UUUU Boosts REE Potential With Base Resources' Buyout: Invest Now?
Energy Fuels UUUU acquired Base Resources Limited in a bid to become a leading global producer of rare earth elements (REE), which are essential in various clean energy technologies. This will also strengthen UUUU’s potential to become a major producer of titanium and zirconium minerals.
Base Resources’ Toliara Project is one of the world’s best heavy mineral sands (“HMS”) and critical mineral development projects due to the high grade and quality of the titanium, zirconium and REE minerals, and its long mine life.
The Ranobe deposit at the project contains a significant volume of monazite, one of the richest sources of REE. With this move, UUUU ensures a long-term supply of monazite that can be processed to produce advanced REE materials at its White Mesa Mill, a cost-effective and capital-efficient strategy.
However, Energy Fuels' expansion of its REE production capabilities faced some skepticism from investors. Let us find out the reasons and analyze whether these are justified.
Energy Fuels Positioning Itself to Ride Clean Energy Trends
REE is essential in many of today’s rapidly growing clean energy technologies, from wind turbines and electricity networks to electric vehicles. Per the International Energy Agency, REE may see three to seven times higher demand in 2040 from the current levels, while supply is expected to merely double.
The global push for clean energy and technological advancement will drive significant demand for uranium and REE. Energy Fuels is a leading producer of uranium, responsible for around two-thirds of U.S. uranium output since 2017. While continuing this, UUUU plans to produce several advanced materials needed for the clean energy transition. The acquisition of Base Resources is a key part of this strategy.
UUUU’s Efforts to Build Low-Cost REE Supply Chain in the US
Base Resources’ Toliara Mineral Sand Project complements UUUU’s Bahia Mineral Sand Project in Brazil and 49% stake in the Donald Mineral Sand Project in Australia. All of these are HMS projects that, upon development, will produce titanium and zirconium minerals, including ilmenite, rutile and zircon.
Subject to securing further permits and development, these projects are expected to produce monazite as a byproduct, one of the best sources of the magnet REEs used in electric vehicles, wind energy and other technologies. Monazite can then be processed at UUUU’s White Mesa Mill in Utah into REE oxides and other advanced REE materials. It is the only facility in the United States equipped to do so, giving the company an advantage over peers. Also, since monazite is a low-cost byproduct, the REE oxides produced at the mill will be cost-effective, making them globally competitive.
Risks Pertaining to Energy Fuels’ Buyout of Base Resources
Despite the solid prospects, Energy Fuels’ efforts to grow its REE business have been perceived as risky due to China’s dominance in the sector. However, with increasing focus in the United States to develop REE supply chains independent of China, Energy Fuels is taking calculated steps to capitalize on this opportunity.
On-ground activities have been suspended at the Toliara project since 2019 due to resistance from local communities and a lack of clarity about its potential benefits for the government and the country. The project is currently subject to negotiation of fiscal terms with the Madagascar government. It is also awaiting certain government approvals and actions before the suspension can be lifted and development can be carried out. This is concerning until progress is made.
Energy Fuels’ Price Performance Beats Industry
Over the past month, the UUUU stock has gained 22.3% against a rise of 14.8% registered by the industry.
UUUU's 1-Month Performance vs Industry
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UUUU Trading Above 50-Day Moving Average
UUUU shares are trading above the 50-day moving average, indicating a short-term bullish trend.
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Recent Uptick in Uranium Prices Bodes Well for Energy Fuels
Uranium prices had declined for a major portion of this year as concerns among investors about global supply had eased. This was due to Kazatomprom — the world’s top uranium miner — guiding a 12% year-over-year increase in output this year.
Despite a year-to-date dip of 8.6%, prices have picked up lately to $83.20 per pound, the highest in two months. A series of stimulus packages in China and its move to increase sustainable energy development with nuclear energy have boosted the demand for uranium. China is building 28 nuclear reactors. Interest in nuclear power also gained momentum in the United States. Microsoft signed a 20-year purchase contract with Constellation Energy to restart the Three-Mile Island power unit to power data centers. Rare earth prices have also gained recently on the rise in demand amid a relatively tight supply.
Energy Fuels Capitalizes on Isotope Shortage
Targeted alpha therapies (TAT) technology is showing great promise in clinical trials for the treatment of cancer. It requires certain isotopes (Ra-226 and Ra-228). The global scarcity of these isotopes has been a significant hurdle to the advancement and commercialization of these therapies.
To address this issue and establish a U.S. medical supply chain, Energy Fuels recently acquired RadTran LLC. Using RadTran’s know-how, the company will recover valuable isotopes from its process streams at the White Mesa mill. UUUU will recycle the material that would otherwise have been lost to disposal and contribute to producing life-saving cancer treatments.
UUUU Invests in Capacity to Meet Rising Demand
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. It is ramping up ore production at three uranium mines to achieve a run-rate of 1.1-1.4 million pounds by the end of 2024. The company has set a target to increase the near-term uranium production profile to 2 million pounds per year.
UUUU 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 engineering Phase 2 and Phase 3 to take the production to 4,000-6,000 tons of separated Ndpr per year, 200-300 tons of Dy and Tb.
Energy Fuels has no debt on its balance sheet, which is commendable compared with the industry’s debt-to-capital ratio of 0.29.
Energy Fuel's 2025 Earnings Estimates Suggest Turnaround
UUUU’s earnings estimates for 2024 and 2025 have been unchanged over the past 60 days.
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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 earnings estimate for 2025 of 9 cents 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 7.97 compared with the industry’s 3.55.
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The company is, however, cheaper when compared with peers Cameco Corporation CCJ and Uranium Energy’s UEC price-to-sales ratios of 9.31 and 31.77, respectively.
Should You Buy, Sell or Hold 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. Recovering valuable isotopes from its existing processing streams will help the company bet on its high demand in cancer treatments. Backed by its debt-free balance sheet, Energy Fuels is ramping up uranium production while developing significant REE capabilities.
Despite the competition with China, Energy Fuels has the expertise, assets and competitive advantage to hold its ground in the REE market. The recent uptick in prices is also promising. Considering the premium valuation and the ongoing suspension at the newly added Toliara project, investors should monitor the 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. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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