Uranium companies are struggling with the weakness in the uranium market; priced below $20/lb, U3O8 is at levels not seen in well over a decade. But Energy Fuels recently announced two diversification plays that could help insulate it from low uranium prices, and analysts are applauding the news.
Energy Fuels Inc. (EFR:TSX; UUUU:NYSE.MKT)announced the discovery of high-grade copper mineralization at its 100%-owned Canyon mine in Arizona. The company noted, "The Canyon Mine is the highest-grade uranium mine in the U.S., and based on uranium recovery alone, the Company expects production costs from the Canyon Mine to be competitive with the best underground uranium mines globally, including mines in Canada, based on industry-published cost estimates. However, now that extensive high-grade copper mineralization has been discovered within the deposit. . .the Company is now expanding the scope of the evaluation of the Canyon deposit to analyze recovering copper as a byproduct of uranium recovery, which has the potential to make the economics of the Canyon Mine even better."
Stephen P. Antony, Energy Fuels' president and CEO, stated, "The preliminary drilling results showing an extensive system of high-grade copper mineralization at the Canyon Mine are very exciting for Energy Fuels. We have long known that similar deposits in northern Arizona contain copper. However, the average grades in the five holes sampled thus far, with a total grade of nearly 9% copper and one intercept hitting copper grades over 31%, has far exceeded expectations based on past historical results at other mines in the region." Copper and uranium are found together elsewhere: BHT Billiton's Olympic Dam mine in Australia recovers copper and a uranium byproduct.
Antony also noted, "These are remarkable copper grades that one may only encounter a couple of times in a mining career," adding, "these results also have the potential to significantly improve the economics of the Canyon Mine, which is vitally important in today's weak uranium market."
Energy Fuels noted that it is also "finding small quantities of silver, zinc, and other minerals which have the potential to be recoverable as additional value-added byproducts." The company plans to release an updated technical report in the first quarter of 2017 that would include updated uranium resources as well as copper and any other resources identified.
The Canyon mine copper discovery has been well received by analysts. David Talbot of Dundee Capital Markets noted in an Oct. 27 research report that the "copper discovery has improved an already good high-grade Arizona breccia pipe uranium deposit, and transformed Canyon Mine currently under construction in Arizona from a uranium mine and into a copper mine." He added, "We estimate that copper may account for ~57% of in situ value versus 40% for U3O8 and 4% for silver at Canyon, based on current commodity prices, without much impacting mining. We believe this could help improve project economics by increasing the mix of saleable materials, boosting revenue, decreasing costs through by-product credits, and extended mine life."
Rob Chang of Cantor Fitzgerald stated on Oct. 27 that "The Canyon mine is already the highest-grade uranium mine in the U.S. and the discovery of high-grade copper may lead to valuable by-product credits that will further reduce the uranium cost production profile of this mine."
Analyst Colin Healey of Haywood Securities noted on Oct. 28, "There is currently no copper resource defined at Canyon, but the potential for a significant by-product credit is further revealed, with EFR intersecting copper mineralization both within the existing uranium resource area, as well as outside."
New Processing Contract
Energy Fuels followed the copper discovery news with the announcement that it has secured a new processing contract for its White Mesa mill in Utah. The company noted that it will "earn a fee for processing the alternate feed material and returning finished uranium product to the generator of the feed material. The fee is expected to cover the Company's processing cost and provide the Company with a reasonable margin."
CEO Stephen P. Antony commented, "The Company's ability to process alternate feed materials for the recovery of uranium at the White Mesa Mill, including the fee processing arrangement. . .is a very important aspect of the Company's business and revenue stream." He noted that the "new tranche of material was not previously in our business plan, so the expected cash-flows are timely for Energy Fuels during today's low uranium prices."
Rob Chang of Cantor Fitzgerald stated on Oct. 31 that "the White Mesa Mill is one of the only facilities in North America licensed and equipped to process and recycle alternate feed materials for the recovery of uranium." He noted that "Energy Fuels continues to aggressively pursue additional alternate feed opportunities for the Mill, as it is seen as an integral part of the overall business."
in an Oct. 31 report, Dundee's David Talbot noted that the contract size "is expected to be substantial and to serve as a new revenue source for 2017." He adds that "a total of 620,000 lbs U3O8 is contracted for next year, excluding this 'toll milling' contract. This will likely be enough for Energy Fuels to become the top American uranium producer, and it creates a base for growth when uranium prices rebound in coming years."
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Additional Disclosures for this Content
Dundee Capital Markets, Energy Fuels Inc., Oct. 27, 2016 and Oct. 31, 2016
Research Analyst Certification: Each Research Analyst involved in the preparation of this research report hereby certifies that: (1) the views and recommendations expressed herein accurately reflect his/her personal views about any and all of the securities or issuers that are the subject matter of this research report; and (2) his/her compensation is not and will not be directly related to the specific recommendations or views expressed by the Research Analyst in this research report. The Research Analyst involved in the preparation of this research report does not have authority whatsoever (actual, implied or apparent) to act on behalf of any issuer mentioned in this research report.
Dundee Capital Markets may have had, and may in the future have, long or short positions in the securities discussed in this research report and, from time to time, may have executed or may execute transactions on behalf of the issuer of such securities or its clients.
Cantor Fitzgerald, Energy Fuels Inc., Oct. 27, 2016 and Oct. 31, 2016
The author of this report is compensated based in part on the overall revenues of CFCC, a portion of which are generated by investment banking activities. CFCC may have had, or seek to have, an investment banking relationship with companies mentioned in this report. CFCC and/or its officers, directors and employees may from time to time acquire, hold or sell securities mentioned herein as principal or agent. Although CFCC makes every effort possible to avoid conflicts of interest, readers should assume that a conflict might exist, and therefore not rely solely on this report when evaluating whether or not to buy or sell the securities of subject companies.
CFCC has provided investment banking services or received investment banking related compensation from Energy Fuels within the past 12 months.
The analysts responsible for this research report have, either directly or indirectly, a long or short position in the shares or options of Energy Fuels.
Haywood Securities, Energy Fuels Inc., Oct. 28. 2016
I, Colin Healey, hereby certify that the views expressed in this report (which includes the rating assigned to the issuer’s shares as well as the analytical substance and tone of the report) accurately reflect my/our personal views about the subject securities and the issuer. No part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations.
--Haywood Securities, Inc. has reviewed lead projects of Energy Fuels Inc. (EFR-T) and a portion of the expenses for this travel may have been reimbursed by the issuer.
--Haywood Securities, Inc. or an Affiliate has managed or co-managed or participated as selling group in a public offering of securities for Energy Fuels Inc. (EFR-T) in the last 12 months.
--Haywood Securities, Inc. or an Affiliate has received compensation for investment banking services from Energy Fuels Inc.(EFR-T) in the past 12 months.