Isaac74
This is all complicated
Sorry about this, but the Energy Fuels Inc. (NYSE:UUUU) move into rare earths is complicated. I’ve been saying this for a couple of years now, starting with a brief discussion of the Monazite plan here, going on to updates here and here.
Let’s go right back to the beginning and talk about how the plan itself is constructed. Rather than me, why not try Sprott:
The ability to dispose of radionuclides allows Energy Fuels to process monazite concentrates. In our view, monazite sands deposits, especially as a by-product or co-product with economic TiO2 and zircon deposits, are the structurally lowest cost deposits being near surface, free dig (or dredge) and easy to process into a concentrate.
This is the very heart of the matter. As I have explained before.
Monazite is generally radioactive
Monazite is an agreed-to-be-useful source of the rare earths. It’s easy enough to mine, it turns up as a byproduct of many a mineral sands operation (so, people mining rutile, zircon, these sorts of things) and did I point out easy to mine? Not – to be a bit hyperbolic about it – much more than a Komatsu or a JCB plus a separator in fact.
Well, great, so why isn’t the world mining monazite for all those magnets needed for the electric vehicles? Because monazite is usually radioactive to the point that the modern world doesn’t allow it to be processed. The U and Th levels are usually such that you simply will not get a license to process it in any advanced country. In fact, could find it very difficult even in a poor one.
So, we cannot go green because this will pollute everywhere if we want to play politics with the observation. Instead we’ve all got to go mine the much less efficient bastnaesite, or look at the ionic clays and stuff.
The Energy Fuels special sauce
However, Energy Fuels is pretty much the last man standing in the rich world in one sense. They’ve got a uranium mill which has two things. One is the ability to process materials for their uranium content. The second is the right to – and it’s the right, more than the ability, which is rare – to dispose of the resultant thorium in the gangue piles. Anyone else hoping to process monazite would find it near impossible to gain the licenses, the rights, to do those two things – most especially the second.
So, Energy Fuels can process monazite as no one else can. Monazite is a good source of rare earths, we’ve a winning strategy here.
As I’ve said before, it’s at least a potentially winning strategy. As I’ve also said, if I were sitting on the Energy Fuels assets, this is also exactly what I’d be doing. Leveraging the assets of the corporation to do exactly what is being done.
I’d even construct my supply chain in much the same manner. The monazite is actually a waste problem for Chemours – so not difficult to persuade them to send it to Energy Fuels. The Neomet rare earths separation plant in Estonia has no dedicated mine supply of concentrate. It’s also – currently – the only such plant outside China that’s operative and not owned by Lynas. So that’s a pretty obvious choice.
That also produces the supply chain. Monazite from minerals sands, the only plant that can process the monazite into the rare earth concentrate, then ship off to the only likely rare earth separation plant. This all seems obvious enough.
However and but
While the engineering process is, given starting points, entirely perfect (no, that’s not a joke or exaggeration, I mean it, that’s the best deployment possible), there’s still that little issue of it having to prove economically sensible.
That’s where Energy Fuels is having a little problem. As my semi-colleague Gold Panda points out, the numbers aren’t good enough as yet. Basically, they’re just not large enough to be moving the dials.
- In H1 2022, Energy Fuels sold just 18 tonnes of TREO for $0.45 million and it expects to recover only 300 to 450 tonnes of TREO in 2022.
That’s just not enough to be of any interest whatsoever in a business currently valued around the $1 billion mark. It’s just not material.
But expansion!
The Chemours source seems not to be large enough to really make that difference. Which is where the Brazil plan comes in. Energy Fuels buys into its own mineral sands operation and that then becomes its own – and larger – supply of monazite. Which could work.
Some think that transport costs will be a killer, but not so much. You can ship a 30 tonne container of pretty much anything, anywhere, for $5,000 (don’t worry about those China prices currently, they’re the anomaly) and that’s of the order of 12 cents a kg. That’s just not really germane when we’re talking about things of the value of rare earths. Yes, shipping costs for radioactives are higher, but really – I’ve done this myself – it’s not a killer problem.
If we were talking about the zircon, or titanium ores, from the same sources then that would be a worry. But there’s no reason to bring them to the U.S. for processing – there’re good markets more locally for those.
So, is this the solution then?
Well, processing prices
In those last few pieces linked at the top I’ve made a lot of noise about processing costs. That’s the processing of rare earth concentrate into the individual rare earths. This costs in the $15 to $20 per kg material range. The sales value of a good 50% of the concentrate content is 50 cents a kg, thereabouts – the lanthanum and cerium. So, on that portion the processor loses – to our necessary level of accuracy here – $20 a kg. They have to make that up on the much higher prices of the magnet metals – the Nd, Pr, Tb and Dy. What this means is that a rare earth concentrate with low levels of the magnet metals is worth less than nothing. Or, nothing. Only high magnet values are even worth processing given the costs of the processing, the low market values of the bulk of the output by weight.
Presently Nd/Pr is $100 to $130 a kg, depends upon the day or week we have a look. Tb is $ 2,000 and more a kg (it can be highly volatile) and Dy $300 and change. I don’t want to use more accurate prices simply because I don’t want to get into those weeds and details. Similarly, these content estimates are not right, but they’re usefully indicative. Tb might be 0.1% of concentrate weight, Dy 1%. With those values and prices, Tb and Dy might add $5 to the value of each kg of concentrate. Let’s then just park that as a value we can use again. To repeat, this isn’t quite right, but it’s usefully indicative.
This makes the big swing value the Nd/Pr content. If that’s low then the concentrate will have no value. If it’s high it will have a high value.
Energy Fuel sales
So, we’ve got that information that Energy Fuels has sold that 18 tonnes of concentrate at $400k and change. This comes out to $25,000 or so a kg.
If we now add our $20 processing cost to give us the price of the refined basket we can do a back calculation. The refined basket needs to be worth $45 a kg to give the $25 to be paid to Energy Fuels. There’s $5 worth of Tb and Dy, that means there must be $40 worth of Nd/Pr. If Nd/Pr is at $120 per kg then that gives us a 34% Nd/Pr content.
Please, don’t say that Tb is 0.2%, or that it’s $2,600, or $1,800. Or that Nd/Pr is only $110. Our point here is to show that the concentrate produced from monazite having any value at all requires that it be high in Nd/Pr. That’s the point that we’re making here.
You may also not actually believe this, but I ran the above numbers just from vague looks at price charts and so on, memories of market prices. But the value of the argument is that it comes to about the right answer. For that monazite, from Chemours, when processed into a concentrate is, from Energy Fuels itself:
Energy Fuels’ RE Carbonate, which is roughly 32% – 34% NdPr, is the most advanced REE material being produced in the U.S. today.
Our money calculation was very rough, very rule of thumb, but it accords with observed reality. That’s always useful.
So, Brazil solves all, right?
So, Energy Fuels has a process that works – technically. No one else in the US at least is going to get the licenses to be able to use high radioactivity monazite. H-r monazite is thus going to be pretty cheap. They can process it into a nice RE carbonates concentrate which the next person down the chain will pay for. Excellent.
The economic problem we can see so far is that it’s not possible to do this in the volume required to make much difference to a company of UUUU’s size. But, if we add an owned and large source of monazite, maybe this will work?
And maybe it will. But before we go off whooping in excitement, we need to know something more about monazite.
Monazite
Monazite is a highly variable mineral. The content of the individual rare earths within it varies across sources. The range is an order of magnitude. We can have a factor of 10 difference in the presence, or not, of any one of the rare earths in any particular source of monazite. It’s entirely true that, on average, monazite is higher in Nd/Pr than bastnaesite is. But it’s still possible to have 200 ppm to 2000 pp, Nd/Pr amounts in the monazite (this is in the mineral, not the concentrate, also, this is for each of them, so adding together perhaps 300 to 3,000).
Something very important to understand is that the Nd/Pr portion in the concentrate is not something we can change through processing. It’s something determined by the original ratios in the original monazite.
So, if we have monazite that is originally low in Nd/Pr then our concentrate will be low in Nd/Pr. And, given that processing cost, possibly our concentrate will be worth nothing.
We can even back calculate this. If the Dy/Tb is worth $5, the processing cost is $20, then concentrate with 20% Nd/Pr is worth $9,000 a tonne ($120x 20%, plus $5 Dy/Tb, minus $20 processing cost all per kg). Or, at 15% Nd/Pr, $3,750 per kg, or at 10% it’s valueless – or has a negative value perhaps.
This is before we even start to look at the variability of the Nd/Pr price off into the future.
So…..
So, the thing we need to know about this Brazilian monazite is what’s the Nd/Pr content in the original mineral? This isn’t something I’ve seen released as yet, and it’s something that’s vital to the potential success of the project.
Why I might be wrong
Given the issue of Energy Fuels being a uranium mill, it’s entirely possible that whatever is said about, or done, with rare earths will be a side issue. Those who know more about uranium than I do are the people whose views you should take on that issue.
I am here only applying what I know about rare earths to what Energy Fuels is trying to do with rare earths.
My view
I do, as I’ve been saying for a couple of years now, think that Energy Fuels is optimizing its use of extant assets in the rare earths market. As I keep saying, if I were them I’d be doing exactly the same things.
They can indeed process monazite into a useful rare earth concentrate, for which there is a market. The big issue now is gaining access to sufficient monazite to run at capacity, thereby be of a size that is interesting for a company of this valuation.
And that’s where I want that one more piece of information. What’s the Nd/Pr level in that to be purchased Brazilian monazite. For it’s not obvious that it’s worth anything at all, let alone economic.
The investor view
It’s probably true that UUUU should be judged on the uranium market. But for those looking at it through the rare earth lens, the thing we want to know if what’s the percentage of those two pay metals, Nd and Pr, in those Brazilian mineral sands?
Without that, a valuation of that deal isn’t really possible.
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