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Energy Fuels Rare Earth Experiment Seems To Have Failed

The date of: 2022-03-07
viewed: 3

source:Seeking Alpha


Not failed, as in has not worked technically, that seems to have gone just fine.

Rather, the cashflow from the very sensible rare earths plan seems not to have arrived as might have been hoped.

This might be a little early but I'd say that the rare earths plan at Energy Fuels has now run its course

I said this was a great idea

15 months back I wrote about Energy Fuels (NYSE: UUUU) and the Monazite plan and said that it was a great idea. I even went so far as to say that if I was going to try to enter the US rare earths market then this was exactly the way that I'd do it.

Since then, the stock UUUU is up 132% as against the S&P up 17% which I think we can take as something of a success:

Well, that worked then. I'd also go on to say that now this experiment seems to be over and that it hasn't, in fact, worked.

Let's just clarify this though. Corporate management putting the stock price up 132% is a success. The chemistry of what they were trying to do also worked. They did indeed take in Monazite from Chemours, they processed it into a rare earths concentrate and then shipped that on to an actual buyer. In the hundreds of tonnes quantities.

This is not lab bench testing, this is not 'well, we'll build a plant to do it real soon now' this is straight up and actual rare earths production just like they said they were going to do it.

But as an activity which is going to save the company - or even move the dial on it if we're fair here - it's not going to work.

There might well be other reasons to be interested in Energy Fuels. There seems to be a certain resurgence in interest in uranium given events in Ukraine for example. But the ability to use that uranium mill to process Thorium containing Monazite isn't one of the reasons to be interested here. That's my position at least.

The actual plan

From that last piece, explaining what the plan was:

'Say we were a uranium mill. That business is pretty bust and has been for some years. The future doesn't look so hot either. So, what have we got? Well, we've a plant that can process material containing radioactives. We know how to get the uranium (and the Thorium, the radium) out of materials. That's what our plant was built for after all.

Much more importantly, we've already got all the licences necessary to be able to take in radioactive materials and work on them. More even than that - we've space out on the back 40 which is licenced for the storage of radioactives extracted from mineral streams. And that's what we've got that no one else in the US does have.

We've the already licenced ability to extract rare earths from lightly radioactive ores that is. Something no one else can do. Not without spending a fortune on the long pursuit of the appropriate licences.

And guess what? Our raw material is something that already exists, is sitting around as a waste from other peoples' processes, and we're just about the only people who are allowed to touch it.'

And it worked in the sense that this - and any other things they were doing over the period - made money for stockholders which is, after all, the point of a company.

So, why do I now turnaround and say that it's over?

The results of the plan

Gold Panda has the basics of the problem here, I'm going to elaborate on that. The nub of the problem is this:

In Q3 2021, Energy Fuels produced 270 tonnes of mixed REE carbonate containing some 120 tonnes of TREO.

Revenues from the REE business came in at only $269,000

Ah, there doesn't seem to be much revenue associated with doing this. And we do need to be honest about this. Energy Fuels has a market cap of $1.1 billion. $269,000k in revenue just isn't even material, let alone something that moves the dial.

The original deal was to take 3,000 tonnes of that Monazite from Chemours (it's a by-product of the work they do with extraction from mineral sands, it's effectively free to Chemours) and process it into the rare earth concentrate.

To make it work as a real business it would be necessary to also collect further amounts from other places of that same - or other similar - mineral and boost the throughput. As it happens though the deal has been reduced in size, not increased. This therefore becomes a fun experiment, not the beginning of a new and high earning business.

But how can this be?

We all know that rare earths are really valuable, the whole world is crying out for them. So, if we've got new production of rare earths inside the US then this must be valuable, right? Well, obviously not, if 120 tonnes of RE content just went for $269,000. Which isn't an obviously wrong price either.

The thing to know is that sure, a concentrate gets paid for on the value of the basket. A high Nd content concentrate (when Nd is at maybe $100/kg, like it is now) will pay more than a low Nd concentrate. But it's on the value of the basket. Which I described back here when talking about Lynas:

'From the Lynas latest report we can see that Nd might go through $100 this next quarter. Tb's at $1500, so this is all a most profitable exercise for Lynas.

Except. It's notable that in the Lynas report they don't give us the prices for the lighter REs, the Ce and La. But that's what we need to know to grasp the value of the bundle. Sure, Lynas is making money on its bundle, I'm not saying anything different. But I want to explain the working parts of that bundle.

If we go over here we can look at current prices. They're RMB and a quick and dirty conversion to $ - wrong but good enough - is divide by 8 to give US dollar prices. Lanthanum's at $1 a kg (yes, it's a per tonne price they're giving there). That's a $14 loss per kg. Recall, we're using that $15 a kg finished rare earth as our production cost. But our revenue is going to be $1 for the lanthanum. So is cerium. So, on half our output we've got to lose $14 a kg. No, we're not ever going to have half our output of that desirable Nd, not even of Nd/Pr (actually, we can reverse this out from the Lynas numbers, they're getting maybe 30% Nd/Pr from their concentrate).'

It's entirely true that the prices of the desirable parts of the basket have gone up. But the values of the undesirables, that cerium and lanthanum, have fallen (without checking and from memory I have them at $5 a kg each a couple of years back, they're now $1 a kg). The value of the basket, the thing that actually gets paid out upon, therefore isn't all that good.

Or, the way we can put this

Mining rare earths minerals might be profitable, might not be. Producing a rare earth concentrate might be profitable, might not be. Those two depend upon the exact costs of each activity. But neither of them are a licence to print money. Because the costly part of the rare earths process is the separation into the individual rare earths. Which involves, at current pricing, taking a very large loss on the bulk of the material and making it up with good revenues on the most valuable, and small, portion of the concentrate.

Which is why Energy Fuels seems to have sold that rare earth concentrate for a couple of thousand dollars per tonne RE content. Because that's what rare earth concentrates are actually worth.

For, yes, payment is on the value of the basket. But it's the value of the basket minus the processing costs into the individual rare earths. Given that this processing is the costly part of the whole process that's also where all the money goes. All that revenue - and, to be fair, all that cost - is off with NeoMet and their plant in Estonia (the old Silmet as it used to be called).

My view

The experiment was well worth doing. I'm always in favour of experiments about how to add value and make money. That stockholders are now considerably better off than they were 15 months ago is also, to me, a jolly good thing.

But from the information we've got now I think it's an experiment that has failed. I don't see this going much further. Rare earth concentrates just aren't worth enough to move the dials at Energy Fuels. Not unless they start doing this in very, very much larger volume. Like an order of magnitude larger at least.

The investor view

If you came aboard Energy Fuels because of the rare earths processing then the time has come, I think, to cash in the chips.

There are other reasons to be interested - or not - in Energy Fuels and the pick up in the uranium market over Russia and Ukraine might well be one of them. But the rare earths idea has run its course, I think.

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