Energy Fuels UUUU recently announced that the Federal Court of Australia approved its pending acquisition of Base Resources Limited. This clears the way for the deal to close on Oct. 2, 2024. 

The acquisition adds Base Resources’ Toliara Mineral Sand Project to UUUU’s portfolio, complementing its Bahia Mineral Sand Project in Brazil. These assets, combined with Energy Fuel’s 49% interest in the joint venture to develop the Donald Mineral Sand Project in Australia, will position it as a major producer of rare earth elements (REE), titanium and zirconium.  

As Energy Fuels diversifies its business by expanding its REE production capabilities while maintaining its leadership in uranium, investors have been skeptical about this move. Are these concerns justified? Should investors take advantage of this decline or, wait for a better entry point or shun the stock? Let’s analyze.

Energy Fuels’ REE Ambitions

Energy Fuels agreed to acquire Base Resources in April 2024. Base Resources' Toliara project in Madagascar is a world-class, low-cost and large-scale heavy mineral sands project. Apart from its ilmenite, rutile (titanium) and zircon (zirconium) production capability, the project contains a significant amount of Monazite. It is a source of the magnet REEs (NdPr, Dy, Tb) used in electric vehicles (EVs) and a variety of clean energy and advanced technologies. 

Energy Fuels’ efforts to grow its REE business have been perceived as risky as the sector is highly competitive due to the significant control by China.  This raised concerns that Energy Fuels’ investment returns might fall short of its projections. 

The rare earth elements market is projected to see solid growth, given their crucial role in technologies such as electric vehicles, wind turbines, and advanced electronics. Energy Fuels’ White Mesa Mill in Utah is the only facility in the United States that can process Monazite and produce advanced REE materials. With more than four decades of experience and expertise unmatched in the industry, it is poised well to capitalize on this demand. The increasing focus on developing rare earth supply chains independent of China presents a solid opportunity for UUUU.

Energy Fuels’ Price Performance Lags Peers

The UUUU stock has declined 35.4% year to date against an increase of 8.3% registered by the industry. Peers Cameco Corporation CCJ and Uranium Energy Corp. UEC declined 7.3% and 23.2%, respectively.

UUUU's YTD Performance vs Industry & Peers

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Players in the industry have been impacted by the decline in uranium prices this year. Prices are near $79.65 per pound — the lowest since November 2023 as concerns about global supply have eased.

Energy Fuels has been hit harder than its peers as its recent endeavors to grow the REE business (the acquisition of Base Resources in April 2024 and the joint venture agreement with Astron to develop the Donald rare earth project) have weighed on its stock performance.

UUUU Positioning Itself to Ride on Clean Energy Trends

The global push for clean energy and technological advancement will drive significant demand for both uranium and rare earth elements. 

Energy Fuels has four long-term contracts with major U.S. nuclear utilities that require deliveries of base quantities of 2.8 million pounds of uranium through 2030.  The company has been preparing two additional mines in Colorado and Wyoming (Whirlwind and Nichols Ranch), to boost uranium production. The company recently reported solid progress in Nichols Ranch, which is expected to start production in 2025. It has a licensed annual capacity of two million pounds of uranium.

UUUU is also advancing several other large-scale U.S. mine projects to raise the capacity to 5 million pounds per year to bet on the robust uranium market conditions. The company expects to commence an ore-buying program from third-party miners in 2024, which is expected to increase its uranium production profile further.

The company recently completed a Phase 1 REE separation circuit at the White Mesa mill with the capacity to produce up to 1,000 tons per year of separated neodymium praseodymium (NdPr), making it one of the world's largest commercial REE separation circuits, except in China. It is designing the capacity to produce 4,000-6,000 tons of separated Ndpr per year, 200-300 tons of Dy and Tb that will be enough for up to 6 million EVs per year.

Energy Fuels has no debt on its balance sheet, which is commendable compared with the industry’s debt-to-capital ratio of 0.29. As of June 30, 2024, Energy Fuels had $200.94 million of working capital, including $24.59 million of cash and cash equivalents, $146.66 million of marketable securities (interest-bearing securities and uranium stocks), $23.52 million of inventory.

Energy Fuel's 2025 Earnings Estimates Suggest Turnaround

UUUU’s 2024 earnings estimates have been unchanged over the past 60 days, while the same for 2025 has moved down.

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The estimate for 2024 is pegged at a loss of 11 cents, suggesting a slight improvement from the loss of 12 cents reported in 2023. The estimate for 2025 indicates a return to profitability for the company.

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UUUU’s Valuation Looks Stretched

Energy Fuels is trading at a forward price-to-sales ratio of 5.80 compared with the industry’s 3.06. The company is, however, cheaper than peers Cameco Corporation and Uranium Energy’s price-to-sales ratios of 7.39 and 19.54, respectively.

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Should You Buy UUUU Stock?

The increasing demand for uranium and REEs in clean energy technologies and the push for supply chains independent of China is a growth opportunity for UUUU. Backed by its debt-free balance sheet, the company is ramping up uranium production while simultaneously developing significant rare earth capabilities. With a strong balance sheet, strategic assets and a growth strategy, Energy Fuels offers investors exposure to two critical mineral markets that are essential for clean energy technologies.

Despite the competition with China, Energy Fuels has the expertise, assets and competitive advantage to hold its ground in the REE market. However, considering the premium valuation, investors should monitor the company’s developments closely for a more appropriate entry point.

Existing stakeholders should maintain their position in this Zacks Rank #3 (Hold) stock to benefit from the solid long-term fundamentals of the uranium markets. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


 

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