America's National Security Blind Spot: Uranium and Rare Ear
NEW YORK, April 21, 2020 /PRNewswire/ -- Reliance on foreign and malign sources for critical materials is a national security risk. Though the United States is by far the largest consumer of uranium in the world, the country imports nearly 100% its uranium, much from state-owned foreign sources, strangling domestic suppliers and creating a hazardous situation for the U.S. supply chain and electrical grid. Many Americans may well know of the country's near-100% dependence on China for critical rare earth elements. However, most may not realize that America is also nearly 100% dependent on uranium imports — Increasingly imported from entities owned by the governments of Russia, China and their allies. Like rare earth elements, uranium is designated by the U.S. government as critical to the nation's security and economic prosperity, and the Department of Interior warned, "This dependency of the United States on foreign sources [of uranium] creates a strategic vulnerability for both its economy and military to adverse foreign government action, natural disaster, and other events that can disrupt supply of these key minerals." Energy Fuels Inc. (NYSE: UUUU) (TSX: EFR) (UUUU Profile), the United States' leading domestic producer of uranium, has led the charge in efforts to warn the U.S. government about the security threats to uranium supply chain disruption, and also recently announced that it is working to help bring rare earth processing back to the U.S. by leveraging its White Mesa Mill. If the U.S. fails to act, 20% of the nation's electricity — and 55% of its clean, carbon-free electricity — may become hostage to malign foreign sources of uranium, and recent events show that any supply chain disruption, malicious or well-intentioned, can have a devastating impact. Major companies across all segments have recognized the importance of streamlining supply chains, including Tesla (NASDAQ: TSLA), a company that relies on rare earth elements (REEs) to power its vehicles. Reliable, low-cost sources for uranium production exist in the United States, as well as from free-market allies. Canada-based Cameco (TSX: CCO) (NYSE: CCJ) is one of the largest global providers of the uranium fuel needed to produce clean energy, and Australian BHP Group (NYSE: BHP) provides needed minerals across the globe. Headquartered in Phoenix, Arizona, leading international mining company Freeport-McMoRan (NYSE: FCX) conducts a significant mining operation in North America, specializing in copper, gold, and molybdenum. The United States and its allies have the resources and know-how to produce uranium and rare earths, and it's time to end risky market dominance by Russian and Chinese state-owned and subsidized enterprises.
Policy Makers Urged to Consider Domestics
The current global health crisis has revealed the nation's Achilles heel of dependency on foreign sources for critical materials. America's reliance on crucial medicines and supplies from adversarial nations such as China has sounded the alarm for U.S. policy makers to think and plan smarter. The current crisis has also shown that the U.S. has a dangerous reliance on certain foreign sources of critical minerals and energy. Most people know about the country's extreme reliance on China for REEs, which are found in products as varied as cell phones, electric vehicles, wind turbines and military systems that defend America. Not as many people know that the country is now nearly 100% reliant on imports of uranium for its nuclear power plants. If nothing changes, over 50% of this uranium and nuclear fuel may come from state-owned entities in Russia, Kazakhstan, Uzbekistan, and China in just a few years.
U.S. nuclear power plants currently generate 55% of the nation's carbon‐free electricity and produce nearly 20% of the nation's overall electricity needs. In fact, nuclear power is the only currently available and affordable low-carbon power source that meets significant baseload electricity demands, simultaneously reducing air pollution and providing a viable solution to climate change. As global electricity demand continues to soar, nuclear power has been shown in multiple scientific studies to be the cleanest and most economical way to produce reliable electricity. According to the World Nuclear Association (WNA), there are 441 operable reactors globally, with another 54 units under construction and 439 in various stages of planning; in addition, the WNA has identified a potentially massive gap in uranium supply and demand through 2040 of 1 billion pounds. Further increases in global electricity demand could easily spur significant new nuclear power development, including the commercialization of small modular reactors in the next few years. These potential demand drivers indicate that the United States' uranium appetite is only increasing, yet the country is becoming increasingly dependent on adversarial sources for this critical mineral.
Hope on the Horizon for Domestics
Few other companies have been more proactive or outspoken about supply chain risks than Energy Fuels Inc. (NYSE: UUUU) (TSX: EFR). Based in Lakewood, Colorado, Energy Fuels is the country's largest producer of uranium and the leading conventional producer of vanadium—both designated as critical minerals by the U.S. government. Energy Fuels' uranium production portfolio looms large in the U.S., boasting more uranium production facilities, more production capacity and more in-ground resources than any other domestic uranium producer. In fact, the company's assets have produced over one-third of all U.S. uranium over the past 15 years, making Energy Fuels uniquely positioned to quickly increase production to meet increased demand.
Energy Fuels has seen success in its efforts to convince the U.S. government of the strategic importance of the domestic uranium mining industry. President Trump's recently announced FY-2021 executive budget request allocates $150 million per year for the next 10 years to create a strategic U.S. uranium reserve. This funding is expected to provide considerable support to established U.S. uranium producers such as Energy Fuels, and significantly enhances the security and independence of the nation's electric supply. This $1.5 billion strategic initiative comes on the heels of a July 2019 Presidential Memorandum that ordered the creation of the U.S. Nuclear Fuel Working Group to "examine the current state of domestic nuclear fuel production to reinvigorate the entire nuclear fuel supply chain, consistent with United States national security and nonproliferation goals." The working group has not released its findings, but it is believed that government actions are now underway to protect vital U.S. uranium infrastructure, spur domestic production and preserve the country's energy independence.
Expertise and Assets Built for Scale
As the country's leading diversified uranium miner, Energy Fuels is uniquely positioned to capitalize on these initiatives. Energy Fuels utilizes both conventional and in-situ recovery (ISR) technology to produce uranium from three strategic facilities:
- The highly strategic White Mesa Mill in Utah is the only conventional uranium mill in the U.S. and is centered around the largest and highest-grade conventional uranium mines and projects in the country. The White Mesa Mill has a licensed capacity to produce over 8 million pounds of U3O8 per year and provides immediate scalability as uranium demand increases. The White Mesa Mill also has other diverse business opportunities, including being the only facility in North America capable of recycling uranium-bearing alternate feed materials and vanadium production (Energy Fuels was the leading U.S. producer of vanadium in 2019) which is essential in production of high-grade steel and holds promise in high-capacity batteries. Evaluations are also currently underway to utilize the mill in processing of critical rare earth elements (REEs).
- Nichols Ranch Plant (ISR) is in the productive Powder River Basin district of Wyoming and has a total licensed capacity of 2 million pounds of U3O8 per year. Nichols Ranch has produced 1.2 million pounds of U3O8 since commissioning in 2014, and it has significant future expansion potential from 34 fully licensed wellfields containing significant in-ground uranium resources.
- Located on over 200,000 acres of private land in Texas, the fully licensed and constructed Alta Mesa Plant (ISR) has a total operating capacity of 1.5 million pounds of uranium per year and produced nearly 5 million pounds of U3O8 between 2005 and 2013. This low-cost production facility is currently on standby, maintained in a state of readiness to respond to expected increases in demand.
Energy Fuels' portfolio of production facilities and resources poises the company to significantly benefit from strategic government initiatives, increasing global demand and increasing global prices. The company possesses both expertise and assets that can be immediately scaled to capitalize on the impending opportunity. As of Dec. 31, 2019, the company had a war chest of $17.7 million in cash and marketable securities, as well as an additional $22.8 million of immediately marketable inventory, including 515,000 pounds of uranium and 1.6 million pounds of vanadium. Increasing commodity prices in 2020 so far have significantly increased the value of this inventory. In 2020, Energy Fuels added an additional $19.1 million of cash to its treasury.
Not only does Energy Fuels stand to benefit from the government's shift toward domestic uranium production, but the company also recently announced its intent to evaluate the production of REEs at its White Mesa Mill. Subject to the program's success, the mill will be utilized to receive and process multiple varieties of REE ores—a task which, historically, could only be completed with the help of Chinese state-owned companies. The U.S. government has designated REEs as vital in the nation's national defense strategy and—similar to its focus on domestic uranium production—intends to designate funds to empower private American companies to develop REE production. Energy Fuels' latest initiative places it in an advantageous position to assist the country in lessening its dependence on Chinese companies for the processing of REEs. The company believes REE production, alongside its leadership in uranium production, will fortify its already strong industry position.
Emerging Opportunities for Uranium Producers
Nearly all the uranium that fuels the United States' nuclear power plants is imported, placing 20% of the nation's power output in jeopardy. Historically, these imports mainly came from free-market allies such as Canada and Australia. However, in the coming years, uranium imports are expected to mainly come from Russian and Chinese sources whose state-owned companies flood the global market, drive free-market companies out of business and threaten national security—but there is hope on the horizon. With new government initiatives in motion, America's strategic uranium supply chain will be secure and free from foreign influence. These initiatives have the potential to spur a resurgence in uranium markets and an abundance of new opportunity for companies such as Energy Fuels. However, the global uranium equity market is concentrated and relatively small. There are a few uranium explorers and developers, but they require many years of licensing and hundreds of millions of dollars to get permits, build infrastructure, and achieve production status. While there are only limited opportunities to directly participate in proven producers, Energy Fuels is one of those proven uranium producers, with assets and capabilities that are truly unmatched in the country today.
Looking Ahead to Secure Supply
Major companies across all segments have recognized the importance of streamlining supply chains, and some stand to benefit from the country's prioritization of domestic production, including:
Tesla (NASDAQ: TSLA), which recently participated in a blockchain pilot to see whether the technology could accelerate its cargo pick-up procedures, has been passionate about intensifying its competitive edge by vertically articulating its supply chain. CEO Elon Musk's strategy has been used as a blueprint by others in the business community for achieving an efficient, streamlined supply chain. Similar attention to America's supply of rare earth elements—including efforts to shore up its supply—must be addressed to ensure the continuity of the United States' clean power supply.
Canada-based Cameco (TSX: CCO) (NYSE: CCJ) is one of the largest global providers of the uranium fuel needed to energize a clean-air world. The company's competitive position is based on a controlling ownership of the world's largest high-grade reserves and low-cost operations. Utilities around the world rely on nuclear fuel products to generate power in safe, reliable, carbon-free nuclear reactors.
With global headquarters in Melbourne, Australia, BHP Group (NYSE: BHP) is a world-leading resources company. The company extracts and processes minerals, oil and gas, and has more than 72,000 employees and contractors, primarily in Australia and the Americas. Company products are sold worldwide, with sales and marketing led through Singapore and Houston, Texas.
Freeport-McMoRan (NYSE: FCX) is one of the world's largest publicly traded copper producers. Operating seven open-pit copper mines in North America, the company reports significant undeveloped North American reserves and resources. With a portfolio of potential long-term development initiatives, FCX shows potential to benefit from the United States' refocused efforts on domestic producers.
As the United States government recognizes the importance of avoiding overreliance on foreign and malign sources for critical materials, major domestic companies stand to benefit.
For more information about Energy Fuels, please visit Energy Fuels Inc. (NYSE: UUUU) (TSX: EFR).
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