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本10-Q表格季度報告及附帶的陳述（以下簡稱為“季度報告”）包含根據適用美國（“美國。”）和加拿大證券法（以下簡稱為“我們沒有也不承擔任何公開更新任何前瞻性陳述以反映後續事件或情況的義務，除非法律或法規另有規定。”）的前瞻性陳述和前瞻性信息，其中可能包括但不限於Energy Fuels Inc.（以下簡稱為“公司的”或“energy fuels’”）：預期未來時期業務運作的成果和進展；我們物業的開發勘探計劃；針對業務的計劃，例如根據鈾價格上升而加大我們鈾業務的推進速度以及擴展我們的稀土元素（“REE”）計劃，包括我們在巴西南巴伊亞重礦沙（“HMS”）項目的工作巴伊亞項目在我們位於猶他州的白色米薩廠進行商業分離稀土元素能力的計劃持續開發，White Mesa廠” 或“公司”Mill以及我們最近收購的HMS物業相關計劃，包括肯尼亞的Kwale HMS項目，Kwale Project以及馬達加斯加的Toliara HMS和稀土元素項目計劃。托利阿拉計劃”) through the Company’s acquisition of Base Resources Limited (“基礎”或“Base Resources”), which closed on October 2, 2024 (see Part I, Item 1, Note 17 – Subsequent Events), and the potential earn-in of up to a 49% joint venture interest in the Donald HMS and REE project in Australia (the “Donald項目”) pursuant to definitive agreements entered into between the parties, as previously announced on June 3, 2024, with the Company’s current earn-in interest at 3.21%; plans related to our potential recovery of radioisotopes at the Mill for use in the production of targeted alpha therapy (“TAT）醫療治療; 任何涉及收購其他鈾或鈾/釩礦產物業的計劃; 任何涉及我們任何鈾、鈾/釩和/或HMS產權的生產擴大或持續運作的計劃; 歷史資源和儲量估計; 生產估計; 證照的維護和更新; 預期公司將成功與馬達加斯加政府達成可接受的財政條款或達成並保持足夠的財政和法律穩定性或有關Toliara項目的目前暫停將在不久的將來或完全解除; 以及對未解的訴訟結果的預期。 這些陳述涉及基於對未來結果的預測、尚未確定金額的估計和管理層假設的分析和其他信息。
根據購買協議，總購買價格為$27.50百萬美元，包括存入資金為$5.90百萬美元，應於達到特定里程碑時支付，其餘$21.60百萬美元應在交割時支付。2023年2月10日最後支付後，礦產權的轉讓和轉讓完成了（“巴伊亞交割”）。此外，公司在此類資產收購方面發生了$1.63百萬美元的直接交易成本。Bahia Closing緊隨巴西政府對Energy Fuels的轉讓批准’’ energy fuels旗下的巴西子公司Energy Fuels Brazil Ltda。
阿爾塔美薩交易
2023年2月14日，公司完成了對enCore Energy Corp.（“enCore每股面值$0.01的股份 三 完全擁有的子公司，共同持有Alta Mesa，總代價為$120百萬美元（“Alta Mesa Transaction”），支付如下:
have been satisfied, at which point payment is unconditional. Accordingly, the Company’s vanadium contracts do not give rise to contract assets or liabilities.
RE Carbonate
The Company’s sales of RE Carbonate revenue is recognized when delivery of the mixed RE Carbonate material has arrived at the applicable separation facility. Additionally, the Company will recognize revenue when the customer further processes the product from the RE Carbonate that the Company delivered and it is sold to a third party. Additionally, under this contract, each delivered product transferred to the customer represents a separate performance obligation; therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required. Accordingly, the Company’s contracts do not give rise to contract assets or liabilities.
Alternate Feed Materials
Revenue from the delivery of mineralized material received from the clean-up of a third-party uranium mine or for Alternate Feed Materials is typically recognized upon delivery to the Mill. Revenue from toll milling services is recognized as material is processed in accordance with the specifics of the applicable toll milling agreement. Revenue and unbilled accounts receivable are recorded as related costs are incurred using billing formulas included in the applicable toll milling agreement.
17. RELATED PARTY TRANSACTIONS
Robert W. Kirkwood, a member of the Company’s Board of Directors, is a principal of the Kirkwood Companies, including Kirkwood Oil and Gas LLC, Wesco Operating, Inc. and United Nuclear LLC (“United Nuclear”). United Nuclear owns a 19% interest in the Company’s Arkose Mining Venture, while the Company owns the remaining 81%. The Company acts as manager of the Arkose Mining Venture and has management and control over operations carried out by the Arkose Mining Venture. The Arkose Mining Venture is a contractual joint venture governed by a venture agreement dated as of January 15, 2008 and entered into by United Nuclear and Uranerz Energy Corporation, a wholly owned, indirectly held subsidiary of the Company.
On October 27, 2021, after closing on the sale of certain conventional uranium assets to CUR, the Company began providing services to CUR under a mine operating agreement. Pursuant to that agreement, the Company earned $0.01 million and $0.06 million for the three months ended September 30, 2024 and 2023, respectively. The Company earned $0.04 million and $0.52 million during the nine months ended September 30, 2024 and 2023, respectively under this agreement. As of September 30, 2024 and December 31, 2023, less than $0.01 million and $0.05 million was due from CUR, respectively. Additionally, the Company accrued $0.76 million and $1.53 million as of September 30, 2024 and December 31, 2023, respectively, in Other long-term receivables related to deferred cash payments for production thresholds pursuant to the terms of the asset purchase agreement with CUR.
18. SUBSEQUENT EVENTS
Acquisition of Base Resources
On October 2, 2024, EFR Australia Pty Ltd (“EFR”), a wholly owned subsidiary of the Company, completed the acquisition of all of the fully paid ordinary shares (the “Transaction”) of Base Resources pursuant to a Scheme Implementation Deed dated April 21, 2024 by and among the Company, EFR and Base Resources (the “Deed”).
Under the Deed, at closing, each holder of ordinary shares of Base Resources received consideration of (i) 0.0260 Company common shares for each Base Resources share held on the Scheme Record Date (being 5 pm Perth, Australia time on Wednesday, September 18, 2024) (the “Share Consideration”), and (ii) AUS$0.065 in cash, paid by way of a special dividend by Base Resources to its shareholders. The total Share Consideration issued by Energy Fuels was approximately $178.44 million and the total special dividend value was approximately $55.08 million. Holders of ordinary shares of Base Resources that reside in certain jurisdictions will receive the net proceeds from the sale of the Company’s common shares by a nominee in lieu of the Share Consideration.
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Base Resources owns the Toliara HMS and monazite project in Madagascar (the “Toliara Project”). The Toliara Project is a world-class, advanced-stage, low-cost, and large-scale HMS project. In addition to its stand-alone, ilmenite and rutile (titanium) and zircon (zirconium) production capability, the Toliara Project also contains large quantities of monazite, which is a rich source of the ‘magnetic’ REEs used in EVs and a variety of clean energy, defense and advanced technologies, as well as a source of recoverable uranium, which, upon development, would be shipped to the Mill for the recovery of REEs and the contained uranium. The Toliara Project is subject to negotiation of fiscal terms with the Madagascar government and the receipt of certain Madagascar government approvals and actions before a current suspension on activities at the Toliara Project will be lifted and development may occur. Base Resources also owns the Kwale HMS project in Kenya, which is nearing completion of its mine life and commencement of reclamation activities.
The Company expects the Transaction to be accounted for as a business combination using the acquisition method of accounting in accordance with ASC 805. Due to the proximity of the acquisition date to the filing of the Quarterly Report on Form 10-Q for the period ended September 30, 2024, the initial accounting for the Transaction is incomplete, and therefore, the Company is unable to disclose certain information required by ASC 805, including the provisional amounts recognized as of the acquisition date for fair value of consideration transferred, each major class of assets acquired and liabilities assumed, and goodwill, if any, due to the ongoing status of the valuation.
In January 2018, Base Resources completed the acquisition of the Toliara Project in Madagascar, with payment of $75.00 million in up-front consideration, for an initial 85% interest. In January 2020, in accordance with the terms of the share sale agreement with World Titane Holdings Limited, the Group acquired the remaining minority interest in the Toliara Project. A further $16.83 million (deferred consideration) is payable on achievement of key milestones. As a result of the transition, a change of control occurred, and payment of the $16.83 million deferred consideration accelerated and was paid on October 16, 2024.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related notes, which have been prepared in accordance with U.S. GAAP, included elsewhere in this Quarterly Report on Form 10-Q. Additionally, the following discussion and analysis should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the audited consolidated financial statements included in Part II of our Annual Report on Form 10-K for the year ended December 31, 2023. This Discussion and Analysis contains forward-looking statements and forward-looking information that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors. See “Cautionary Statement Regarding Forward-Looking Statements.”
All dollar amounts stated herein are in U.S. dollars, except share and per share amounts and currency exchange rates, unless specified otherwise.
Our Company
We responsibly produce several of the raw materials needed for clean energy and advanced technologies, including uranium, REEs and vanadium.
Overview
The Company believes that uranium supply pressure and demand fundamentals point to higher sustained uranium prices in the future. The Company believes that the advancement of reliable nuclear energy, fueled by uranium, is experiencing a global resurgence with an increased focus by governments, policymakers, and citizens on decarbonization, electrification, and security of energy supply. In addition, Russia’s invasion of Ukraine, restrictions on Russian uranium products in the U.S. and the entry into the uranium market by financial entities purchasing uranium on the spot market to hold for the long-term has the potential to result in higher sustained spot and term prices and, perhaps, induce utilities to enter into more long-term contracts with non-Russian producers, like Energy Fuels, to foster security of supply, avoid transportation and logistics issues, and ensure more certain pricing.
In 2022, we entered into three long-term uranium contracts with major U.S. utilities, and in 2024, we entered into a fourth long-term contract with a major U.S. utility. To deliver under these contracts, the Company commenced ore production at three of its permitted and developed conventional uranium mines, Pinyon Plain, La Sal and Pandora, located in Arizona and Utah for uranium production. Once production is fully ramped up to commercial levels at Pinyon Plain, La Sal and Pandora, expected by late-2024, the Company expects to be producing uranium ore at a run-rate of approximately 1.1 to 1.4 million pounds per year. The Company will stockpile ore from production at these three conventional mines to process in late 2024 or in 2025, subject to market conditions, contract requirements and the Mill’s schedule. The Company will continue to produce uranium from its alternate feed recycling program, which is expected to total approximately 150,000 pounds of finished U3O8 in 2024. Total uranium production for 2024 is expected to be between 150,000 to 200,000 pounds of finished U3O8, depending on the timing of ramp up of production at the Company's Pinyon Plain, La Sal and Pandora mines and the Mill's schedule.
Additionally, the Company is preparing two additional mines in Colorado and Wyoming (Whirlwind and Nichols Ranch) for expected production within one year from a “go” decision and is advancing several other large-scale U.S. mine projects in order to increase uranium production in the coming years in response to potentially strong uranium market conditions. With strong market conditions, the Whirlwind and Nichols Ranch mines could potentially increase Energy Fuels’ uranium production to a run-rate of over two million pounds of U3O8 per year as early as 2026. In 2024, the Company plans to advance permitting and development on the Roca Honda and Bullfrog projects, which together with the Company's Sheep Mountain Project, could expand the Company’s uranium production to a run-rate of up to five million pounds of U3O8 per year in the coming years, as market conditions warrant. The Company also expects to commence an ore buying program from third-party miners in 2024, which is expected to further increase the Company's uranium production profile. As the Company is ramping up its commercial uranium production, it can rely on its uranium inventories and potential purchases of U.S. origin uranium on the spot market to supplement its uranium production if necessary to fulfill its contract requirements.
The Company’s decision to ramp-up uranium production was driven by several favorable market and policy factors, including strengthening spot and long-term uranium prices, increased buying interest from U.S. nuclear utilities, U.S. and global government policies supporting nuclear energy to address global climate change, and the need to reduce U.S. reliance on Russian and Russian-controlled uranium and nuclear fuel.
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The Company continually seeks to maximize capacity utilization at the Mill and new sources of revenue, including through its emerging REE business, as well as new sources of Alternate Feed Materials and new feed processing opportunities at the Mill, that can be processed without reliance on uranium sales prices. The Company also expects to produce vanadium at a run-rate of 1.0 – 2.0 million pounds per year starting as early as 2025, assuming the La Sal mine ramps up to full production in 2024 as contemplated and the Whirlwind mine is brought into production in 2025, which could be held as in-process inventory or processed into finished V2O5 available for sale into improving markets.
The Company has secured additional sources of natural monazite sands to supply feedstock to its emerging REE business at the Mill, including through its recent acquisition of Base Resources, which owns the Toliara HMS and monazite project in Madagascar (the “Toliara Project”), and through its recently formed joint venture with Astron to jointly develop the Donald HMS and REE project (in addition to the acquisition of the Bahia Project discussed in Note 6 – Property, Plant and Equipment and Mineral Properties). The Company completed commissioning its Phase 1 REE separation circuit at the Mill during Q3-2024 and is advancing engineering on its Phase 2 and 3 separation facilities at the Mill (see “Rare Earth Element Initiatives” below). The Company is also evaluating the potential to recover radioisotopes from its existing process streams for use in the development of TAT medical isotopes for the treatment of cancer and continues its support of U.S. governmental activities to assist the U.S. uranium mining industry, supporting efforts to restore domestic nuclear fuel capabilities and advocating for the responsible sourcing of uranium and nuclear fuel.
We continually evaluate the optimal mix of production, inventory and purchases in order to retain the flexibility to deliver long-term value.
Mill Activities
During the three months ended September 30, 2024, the Mill focused on finalizing the commissioning of its Phase 1 REE separation circuit. This Phase 1 REE separation circuit is capable of producing separated NdPr and a “heavy” samarium plus (“Sm+”) RE Carbonate (see “Rare Earth Element Initiatives” below). In late 2023, the Company purchased an additional 480 tonnes of monazite from Chemours that it received in early 2024. As of September 30, 2024, the Mill had produced approximately 38 tonnes of separated NdPr, which exceeded the Company's expected recovery of 25 – 35 tonnes of separated NdPr and 10 – 20 tonnes of Sm+ RE Carbonate, along with uranium. The Mill is focused on uranium production for the remainder of 2024. No vanadium production is currently planned during 2024, though the Company continually monitors its inventory and vanadium markets to guide future potential vanadium production.
The Company is also actively pursuing opportunities to process additional sources of natural monazite sands, new and additional Alternate Feed Material sources, and new and additional low-grade mineralized materials from third parties in connection with various uranium clean-up programs.
Conventional Mine Activities
During the three months ended September 30, 2024, the Company continued ore production at the La Sal mine, Pinyon Plain Project and Pandora mine. As of April 1, 2024, the Company had achieved material production levels at the Pinyon Plain Project. For the nine months ended September 30, 2024, the Company has mined ore containing approximately 180,000 pounds of U3O8 from the project. In July 2024, the Pinyon Plain Mine commenced uranium ore haulage to the White Mesa Mill on federal and state highways that crossed over the Navajo Nation, in accordance with the Mine's USFS-approve Mine Plan of Operations.
On July 31, 2024, the Navajo Nation’s President expressed that, as a result of the Navajo Nation’s long and troubled history with uranium mining during the cold war era, resulting in numerous abandoned mine and mill sites in Navajo Nation lands, the Navajo Nation is concerned about the potential effects the transport uranium ore across the Navajo Nation may have on the health, safety, and welfare of the its citizens, and indicated its intention to promulgate regulations addressing the transport of radioactive materials across the Navajo Nation.
Although Energy Fuels does not believe the Navajo Nation has the legal authority to restrict Energy Fuels’ right to haul uranium ore across the federal and state-owned and maintained highway system through Navajo Nation lands, because any such claimed authority would be preempted under federal laws, Energy Fuels has agreed to engage in good-faith discussions with the Navajo Nation to address its concerns.
Energy Fuels has noted to the Navajo Nation that today’s mining industry is substantially improved from the industry of decades past. There are significant laws and regulations in place to ensure uranium mining is fully protective of human health and the environment, and Energy Fuels fully complies with all such laws and regulations. Energy Fuels has also noted that it
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has an exceptional record protecting health and the environment, including the transport of tens of thousands of ore on state and federal highways across the Navajo Nation as recently as 2022.
Energy Fuels has met on several occasions with the Navajo Nation since July 31, 2024 and is optimistic that a suitable agreement will be reached between Energy Fuels and the Navajo Nation during Q4-2024 that will satisfy the Navajo Nation's concerns and reaffirm that uranium ore transportation across the reservation will comply with all applicable laws and regulation and will be conducted in a manner that fully protects the health, safety, welfare and environment of the Navajo Nation and its citizens.
Energy Fuels has voluntarily agreed to hold off transporting uranium ore across the Navajo Nation for a reasonable time while the parties engage in good faith discussion aimed at reaching suitable agreement. Pending such an agreement, mining is continuing at the Pinyon Plain mine, but as a reduced rate with mined ore being stockpiled at the mine site and with underground mine development activities continuing at an accelerated rate. It is expected that ore haulage will re-commence and mining will continue at normal or accelerated rates (to the extent underground development at the mine has been accelerated) once these discussions are concluded.
Once production is fully ramped up to commercial levels at the three mines, which is currently planned for later in 2024, subject to a positive and timely conclusion of discussions with the Navajo Nation on ore transport from the Pinyon Plain mine to the Mill, the Company expects to be producing uranium at a run-rate of approximately 1.1 to 1.4 million pounds per year. Ore mined from these three mines during 2024 will be stockpiled at the Mill for processing that is anticipated to start in late 2024 or in 2025, subject to market conditions, contract requirements and the Mill’s schedule.
The Company expects to continue rehabilitation and development work at its Whirlwind mine in preparation for future production. Although the timing of the Company’s plans to extract and process mineralized materials from the Whirlwind mine will be based on contract requirements, inventory levels, and/or sustained improvements in general market conditions, the Company currently expects the Whirlwind mine, along with the Company’s Nichols Ranch ISR project, to commence uranium production within one (1) year from a “go” decision, which could increase Energy Fuels' uranium production to a run-rate of over two (2) million pounds of U3O8 per year starting in 2026, as market conditions may warrant.
In 2024, the Company also plans to advance permitting and development on its Roca Honda Project, a large, high-grade conventional project in New Mexico and its Bullfrog Project in Utah, which together with its Sheep Mountain Project, a large conventional project in Wyoming, could expand the Company’s uranium production to a run-rate of up to five million pounds of U3O8 per year in the coming years. The Company is also continuing to maintain required permits at its other conventional projects, including the Energy Queen mine. All these projects serve as important pipeline assets for the Company’s future conventional production capabilities, as market conditions may warrant.
ISR Extraction and Recovery Activities
Although the Company does not expect to produce significant quantities of U3O8 in 2024 from Nichols Ranch, the Company plans to undertake exploration and development activities in 2024 to expand the resources at the Nichols Ranch Project and to further develop wellfields to be ready for potential recommencement of production within one year from a “go” decision, as market conditions warrant. At Nichols Ranch the Company currently holds 34 fully permitted, undeveloped wellfields, including four additional wellfields at the Nichols Ranch wellfields, 22 wellfields at the adjacent Jane Dough wellfields and eight wellfields at the Hank Project, which is fully permitted to be constructed as a satellite facility to the Nichols Ranch Plant.
Inventories
As of September 30, 2024, the Company had approximately 235,000 pounds of finished uranium inventories located at conversion facilities in North America. Additionally, the Company has approximately 805,000 pounds of additional U3O8 contained in stockpiled Alternate Feed Materials and other ore inventory at the Mill or nearby mine sites that can potentially be recovered relatively quickly in the future, as market conditions and contract requirements may warrant. During the nine months ended September 30, 2024, the Company sold 200,000 pounds of uranium under one of its term contracts and 250,000 pounds on the spot market.
As of September 30, 2024, the Company holds approximately 905,000 pounds of finished V2O5 in inventory, and there remains an estimated 1.0 to 3.0 million pounds of additional solubilized recoverable V2O5 remaining in tailings solutions at the Mill awaiting future recovery, as market conditions may warrant.
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Sales Update and Outlook for 2024
The Company sells uranium into its existing long-term contracts and continually evaluates selling a portion of its inventories on the spot market in response to future upside uranium price movements. The Company also continually evaluates the potential to purchase uranium on the spot market to replace sold inventory, meet contract obligations and gain exposure to future price increases.
Uranium Sales
The Company has four long term contracts with major U.S. nuclear utilities and entered into spot sale agreements with three customers during the nine months ended September 30, 2024. Under these contracts, the Company sold 450,000 pounds of U3O8 during the nine months ended September 30, 2024 with a weighted-average sales price of $84.23 per pound.
The Company recently entered into a fourth long-term utility contract. The four long-term utility contracts require future deliveries of uranium between 2025 and 2030, with base quantities totaling 2.80 million pounds of uranium sales remaining over the period, and up to 4.25 million pounds of uranium, if all remaining options are exercised. Having observed a marked uptick in interest from nuclear utilities seeking long-term uranium supply, the Company remains actively engaged in pursuing additional selective long-term uranium sales contracts.
The Company completed the following sales for the nine months ended September 30, 2024:
•January 2024: sold 200,000 pounds of U3O8 for $15.03 million ($75.13 per pound) into its existing portfolio of long-term contracts.
•March 2024: sold 100,000 pounds of U3O8 on the spot market for $10.29 million ($102.88 per pound).
•June 2024: sold 100,000 pounds of U3O8 on the spot market for $8.59 million ($85.90 per pound).
•September 2024: sold 50,000 pounds of U3O8 on the spot market for $4.00 million ($80.00 per pound).
The Company holds uncommitted inventory and, with the benefit of future production, will continue to evaluate additional spot and/or long-term uranium sales opportunities for the remainder of 2024 and beyond.
Vanadium Sales
The Company did not sell any vanadium during the nine months ended September 30, 2024. The Company expects to sell its remaining finished vanadium product when justified into the metallurgical industry, as well as other markets that demand a higher purity product, including the aerospace, chemical, and potentially the vanadium battery industries. The Company expects to sell to a diverse group of customers in order to maximize revenues and profits. The vanadium produced in the 2018/19 Pond Return campaign was a high-purity vanadium product of 99.6%-99.7% V2O5. The Company believes there may be opportunities to sell certain quantities of this high-purity material at a premium to reported spot prices, which it has done from time-to-time in the past.
The Company intends to continue to selectively sell its V2O5 inventory on the spot market as markets warrant but will otherwise continue to maintain its vanadium in inventory.
Rare Earth Sales
During the nine months ended September 30, 2024, the Company did not have any rare earth sales. During the three months ended June 30, 2024, the Company completed the commissioning of the Mill’s newly installed Phase 1 separation circuit, from which it produced approximately 38 tonnes of separated NdPr in 2024, all of which it intends to sell to Neo Performance Materials (“Neo”) under previous contractual arrangements. Additionally, the Company has approximately 28 tonnes of NdPr plus approximately 4 tonnes of Sm+ RE Carbonate in solution in its Phase 1 separation circuit.
While the Company continues to make progress on its mixed RE Carbonate and separated REE production and additional capital is spent on process enhancements, improving recoveries, product quality and other optimization, profits from this initiative are expected to be minimal until such time when monazite throughput rates are increased and optimized. Throughout this process, the Company is gaining important knowledge, experience and technical information, all of which are valuable for current and future mixed RE Carbonate production and planned future production of separated REE oxides and other advanced REE materials at the Mill or elsewhere.
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Rare Earth Element Initiatives
Acquisition of Base Resources
On October 2, 2024, EFR completed its Transaction with Base Resources pursuant to the Deed. Under the Deed, at closing, each holder of ordinary shares of Base Resources received Share Consideration and AUS$0.065 in cash, paid by way of a special dividend by Base Resources to its shareholders. The total Share Consideration issued by Energy Fuels was approximately $178 million and the total special dividend value was approximately US$55.1 million. Holders of ordinary shares of Base Resources that reside in certain jurisdictions will receive the net proceeds from the sale of the Company’s common shares made by a nominee in lieu of the Share Consideration. See Note 18 – Subsequent Events.
The Company, through its newly acquired subsidiary Base Resources (as of October 2, 2024), owns the Toliara Project which is a world-class, advanced-stage, low-cost, and large-scale HMS project. In addition to its stand-alone, ilmenite and rutile (titanium) and zircon (zirconium) production capability, the Toliara Project also contains large quantities of monazite, which is a rich source of the ‘magnetic’ REEs used in EVs and a variety of clean energy, defense and advanced technologies, as well as a source of recoverable uranium, which, upon development, would be shipped to the Mill for the recovery of REEs and the contained uranium.
Although the Toliara Project holds a mining permit that allows production of Ilmenite, Rutile and Zircon, development at the Project was suspended by the Government of Madagascar in November 2019 pending negotiation of fiscal terms applying to the Toliara Project. The Company is currently negotiating a binding investment agreement (the "Investment Agreement") with the Government of Madagascar that, if successfully negotiated, would set out the key fiscal terms applicable to the Toliara Project and also provide necessary legal clarifications in relation to applicable law. To be effective, the Investment Agreement will require ratification by the Madagascar Parliament. With the recent adoption of a new Mining Code in Madagascar and the Company and the Government of Madagascar making sound progress on fiscal terms negotiations, the Company believes the Investment Agreement could potentially be finalized in time to have it put before the Madagascar Parliament for ratification during the current Parliamentary session, which ends on December 18, 2024, in which case the suspension would be lifted, and required legal and fiscal stability achieved, during 2024. Aspects intended to facilitate the inclusion of Monazite on the Toliara Project's mining permit as soon as reasonably practicable after fiscal terms are agreed are included in the scope of current negotiations. However, there can be no assurance as the to the timing of completion of fiscal terms negotiations and lifting of the current suspension, the timing for achieving sufficient legal and fiscal stability or the timing for approval of the addition of Monazite to the mining permit. If such approvals are not obtained, or obtained on terms less favorable than expected, this could delay any final investment decision in relation to the Toliara Project or prevent or otherwise have a significant effect on the development of the Toliara Project or ability to recover Monazite from the Toliara Project.
Base Resources also owns the Kwale HMS project in Kenya, which is nearing completion of its mine life and commencement of reclamation activities.
Joint Venture with Astron on the Donald Project
On June 3, 2024, the Company executed JV Agreements with Astron, creating the Donald Project JV to jointly develop and operate the Donald Project in Australia, which is a well-known HMS and REE deposit that the Company believes could provide it with another near-term, low-cost, and large-scale source of monazite sand that, upon development, would be transported to the Mill for the recovery of separated REE products along with the contained uranium. The Donald Project has most licenses and permits in place (or at an advanced stage of completion). The JV Agreement provides Energy Fuels the right to invest up to AUS$183 million (approximately $127 million at September 30, 2024 exchange rates) to earn up to a 49% interest in the Donald Project JV, of which approximately $10.6 million is expected to be invested in 2024 in preparation of a final investment decision (“FID”), and, if a positive FID is made, the remainder would be invested to develop the project and to earn into the full 49% interest in the Donald Project JV. In addition, the Company would issue Common Shares to Astron having a value of up to $17.5 million, of which $3.5 million of Common Shares were issued in September 2024 upon the satisfaction of certain conditions precedent and the remainder would be issued upon a positive FID. See Note 3 – Transactions.
REE Separation Circuits at the Mill
The Company continues to make progress toward full REE separation capabilities at the Mill to produce both “light” and “heavy” separated REE products in the coming years. The Company has been producing a mixed RE Carbonate from monazite sands at the Mill since 2021. Energy Fuels recently completed the modification and enhancement of its infrastructure at the Mill (“Phase 1”), which is now capable of producing commercial quantities of separated NdPr. The Company is also planning further enhancements to expand its NdPr production capability (“Phase 2”) and to produce separated dysprosium (“Dy”), terbium (“Tb”) and potentially other REE materials in the future (“Phase 3”) from monazite and potentially other REE process
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streams. The Company is focused on monazite at the current time, as it has superior concentrations of these four critical REEs (NdPr, Dy and Tb) compared to many other REE-bearing minerals. These REEs are used in the powerful neodymium-iron-boron (“NdFeB”) magnets that power the most efficient EVs, along with uses in other clean energy and defense technologies. For reference, a typical EV utilizes approximately one (1) to two (2) kilograms of NdPr oxide in its drivetrain. The uranium contained in the monazite, which is generally comparable to typical Colorado Plateau uranium deposits, will also be recovered at the Mill.
In 2022, the Company began development of its Phase 1 REE separation facilities at the Mill, which were completed in late Q1-2024, fully commissioned in Q2-2024 with the initial run completed in Q3-2024. The Phase 1 REE separation facilities involve modifications and enhancements to the existing solvent extraction (“SX”) circuits at the Mill and have the design capacity to process approximately 8,000 to 10,000 tonnes of monazite per year, producing roughly 4,000 to 6,000 tonnes of total rare earth oxides (“TREO”), containing roughly 850 to 1,000 tonnes of recoverable separated NdPr per year. Because Energy Fuels is utilizing existing infrastructure at the Mill, Phase 1 capital including commissioning totaled approximately $19 million (depending on the offset value of NdPr production during the commissioning process, which has yet to be sold). This is favorable to our initial budget by approximately $6 million due to higher than expected quantities of NdPr produced during commissioning.
During Phase 2, Energy Fuels expects to expand its NdPr separation capabilities at the Mill, with an expected capacity to process approximately 30,000 to 60,000 tonnes of monazite per year, containing approximately 15,000 to 30,000 tonnes of TREO, containing approximately 3,000 to 6,000 tonnes of NdPr per year, or sufficient NdPr for 1.5 to 6.0 million EVs per year. Phase 2 is also expected to add a dedicated monazite “crack-and-leach” circuit to the Mill’s existing leach circuits, which may be developed as the first stage of Phase 2, prior to construction of the expanded NdPr separation capabilities. The Company expects to complete Phase 2 in 2028, subject to licensing, financing, and receipt of sufficient monazite feed.
During Phase 3, Energy Fuels expects to add “heavy” REE separation capabilities at the Mill, including the production of Dy, Tb, and potentially other separated REE’s and advanced materials. The Company will also evaluate the potential to produce lanthanum (“La”) and cerium (“Ce”) products, along with potentially other REE products. Monazite naturally contains higher concentrations of “heavy” REEs, including Dy and Tb, versus many other REE-bearing ores, mainly due to the presence of another REE-bearing phosphate mineral called “xenotime.” Phase 3 is expected to enable Energy Fuels to produce separated Dy, Tb, and potentially other “light” and “heavy” products. Prior to the construction of Phase 3, the “heavy” Sm+ RE carbonate produced during Phases 1 and 2 will either be sold on the market or stockpiled at the Mill as feed for separation into Dy and Tb and potentially other separated REE's and advanced materials at the Mill once the Phase 3 separation circuit is available. The Company expects to complete Phase 3 in 2028, subject to licensing, financing, and receipt of sufficient feed.
In addition to the acquisition of Base Resources and the Donald Project JV with Astron described above, the Company completed its purchase of the Bahia Project in Brazil on February 10, 2023. The Bahia Project is a well-known HMS deposit that has the potential to supply 3,000 – 10,000 tonnes of natural monazite per year to the Mill for decades for processing into high-purity REE oxides and other materials. 3,000 – 10,000 tonnes of monazite contains approximately 1,500 – 5,000 tonnes of TREO, including 300 – 1,000 tonnes of NdPr and significant commercial quantities of Dy and Tb. The Bahia Project alone would be expected to supply enough NdPr oxide to power 150,000 to 1 million EVs per year. While Energy Fuels’ primary interest in acquiring the Bahia Project is the REE-bearing monazite, the Bahia Project is also expected to produce large quantities of high-quality ilmenite and rutile (titanium) and zircon (zirconium) minerals that are also in high demand.
The acquisition of the Bahia Project is a part of the Company’s efforts to build a large and diverse book of monazite supply for its rapidly advancing REE processing business. The Company expects to procure monazite 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, its acquisition of Base Resources and the Toliara Project and its joint venture interest in the Donald Project.
Recovering Medical Isotopes for Advanced Cancer Therapies
On August 16, 2024, the Company acquired RadTran, a private company specializing in the separation of critical radioisotopes, to further the Company’s plans for development and production of medical isotopes used in cancer treatments. RadTran’s expertise includes separation of Ra-226 and Ra-228 from uranium process streams. This strategic acquisition is expected to significantly enhance Energy Fuels’ planned capabilities to address the global shortage of these essential isotopes used in emerging TAT for cancer treatment. See Note 3 – Transactions.
Since July 2021, Energy Fuels and RadTran have been working under a Strategic Alliance Agreement to evaluate the feasibility of recovering Ra-226 and Ra-228 from existing uranium process streams at the Mill. Recovered Ra-226 and Ra-228 would be made available to the pharmaceutical industry and others to enable the production of Ac-225, Pb-212 and potentially other
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leading medically attractive TAT isotopes. These isotopes are critical components in the development of targeted alpha therapies, which offer promising new treatments for various cancers. The global shortage of Ra-226 and Ra-228 currently presents a significant barrier to the advancement and commercialization of these therapies.
Energy Fuels received regulatory approval and licensing in 2023 for the concentration of R&D quantities of Ra-226 at the Mill and is currently completing engineering on its R&D pilot facility for Ra-226 production. During the remainder of 2024, Energy Fuels plans to set up the first stages of the pilot facility and expects to produce R&D quantities of Ra-226 for testing by end-users of the product. Upon successful production of R&D quantities of Ra-226, Energy Fuels plans to develop capabilities at the Mill for the commercial-scale production of Ra-226 and potentially Ra-228 in 2027-2028, conditional on completion of engineering design, securing sufficient offtake agreements for final radium production, and receipt of all required regulatory approvals. The Company’s current R&D activities are being conducted using existing Mill facilities without the need for capital improvements of any significance. Capital development for future commercial production capabilities, upon successful production at the R&D level, would be expected to be supported by future offtake agreements for radium production.
Under the Acquisition, the purchase price paid by Energy Fuels to the owners of RadTran consisted of: (i) on closing, $1.5 million in cash, $1.5 million in Common Shares and the grant of a 2% royalty on future revenues from the sale of produced radium, as well as certain other contractual commitments; and up to an additional $14 million in cash and Common Shares based on the satisfaction of a number of performance-based milestones, including achieving initial production, securing suitable offtake agreements to justify commercial production and reaching commercial production. See Note 3 – Transactions for more information.
The San Juan County Clean Energy Foundation
On September 16, 2021, the Company announced its establishment of the San Juan County Clean Energy Foundation (the “Foundation”), a fund specifically designed to contribute to the communities surrounding the Mill in southeastern Utah. Energy Fuels deposited an initial $1 million into the Foundation at the time of formation and now provides ongoing funding equal to 1% of the Mill’s revenues, thereby providing an ongoing source of funding to support local priorities. The Foundation focuses on supporting education, the environment, health/wellness, and local economic development in the City of Blanding, San Juan County, the White Mesa Ute Community, the Navajo Nation and other area communities.
An Advisory Board, comprised of local citizens from San Juan County, evaluates grant applications on a quarterly basis and makes recommendations to the Foundation’s Managers for final review and approval. As of September 30, 2024, the Foundation has awarded 25 grants totaling $0.55 million, of which $0.25 million was committed to American Indian initiatives.
Market Update
Uranium
According to monthly price data from TradeTech LLC (“TradeTech”), uranium spot prices decreased by 4% during the three months ended September 30, 2024 from $85.00 per pound as of June 30, 2024 to $82.00 per pound as of September 30, 2024. Weekly uranium spot prices per TradeTech during the third quarter ranged from a high of $86.00 per pound during the week of July 12, 2024 to a low of $79.00 per pound during the week of August 30, 2024. TradeTech price data indicates that long-term U3O8 prices increased from $80.00 as of June 30, 2024 to $82.00 as of September 30, 2024. On October 28, 2024, TradeTech reported a spot price of $81.00 per pound and a long-term price of $82.00 per pound U3O8.
The Company continues to believe that certain uranium supply and demand fundamentals point to higher sustained uranium prices in the future, including significant production cuts in recent years, along with significant increased demand from utilities, financial entities, traders and producers. Recently, large technology companies including Google, Microsoft and Amazon have announced their interest in using nuclear energy to meet growing demand for energy needed for artificial intelligence. Globally, the Company believes that nuclear energy is seeing greater acceptance by governments and policymakers as a solution to addressing the issues of climate change, increased energy demand and energy security. The Company believes that financial entities purchasing uranium on the spot market for long-term investment continue to represent a fundamental shift in the uranium market due to increasing demand and removing readily available material from the market that would otherwise serve as supply to utilities, traders and others. Further, the Company believes that Russia’s ongoing invasion of Ukraine has sparked a widespread trend away from Russian-sourced nuclear fuel supply. On May 13, 2024, President Joe Biden signed the Prohibiting Russian Uranium Imports Act, which bans the import of Russian uranium products into the U.S. Under the ban, which commences 90 days after enactment and terminates in 2040, all imports of uranium products from Russia will be banned, subject to waivers in the event “no alternative viable source of low-enriched uranium is available to sustain the continued operation of a nuclear reactor or U.S. nuclear energy company.” However, the U.S. Department of Energy (“DOE”) is currently granting waivers to the ban.
40
The Company also continues to believe that a large degree of uncertainty exists in the market, primarily due to transportation issues, trade issues, the life of existing uranium mines, uncertainty on the timing and success of the commissioning of new mines, conversion and enrichment bottlenecks, the opaque nature of inventories and secondary supplies, unfilled utility demand, geopolitical risks including Russia’s ongoing invasion of Ukraine, and the market activity of state-owned uranium and nuclear companies.
The Company continues to closely monitor uranium markets and seek additional opportunities to enter into long-term sales contracts with utilities at prices that sustain production, cover overhead costs and provide a reasonable rate-of-return to investors while also providing the Company and its shareholders with exposure to further upside price movements. The Company commenced production at its Pinyon Plain, La Sal and Pandora mines in 2023 and is also continuing to evaluate its ramp-up back into production at certain of its conventional mines in anticipation of its fulfillment obligations, as well as the timing and method for the purchase and disposition of its uranium inventories, including selling into the spot market or as a part of one or more term contracts.
Rare Earth Elements
REEs are a group of 17 chemical elements (the 15 elements in the lanthanum series, plus yttrium and scandium) that are used in a variety of clean energy and advanced technologies, including wind turbines, EVs, cell phones, computers, flat panel displays, advanced optics, catalysts, medicine and national defense applications. Monazite, the source of REEs currently utilized by the Company, also contains significant recoverable quantities of uranium, which fuels the production of carbon-free electricity using nuclear technology. According to industry analyst Wood-Mackenzie, most demand for REEs is in the form of separated REEs, “as most end-use applications require only one or two separated rare earth compounds or products.” (Wood Mackenzie, Rare Earths, Outlook to 2030, 20th Edition). The main uses for REEs include: (i) battery alloys; (ii) catalysts; (iii) ceramics, pigments and glazes; (iv) glass polishing powders and additives; (v) metallurgy and alloys; (vi) permanent magnets; (vii) phosphors; and (viii) others (Adamas Intelligence). By volume, REEs used for permanent magnets within a plug-in hybrid EV (PHEV) and EV drive unit motor (neodymium (Nd), praseodymium (Pr), dysprosium (Dy), and terbium (Tb)) and catalysts (cerium (Ce) and lanthanum (La)) comprised 60% of total consumption, yet over 90% of the value consumed.
Typical natural monazite sands from the southeast U.S. average approximately 55% TREO and 0.20% uranium, which is the typical grade of uranium found in uranium mines that have historically fed the Mill. Of the 55% TREO typically found in the monazite sands, the NdPr comprises approximately 22% of the TREO. NdPr is among the most valuable of the REEs, as it is the key ingredient in the manufacture of high-strength permanent magnets, which are essential to the lightweight and powerful synchronous motors required in EVs and permanent magnet wind turbines used for renewable energy generation, as well as in an array of other modern technologies, including mobile devices and defense applications. Monazite concentrates also contain higher concentrations of “heavy” REEs, including dysprosium (Dy) and terbium (Tb) used in permanent magnets, relative to other common REE ores.
The Company is currently primarily focused on NdPr, Tb, Dy and, to a lesser extent, La, Ce and Sm. The REE supply chain starts at a mine. REEs are mined both as a primary target, like the Mountain Pass REE mine in California, and as a byproduct, which is the case of Chemours’ Offerman Mineral Sand Plant as well as HMS from the Donald Project, Toliara Project and Bahia Project, where the natural monazite sands are physically separated from the other mined sands. Mining creates an ore, which in the case of the Chemours, Donald, Toliara and Bahia material is the natural monazite sands that are physically separated from the other mined mineral sands. The ore then goes through a process of cracking and cleaning at the Mill that may include acids or caustic solutions, elevated temperature and pressure to recover the uranium and free the REEs from the mineral matrix. After removal of the uranium, which will be sold into the commercial nuclear fuel cycle for the creation of carbon-free nuclear energy, this solution is cleaned of any remaining deleterious elements (including remaining radioactive elements) and made into an RE Carbonate, which is a form acceptable as an SX feedstock for REE separation. SX facilities then use solvents and a series of mixer-settlers for the separation of the REEs in the RE Carbonate from each other and to create the desired purified REE products (often as oxides) for the market or particular end user. Separated REE products are typically sold to various markets, depending on the use. Separated REE products can be made into REE metals and metal-alloys, which are used for magnets and other applications.
To date, substantially all RE Carbonate produced by the Mill has been sold to Neo. The Company also recently commissioned its Phase 1 circuit capable of producing up to 850 to 1,000 tonnes of separated NdPr per year directly from leach solutions at the Mill (without the need to prepare an RE Carbonate) and is designing facilities capable of producing up to 4,000 to 6,000 tonnes of separated NdPr per year, along with separated Dy, Tb and other REEs. The Company is also evaluating the potential to produce other downstream REE materials, including REE metals and alloys, in the future at the Mill or elsewhere in the U.S.
REEs are commercially transacted in a number of forms and purities. Therefore, there is no single price for REEs collectively, but numerous prices for various REE compounds and materials. The primary value that the Company expects to generate in the
41
short- to medium-term will come from NdPr, Dy, Tb, Ce and La, as the price the Company receives from the sale of its RE Carbonate is tied to the prices of those REE oxides. In addition, as discussed above, the Company commenced production of separated NdPr in 2024. The following table sets forth certain REE compounds and materials mid-point prices in RMB¥/kg and their approximate value in USD$/kg, according to date from Asian Metal:
June 30, 2024
September 30, 2024
Percent
October 28, 2024
Product
(RMB¥/kg)
($/kg)
(RMB¥/kg)
($/kg)
Change
(RMB¥/kg)
($/kg)
NdPr Oxide
(Pr6O11: 25%;
Nd2O3): 75%)
361
49.63
425
60.55
18
%
421
59.01
Ce Oxide (99.9%)
7.25
1.00
7.05
1.01
(3)
%
6.95
0.98
La Oxide (99.9%)
3.90
0.54
3.70
0.53
(5)
%
3.70
0.52
Dy Oxide
1,810
249
1,770
252
(2)
%
1,740
244
Tb Oxide
5,350
737
5,800
827
8
%
5,850
821
The REE market is dominated by China, which produces nearly 90% of refined REE products according to the International Energy Agency. According to Wood Mackenzie, “The rare earths industry is poised for significant growth as global demand, particularly driven by renewable energy technologies like electric vehicles and wind turbines, continues to rise. Efforts to diversify supply chains are intensifying, with new mining projects being explored worldwide. Despite some short-term market pressures, long-term prospects remain strong, with prices for NdPr oxide expected to stabilize as market sentiment is expected to improve through 2024.”
While China consumes the most REEs in its manufacturing industries, much of it is consumed in the manufacture of end-use goods for export and by non-Chinese companies operating within China. REE separation facilities are additionally located in Vietnam, India, as well as Neo’s Silmet in Estonia, and use a variety of feedstocks and sources with small-scale or experimental operational facilities located elsewhere (Russia included).
The Company sees its commercial production of RE Carbonate to date and its recent commercial production of separated NdPr in 2024 as the first steps in an effort to restore the REE supply chain in the U.S., where one currently does not exist. By acquiring the Bahia Project, the Toliara Project and the right to earn into a 49% interest in the Donald Project, the Company has taken the second step in restoring the REE supply chain in the US. Upon successful development of those projects, expected to be in the 2027-2028 time frame, the Company will have secured monazite sources capable of producing up to approximately 4,500 tonnes per year of separated NdPr, of which up to 1,000 tonnes per year can be produced utilizing existing Mill facilities. The Company’s next step in restoring the REE supply chain in the US will be the development of the Mill’s planned hase 2 and 3 separation circuits, also expected in the 2027-2028 time frame, which would allow the Mill to produce up to 6,000 tonnes per year of separated NdPr oxides, along with 200 to 300 tonnes per year of separated Dy and Tb, which would utilize all the monazite expected to be mined from the Company’s Bahia, Toliara and Donald Projects, along with additional monazite expected to be sourced from Chemours’ mines on the east coast of the US and others. That amount of separated REE oxides would provide the REEs needed for the permanent magnets in up to 6 million EVs/PHEVs per year. As demand for clean energy technologies and other advanced technologies increases in the coming years, the Company expects demand and prices for REEs to increase. Increases in supply sources for REEs are expected in conjunction with this anticipated rising demand.
Vanadium
Vanadium is a metallic element that, when converted into ferrovanadium (“FeV”) (an alloy of vanadium and iron), is used primarily as an additive to strengthen and harden steel and make it anti-corrosive. According to market consultant FastMarkets, over 90% of FeV is used in the steel industry. In addition, vanadium is used in the aerospace and chemical industries, and continues to see interest in energy storage technologies, including vanadium redox flow batteries. China is the largest global producer of vanadium, with additional production coming from Russia, South Africa, and Brazil (Roskill).
The Company believes one of the main drivers of V2O5 prices is demand for steel, including global prospects for economic growth, construction, infrastructure and auto manufacturing. According to Fastmarkets, spot vanadium prices have decreased due to “lower long-term contract offers from the major producers”. The same report indicated that “lower spot vanadium pentoxide prices upstream also put pressure on China's ferro-vanadium producers and traders to lower their offers, with less buying activity heard in the market.” China domestic vanadium prices dip amid reduced long-term contract offers, September 26, 2024.
42
During the three months ended September 30, 2024, the mid-point price of vanadium in Europe decreased by 14% from $6.00 per pound V2O5 as of June 30, 2024 to $5.19 per pound V2O5 as of September 30, 2024. The price of vanadium has ranged from a high of $6.00 per pound V2O5 between July 1, 2024 and August 1, 2024 and a low of $5.19 per pound V2O5 between September 27, 2024 and September 30, 2024. As of October 28, 2024, the price of vanadium was $5.25 per pound V2O5.
Known Trends or Uncertainties
The Company has had negative net cash flows from operating activities and net losses in previous years, in part due to depressed uranium and vanadium prices, along with low quantities of monazite to process into salable RE Carbonate or separated NdPr, which has not allowed the Company to realize economies of scale. We are not aware at this time of any trends or uncertainties that have had or are reasonably likely to have a material impact on revenues or income of the Company, other than: (i) recent strengthening of uranium markets, which could result in the Company selling inventories and future production at increased prices and/or signing additional contracts with nuclear utilities for the long-term supply of uranium; (ii) U.S. government laws and programs, including the recent ban on Russian uranium imports and efforts to restore domestic nuclear fuel capabilities, which could result in improved uranium sales prices; (iii) volatility in prices of uranium, vanadium, HMS, REEs and our other primary metals; and (iv) the Company’s HMS, REE and TAT radioisotope initiatives, which, if successful, could result in improved results from operations in future years. We are not aware at this time of any events that are reasonably likely to cause a material change in the relationship between costs and revenue of the Company.
Continued Efforts to Minimize Costs
Although the Company is pursuing two new initiatives - its HMS/REE and TAT radioisotope initiatives - in addition to its existing uranium and vanadium products, which will require the Company to grow certain of its operations, the Company will continue to seek ways to minimize the costs of all its operations where feasible while maintaining its critical capabilities, manpower and properties.
43
Results of Operations
Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023
The following table summarizes the results of operations for the three months ended September 30, 2024 and 2023 (in thousands of U.S. dollars):
Three Months Ended September 30,
Increase
Percent
2024
2023
(Decrease)
Change
Revenues
Uranium concentrates
$
4,000
$
10,473
$
(6,473)
(62)
%
RE Carbonate
—
288
(288)
*
Alternate Feed Materials, processing and other
47
226
(179)
(79)
%
Total revenues
4,047
10,987
(6,940)
(63)
%
Costs applicable to revenues
Costs applicable to uranium concentrates
1,847
5,266
(3,419)
(65)
%
Costs applicable to RE Carbonate
—
282
(282)
*
Total costs applicable to revenues
1,847
5,548
(3,701)
(67)
%
Other operating costs and expenses
Exploration, development and processing
3,619
2,516
1,103
44
%
Standby
1,645
2,281
(636)
(28)
%
Accretion of asset retirement obligations
327
282
45
16
%
Selling, general and administration (excluding share-based compensation)
6,033
6,011
22
—
%
Share-based compensation
1,027
1,293
(266)
(21)
%
Transactions and integration related costs
1,462
—
1,462
*
Total operating loss
(11,913)
(6,944)
(4,969)
72
%
Other income (loss)
Gain on sale of assets
8
—
8
*
Other income (loss)
(174)
17,413
(17,587)
*
Total other income (loss)
(166)
17,413
(17,579)
*
Net income (loss)
$
(12,079)
$
10,469
$
(22,548)
*
Basic net income (loss) per common share
$
(0.07)
$
0.07
$
(0.14)
*
Diluted net income (loss) per common share
$
(0.07)
$
0.07
$
(0.14)
*
*Not meaningful.
44
The following table sets forth selected operating data and financial metrics for the three months ended September 30, 2024 and 2023.
Three Months Ended September 30,
Increase
Percent
2024
2023
(Decrease)
Change
Volumes sold
Uranium concentrates (lbs.)
50,000
180,000
(130,000)
(72)
%
RE Carbonate (kgs.)
—
26,167
(26,167)
*
Realized sales price
Uranium concentrates ($/lb.)
$
80.00
$
58.18
$
21.82
38
%
RE Carbonate ($/kg.)
$
—
$
10.99
$
(10.99)
*
Costs applicable to revenues
Uranium concentrates ($/lb.)
$
36.93
$
29.25
$
7.68
26
%
RE Carbonate ($/kg.)
$
—
$
10.75
$
(10.75)
*
*Not meaningful.
For the three months ended September 30, 2024, we incurred a net loss of $12.08 million or $0.07 per share compared to net income of $10.47 million or $0.07 per share for the three months ended September 30, 2023. The change between periods was primarily due to mark-to-market unrealized gains on marketable securities and our Convertible Note as well as higher revenues during the three months ended September 30, 2023 combined with transaction and integration related costs for the acquisition of Base Resources and formation of the Donald Project JV of $1.46 million during the three months ended September 30, 2024.
Revenues
Uranium concentrates
Revenues from uranium concentrates decreased by $6.47 million to $4.00 million for the three months ended September 30, 2024 from $10.47 million for the three months ended September 30, 2023 due to lower volumes sold, partially offset by higher average realized sales prices. Lower sales volumes (calculated as the change in period-to-period sales volumes times the prior period realized price) accounted for an approximate $7.56 million decrease in revenue between periods. Higher realized sales prices (calculated as the change in the period-to-period average realized price times the current period sales volume sold) accounted for an approximate $1.09 million increase between periods.
RE Carbonate
Revenues from RE Carbonate were $0.29 million for the three months ended September 30, 2023 due to a completed sale of 26,167 kilograms at a realized sales price of $10.99 per kilogram. There were no revenues from RE Carbonate for the three months ended September 30, 2024.
Costs Applicable to Revenues
Costs applicable to uranium concentrates
Costs applicable to uranium concentrates decreased by $3.42 million to $1.85 million for the three months ended September 30, 2024 from $5.27 million for the three months ended September 30, 2023 due to lower volumes sold between periods, partially offset by higher weighted average costs per pound. Lower sales volumes (calculated as the change in period-to-period sales volumes times the prior period weighted average costs per pound) accounted for an approximate $3.80 million decrease in costs between periods. Higher weighted average costs per pound (calculated as the change in the period-to-period weighted average costs per pound times the current period sales volumes sold) accounted for an approximate $0.38 million increase in costs between periods.
45
Costs applicable to RE Carbonate
Costs applicable to RE Carbonate were $0.28 million for the three months ended September 30, 2023 due to a completed sale of 26,167 kilograms at a weighted average costs of $10.75 per kilogram. There were no costs applicable to RE Carbonate for the three months ended September 30, 2024.
Other Operating Costs and Expenses
Exploration, development and processing
Exploration, development and processing costs increased by $1.10 million to $3.62 million for the three months ended September 30, 2024 from $2.52 million for the three months ended September 30, 2023. The increase is primarily due to a net realizable value adjustment to vanadium as a result of lower vanadium prices during the three months ended September 30, 2024 and higher exploration expenses for the Bahia Project between periods.
While we expect exploration and development costs related to our mineral properties to provide added future value to the Company, the Company expenses these costs in part due to the fact that the Company has not established Proven Mineral Reserves or Probable Mineral Reserves as defined by S-K 1300 or NI 43-101 through the completion of a feasibility or pre-feasibility study for any of the Company’s projects as of September 30, 2024, with the exception of its Sheep Mountain and Pinyon Plain Projects.
Standby
Standby costs are related to the care and maintenance of the standby mines and are expensed as incurred. Standby costs decreased by $0.63 million to $1.65 million for the three months ended September 30, 2024 from $2.28 million for the three months ended September 30, 2023 primarily due to the conversion of La Sal Complex into development status from standby status during the fourth quarter of 2023 and then to production status in the first quarter of 2024.
Selling, general and administrative (excluding share-based compensation)
Selling, general and administrative expenses (excluding share-based compensation) were relatively flat at $6.03 million and $6.01 million for three months ended September 30, 2024 and 2023, respectively.
Share-based compensation
Share-based compensation decreased by $0.26 million to $1.03 million for the three months ended September 30, 2024 from $1.29 million for the three months ended September 30, 2023 primarily due to the derived service period completed for most stock appreciation rights, partially offset by the annual 2024 grant of awards coupled with a higher grant date fair value and additional headcount.
Transactions and integration related costs
Transactions and integration related costs are for legal, advisory and accounting fees directly related to the acquisition of Base Resources on October 2, 2024 and the formation of the Donald Project JV on June 3, 2023. Transactions and integration related costs were $1.46 million for the three months ended September 30, 2024. There were no transactions and integration related costs incurred during the three months ended September 30, 2023. See Note 3 – Transactions and Note 18 – Subsequent Event for more information.
Other Income
Other income (loss)
Other loss was $0.17 million, net for the three months ended September 30, 2024. Other income was $17.41 million, net for the three months ended September 30, 2023. The change between periods was primarily due to market-to-market gains on marketable securities and our Convertible Note during the three months ended September 30, 2023. See Note 13 - Supplemental Financial Information for more information.
46
Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023
The following table summarizes the results of operations for the nine months ended September 30, 2024 and 2023 (in thousands of U.S. dollars):
Nine Months Ended September 30,
Increase
Percent
2024
2023
(Decrease)
Change
Revenues
Uranium concentrates
$
37,904
$
33,278
$
4,626
14
%
Vanadium concentrates
—
871
(871)
*
RE Carbonate
—
2,559
(2,559)
*
Alternate Feed Materials, processing and other
288
755
(467)
(62)
%
Total revenues
38,192
37,463
729
2
%
Costs applicable to revenues
Costs applicable to uranium concentrates
16,580
15,318
1,262
8
%
Costs applicable to vanadium concentrates
—
551
(551)
*
Costs applicable to RE Carbonate
—
2,312
(2,312)
*
Total costs applicable to revenues
16,580
18,181
(1,601)
(9)
%
Other operating costs and expenses
Exploration, development and processing
8,911
9,432
(521)
(6)
%
Standby
4,641
6,175
(1,534)
(25)
%
Accretion of asset retirement obligations
916
902
14
2
%
Selling, general and administration (excluding share-based compensation)
17,549
16,751
798
5
%
Share-based compensation
3,784
4,033
(249)
(6)
%
Transactions and integration related costs
4,747
—
4,747
*
Total operating loss
(18,936)
(18,011)
(925)
5
%
Other income
Gain on sale of assets
10
119,257
(119,247)
*
Other income
4,066
18,603
(14,537)
(78)
%
Total other income
4,076
137,860
(133,784)
*
Net income (loss)
$
(14,860)
$
119,849
$
(134,709)
*
Basic net income (loss) per common share
$
(0.09)
$
0.76
$
(0.85)
*
Diluted net income (loss) per common share
$
(0.09)
$
0.75
$
(0.84)
*
*Not meaningful.
47
The following table sets forth selected operating data and financial metrics for the nine months ended September 30, 2024 and 2023.
Nine Months Ended September 30,
Increase
Percent
2024
2023
(Decrease)
Change
Volumes sold
Uranium concentrates (lbs.)
450,000
560,000
(110,000)
(20)
%
Vanadium concentrates (lbs.)
—
79,344
(79,344)
*
RE Carbonate (kgs.)
—
153,353
(153,353)
*
Realized sales price
Uranium concentrates ($/lb.)
$
84.23
$
59.42
$
24.81
42
%
Vanadium concentrates ($/lb.)
$
—
$
10.98
$
(10.98)
*
RE Carbonate ($/kg.)
$
—
$
16.69
$
(16.69)
*
Costs applicable to revenues
Uranium concentrates ($/lb.)
$
36.84
$
27.35
$
9.49
35
%
Vanadium concentrates ($/lb.)
$
—
$
6.94
$
(6.94)
*
RE Carbonate ($/kg.)
$
—
$
15.08
$
(15.08)
*
*Not meaningful.
For the nine months ended September 30, 2024, we incurred a net loss of $14.86 million or $0.09 per share compared to net income of $119.85 million or $0.76 per share for the nine months ended September 30, 2023. The change between periods was primarily due to a gain of $119.26 million related to the sale of our Alta Mesa ISR Project in February 2023 and transactions and integration related costs for direct legal, advisory and accounting fees for the acquisition of Base Resources and formation of the Donald Project JV of $4.75 million incurred during 2024, partially offset by an increase in revenue from sales of uranium concentrates driven by higher realized sales prices between periods.
Revenues
Uranium concentrates
Revenues from uranium concentrates increased by $4.62 million to $37.90 million for the nine months ended September 30, 2024 from $33.28 million for the nine months ended September 30, 2023 primarily due to higher realized sales prices, partially offset by lower volumes sold between periods. Higher realized prices (calculated as the change in the period-to-period average realized price times the current period sales volumes sold) accounted for an approximate $11.16 million increase in between periods. Lower sales volumes (calculated as the change in period-to-period sales volumes times the prior period realized price) accounted for an approximate $6.54 million decrease in revenue between periods.
Vanadium concentrates
Revenues from vanadium concentrates were $0.87 million for the nine months ended September 30, 2023 due to the completed sale of 79,344 pounds at a realized sales price of $10.98 per pound. There were no sales of vanadium concentrates for the nine months ended September 30, 2024.
RE Carbonate
Revenues from RE Carbonate were $2.56 million for the nine months ended September 30, 2023 due to the completed sale of 153,353 kilograms at a realized sales price of $16.69 per kilogram. There were no sales of RE Carbonate for the nine months ended September 30, 2024.
48
Alternate Feed Materials, processing and other
Revenues from Alternate Feed Materials, processing and other decreased by $0.47 million to $0.29 million for the nine months ended September 30, 2024 from $0.76 million for the nine months ended September 30, 2023 primarily due to fewer services provided to IsoEnergy Ltd., as successor in interest to CUR, under our mine operating agreement with CUR.
Costs Applicable to Revenues
Costs applicable to uranium concentrates
Costs applicable to uranium concentrates increased by $1.26 million to $16.58 million for the nine months ended September 30, 2024 from $15.32 million for the nine months ended September 30, 2023 due to higher weighted average costs per pound partially offset by lower volumes sold between periods. Higher weighted average costs per pound (calculated as the change in the period-to-period weighted average costs per pound times the current period sales volumes sold) accounted for an approximate $4.27 million increase in costs between periods. Lower sales volumes (calculated as the change in period-to-period sales volumes times the prior period weighted average costs per pound) accounted for an approximate $3.01 million decrease in costs between periods.
Costs applicable to vanadium concentrates
Costs applicable to vanadium concentrates were $0.55 million for the nine months ended September 30, 2023 due to the completed sale of 79,344 pounds at a weighted average cost of $6.94 per pound. There were no costs applicable to vanadium concentrates for the nine months ended September 30, 2024.
RE Carbonate
Costs applicable to RE Carbonate were $2.31 million for the nine months ended September 30, 2023 due to the completed sales of 153,353 kilograms of our RE Carbonate inventories at a weighted average cost of $15.08 per kilogram. There were no costs applicable to RE Carbonate for the nine months ended September 30, 2024.
Other Operating Costs and Expenses
Exploration, development and processing
Exploration, development and processing costs decreased by $0.52 million to $8.91 million for the nine months ended September 30, 2024 from $9.43 million for the nine months ended September 30, 2023 primarily due to lower costs between periods due to the RE Carbonate production program at the Mill during the nine months ended September 30, 2023, which included net realizable value adjustments to RE Carbonate inventory during that period, partially offset by net realizable value adjustments to vanadium as a result of lower vanadium prices during the nine months ended September 30, 2024.
While we expect exploration and development costs related to our mineral properties to provide future value to the Company, the Company expenses these costs in part due to the fact that the Company has not established Proven Mineral Reserves or Probable Mineral Reserves as defined by S-K 1300 or NI 43-101 through the completion of a feasibility or pre-feasibility study for any of the Company’s projects as of September 30, 2024, with the exception of its Sheep Mountain and Pinyon Plain Projects.
Standby
Standby costs are related to the care and maintenance of the standby mines and are expensed as incurred. Standby costs decreased by $1.54 million to $4.64 million for the nine months ended September 30, 2024 from $6.18 million for the nine months ended September 30, 2023 primarily due to the Alta Mesa divestiture on February 14, 2023 and the conversion of La Sal Complex into development status from standby status during the fourth quarter of 2023 and then to production status the first quarter of 2024.
Selling, general and administrative (excluding share-based compensation)
Selling, general and administrative expenses (excluding share-based compensation) increased by $0.80 million to $17.55 million for the nine months ended September 30, 2024 from $16.75 million for the nine months ended September 30, 2023 primarily due to higher salaries and benefits in connection with additional headcount associated with the Company’s efforts to enhance its business processes to prepare for the current and future growth in activity in our uranium and REE operations between periods. Our headcount increased to 195 full-time employees as of September 30, 2024 from 140 full-time employees as of September 30, 2023.
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Share-based compensation
Share-based compensation decreased by $0.25 million to $3.78 million for the nine months ended September 30, 2024 from $4.03 million for the nine months ended September 30, 2023 primarily due to the derived service period completed for most stock appreciation rights, partially offset by the annual 2024 grant of awards coupled with a higher grant date fair value and additional headcount.
Transactions and integration related costs
Transactions and integration related costs are for legal, advisory and accounting fees directly related to the acquisition of Base Resources on October 2, 2024 and the formation of the Donald Project JV on June 3, 2024. Transactions and integration related costs were $4.75 million for the nine months ended September 30, 2024. There were no transactions and integration related costs incurred during the nine months ended September 30, 2023. See Note 3 – Transactions and Note 18 – Subsequent Events for more information.
Other Income
Gain on sale of assets
For the nine months ended September 30, 2023, we recognized a gain on sale of assets of $119.26 million related to the sale of our Alta Mesa ISR Project to enCore for total consideration of $120 million consisting of $60 million cash and the $60 million Convertible Note as well as a $2.81 million gain related to the sale of our PFN Assets utilized at Alta Mesa. See Note 6 – Property, Plant and Equipment and Mineral Properties for more information.
Other income
Other income decreased by $14.53 million to $4.07 million, net for the nine months ended September 30, 2024 from $18.60 million, net for the nine months ended September 30, 2023 primarily due to market-to-market gains on marketable securities and our Convertible Note during the nine months ended September 30, 2024. See Note 13 – Supplemental Financial Information for more information.
LIQUIDITY AND CAPITAL RESOURCES
Funding of Major Cash Requirements
Our primary short-term and long-term cash requirements are to fund working capital needs and operating expenses, capital expenditures and potential future growth opportunities through ongoing initiatives such as our REE program, Bahia Project, REE separation capacity expansion, Pinyon Plain operational production, TAT radioisotope initiative and earn-in to the Donald Project JV, the acquisition of Base Resources and its Toliara and Kwale Projects, as well as potential business and property acquisitions.
We expect to be able to fund working capital and operating expenses, capital expenditures and currently planned growth initiatives over the next 12 months through available cash balances and product inventory sales, if needed. We may also increase our working capital through issuances of Common Shares pursuant to our ATM in appropriate circumstances. We intend to continue to pursue the acquisition of monazite mineral rights and other uranium producing assets.
Shares Issued for Cash
The Company has an ATM in place, which allows the Company to make Common Share distributions to the extent qualified under a U.S. shelf registration statement on Form S-3 (“Shelf Registration Statement”) and one or more prospectus supplements. The Company’s current Shelf Registration Statement was declared effective on March 22, 2024 and permits the Company to sell any combination of its common shares, warrants, rights, subscriptions receipts, preferred shares, debt securities and/or units in one or more offerings. In conjunction with our Shelf Registration Statement, we filed a Prospectus Supplement with the SEC to our Shelf Registration Statement, qualifying for distribution up to $150.00 million in additional Common Shares under the ATM. Sales made pursuant to the above summarized U.S. shelf registration statements and prospectus supplements are made on the NYSE American at then-prevailing market prices, or any other existing trading market of the Common Shares in the U.S. During the nine months ended September 30, 2024, the Company issued 619,910 Common Shares for net proceeds of $4.78 million under the ATM. See Note 9 – Capital Stock for more information.
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Working Capital and Future Requirements for Funds
As of September 30, 2024, the Company had working capital of $183.16 million, including $47.46 million in cash and cash equivalents, $101.15 million of marketable securities, approximately 235,000 pounds of uranium finished goods inventory and approximately 905,000 pounds of vanadium finished goods inventory. The Company believes it has sufficient cash and resources to carry out its business plan for at least the next twelve months.
The Company manages liquidity risk through the management of its working capital and its capital structure.
Cash and Cash Flows
The following table summarizes our cash flows (in thousands):
Nine Months Ended September 30,
2024
2023
Net cash used in operating activities
$
(7,988)
$
(10,982)
Net cash used in investing activities
(3,590)
(15,892)
Net cash provided by financing activities
3,558
15,038
Effect of exchange rate fluctuations on cash held in foreign currencies
(265)
33
Plus: release of restricted cash related to sale of assets
—
3,590
Net change in cash, cash equivalents and restricted cash
(8,285)
(8,213)
Cash, cash equivalents and restricted cash, beginning of period
75,024
80,269
Cash, cash equivalents and restricted cash, end of period
$
66,739
$
72,056
Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023
Net cash used in operating activities
Net cash used in operating activities decreased by $2.99 million to $7.99 million for the nine months ended September 30, 2024 from $10.98 million for the nine months ended September 30, 2023. The change between periods was primarily due to higher revenues from the sales of uranium concentrates between periods due to a higher realized sales price, partially offset by higher costs applicable to uranium concentrates due to higher costs per pound between periods and transactions and integration costs for legal, advisory and accounting fees directly related to the acquisition of Base Resources and the formation of the Donald Project JV.
Net cash used in investing activities
Net cash used in investing activities decreased by $12.30 million to $3.59 million for the nine months ended September 30, 2024 from $15.89 million for the nine months ended September 30, 2023. The decrease is primarily due to increased maturities of marketable securities of $174.60 million, less additions to property, plant and equipment and mineral properties of $8.90 million (see Note 6 – Property, Plant and Equipment and Mineral Properties for more information), which were partially offset by an increase in purchases of marketable securities of $85.39 million. Further, during the nine months ended September 30, 2023, the Company received proceeds of $56.87 million and $20.00 million from the sale of the Alta Mesa ISR Project and early redemption of our Convertible Note, respectively.
Net cash provided by financing activities
Net cash provided by financing activities was decreased by $11.48 million to $3.56 million for the nine months ended September 30, 2024 from $15.04 million for the nine months ended September 30, 2023. The change between periods was primarily due to lower proceeds of $11.26 million for the issuance of Common Shares for cash, net under the ATM.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of our unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent liabilities. Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. We evaluate our estimates and assumptions on a regular basis. We base
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our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions used in preparation of our financial statements. We provide expanded discussion of our more significant accounting policies, estimates and judgments in the Annual Report on Form 10-K for the year ended December 31, 2023. We believe these accounting policies reflect our more significant estimates and assumptions used in preparation of our financial statements.
Off Balance Sheet Arrangements
See Note 14 – Commitments and Contingencies to the unaudited condensed consolidated financial statements for further information on off balance sheet arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to risks associated with commodity prices, interest rates and credit. Commodity price risk is defined as the potential loss that we may incur as a result of changes in the market value of uranium, vanadium, HMC and REEs. Interest rate risk results from our debt and equity instruments that we issue to provide financing and liquidity for our business. Credit risk arises from the extension of credit throughout all aspects of our business. Industry-wide risks can also affect our general ability to finance exploration, and development of exploitable resources; such effects are not predictable or quantifiable. Market risk is the risk to the Company of adverse financial impact due to change in the fair value or future cash flows of financial instruments as a result of fluctuations in interest rates and foreign currency exchange rates.
Commodity Price Risk
Our profitability is directly related to the market price of uranium, vanadium, REEs and HMC recovered. We may, from time to time, undertake commodity and currency hedging programs, with the intention of maintaining adequate cash flows and profitability to contribute to the long-term viability of the business. We anticipate selling forward in the ordinary course of business if, and when, we have sufficient assets and recovery to support forward sale arrangements, and forward sale arrangements are available on suitable terms. There are, however, risks associated with forward sale programs. If we do not have sufficient recovered product to meet our forward sale commitments, we may have to buy or borrow (for later delivery back from recovered product) sufficient product in the spot market to deliver under the forward sales contracts, possibly at higher prices than provided for in the forward sales contracts, or potentially default on such deliveries. In addition, under forward contracts, we may be forced to sell at prices that are lower than the prices that may be available on the spot market when such deliveries are completed. Although we may employ various pricing mechanisms within our sales contracts to manage our exposure to price fluctuations, there can be no assurance that such mechanisms will be successful. There can also be no assurance that we will be able to enter into term contracts for future sales of uranium, vanadium, RE Carbonate, separated REE oxides or other REE products or HMC at prices or in quantities that would allow us to successfully manage our exposure to price fluctuations.
Interest Rate Risk
The Company is exposed to interest rate risk on its cash equivalents, deposits, and restricted cash. The Company does not use derivatives to manage interest rate risk. Our interest income is earned in U.S. dollars and is not subject to currency risk.
Currency Risk
The foreign exchange risk relates to the risk that the value of financial commitments, recognized assets or liabilities will fluctuate due to changes in foreign currency rates. The Company does not use any derivative instruments to reduce its exposure to fluctuations in foreign currency exchange rates. As the U.S. Dollar is the functional currency of our U.S. operations, the currency risk has been reduced. We maintain a nominal balance in Canadian dollars and Brazilian Real, resulting in a low currency risk relative to our cash and cash equivalent balances. We also hold equity marketable securities in Canadian dollars.
The following table summarizes, in U.S. dollar equivalents, the Company’s foreign currency (Cdn$/R$) exposures as of September 30, 2024 (in thousands):
Cash and cash equivalents
$
631
The table below summarizes a sensitivity analysis for significant unsettled currency risk exposure with respect to our financial instruments as of September 30, 2024 with all other variables held constant. It shows how net income would have been affected by changes in the relevant risk variables that were reasonably possible at that date (in thousands).
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Change for Sensitivity Analysis
Increase (Decrease) in Comprehensive Income
Strengthening net earnings
+1% change in U.S.dollar / Cdn$ or R$
$
28
Weakening net earnings
-1% change in U.S.dollar / Cdn$ or R$
$
(28)
Credit Risk
Credit risk relates to cash and cash equivalents, trade, and other receivables that arise from the possibility that any counterparty to an instrument fails to perform. The Company primarily transacts with highly rated counterparties, and a limit on contingent exposure has been established for any counterparty based on that counterparty’s credit rating. As of September 30, 2024, the Company’s maximum exposure to credit risk was the carrying value of cash and cash equivalents, trade and note receivables and marketable debt securities.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and to ensure that material information required to be disclosed is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding disclosure. The Chief Executive Officer and the Chief Financial Officer, with assistance from other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of September 30, 2024, and, based on their evaluation, have concluded that the disclosure controls and procedures were effective as of such date as was disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II
ITEM 1. LEGAL PROCEEDINGS
We are not aware of any material pending or threatened litigation or of any proceedings known to be contemplated by governmental authorities that are, or would be, likely to have a material adverse effect upon us or our operations, taken as a whole that was not disclosed in the Company’s Form 10-K for the year ended December 31, 2023, or in this Form 10-Q for the three and nine months ended September 30, 2024.
New Material Disclosure Relating to the Kwale Project, Acquired on October 2, 2024
Kwale Project
Royalty dispute
In connection with its acquisition of the Kwale Project in 2010, Base Titanium Limited (“Base Titanium”), a subsidiary of Base Resources, granted a 2% gross revenue royalty to third parties. The royalty is governed by a Royalty Deed dated July 30, 2010, and was split between the parent company of the project’s vendor, Vaaldium Mining Inc., and the then holder of certain rights in respect of the project, Pangea Goldfields Inc. There was a disagreement between Base Titanium and the current holders of the royalty in respect of the royalty’s scope under the Royalty Deed – specifically, whether, and the extent to which, the royalty applies outside the Kwale Special Mining Lease 23 as it existed at the time of the Kwale Project’s acquisition in 2010 (“2010 SML”). The royalty is currently held by Osisko Gold Royalties Ltd (as to 1.5%), TRR Services UK Limited (as to 0.25%) and Elemental Royalties Limited (as to 0.25%).
While all three current royalty holders initially contested Base Titanium’s interpretation of the royalty’s scope, only Osisko Gold Royalties and TRR Services UK have taken formal steps to enforce their respective claimed rights and on March 13, 2023 commenced arbitration proceedings in the London Court of International Arbitration. The arbitral tribunal determined to only register the arbitration for Osisko Gold Royalties. Base Titanium objected to the jurisdiction of the arbitral tribunal to hear the dispute; however, this objection was dismissed by the arbitral tribunal on February 7, 2024. Base Titanium has appealed to the Ontario Superior Court to decide the matter of jurisdiction, to which Osisko Gold Royalties has bought a motion to stay. The motion to stay and the jurisdiction appeal will be heard together by the Ontario Court on October 25, 2024. In the interim, the arbitration timetable has been extended, with the hearing now slated for September 2025 (subject to the outcome of the Ontario Court proceedings).
At the time of writing, no formal legal proceedings have been commenced by either of the other two royalty holders. These claims should be time barred pursuant to applicable Ontario law.
Osisko Gold Royalties contends that the royalty is payable on all sales from the Kwale Special Mining Lease 23, as subsequently extended. In the arbitration proceedings, Osisko Gold Royalties has sought a declaration that Base Titanium be obliged to calculate and pay the royalty in this manner and, in the alternative, a declaration that Base Titanium be obliged to calculate and pay the royalty on all sales of minerals extracted from the Kwale Central Dune and South Dune, as they evolved over time. Management’s position is that the royalty is only payable on sales from the Central and South Dune deposits, as they were defined at the time of Base Titanium’s acquisition of the Kwale Project in 2010 (which was almost entirely within the 2010 SML).
The southern boundary of the 2010 SML has been extended subsequent to Base Titanium’s acquisition of the project, and the Ore Reserves estimate had been increased, following extensional drilling programs, including the addition of the non-contiguous Mafisini deposit to the south. Base Titanium mined the South Dune deposit that sits outside the 2010 SML plus the Mafisini deposit from July 2021 to January 2024. In line with management’s position on the royalty’s scope, the royalty has not been paid on revenue derived from these areas.
Base Resources and Base Titanium have not publicly disclosed an estimate of any amount for this claim as a reliable estimate of the amount arising from any possible obligation is not considered possible. Base Titanium and Base Resources included the following contingent liability note in their respective accounts for FY24.
“In connection with its acquisition of the Kwale Project in 2010, Base Titanium Limited granted a 2% royalty to third parties owning or having an interest in that project. There is a disagreement between Base Titanium Limited and one of the royalty holders, Osisko Gold Royalties Ltd (Osisko), which holds 75% of the 2% royalty (i.e. a 1.5% royalty) – specifically, whether, and the extent to which, the royalty applies outside the Kwale Special Mining Lease 23 as it existed at the time of the acquisition. Osisko has taken formal steps to enforce its claimed rights in respect of the royalty, which
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Base Titanium is opposing. The directors have not disclosed an estimate of any amount for this contingent liability as a reliable estimate of the amount arising from any possible obligation cannot be made at this stage.”
Settlement negotiations are ongoing at this time.
Stevedoring Dispute with the Kenya Ports Authority
To operate its ship loading and jetty facility in Likoni (“Jetty Facility”), Base Titanium requires a Port Operating License issued by the Kenya Ports Authority (“KPA”). In March 2014, KPA granted Base Titanium a waiver to operate the Jetty Facility indefinitely until the formal license is approved by the KPA board of directors.
To date, the Port Operating License has not been finalized as KPA has refused to grant the license unless that license includes an obligation on Base Titanium to pay a $1/tonne stevedoring charge on exports from the Jetty Facility. Under applicable KPA tariffs, KPA may levy a $1/tonne charge for stevedoring services it provides. KPA sought to levy such charges shortly prior to Base Titanium’s maiden shipment from the Jetty Facility, which was ultimately paid by Base Titanium under protest to ensure the vessel was permitted to sail.
Base Titanium objects to stevedoring charges being levied by KPA principally on the grounds that (i) Base Titanium’s Jetty Facility is a private facility that was built entirely at Base Titanium’s expense; and (ii) no such stevedoring services are either required of, or are being provided by, KPA and, therefore, a service charge in respect of stevedoring is not applicable and invalid.
In 2017, Base Titanium sought and obtained an injunction from the Kenyan High Court to compel KPA to provide necessary marine services to vessels berthing at the Jetty Facility (“2017 Ruling”). In conjunction, the parties entered consent orders to establish an escrow account where disputed charges are being held pending the final outcome of the dispute.
Base Titanium has sought resolution of the dispute through arbitration commenced in Kenya in February 2017 bought under the Kenya Ports Authority Act (“KPA Act”). Base Titanium has sought a declaration that KPA’s levy of charges purportedly as stevedoring charges is illegal, a permanent injunction against KPA from imposing, levying, charging or in any manner whatsoever demanding stevedoring charges from Base Titanium or its agents or its performing vessels or their agents, a permanent injunction against KPA from unlawfully holding, restraining, detaining or in any way restricting Base Titanium’s shipments or otherwise withholding necessary marine services on purported account of stevedoring charges and the total sum of USD $2,183,065, representing the sums levied directly upon Base Titanium and subsequently paid into the escrow account (as at the date of commencing the arbitration), any other additional sum that may be levied by KPA against Base Titanium on purported account of stevedoring charges, and interest.
It is Base Titanium’s position that, pursuant to the KPA Act, arbitration is the appropriate forum for the dispute. KPA challenged the jurisdiction of the arbitrator to hear the dispute. In late 2019, the arbitrator ruled in favor of arbitration having jurisdiction. In early 2020, this ruling was appealed by KPA to the Kenyan High Court. In March 2022, the Kenyan High Court ruled in favor of Base Titanium upholding the arbitrator’s finding that jurisdiction lay with the arbitrator. Although there is no statutory right of appeal, KPA filed a notice of appeal with the Kenyan Court of Appeal, although this appeal has not progressed. Separately, in February 2021, the KPA was successful in their Kenyan High Court bid to have the appointed arbitrator removed. Base Titanium and KPA were directed by the Kenyan High Court to seek appointment of a new arbitrator.
KPA separately appealed the 2017 Ruling, with the appeal heard by the Kenyan Court of Appeal in November 2022. In April 2023, the Kenyan Court of Appeal dismissed KPA’s appeal, paving the way for Base Titanium to seek appointment of a new arbitrator. Base Titanium has not yet sought the appointment of a new arbitrator pending the outcome of discussions between the parties.
In June 2023, Base Titanium re-engaged with the KPA to discuss the applicability of the stevedoring charges and explore the prospects of an agreed resolution. Base Titanium wrote to the KPA in July 2023 with the same “package proposal” first put to them in 2019, which was considered a reasonable position for both parties. KPA rejected this proposal in November 2023. In May 2024, Base Titanium provided a renewed proposal. No formal response has been received from KPA to the May 2024 proposal, however KPA rejected this proposal in recent meetings. While KPA is expected to formally respond in the coming weeks (possibly with a counter proposal), the prospects of reaching an agreed resolution are considered low. Base Titanium will likely need to recommence formal dispute resolution proceedings through arbitration.
As at the time of writing, the amount in dispute is approximately $4.6 million (with $1.4 million previously paid, and approximately $3.2 million held in the escrow account).
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Mivumoni B Village
On March 18, 2021, a local landholder, Michael Kiswili (on his own behalf and on behalf of 65 others (collectively, the “Petitioners”)) filed a petition against Base Titanium in the Environment and Land Court at Mombasa alleging failings in the Environmental Impact Assessment process for the Kwale Project, excessive noise and air pollution from dust and adverse consequences of contaminated water allegedly caused by Base Titanium’s operations. Base Titanium denies that it has committed the alleged violations or breaches, with no substantive evidence adduced supporting the claims. Base Titanium conducts its operations in compliance with its Environmental Impact Assessment License and Environmental and Social Management Plan. Base Titanium has a valid and subsisting license issued by the National Environmental Management Authority. The Petitioners have sought a declaration that the Petitioners’ rights to a clean and healthy environment have been denied and continue to be violated, a declaration that the Petitioners have a right of redress under Article 162(2)(b) of the Kenyan Constitution as read with section 12(2)(a), (e)(3) and (7) of the Environment and Land Court Act, issue of an environmental restoration order against Base Titanium, an order to compel the Kenyan National Environment Management Authority to revoke the Environmental Impact Assessment License and mining license issued Base Titanium.
Base Titanium raised a preliminary objection challenging the jurisdiction of the Environment and Land Court at first instance, on the basis that the proper procedure for raising grievances specified in the Mining Act 2016 had not been followed which requires grievances with respect to mining operations to be first raised with the Cabinet Secretary for Mining, Blue Economy and Maritime Affairs. The Court dismissed Base Titanium’s application by way of ruling dated February 10, 2022. Base Titanium is pursuing an appeal, with Base Titanium filing its written appeal submissions on October 2, 2024. The respondents have twenty-one days from the date of service of Base Titanium’s submissions to file responding submissions. The Kenyan Court of Appeal will subsequently fix a hearing date. The primary case has been stayed, pending Base Titanium’s appeal.
The Company does not consider this action to have any merit. The Company therefore does not believe, at this time, that this action will materially impact the Company’s financial position, results of operations or cash flows.
Mchingirini Residents
On July 18, 2023, former local landholders filed a petition with the Kenyan Environment and Land Court alleging they were the registered and beneficial owners of suit properties in the Mchingirini area, which form part of Special Mining Lease 23, that their prior relocation and resettlement was unlawful and that the compensation paid was inadequate on the basis of an alleged understanding that there were no minerals on the suit properties. The former local landholders have sought a declaration to this effect and that Base Titanium pay an additional KSH 360,000 per acre (representing the difference between the compensation paid by Base Titanium to the local landholders and the compensation paid to other local landholders for resettlements undertaken in 2021) and interest on this amount at 20% per annum.
In 2015 and 2016, following negotiations between the parties, agreements were reached to have the plaintiffs relocated from the suit properties. Pursuant to the said agreements, the plaintiffs were relocated, and compensation was paid by Base Titanium. In turn, the plaintiffs surrendered their title deeds to Base Titanium and transfer instruments were executed.
Base Titanium has raised a preliminary objection challenging jurisdiction on the basis that the proper procedure for raising grievances specified in the Mining Act 2016 has not been followed. This objection was dismissed by the Environment and Land Court by way of ruling on April 12, 2024. Being aggrieved by this ruling, Base Titanium is pursuing an appeal. Appeal dates are yet to be set. Base Titanium has sought a stay of the original proceedings, which is due for ruling on November 12, 2024.
Pending the outcome of the appeal, Base Titanium will defend the allegations primarily on the basis that the relocation arrangements and amounts were agreed through a proper process in 2015 and 2016 and were valid, binding and enforceable and were otherwise reasonable. The fact that Base Titanium has agreed higher rates for subsequent relocations many years later is not relevant. It is also not relevant to negotiations whether or not economically recoverable minerals were present on the suit land, as under the Constitution all minerals are considered public land that vests in and shall be held by the national government in trust for the people of Kenya.
The Company does not consider this action to have any merit. The Company therefore does not believe, at this time, that this action will materially impact the Company’s financial position, results of operations or cash flows.
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ITEM 1A. RISK FACTORS.
There have been no material changes from the risk factors disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023, other than as disclosed in this Form 10-Q for the three and nine months ended September 30, 2024.
New Risk Factors Resulting from the Company’s Acquisition of Base Resources on October 2, 2024
Risks relating to forward-looking statements include:
•failure to complete and integrate proposed acquisitions, and/or to incorrectly assess the value of or risks associated with completed acquisitions, including our acquisition of mineral concessions at the Bahia Project, the Donald Project and Base Resources (which owns the Toliara Project) and any future acquisitions; and
•risks associated with fluctuations in price levels for HMS concentrate (“HMC”) and its components, including the prices for ilmenite, rutile, titanium and zircon, which could impact planned production levels or the feasibility of production of HMC and monazite from our Bahia Project, Toliara Project, the Donald Project and any other HMS project the Company may acquire or participate in, which could impact monazite supply for our RE Carbonate, separated REE and any other REE value-added product production.
Risks Related to our Business
Mining, extraction, recovery, processing, construction, development and exploration activities depend, to a substantial degree, on adequate infrastructure.
Reliable roads, bridges, power sources and water supply are important determinants affecting capital and operating costs for existing and planned operations. For the Toliara Project, the Donald Project and the Bahia Project, new infrastructure will need to be built to support activities. However, unusual or infrequent weather phenomena, including drought, flooding, sabotage, government and/or other interference in the maintenance or provision of such infrastructure could adversely affect our operations and activities, financial condition and results of operations.
Risks associated with our REE business.
There are a number of risks inherent to our REE activities, which include the following revised risk:
The risk of achieving and maintaining an adequate supply of monazite feed for processing at the Mill. Although the Company has acquired the Bahia Project, it is currently at the exploration and permitting stage and is not an operating mine. The same consideration applies to the Toliara Project and the Donald Project, although the Toliara Project is at a more advanced stage. As a result, the Company does not currently own its own operating monazite-bearing mine(s) and is completely dependent on contractual arrangements for its REE feed sources at this time. There can be no guarantee that the Company will be able to secure adequate monazite supply over the long-term at suitable prices or that the Bahia Project, Toliara Project or the Donald Project will be developed into operating monazite-producing mines. In addition, the price the Company may be required to pay for monazite sands is subject not only to commercial factors but also to the risk of influence by foreign policy and/or foreign state-owned enterprises. We will evaluate potential acquisitions of additional mines or resource properties and joint ventures with mine or resource property owners, but there can be no guarantee that any such acquisitions or joint ventures can be realized on acceptable terms. Further, to the extent the Company is required to purchase monazite ore sources and rely on REE separation facilities located outside the U.S., we may be at a transportation cost disadvantage compared to processing facilities in China or elsewhere that may be closer to potential ore sources and/or REE separation facilities.
We may need additional financing in connection with the implementation of our business and strategic plans from time to time.
The exploration, construction, development and acquisition of mineral properties and the ongoing operation of mines and other facilities, including the Toliara Project, the Donald Project, the Bahia Project, and the Phase 2 and 3 REE separation circuits of the Mill, requires a substantial amount of capital and may depend on our ability to obtain financing through joint ventures, debt financing, equity financing and/or other means. We may accordingly need further capital in order to take advantage of further opportunities or acquisitions. Our financial condition, general market conditions, volatile REEs, HMC, uranium and vanadium markets, volatile interest rates, legal claims against us, a significant disruption to our business or operations, or other factors may make it difficult to secure financing necessary for the expansion of mining activities or to take advantage of opportunities for acquisitions. Further, volatility in the credit markets may increase costs associated with debt instruments due to increased
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spreads over relevant interest rate benchmarks, or may affect our ability, or the ability of third parties we seek to do business with, to access those markets. Continued volatility in equity markets, specifically including energy and commodity markets, may increase the costs associated with equity financings due to a low share price and may create the potential need for us to offer higher discounts and other value (e.g., warrants). There is no assurance that we will be successful in obtaining required financing as and when needed on acceptable terms, if at all.
We are subject to costs associated with decommissioning and reclamation of our properties.
For so long as we are and remain the owner and operator of the Mill, Kwale Operations, the Nichols Ranch Project and numerous HMC, uranium, uranium/vanadium, REE and HMS projects and other facilities located in the U.S., Brazil, Africa and elsewhere, and certain other permitting, construction, development and exploration properties, we are obligated to ultimately reclaim or participate in the reclamation of our properties upon the occurrence of certain predetermined criteria using closely monitored and carefully developed, approved methods. Our reclamation obligations in the U.S. are bonded, and cash and other assets have been reserved to secure a portion, but not all, of the bonded amounts. Although our financial statements will record a liability for the asset retirement obligation, and the bonding requirements are generally periodically reviewed by applicable regulatory authorities, there can be no assurance or guarantee that the ultimate cost of such reclamation obligations will not exceed the estimated liability to be provided on our financial statements. Further, to the extent the bonded amounts are not fully collateralized, we will be required to come up with additional cash to perform our reclamation obligations when they occur.
Decommissioning plans for our properties in the U.S. have been filed with applicable regulatory authorities. These regulatory authorities have accepted the decommissioning plans in concept, not upon a detailed performance forecast, which has yet to be generated. Over time, further regulatory review of the decommissioning plans may result in additional decommissioning requirements, associated costs and the requirement to provide additional financial assurances, including as our properties approach or go into decommissioning. It is not possible to predict what level of decommissioning and reclamation (and financial assurances relating thereto) may be required in the future by regulatory authorities. The decommissioning and rehabilitation plan for Kwale Operations has been filed with the Kenyan National Environment Management Authority with approval to proceed granted on September, 25 2024. While the financial statements of Base Resources provide for the estimated costs of this decommissioning and rehabilitation for Kwale Operations, there can be no assurance or guarantee that the ultimate cost of such decommissioning and rehabilitation will not exceed the estimated liability provided in the financial statements.
We face heightened risks relating to the business we conduct in foreign jurisdictions which could have a material adverse effect on our operations, liquidity and/or financial condition.
The Company faces a number of risks related to conducting business operations in foreign jurisdictions (including Brazil, Australia and Africa), such as heightened risks of political instability, expropriation of assets, business interruption, increased taxation, import/export controls, unilateral modification of concessions and contracts. We also face the typical risks associated with doing business in foreign countries, including: different market and economic forces, resulting from new business environments with new competitors and different consumer preferences; dealing with local suppliers who may have a strong foothold in the area; the need to build up brand awareness and trust in a new market; different customer and supplier demographics; language and cultural barriers; extreme weather events and natural disasters that can present a sustained business risk relating to supply logistics and other factors; the additional requirements of foreign legal systems; the impacts of foreign tax requirements; the need to comply with foreign regulations and operations compliance; the need to comply with foreign legal systems, including as they relate to contract enforceability; the requirement to stay abreast of and remain in compliance with changing laws and regulations; inconsistent application of existing laws; social unrest; and the lack of purchasing power parity compared to domestic competitors. Any number of these risks could have a material adverse effect on our operations, liquidity and/or financial condition.
Our operations outside the United States and Canada require us to comply with a number of United States, Canadian and international regulations, violations of which could have a material adverse effect on our business, consolidated results of operations, and consolidated financial condition.
Our operations outside the United States and Canada require us to comply with a number of United States, Canadian, Australian, African and other international regulations. For example, our operations in countries outside the United States and Canada are subject to the United States Foreign Corrupt Practices Act (“FCPA”), which prohibits United States companies and their agents and employees from providing anything of value to a foreign official for the purposes of influencing any act or decision of these individuals in their official capacity to help obtain or retain business, direct business to any person or corporate entity, or obtain any unfair advantage, as well as to the Corruption of Foreign Public Officials Act (“CFPOA”), which is the Canadian equivalent of the FCPA. Our activities create the risk of unauthorized payments or offers of payments by our employees, agents, or joint venture partners that could be in violation of anti-corruption laws, even though some of these parties are not subject to our control. We have internal control policies and procedures and are implementing additional training
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and compliance programs for our employees and agents with respect to the FCPA and CFPOA. However, we cannot assure that our policies, procedures, and programs will always protect us from reckless or criminal acts committed by our employees or agents. We are also subject to the risks that our employees, joint venture partners, and agents outside of the U.S. may fail to comply with other applicable laws. Allegations of violations of applicable anti-corruption laws may result in internal, independent, or government investigations. Violations of anti-corruption laws may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could have a material adverse effect on our business, consolidated results of operations and consolidated financial condition.
The Company may face tax risks in certain operating foreign jurisdictions and unexpected taxes could be imposed on us which could have a material and adverse effect on our financial position.
Our operations and business in foreign jurisdictions, including Brazil, Australia and Africa, may increase our susceptibility to sudden tax changes. Taxation laws in these jurisdictions are complex, subject to varying interpretations and applications by the relevant tax authorities and subject to changes and revisions in the ordinary course. Any unexpected taxes imposed on us could have a material and adverse impact on our financial position.
We face risks associated with a Brazilian federal or state government enacting or managing a conservation unit or environmental protection area which could have a material adverse effect on our operations, liquidity and/or financial condition.
In respect of the Company’s Bahia Project in Brazil, there is a risk of a Brazilian federal or state government enacting or managing a conservation unit or environmental protection area or implementing a management plan in connection therewith that could impact planned production at or restrict the Company’s ability to or prevent the Company from mining the Company’s Bahia Project, or portions thereof. Such an action could have a material adverse effect on our operations, liquidity and/or financial condition.
Our operations in Africa expose us to regional-specific social, political, economic and/or other risks.
The Company’s operations in Africa may expose us to uncertain social, political or economic conditions and/or other risks. Government agencies or other counterparties could seek to assert rights of expropriation, renegotiation or nullification of existing concessions, contracts and pricing benchmarks, challenges to title to properties or mineral rights or delays renewing licenses and permits. Such government agencies or other counterparties may also seek to impose onerous fiscal policy, onerous regulation, changes in law or policy governing existing operations, financial constraints and unreasonable taxation.
There is also a risk that foreign public officials or government agencies will act unreasonably towards us. There can be no assurance that these foreign public officials or government agencies or other counterparties will not take the steps noted above in respect of the Company’s operations and, if any such steps are taken, there can be no assurance that sufficient remedies will be available to recoup the investments that have been made to date in such areas. The occurrence of any such events in respect of the Company’s operations in such foreign nations could adversely affect the Company’s business and results of operations.
The development of the Toliara Project requires certain actions of the Government of Madagascar and the Company entering into binding agreements, neither of which may occur on a timely basis, at all or on acceptable terms. Further, the development of the Toliara Project is dependent on several factors beyond our control.
Development of the Toliara Project is dependent on lifting the current suspension of on-ground activities imposed by the Government of Madagascar and an agreement on the fiscal terms applicable to the project. There is no certainty that binding fiscal terms for the Toliara Project will be agreed and that the suspension will be lifted or that these milestones will be achieved on a timely basis.
Once the suspension is lifted, development of the Toliara Project will be dependent on several factors including, but not limited to:
•securing requisite fiscal and legal stability (e.g. through eligibility certification under the Law No. 2001-031 on large scale mining investments dated 8 October 2002 as amended by law No. 2005-022 dated 27 July 2005 and put into effect by Decree no 2003-784 dated 8 January 2003);
•entering into an acceptable investment agreement (or similar agreement) addressing fiscal and other key terms governing the Project and also providing necessary legal clarifications in relation to applicable law;
•ratification by the Malagasy Parliament of an acceptable investment agreement (or similar agreement);
•having monazite included as a mineral for exploitation on the Toliara exploitation permit on a timely basis or at all;
•securing requisite land access for the Toliara exploitation permit and the Toliara Project’s associated infrastructure;
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•access to adequate capital to fund development;
•obtaining regulatory consents and approvals necessary for, or exemptions beneficial to, development and production on a timely basis or at all;
•commodity prices and securing necessary offtakes on reasonable terms;
•geotechnical conditions;
•recruitment and retention of appropriately skilled and experienced employees, contractors and consultants; and
•maintaining positive relations with host communities and regional and national governments/officials.
Risk associated with the closure of Kwale Operations.
The closure of Kwale Operations and conclusion of mining and processing activities is subject to several risks for the Company including, but not limited to:
•adequate financial provisioning for closure and rehabilitation;
•environmental contamination, including soil erosion and water pollution;
•potential harm to personnel on site during closure, including employees and contractors;
•meeting and adherence to evolving regulations and standards, as well as international industry good practice;
•managing community and Government relations and expectations and addressing any concerns;
•technical challenges in implementing effective rehabilitation methods;
•long-term monitoring as part of ensuring rehabilitation effectiveness and management of the tailings storage facility;
•maintaining public trust and social license through communication and engagement; and
•resolving current and potential legal disputes on acceptable terms, including with community, government and government related bodies, third party royalty holders and site employees (for example, over contractual obligations, severance packages, and associated employment termination issues).
Risks associated with the Donald Project Joint Venture.
Our ability to earn our 49% interest in the Donald Project is dependent on the occurrence of a positive FID. The development of the Donald Project and the ability of the parties to approve the FID and to develop and operate the project is dependent on a number of factors including, but not limited to:
•the project being fully permitted, including receiving approval of the work authority for the phase 1 mine plan and additional regulatory approvals required for the mining, transport and export of REE concentrate;
•an evaluation of the economics of phase 1 taking into account: the conclusions and recommendations in the Updated Phase 1 Definitive Feasibility Study; expected REE concentrate and HMC recoveries from the planned facilities; the development plan and budget for phase 1, and cash flow forecasts for both the joint venturers;
•the Company having secured commitments for satisfactory offtake and/or sales agreements for the separated REE products expected to be produced at the Mill from the Donald Project REE concentrate;
•Astron and/or the joint-venture entity, Donald Project Pty Ltd, having secured commitments for satisfactory offtake and/or sales agreements for HMC;
•Donald Project Pty Ltd having secured commitments for non-recourse and/or government-backed debt financing for the project development costs required in addition to the Company’s A$183 million earn-in amount;
•Donald Project Pty Ltd having secured certain land rights and/or access agreements for the project including its associated infrastructure;
•Donald Project Pty Ltd maintaining and renewing tenements relating to the Donald Project, including MIN5532, the current term of which expires in 2030 (and, for phase 2, the conversion of RL2002 into a mining lease);
•counter party risk in relation to Astron’s ability to perform its obligations under the Joint Venture Agreements;
•obtaining all required local, state and federal consents and approvals required on a timely basis; and
•securing construction and engineering contracts, as well as equipment and spare parts, on acceptable terms and in accordance with project requirements.
We are subject to foreign currency risks which could have a material impact on our cash flows and profitability.
Our operations are subject to foreign currency fluctuations. Our operating expenses and revenues are primarily incurred in U.S. dollars, while some of our cash balances and expenses are measured in Canadian dollars. The operations of Base Resources are also primarily conducted in U.S. dollars, but Base Resources conducts some of its business in currencies other than the U.S. dollar (including, Australian dollars, Kenyan Shillings and Malagasy Ariary). The fluctuation of the Canadian dollar, Australian dollar, Kenyan Shilling and/or Malagasy Ariary in relation to the U.S. dollar will consequently have an impact on our profitability and may also affect the value of our assets and shareholders’ equity. In addition, any strengthening of the U.S.
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dollar relative to other currencies makes our mineral extraction and recovery less competitive in relation to similar activities in other countries. Any strengthening of the U.S. dollar in relation to the currencies of other countries makes the Company’s mineral impact less competitive in relation to similar activities in other countries and could have a material impact on our cash flows and profitability and affect the value of our assets and shareholders’ equity.
We may not realize the anticipated benefits of previous acquisitions which could impair our results of operations, profitability and/or financial results.
We may not realize the anticipated benefits of acquiring: the Sheep Mountain Project in 2012; Denison Mines Corp.’s U.S. Mining Division in 2012, including the Mill, certain of the Arizona Strip Properties, the Bullfrog Project and the La Sal Project; Strathmore in 2013, including the Roca Honda Project; Uranerz in 2015, including the Nichols Ranch Project; the Bahia Project in Brazil in 2023; the Donald Project in Australia in 2024; and Base Resources in 2024, which owns the Toliara Project in Africa, due to integration, operational and uranium, REE, HMC, uranium and/or vanadium market challenges. Decreases in commodity prices have required us to place or maintain a number of acquired properties and facilities on standby and to defer permitting and construction and development activities on certain other acquired assets, until market conditions warrant otherwise, and, in some cases, we have elected to sell or abandon certain of these properties at a loss. Our success following those acquisitions will depend in large part on the success of our management in valuing the acquired assets and integrating the acquired assets into the Company. Our failure to properly value the assets and to achieve such integration and to mine or advance such assets could result in our failure to realize the anticipated benefits of those acquisitions and could impair our results of operations, profitability and/or financial results.
Our relationship with our employees may be impacted by changes in labor relations which could have a material adverse impact on our cash flows, earnings, results of operations and/or financial condition.
One of our new subsidiaries, Base Titanium Limited (“Base Titanium”), is a party to a collective bargaining agreement for a significant portion of its Kwale Operations workforce; however, none of our other operations or activities currently directly employ unionized workers who work under collective agreements. There can be no assurance that our employees or the employees of our contractors will not become unionized in the future or, in relation to Base Resources, that it will not become the subject of industrial action in relation to the portion of its Kwale Operations workforce that work under a collective agreement, which may impact our operations and activities. Any lengthy work stoppages may have a material adverse impact on our future cash flows, earnings, results of operations and/or financial condition.
Investors in jurisdictions outside of Canada may have difficulty bringing actions and enforcing judgments under their respective jurisdiction’s securities laws against an Ontario corporation.
Although our primary trading market is the NYSE American, a majority of our outstanding voting securities are registered in the names of holders in the U.S. and we are a U.S. domestic issuer for reporting purposes with the SEC, and substantially all of our assets, operations and employees are in the U.S., the Company was incorporated in Ontario and, as a result, investors in the U.S. or in other jurisdictions outside of Canada may have difficulty bringing actions and enforcing judgments against us, our directors, our executive officers and some of the experts named in this Form 8-K and the Company’s other SEC filings, including the FY23 Form 10-K, based on civil liabilities provisions of the federal securities laws or other laws of the U.S. or any state thereof or the equivalent laws of other jurisdictions of residence.
General Risk Factors
Russia’s Invasion of Ukraine is severely and unpredictably impacting global energy markets and supply chains, and rising concerns over a second severe nuclear accident in Ukraine could seriously hurt public reception to nuclear energy.
Russia’s February 2022 invasion of Ukraine continues to severely impact global energy markets and supply chains by causing economic uncertainty, price volatility, supply shortages and national security concerns to such a degree that the International Energy Agency (“IEA”) has called it “the first truly global energy crisis, with impacts that will be felt for years to come.” As the Company is engaged in a number of energy sectors, including REEs, HMS, uranium and vanadium, it is expected that such global impacts will necessarily impact the Company, though the full extent of any such impacts are not well understood at this time. While supply and shipping impacts could materially interfere with our ability to conduct business, other global responses – such as the U.S. Inflation Reduction Act’s provision of funds for energy and climate programs, including the expansion of tax credits and incentives to promote clean energy technologies, and an apparent shift away from global reliance on Russian exports via government sanctions and other means – could materially benefit our business by creating additional market opportunities with utilities providers attempting to lessen their reliance on Russian markets.
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The uranium industry also potentially faces renewed skepticism and distrust as a result of Russia’s invasion of Ukraine. According to the World Nuclear Association (“WNA”), “In the early hours of 4 March the Zaporizhzhia plant in southeastern Ukraine became the first operating civil nuclear power plant to come under armed attack. Fighting between forces overnight resulted in a projectile hitting a training building within the site of the six-unit plant. Russian forces then took control of the plant. The six reactors were not affected and there was no release of radioactive material. Since late October 2022, Russia has repeatedly targeted Ukraine’s civilian infrastructure, including the country’s energy system, with missile strikes. Widespread blackouts have resulted, and external power supply to all four of the country’s nuclear plants has been affected.” (WNA, “Ukraine: Russia-Ukraine War and Nuclear Energy,” Feb. 6, 2023). Russia’s interference with Ukrainian nuclear plants in violation of Article 56 of the Additional Protocol of 1979 to the Geneva Conventions, which states that nuclear power plants “shall not be made the object of attack, even where these objects are military objectives, if such an attack may cause the release of dangerous forces and consequent severe losses among the civilian population” (WNA, 2023), may result in increased and serious harm to global reception to nuclear energy due to the current war’s proximity to Chernobyl, site of the then-Soviet Union’s 1986 nuclear accident.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
At the closing of the Company’s acquisition of RadTran, the Company issued an aggregate of 321,197 Common Shares to RadTran’s Chief Executive Officer, Chief Operating Officer and Chief Technical Officer. Such issuances were exempt from the registration requirements of the United States Securities Act of 1933, as amended, under Section 3(a)(10) thereof.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURE.
The mine safety disclosures required by section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K are included in Exhibit 95.1 of this Quarterly Report, which is incorporated by reference into this Item 4.
ITEM 5. OTHER INFORMATION.
During the period covered by this Quarterly Report on Form 10-Q, no director or officer of the Company adopted or terminated a “Rule 10b5–1 Trading Arrangement” or “non-Rule 10b5–1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K.
ITEM 6. EXHIBITS.
Exhibits
The following exhibits are filed as part of this report:
Incorporated by reference to Exhibit 3.1 of Energy Fuels’ Form F-4 filed with the SEC on May 8, 2015.
(2)
Incorporated by reference to Exhibit 3.2 of Energy Fuels’ Form F-4 filed with the SEC on May 8, 2015.
(3)
Incorporated by reference to Exhibit 3.3 of Energy Fuels’ Form F-4 filed with the SEC on May 8, 2015.
(4)
Incorporated by reference to Exhibit 4.2 to Energy Fuels’ Form S-8 filed on June 24, 2015.
(5)
Incorporated by reference to Exhibit 4.1 of Energy Fuels’ Form 8-K filed with the SEC on June 14, 2024.
(6)
Incorporated by reference to Appendix A of Energy Fuels’ Schedule 14A filed with the SEC on April 24, 2024.
(7)
Incorporated by reference to Exhibit 1.1 to Energy Fuels’ Form 8-K filed with the SEC on March 25, 2024.
(8)
Incorporated by reference to Exhibit 10.1 to Energy Fuels’ Form 8-K filed with the SEC on April 22, 2024.
(9)
Incorporated by reference to Exhibit 10.2 to Energy Fuels’ Form 8-K filed with the SEC on April 22, 2024.
(10)
Incorporated by reference to Exhibit 10.5 to Energy Fuels’ Form 8-K filed with the SEC on April 4, 2023.
(11)
Incorporated by reference to Exhibit 10.1 to Energy Fuels’ Form 8-K filed with the SEC on April 25, 2024.
(12)
Incorporated by reference to Exhibit 10.14 to Energy Fuels’ Form 10-K/A filed with the SEC on June 28, 2024.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ENERGY FUELS INC.
(Registrant)
Dated: October 31, 2024
By:
/s/ Mark S. Chalmers
Mark S. Chalmers
President & Chief Executive Officer
Dated: October 31, 2024
By:
/s/ Nathan R. Bennett
Nathan R. Bennett
Chief Accounting Officer and Interim Chief Financial Officer
