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Energy Fuels building up uranium stocks and eyeing cash flow from rare earths within 12 months

The miner has strategically opted not to enter into any uranium sales commitments in 2020 awaiting any US government action and general market conditions to improve

Energy Fuels Inc. -
Uranium spot prices are up 30% so far this year, the firm noted

Energy Fuels Inc (TSE:EFR) (NYSEMKT:UUUU) has said it is continuing to build up its inventories of uranium as prices improve, while the group is eyeing cash flow from rare earths within the next 12 months.

Reporting second quarter results for the three months to June 30, 2020, the USA's biggest uranium miner, revealed in a statement that at that date it held concentrate worth US$24.7 million. That includes 575,000 pounds of uranium valued at US$23.05 per pound and 1.675 million pounds of vanadium valued at US$5.11 per pound, both as immediately marketable product.

READ: Energy Fuels, the USA's largest uranium miner, is paying off debt and growing inventories

The miner has strategically opted not to enter into any uranium sales commitments in 2020 awaiting any US government action and general market conditions to improve.

"Assuming current production and sales guidance, we expect to continue to build and hold between 640,000 and 690,000 pounds of uncommitted uranium in inventory at the end of 2020," Mark Chalmers, the firm's CEO told investors in the results statement.

"Uranium spot prices are up 30% so far this year, as COVID-related production suspensions at major global uranium mines have created a widening gap between supply and demand and a strong potential for higher prices in the future," he added.

During the quarter, Energy Fuels announced its entry into the US rare earth elements (REE) market. The company believes its White Mesa Mill - the only uranium mill operating in the states - can play a key role as many rare earth ores also contain recoverable quantities of uranium.

"We are currently performing test work, which we believe will be highly scalable and will allow us to produce a rare earth concentrate sooner, and at a significantly lower cost, than other US initiatives garnering considerable attention right now," added Chalmers.

"We are moving very quickly on our rare earth initiative with an eye toward generating cash flow within the next 12 months," said the CEO, reiterating that Energy Fuels continues to work on the balance sheet and aims to be debt-free by the end of the year.

As of June 30, 2020, the firm had working capital of $38.04 million, representing an increase of 8% compared to the end of the previous quarter.

The group posted an operating loss of US$6.5 million in the second quarter, down from a loss of US$7.8 million in the first quarter. For the six months to June 30, 2020, the firm posted a net loss attributable to the company of US$13.8 million, versus a loss of US$21.4 million in the first half of 2019.

Noble repeats 'Market Perform'

Noble Capital Markets noted that the company's second quarter loss was US$8.2 million, narrowed from a loss of US$9.3 million in the same period in 2019, and against the broker's estimate for a loss of US$7.1 million.

"The variance to our estimate was largely due to lower revenue and higher standby costs," said analyst Mark Reichman in a note.

"We have revised our 2020 estimate to a loss of $(0.25) per share from $(0.23) to reflect 2Q results and lower revenue. It is difficult to forecast forward earnings given a range of outcomes based on potential actions arising from the U.S. Nuclear Fuel Working Group (NFWG)recommendations which will also have a bearing on the company’s plans," he added.

"Until there is greater visibility on a path to profitability or near-term government support in the form of uranium purchases, our rating remains Market Perform," added Reichman.

Energy Fuels holds three of America's key uranium production centers: the White Mesa mill in Utah, the Nichols Ranch in-situ recovery (ISR) Project in Wyoming, and the Alta Mesa ISR project in Texas.

The White Mesa Mill is the only conventional uranium mill operating in the U.S. today, has a licensed capacity of over 8 million pounds of uranium per year, and has the ability to produce vanadium when market conditions warrant.

Shares in the firm nudged up 1.78% to C$2.29 in Toronto on the day.

---Updates for analyst comment and share price---

Contact the author at giles@proactiveinvestors.com

Quick facts: Energy Fuels Inc.

Price: 2.33 CAD

TSX:EFR
Market: TSX
Market Cap: $292.56 m
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