Energy Fuels Inc. (UUUU 0.39%) is a uranium and rare earth miner based in Colorado, although it also has a registered office in Ontario, Canada. After some slow years following the Fukushima nuclear disaster back in 2011, the price and demand for Uranium has finally returned to previous levels. The surge has been enough to boost Energy Fuel's stock to record levels, returning 107% so far in 2021 and 427% over the past 52-weeks.
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Mining stocks and commodity prices
Energy and mining companies have one major drawback. Their valuations are inherently tied to the price of their resources. Energy Fuels hasn't been profitable since 2012, and with uranium prices once again on the decline in October, it may be a while until the company returns to profitability.
Source: Energy Fuels Inc.
Industry experts believe that with Uranium, the breakeven price is in the region of $67 per pound on average in North America. While the price hit over $50 back in September, it has been up and down since then and has yet to return to that level. Without a rise in demand, Energy Fuels and other uranium-based companies are simply out of luck until the price stabilizes at a favorable level. This means that it is more profitable for would-be domestic producers to buy Uranium on the spot market and use it to fulfill their contracts.
The new segment
Energy Fuels does have a new segment that it introduced earlier this year that could have some major momentum moving forward. The company established a rare earth elements branch that started to utilize its existing sites to extract, you guessed it, rare earth minerals .
Rare earth elements are in high demand and used in everything from electric vehicles to smartphones to laptop computers. Several rare earth minerals are used in the production of stronger batteries. Given that the number one global supplier of these minerals is China, Energy Fuels provides an American resource amid the ongoing geopolitical tensions between the two countries.
The monazite opportunity
The company's White Mesa Hills facility is the only one in North America, and perhaps the only site outside of China, with the licenses and capabilities for processing the mineral monazite.
Source: Energy Fuels' Inc.
From monazite, Energy Fuels can produce rare earth carbonate, which is used in all types of electronic devices. The next step for Energy Fuels is to continue to build up its U.S. to European Union supply chain for rare earth elements, as well as building out its U.S. supply chain by 2024.
Energy Fuels also harvests other minerals like vanadium and thorium, which provides medical isotopes which can be utilized in cancer treatment therapies. The thorium opportunity is quite interesting as the company believes it may be able to recover it from uranium production. Energy Fuels does rely on solvent extraction, which has a reputation of being inefficient, but they have a long track record with this method, and the leadership team is confident that they can perform well.
Stepping away from uranium
Based on their recent earnings call, Energy Fuels seems to be pivoting away from the volatile uranium market and establishing itself as a true player in the rare earth elements industry. The latter could be a much more lucrative endeavor, particularly as the demand for stronger battery technology continues to rise. In their recent earnings call, they highlighted the fact that vanadium prices are skyrocketing and that the company's stockpiles are becoming more and more valuable due to the move.
As supply chain issues resolve and secular trends like the growing popularity and adoption of electric vehicles persist, I expect the demand for rare earth elements to continue, pushing prices upwards. Energy Fuels looks to be navigating a crossroads with respect to the company's vision, and all signs point to a very different but much more relevant company on the other side of this transition.
The Takeaway
The risks are definitely there for Energy Fuels Inc. They mine and stockpile rare elements and have likely benefited from tariffs as it softens competition from China. The strong vaccination efforts have also unleashed pent-up demand much sooner than anticipated, and the company is in a great place right now. The main arguments for a long position are the opportunities in medicine and electric vehicles. These are both legitimate solid opportunities, but a price-to-book (P/B) ratio approaching 6 for a mining company is pricing in too much good news. The starting point isn't great for a long-term hold despite Energy Fuels Inc.'s status as an outstanding company with great leadership. Investors should keep this one on watch for pullbacks, but for now, there are better places to put your money.
