talking about conditions receipt of government money on buying America, and helping America rebuild some of our critical infrastructure.
This could be important for us if U.S. utilities received eight which we believe they asked for.
Next slide.
Let's talk a little bit about.
The emerging supply risk for U.S. nuclear utilities.
Well those of you have all this over the past few years energy fuels has been sounding the alarm for good reason.
Just how dependent U.S. is on imports of uranium nuclear fuel expense actually from rivals like Russia.
Well, what we heard China has been making threats the whole export of important drugs, the United States and don't think four seconds that Russia.
For the future, China or in the future China might do something with uranium fuel if they thought such an actual would gain leverage over the United States.
[laughter] portal or imports of nuclear fuel from Russia into United States. They also increased significantly as soon as 2021, there, Russia, Russia suspension agreement and agreement that limits imports into the U.S., Russia expires at the end of this year.
In Russia is seeking to significantly expand their market into the U.S. and this year at shock people further.
Also look at what we're seeing with Russia, and oil and the recently announced currently currency devaluation, which also will make these radiant imports into the U.S. cheaper.
We believe that this is an example of washes long history of manipulating energy markets you gave geopolitical advantage.
Longer term China continues to buy.
Formerly free market Green lights in Africa, and they are significantly expanding the uranium enrichment capabilities. If nothing changes the U.S. good deep almost completely dependent on Russia, China and their allies for nuclear fuel.
This is not a good spots in the United States.
We also think the U.S. nuclear utilities are facing other major supply challenges.
It was announced just this week because its dog by far the largest producer of uranium in the world might have to shut down production due to cold that Nike virus.
The province. This is Scott you walk is a square declared a state of emergency what does that mean to cigar Lake.
And ongoing issues with transportation of nuclear fuel like get worse worse.
At the same time no nuclear power plants are expected to see cease operation during the crisis at least in the short term.
In short.
Your rainy nuclear fuel demand will likely not change, but supplies still could drop putting even more pressure well that's already stress market.
Yes like.
So, let's talk about energy skills priorities.
We will continue to lead industry efforts to obtain U.S. government support for U.S. uranium fighters immediately.
Well continue to.
To.
To keep maintain our industry leading rate production portfolio.
We will continue to pursue other.
Cash flow related activities, where possible, including our long history with alternate seats.
And cleaned up the legal and other rare Earth, Paul will talk about this a little bit later.
Finally.
We will maintain the strength of our balance sheet at all tied into the greatest extent possible.
We will always.
Manage the downside was the same time, maintaining our significant upside to get the greatest makes it possible.
We're also aggressively pursuing cost cutting measures right now.
So now I'd like to turn it over to our CFO, Dave Friedland to discuss some financial highlights from 2000 nighttime or 2019.
Oh.
Yeah, Thanks, Mark to repeat energy feels is committed to focusing on financial flexibility and a strong balance sheet.
We ended 2019 was 40.5 million of cash marketable securities in inventories included in that number is 515000 pounds of uranium inventory valued at 24 85 per pound and 1.6 million pounds of Canadian <unk> vanadium inventory valued at $5 in theory.
Three cents per pound.
However, not reflected on our 2019 financials are the financing activities. We completed during Q1 2020.
We strengthened our balance sheet by completing a bought deal financing in February for net proceeds at 15.1 million and we also raised 4 million on or ATM and at an average price, which far exceeds our recent share prices.
These 2020 activities added 19 million in cash to our existing 40.5 million in cash marketable securities in the inventory balances at December 31 2020.
And their inventory, it's considered <unk> considerable upside, especially our uranium inventory, which we might be able to sell to the U.S. government under the she was purchase program.
You'll note that our working capital dropped on our 2019 financials.
Mainly because 16 million.
And convertible debentures became a current liability on December 31 2019.
We have the ability to redeem all or any portion of the debentures for cash it anytime.
And the ability to redeem them for cash or shares on maturity.
We are evaluating a number of ways to address the convertible debentures, including paying them off in cash refinancing them extending them or paying them off with shares when do or any combination of those options.
Our strong cash marketable securities and inventory balances give us five flexibility in this regard.
As Mark indicated we're also aggressively evaluating cost cutting measures and let if today's market uncertainty.
We always want to maintain an adequate glide path to provide liquidity event to today's market weakness persists for longer than we expect.
However, any additional cuts we may make today would be made in a manner that maintains a level a level of our operational readiness the far exceeds any of the U.S. uranium minor.
I'll now turn it over to Paul Goranson does not get with some of our 2019 operations.
Thank you Dave.
On this slide titled strategic uranium production assets in the U.S. [noise].
You can see energy feels footprint near US we have three production facilities that include the white may smelling, Utah, which was the only operating conventional your any mill in the U.S.
We also to fully licensed unconstructed RSR facilities to Nichols Ranch project in Wyoming, There's a great project currently in operation. It was produced 1.2 million pounds of uranium since 2014.
However, production has been declining since we have deferred adding new well fields and subject to government them from running their proposed uranium purchase program in the near future.
We plan to put it on standby during Q2 20 twond it.
We also have the ultra Mesa project in Texas, which is currently on standby. This is also a great project, which produced almost 5 million pounds from 2005 to 2012.
I'm not going to go through all these projects details, but I would like say a few words about the white makes no next slide please.
The way they smell [laughter] is perhaps energy feels most strategic asset and due to its flexibility and I don't think investors are able to truly appreciate it sorry.
It is only the only conventional uranium no operating of U.S. Today. It is also the only credentials the medium mill operating yesterday as well.
But maybe I'm, which I will disclose in a moment. There's another critical Merrell. We're also talking to a number of parties about the potential the white may smelter process certain rare earth elements.
The White Mesa mills as cheap as a strategic asset not only for <unk> energy fields, but for United States as well.
No that's produced or an average of 1 million pounds per year.
If you're right now since 20 time, there's a license capacity to produce over 8 million pounds per year.
However, during 2019 in the middle produce no uranium started we chose to focus on producing vanadium from our trailing solutions.
Many don't know those but the way it may snow as produce about the same amount of uranium reserves vanadium during its history, roughly 45 million pounds.
As I discuss next slides the white may smells extremely flexible facility.
In addition, uranium move in a them. They can also recycle Alton, it's Steve materials and materials generated from what I'm cleanups.
We're also looking at processing certain rare Earths elements next slide please.
[noise] [noise] Canadian was a critical mineral use in steel and high strength alloys.
There's also has applications in the chemical and battery industries.
Why it makes a mills vanadium campaign and 29 team was a great success, except for the price Canadian I expected late summer early in the year.
We are produced 1.8 million pounds of high purity chemical grade vanadium 20 night cheap.
We also made a number of equipment upgrades and process improvements we sold about 2000 200000 pounds vanadium early in 29 achieved an average net price of just over $11 per crop.
Q2, 2019 due to drop in prices, we decided to stop selling vanadium instead the inventory.
We now have about 1.6 million pounds of high purity Canadian products and Mccann.
Inventory right now that we can immediately sell into a future improved market.
We also believe we have significant additional quantities of an ATM and the white may so no ponds that we can produce from at a later date.
Market conditions warrant.
Finally, after U.S. uranium mining gets going again, we have several permitted belt minds on standby on Colorado, Utah border.
It also have 32 million pounds of high grade, but even resources that can be processed white may so no.
Next slide.
Nexmo talk about somebody other clean the land cleanup optumrx.
This is another potential business opportunity sort of white may so no. During the course cold war lots of uranium small uranium minds operated in the four corners every region.
The U.S. many of them are causing environmental contamination today.
Yes, Environmental protection agency in the Navajo nation, or leaving efforts to clean up these legacy sites.
<unk> has access to about $1.7 billion for the clean up for just a fraction of the sites.
Our white may smelt, there's a perfect landing spot for a lot of this material, we're fully permitted to receiving recyclers material today.
We can do it at a very attractive cost.
We're in close contact with <unk> Navajo nation, we're demonstrating our <unk> our capabilities on two fronts.
First we are assisting the clean up of a private mine into Mexico, performing the exact services those EPA news.
Second we agreed to participate in a small pilot scale cleanup projects or the Navajo nation.
We believe these two projects will show the EPA Navajo nation the value we can provide.
Next slide please.
Lastly, I'd like to say if your words about worse elements.
Somebody uranium U.S. is heavily dependent on rare earths elements imports from China.
Trump administration has made it a priority to rebuild American capabilities in the sector.
Energy feels has been approached by several cert several entities, including the U.S. government to evaluate <unk> processing certain uranium bearing.
Rare earth elements.
Well it makes amount.
We are continuing to talk to people in evaluating the opportunity, but early indications are that we can play a significant part and bring in rare Earth element production back to United States, but I'll turn it back over to Mark to finish up next life.
Thanks, Paul.
Ill finish up by talking about energy fuels market position to U.S. It gives some concluding remarks.
The table on this slide really shows were energy fuels fits into North America uranium space.
We believe we're in a great position versus peers by almost any metric, including many of the things that Paul just talked about.
Also like to point out some of the balance sheet metrics, including quickly capital and debt.
As a day Friedland said, our cash marketable securities inventories totaled just a bit axis of $40 million at the end of 2000 lighting.
And again remember we raised the $19 million early in 2020 through the bought deal and our ATM.
Therefore, our convertible debentures are now hitting our balance sheet as a short term liability but no.
Energy fuels has no long term debt and the convertible debentures can't be redeemed cash or shares as Dave discussed earlier.
In addition, no other U.S. company as the proven capabilities to track record in the Optionality as show them that table.
Next slide.
This is one of my favorite slides of all types, where the energy fuels assets explain in more detail.
It shows uranium production in the U.S. from 2006 through 2018.
The assets owned by Cameco and energy skills.
I have clearly been the leaders in U.S. uranium production, producing 85% of all uranium in the U.S. during that period tight.
Cameco is in the great. We are in the blue on that's that she.
If you include uranium one in your energy.
Also that adds an additional 30% to the 85 to <unk> so bottom line.
Yes, it's cameco energy feels uranium one in your energy produced 97% of all uranium produced over the past 15 years.
We remain companies produce a total of 3%.
I think that says volumes.
We firmly believe that companies.
With proven assets with proven production histories are the ones that will capitalize it true markets or receive U.S. government support incomplete, including supplying the new U.S. uranium reserve that President Trump has proposed.
Energy fuels is proud to kind of itself among those proven producers.
Next in last slide and this is just really a summary of the energy feels.
We have unmatched ability to quickly increase low cost you a serial production, we have more facilities more resources more production capacity than any other uranium company in United States.
We have been the largest producer of uranium over the past four years.
We have strong balance sheet and no long term debt.
Then ATM alternate see recycling laying cleanup and focusing on future opportunities with wearers puts us in a league of our own and we're very proud of that and I'd just like to say that I have been in this business for over 44 years and many of those assets.
As I have worked with back in the seventies and the reason many of these assets. The survived the tested type because we have this flexibility and optionality that nobody else has thank you very much I will now open it up for questions.
[noise] and can't.
Ladies and gentlemen, we will not begin a question and answer session.
He had a question. Please press the star followed by the one on your cash comes down.
Yeah, I think Tom how does not watching your request.
Well I guess me speaking [laughter] any keys.
And that's question that's fine I called it.
<unk> Wainwright. Please go ahead.
Hey, Mark Thanks for taking my questions.
My pleasure.
Crazy times, Indeed, I mean I'm talking to your from my House system also saw quarantine into slot in the course.
Hey, Mark in your release, you're talking about activities aimed towards increasing the uranium production at the White Mesa Melhem Nichols Ranch <unk> SAR.
And just be a little bit more specific in regards to what exactly you're doing and at what point in time you did it.
And what you're willing to one called 60 days.
Okay, you are saying, what we're doing the terms of increasing the ability to produce it at both of those facilities.
Correct.
Okay, well look at one of those things one of the priority projects at Nic was ranch is.
Some of the flow increases increasing visibility for the plant to slow more.
Production fluid Ah when the time is right that we need to ramp up production. We've already purchased some columns for that so we're all we're always looking at what we can do to do productively do work and it in a down markets it'd be better ready than we already are.
Adds a white Mesa mill, a you were kind of in this this low where we are you know we didn't produce uranium last year, but we're also looking at doing more recycling from our trailing solution. This year for uranium rather than been 80 last year, we focus on Liberty and recovery.
And this year will focus on uranium recovery, which has been proven to be very low cost opportunity for us there you're a production.
Got it [noise].
And in regards to third party toll milling I mean as per your presentation or more agreements in place is this just a function of no interest from solar as are the biggest spreads to big what's what's the whole I mean, it's there just because there's just no interest and everybody's afraid of the Ebola virus outside not leaving their house I mean, one would think that this is revenue source.
<unk> for communities that right now or places communities enterprise that right now could use money quite badly. Thanks, a lot yeah, well look at yeah, we haven't long history of doing toll nearly but we really need the demand and we need the pricing a without both of those you know we don't have any.
You know.
Plans to told me I don't know to a certain extent some of the or that we are actually receiving from one of our clean up operations. It's not a tolling agreement that we get paid a c. we received uranium for free but look at it would be my pleasure at some stage in the future.
Particularly with this improved market conditions or fulfilling are filling or partially filling the government reserve.
We have high enough demand and I love prices that we could be looking at that more seriously and being able to spread or sort of the benefits of that around a particularly in that part of southern Utah, and south western Colorado or at the appropriate time.
Excellent hey, thanks, Thanks for all that I appreciated we will make it through this and all the best you. Thank you.
Thank you like.
Thank you, ladies and gentlemen, I mean, my does she have any questions piece I start Hello, everyone.
Next question comes from My command No capital markets. Please go ahead. Some morning I just have two questions. First question is since the release of the President's budget proposal have you received any more information regarding how that plan might work or the status of the U.S. nuclear fuel.
Working group.
I'm not any significant lead more information you know, it's a pretty much what's been a releases is what we've seen I mean, certainly with Ah you know sort of the chaos that we're seeing that the virus or the financial markets, It's gone fairly quiet, but we do.
No no that we've got very strong support.
On the hill very strong support a with secretary for yet and I'm. So we think we're we're well up on top of the pile as far as you can be in the current circumstances.
Okay and then the second question is I mean, it seems to me that if the government's objective is to preserve the nuclear fuel supply chain that you really don't need to send that you know aid to the entire industry, but just focus on the top few players, but when you think about that I think the price for the uranium.
I would be key so I was just wondering if maybe you could talk a little bit about you know your your cost on a per pound basis, maybe in 2020 in how you see that unfolding.
And how competitive that is to maybe the a other players that it would be under consideration for a program.
Initiated by the government.
Yeah, well look at again, a we'd say that.
You know that it should be focused relief should be focused on existing constructed proven facilities for the right reasons why would you build a new facility in this market, particularly if there's limited demand I mean, our cost or competitive you know our cost Uh huh.
The mine sites it varies a bit about 30 to $40 per pound to probably averages out between about a 35 to 37 50, but that is directly at the site that is going forward cost that does not include general and administration interest costs or things like convertibles and whatnot. So we thought.
As our competitive cost I mean, I know there are some people out there that say that they can do it for less than that and frankly go back to the graph that I had at the end of the presentation showing who is delivered if you look at that graph and there's also a line that shows the price uranium during that 15 years, there a lot of.
People that had prices that they're now saying they can produce that and they can't so so look at we think again, we're in the best position and the fact that we have whiteley samil hundred percent old as the last of its kind in the United States will put us at a very distinct advantage.
Feeling or at least that first a initial level of demand.
Okay.
That then answers my question staying smart.
Thank you know kind of questions. At this time you May proceed.
I'll just tell me do not have any kind of questions. You may proceed for closing comments.
Well again I just want to thank everybody that joined US today on the call as they said earlier a you know many of you know my phone number or feel free to call me. If you have questions that you didn't want to ask.
In a in a large group we will survive yeah. This is in our first rodeo very proud at the team that we have we have the most experienced team out there. In addition to the various opportunities that the company itself presents with our assets and Optionality. So let's just get through this.
This crisis, let's move forward and I can assure you that we are focused in that regard and we're optimistic for the future it where we fit in the nuclear fuel cycle going forward. Thank you very much it everybody please be safe.
Many of US are doing this call from are almost for obvious reasons and it was the first call and we look forward to updating everyone. A as we get more information available because the conference call is he really the only way we have to communicate with our investors. Thank you very much.
[laughter], ladies and gentlemen. This concludes the conference calls I can we thank you participating in the ASCII. Please disconnect your lines and try to see today.