UUUU - We Can Evaluate The Energy Fuels Brazilian Plan Now

Summary

• Now that the Brazilian mineral sands project has closed for Energy Fuels, we have the numbers to evaluate it.
• It's interesting, of course, but it's not, in itself, transformative.
• The monazite doesn't contain enough of the right rare earths to be hugely, massively, valuable.

There's Nothing Wrong With The Brazilian Plan

As I've been saying for some time now I like many to most aspects of the Energy Fuels (UUUU) move into rare earths. As I've also said, if I were sitting there with their assets then that's also exactly what I would be doing . Please see my May 2022 article for background .

Energy Fuels has an asset no one else really does, not in the rich world - their uranium mill. More than that, they've got the operating permits. This both allows them to take in radioactive material and process it and also to store the resultant radionuclides that have been removed in the processing. Their ability to store thorium onsite is near unique in fact.

This then gives them something few other have, the ability to process monazite as a source of rare earths. For there is uranium in there and, more importantly, that thorium. Few others, to possibly no one in the rich world, have the ability to take that as a raw feedstock. This is the unique proposition for Energy Fuels.

Everyone else has to use bastnaesite, or ionic clays, or some other rare earth containing ore. Which is fine. It's just that monazite is often a by-product of other mining operations - minerals sands for example. So, there's quite a lot of it around, it's cheap - no one else can really use it - and if you've a pretty cheap feedstock in quantity then you might well be able to make money out of it.

Ah, but not so fast

Now we come to something which I've again pointed out a number of times. Being able to make a rare earth concentrate isn't the end of it. It's necessary to separate into the individual rare earths. OK, there are plants that can take the now non-radioactive concentrate and separate it. But that's where the majority of the costs in the process are, in the separation. A useful rule of thumb is that it costs $20 per kg to do this separation.

Well, OK - but some 50% of your concentrate is going to be cerium and lanthanum which sell for in the 50 cents to $1 a kg range at present. So, using rules of thumb you lose $20 a kg on 50% of your material when you separate out the concentrate into the individual elements. You have to hope that the concentrations of the four magnet metals (Nd, Pr, Dy and Tb) are high enough to cover that loss.

So, what are the UUUU numbers?

Last time I looked at UUUU I wen t through these numbers :

What this means is that a rare earth concentrate with low levels of the magnet metals is worth less than nothing. Or, nothing. Only high magnet values are even worth processing given the costs of the processing, the low market values of the bulk of the output by weight.

Presently Nd/Pr is $100 to $130 a kg, depends upon the day or week we have a look. Tb is $ 2,000 and more a kg (it can be highly volatile) and Dy $300 and change. I don't want to use more accurate prices simply because I don't want to get into those weeds and details. Similarly, these content estimates are not right, but they're usefully indicative. Tb might be 0.1% of concentrate weight, Dy 1%. With those values and prices, Tb and Dy might add $5 to the value of each kg of concentrate. Let's then just park that as a value we can use again. To repeat, this isn't quite right, but it's usefully indicative.

This makes the big swing value the Nd/Pr content. If that's low then the concentrate will have no value. If it's high it will have a high value.

This can be boiled down again - what is the Nd Pr content needed to make a turn on the whole process?

Something very important to understand is that the Nd/Pr portion in the concentrate is not something we can change through processing. It's something determined by the original ratios in the original monazite.

So, if we have monazite that is originally low in Nd/Pr then our concentrate will be low in Nd/Pr. And, given that processing cost, possibly our concentrate will be worth nothing.

We can even back calculate this. If the Dy/Tb is worth $5, the processing cost is $20, then concentrate with 20% Nd/Pr is worth $9,000 a tonne ($120x 20%, plus $5 Dy/Tb, minus $20 processing cost all per kg). Or, at 15% Nd/Pr, $3,750 per kg, or at 10% it's valueless - or has a negative value perhaps.

Well, so, Brazil?

Energy Fuels has gone through this process with some monazite from Chemours (they have a mineral sands operation which produces monazite as a by-product). It worked out nicely enough but it's small scale. So, the next idea is to gain access to a larger supply. Which they've just done by buying up a Brazilian minerals sands operation. The bit of that which concerns us here is this :

As previously reported, the Bahia Project is a well-known heavy mineral sand ("HMS") deposit that has the potential to supply 3,000 – 10,000 metric tons ("MT") of natural monazite concentrate per year for decades to Energy Fuels' White Mesa Mill in Utah (the "Mill") for processing into high-purity rare earth element ("REE") oxides and other materials.

That's the volume, but what's the Nd/Pr content?

3,000 – 10,000 MT of monazite concentrate contains roughly 1,500 – 5,000 MT of total REE oxides ("TREO"), including 300 – 1,000 MT of neodymium-praseodymium ("NdPr") and significant commercial quantities of dysprosium ("Dy") and terbium ("Tb").

Easy enough to back calculate that, they're saying it's 20% Nd/Pr.

So Brazil is worth something for the rare earths

Since I did that calculation the Nd/Pr values are down, about 20% or so to $100 a kg (maybe a bit less, $90, depends on the difference between China and World price). But given variability let's just run with the earlier number of $9k. 300 tonnes of concentrate at $9k a tonne - $2.7 million. Or 1,000 tonnes at that price that's $9 million.

Sure, that's better than the $2.93 million revenue last quarter. Or at least an addition to it. But do note those rare earth numbers are gross revenue. They've got to process the monazite within that price - not too expensive a matter but not something costing nothing either.

Brazil might not be all that transformative

We should recall that Energy Fuels has a market cap of over $1 billion currently. Under $10 million in rare earths revenue isn't going to move that dial all that much. Yes, it's better than before but it's still not transformative.

I'm willing to believe much of this next too :

The acquisition of the Bahia Project is a part of the Company's efforts to build a large and diverse book of monazite concentrate supply for its rapidly advancing REE processing business. The Company expects to procure monazite concentrates through Company-owned mines like the Bahia Project, joint ventures or other collaborations, and open market purchases, like the Company's current arrangement with The Chemours Company ("Chemours"). The Company is currently in advanced discussions with several additional current and future monazite producers around the world to supply Energy Fuels' initiative.

Sounds good to me. But again, not immediately something that wholly transforms the company. There's also talk of separating into the individual rare earths at their own plant. They're saying " the Company is currently modifying and enhancing its existing circuits and facilities at the Mill with the expected ability to produce separated REE oxides (or oxalates) from these process streams starting as soon as later this year. " And that would be transformative.

Except, except - "subject to licensing" and that could be a killer. I really have no idea how that will work out. But something from the grapevine - not something I can prove with references but something that I know to be true - which is that licence variances at that mill are not easy to gain. That's to put it politely. A plan which depends upon gaining licence variances I would put at something that is not investable in the conventional sense. It's simply too much of an unknown.

I repeat

If I were where they are I would be doing pretty much all of the same things. This is an excellent way to leverage those assets. If they are to be allowed to do so. Even their talk of producing the individual rare earths makes sense given the base tech of their uranium separation plant. A large part of that $20 per kg separation cost is the capital of the plant to do it and they've already got a lot of plant extant. They need to alter it but they've got a lot of the basics already there. But only if they're able to gain the licence variances that they'll need. Which isn't something I'm convinced about.

My view

I regard this all as a good business plan. I worry that it's not all that large compared to the already existing market capitalisation. I'm also really not sure that they will gain the licence variances necessary to alter the plant. For me this is therefore a story to follow, not an investment to leap into.

Risks That I'm W rong

The one big thing in this process that would make me wrong is the State of Utah rolling over and saying that because of all this "we need to make rare earths at home" then they'll grant any variances required. Or something along those lines at least. If that happens then I think the plan has a massive amount going for it.

All those assets - being able to use monazite, already having an SX plant that just needs modification, not building new, those then come into play and Energy Fuels becomes very attractive.

Then there would remain all of the usual problems, how well would they do this, what will rare earths prices be and so on. But knowledge that the variances will be granted is what I look for as the transformative event.

The investor view

This obviously depends upon what views others hold about the story. That they're more advanced than many others inside the US is true. Technologically speaking there's that pathway through. For me what it really comes down to is whether the political pressure for home production creates the political pressure for the plant variances. If it does then UUUU should do very well. If it doesn't well.

In the short to medium term I expect considerable volatility on estimations of whether that plan can be carried out or not. In the long term it's not the plan, it's whether they'll be allowed to carry it out.

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