UUUU - Energy Fuels Q3 Earnings: Trailblazing The Energy Transition With Uranium

2023-11-07 09:33:51 ET

Summary

• Energy Fuels Inc. reported Q3 results in line with expectations, with no significant new news.
• The energy transition is not leading to increased demand for renewable energy, but rather a resurgence in the uranium market.
• Energy Fuels to begin production at one mine by 2024, marking a significant development for the company.

Investment Thesis

Energy Fuels Inc. (UUUU) reports Q3 results that were very much as expected. Simply put, there wasn't a great deal of new news flow coming out of Energy Fuels, at least in the very near term. But Energy Fuels' key catalyst, that production will start in 2024, is massive.

But this set of results should not detract readers from the big picture, that the energy transition is finally taking hold.

Particularly noteworthy is that the energy transition isn't manifesting itself through an uptick in demand for renewable energy. Not quite.

Instead, as I've been contending for a considerable amount of time, the biggest reflection in the movement towards the "Electrification of Everything," appears to making itself felt in the uranium market. And therein lies this bull case for Energy Fuels.

Why Invest in Uranium?

The global energy landscape is currently undergoing a significant transition, albeit not in the exact manner anticipated by many market participants. The conventional expectation was that renewable energy sources would experience a substantial surge in demand, leading to a rapid expansion of the renewable energy sector. I believed in this thesis, but as I've witnessed thus far, the biggest component of this would be an increase in lithium demand for energy storage solutions, namely batteries. But that hasn't played out.

Furthermore, this predicted growth trajectory, especially in the case of wind energy, has not materialized as expected. The anticipated proliferation of wind turbines, a key component of the renewable energy infrastructure, has encountered challenges, mainly related to concerns about their profitability.

Siemens Energy (SMNEY) is one of the largest manufacturers of wind turbines for onshore wind. Its share price above is a telling narrative of the lackluster progress it is making in its fundamentals.

One of the primary factors contributing to the subdued growth in the wind energy sector is the increasingly competitive market dynamics and the declining profitability of building and operating wind turbines.

As a result, the energy transition is experiencing a more nuanced evolution. The realization that renewable energy faces challenges in terms of profitability underscores the necessity for a multifaceted approach that addresses not only technological advancements but also financial mechanisms, in order to deliver a more sustainable energy transition.

Given this background, when people reach out and tell me that they've missed the uranium bull market, I find myself aghast and dumbfounded.

The graphic above should remind readers that for more than 10 very long years, the uranium market has been in a prolonged bear market.

And that was even before we factor in everything that we've just discussed about the new for sustainable energy supply to match the demand towards the Electrification of Everything.

This is more than just charging electric vehicles ("EVs") with electricity rather than fueling them with oil. I'm referring to data centers energy-hungry, AI, consumer electronics, heat pumps, indeed, the trend towards the Electrification of Everything.

Energy Fuels' Prospects

Energy Fuels, like several other uranium players in the sector, isn't in production. This statement doesn't apply to Cameco ( CCJ ), however, as Cameco hedges its uranium production, and therefore it's able to mine for uranium throughout the cycle and be profitable.

That being said, if I were to highlight one noteworthy near-term catalyst that should get investors excited it would be the announcement that Energy Fuels could be able to get at least one mine in production in 2024.

This is what Energy Fuels stated in its press release :

[...] the Company has made significant progress in preparing four (4) of our conventional uranium and uranium/vanadium mines to be ready to resume production, including significant workforce expansion [...]. We expect to begin production at one or more of these mines by early 2024, with the mined material being stockpiled at the White Mesa Mill until such time that sufficient material is accumulated to justify a mill campaign, which is expected to occur in late-2024 or early-2025.

This would be a key catalyst for Energy Fuels which has been a long time in the making, as uranium prices were too low to make Energy Fuels' production worthwhile.

The presentation describes White Mesa Mill as producing, but I suspect this is mostly producing Rare Earth Elements. Again, uranium production is expected to come only by late 2024 or early 2025.

The Bottom Line

In conclusion, the broader context of the energy transition underscores the potential resurgence of the uranium market.

While the anticipated surge in renewable energy demand, especially in wind energy, has faced obstacles, the trajectory of the energy transition is taking a nuanced path.

Considering the prolonged bear market of the uranium sector and the increasing demand for sustainable energy to facilitate the electrification of various sectors, including charging EVs, data centers, AI, consumer electronics, and more, the impending resumption of uranium production by Energy Fuels serves as a significant development.

As stated in their press release, Energy Fuels aims to resume production in at least one mine in 2024, a long-awaited prospect that could potentially mark a turning point for the company.

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