So, we’re all aware of the twin things all are saying about rare earths – the 15 lanthanides plus yttrium and scandium. They’re essential for all these lovely new and renewables technologies so we need to have more of them. Further, since China produces some 70% of global supply then there has to be significant production outside that country. We can’t rely upon them now, can we?
My own opinion, knowing the business, is that sure we can but that’s not how politics works. So, as with MP Materials (NYSE:FVAC) and also Lynas (OTCPK:OTCPK:LYSCF) (OTCPK:OTCPK:LYSDY) there’s excitement at the idea that people will be producing outside China. There are other more junior (which, as a technical phrase here, generally means “not producing yet”) miners out there trying to gear up and a substantial program from the US government to encourage more domestic production.
Energy Fuels (NYSEMKT:)
It has to be admitted that Energy Fuels is looking pretty bombed out:
Note that the lack of profits – even, of income – isn’t related just to this year and Covid. It’s a longer running problem than that – the uranium business hasn’t been good to them. However, they’ve done a capital raise and the balance sheet looks pretty good for a company this size:
Something clearly needs to be done if the company is to have even a medium term, let alone long term, future.
Rare earths mining
So, let me explain what the problems are with rare earths mining. Firstly we need to know that they’re not rare and they’re not earths. After that we need to know that they’re common as a byproduct of other mining processes. Many mineral sands (for zirconia for example, but for other minerals as well) could have a waste or byproduct that contains rare earths. Those vast Florida phosphate operations have rare earths in them. Or, rather, it’s possible to extract rare earths from their wastes.
We can go on. There’s often a fraction of the wastes from uranium mining that contains rare earths. I myself have worked on – by which I mean spent some of my own, real, money to pay scientists to investigate – some of the wastes from alumina production. A source which could supply all the rare earths the US desires.
Then there are more minor amounts in tin slags, in tantalite wastes and so on and so on. There really are many different places we can get some amount of rare earths from.
Our problem is radioactivity. As it happens it’s thorium that’s the real problem here. It’s not very radioactive and it can be dealt with in a technical sense. It’s the legal sense that is difficult. There’s just such a societal worry about radiation that the rules around it are very strict. Hey, maybe they should be that strict too but that’s not the point here. What is the point is that it’s very difficult to undertake any mining operation where there might be some collection, output or even concentration of thorium. Just because it’s darn near impossible to gain a licence to be able to process it, or dispose of it.
As I say, maybe this is correct, maybe it isn’t, but that’s all politics and environmentalism. For us as investors we just want to know what the effect of this is.
And do note this is a real problem. The last closing of the Mountain Pass mine (which is now MP Materials) but one was about this issue. Leakage of thorium into the surrounds of the mine back in 2002 or so. Hmm, perhaps not caused by but certainly not aided by.
Radioactivity is an important constraint here, a really important constraint.
For the ores which are low in thorium are rather rarer than those with interesting amounts. Further, in processing, thorium tends to travel along with the rare earths. This can be a complete b**ch when trying to process scandium but it affects other rare earths too (I have a sample of early scandium where the thorium content is 40%. Back in the 1950s no one really had worked out how to separate the two). What you tend to end up with therefore is the thorium concentrating along with the rare earths.
This is a problem because if we have, say, 50 parts per million Th in the original material and then 55 ppm in the wastes then that’s fine. We can dispose of the wastes pretty much how we wish. But if the Th moves with the rare earths, which were 10% of the original material, now we’ve a 500ppm Th content in the rare earth concentrate. Meaning that we can’t ship that concentrate to anyone. And even if we could extract the Th – which we can – we’ve now a nearly pure Th to dispose of. An expensive thing to do and one that is near impossible to gain a new licence to do.
I speak with a certain amount of experience here, there was one year (decades back) when I did 100% of the thorium trade inside the United States. All 13 lbs of it (yes, thirteen pounds). At one point I had to rent an 18 wheeler truck with a police car outrider just to move an 18 lb bar of thorium. The regulations are possibly just and righteous, possibly excessive, but they do exist.
We can find monazite in many different places. In waste streams from all sorts of processes. But we will usually – not entirely always but usually – run into this radioactivity problem. We know how to process it, we know – as a society this is – what to do and all that. It’s just that the rules of the surrounding society make it near impossible to do it. Because of the lightly radioactive nature of that monazite and what we do with the radioactive component after processing.
Actually, if you look around hard enough you could probably find people who would pay you to take their radioactive monazite away. I have been involved in a plan where something slightly different happened. Material that contained rare earths had a negative price because of the radioactive nature. It was possible to extract the rare earths and sell them on.
There’s a reason why Mountain Pass is such a desirable mine. The ore there is bastnasite, much lighter in these radioactives like thorium.
OK, so, a plan
If we were to try to enter the rare earths market then we’d take stock of much of the above. Everyone wants there to be production in the US. OK, that’s fine. We’re going to make a concentrate – the processing plant to make the individual rare earths is too big an idea for us. Plus, someone else is starting to build a domestic one of those. But we’d like to find some clever method of being able to get around this radioactivity problem. If we could that is. So that we can take the monazite which is already around rather than having to dig our own mine.
It’s usually better to process someone else’s below market price waste than it is to have to produce your own stuff after all.
We can start our plan from the other way around. Say we were a uranium mill. That business is pretty bust and has been for some years. The future doesn’t look so hot either. So, what have we got? Well, we’ve a plant that can process material containing radioactives. We know how to get the uranium (and the thorium, the radium) out of materials. That’s what our plant was built for after all.
Much more importantly, we’ve already got all the licences necessary to be able to take in radioactive materials and work on them. More even than that – we’ve space out on the back 40 which is licenced for the storage of radioactives extracted from mineral streams. And that’s what we’ve got that no one else in the US does have.
We’ve the already licenced ability to extract rare earths from lightly radioactive ores that is. Something no one else can do. Not without spending a fortune on the long pursuit of the appropriate licences.
And guess what? Our raw material is something that already exists, is sitting around as a waste from other peoples’ processes, and we’re just about the only people who are allowed to touch it.
Which is actually the plan here.
Energy Fuels is the only licenced and operating uranium mill in the country. They, most importantly, have storage space and storage licences for the radioactive wastes from the processing. There’s monazite out there:
Energy Fuels would process a minimum of 2,500 tons/year of natural monazite sands, recover the contained uranium, and produce a marketable mixed rare earth element carbonate, “representing an extremely important step toward re-establishing a fully-integrated U.S. REE supply chain.”
In fact, we’ve just got what used to be the titania business of DuPont to agree to send us some of their monazite.
Here’s the joy of this. We know we can extract the rare earths. Our raw material is cheap because no one else domestically can really use it. We’ve a moat around our business precisely because no one else – not in less than geological time – is going to get another set of the necessary licences. We’re grandfathered in and the probability of a new set being granted is exceedingly low.
The result of all of this is we’ll be producing those domestic rare earths that everyone wants.
If I were to try and enter the US rare earths market (recall, I did used to be in the associated scandium business) this is what I’d be trying to do. Work out a way of using the waste products from other processes. For it is indeed well known that there are rare earths in many of them. The problem to be overcome would be that radioactivity problem.
This is exactly what Energy Fuels has just achieved.
Now, there’s a lot dependent upon their ability at execution here and as we don’t know their input price for the monazite we can’t even begin to guess at margins. But there’s an awful lot of possible material out there for them to process – the Florida phosphates industry has mountains of the stuff, literally mountains. It would be an even bet as to whether those waste piles are the highest points of peninsular Florida or not in fact.
Energy Fuels has cracked a significant problem here. There is no logical reason why the plan won’t work. They should be a great deal cheaper than new mines trying to produce rare earth concentrates.
As I say, whether or not it really works out that way depends upon execution. But logically it should work.
The investor view
I see this as a solid idea. It’s too early to be able to say that it’s really going to work – we don’t know those margins and no one really will until this first couple of thousand tonnes has been processed. However I can see there being at least the possibility of a substantial rise in the stock price as the market absorbs all of the above.
Yes, we can think of this as an attempt at a Hail Mary pass by an old uranium mill. It might even be that. But it’s also true that there’s cheap ore about, that no one else can process, but Energy Fuels can. I predict a run upwards in the stock as this message sinks in more generally.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.