Uranium And Rare Earth Projects May Face Delays Yet Long-Term Demand Should Ultimately Reward Patience

Catalysts

About Energy Fuels

Energy Fuels is a U.S. based producer of uranium and rare earth elements with integrated mining and processing assets.

What are the underlying business or industry changes driving this perspective?

• Although uranium production is ramping toward 2 million pounds per year at improving grades and lower unit costs, any operational disruption at Pinyon Plain or delays in bringing additional mines online could stall the expected decline in cash costs per pound and limit gross margin expansion.
• Despite strong progress in rare earth piloting and validation of NdPr for major automakers, slower than anticipated commercialization of heavy rare earth separation or difficulty securing premium, long term offtake could delay the anticipated high margin revenue contribution from the White Mesa Phase 2 plant.
• While the Donald project in Australia is shovel ready with conditional financing support and high value monazite, extended negotiations over offtake terms or construction cost escalation could postpone first deliveries past 2027 and weaken the projected uplift to consolidated revenue and free cash flow.
• Although global demand for non China critical minerals and nuclear fuel is rising, prolonged permitting or political setbacks at Toliara in Madagascar or Bahia in Brazil could limit access to low cost heavy mineral sands feed, constraining long run scale and reducing earnings leverage to higher rare earth prices.
• While the company has raised low cost convertible capital and targets roughly 50 percent of uranium volumes under term contracts, misjudging the balance between contracted and uncontracted volumes or an extended period of sub economic spot prices would risk lower realized pricing and thinner net margins than current plans assume.

Assumptions

This narrative explores a more pessimistic perspective on Energy Fuels compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Energy Fuels's revenue will grow by 40.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -124.2% today to 29.4% in 3 years time.
• The bearish analysts expect earnings to reach $64.4 million (and earnings per share of $0.22) by about December 2028, up from $-97.8 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $114.0 million.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 102.7x on those 2028 earnings, up from -36.1x today. This future PE is greater than the current PE for the CA Oil and Gas industry at 14.9x.
• The bearish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.45%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Delays or cost overruns in bringing the Phase 2 rare earth separation plant, Donald, Toliara and Bahia projects into full commercial operation could push back the expected shift from negative to sustainably positive earnings, while higher than anticipated capital intensity would dilute returns on invested capital and pressure free cash flow and net margins.
• Over the long term, rare earth and uranium prices may not sustain the current premium levels outside China or could fall if new global supply comes online faster than demand from electric vehicles and nuclear builds. This would compress realized selling prices, limit revenue growth and cap gross margin expansion from both uranium and NdPr heavy rare earth sales.
• Political and permitting risk in jurisdictions like Madagascar and Brazil, alongside evolving environmental and community expectations around projects such as Toliara and Pinyon Plain, could restrict access to key heavy mineral sands and uranium feed. This would reduce achievable production volumes and undermine the scale assumptions behind revenue growth and future operating leverage.
• Reliance on successful qualification and long term offtake agreements with a concentrated set of downstream partners for NdPr and heavy rare earths, as well as strategic support from governments, introduces counterparty and policy risk over a multi decade horizon. Slower offtake conversion or shifting industrial policy would dampen utilization of the expanded White Mesa capacity, lowering revenue and delaying margin improvement.
• Although the company currently benefits from inexpensive convertible financing and a strong working capital position, expanding the project pipeline and potential acquisitions across uranium, rare earths and heavy mineral sands raises the risk of future dilution or higher cost debt if market conditions tighten. This would increase financial leverage, weigh on earnings per share and reduce the equity value created from long term growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Energy Fuels is CA$26.0, which represents up to two standard deviations below the consensus price target of CA$33.62. This valuation is based on what can be assumed as the expectations of Energy Fuels's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$44.0, and the most bearish reporting a price target of just CA$26.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be $218.6 million, earnings will come to $64.4 million, and it would be trading on a PE ratio of 102.7x, assuming you use a discount rate of 6.4%.
  
• Given the current share price of CA$20.51, the analyst price target of CA$26.0 is 21.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.