Energy Fuels Inc: Form 10-Q for the period ended Sep 30, 2023

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related notes, which have been prepared in accordance with U.S. GAAP, included elsewhere in this Quarterly Report on Form 10-Q. Additionally, the following discussion and analysis should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the audited consolidated financial statements included in Part II of our Annual Report on Form 10-K for the year ended December 31, 2022. This Discussion and Analysis contains forward-looking statements and forward-looking information that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors. See “Cautionary Statement Regarding Forward-Looking Statements.”

All dollar amounts stated herein are in U.S. dollars, except share and per share amounts and currency exchange rates unless specified otherwise.

Operations Update and Outlook for 2023

Overview

We responsibly produce several of the raw materials needed for clean energy and advanced technologies, including uranium, rare earth elements (“REEs”) and vanadium.

Our primary product is U3O8 (also known as natural uranium concentrate or yellowcake), which, when further processed, becomes the fuel for the generation of clean nuclear energy. According to the Nuclear Energy Institute, nuclear energy provides nearly 20% of the total electricity and about 50% of the clean, carbon-free electricity generated in the U.S. The Company generates revenues from extracting and processing materials for the recovery of uranium, vanadium and REEs for our own account, as well as from toll processing materials for others.

Our natural uranium concentrate is produced from multiple sources:

• Conventional recovery operations at the White Mesa Mill (the “White Mesa Mill” or “Mill”), including:
• Processing ore from uranium mines; and
• Recycling of “Alternate Feed Materials,” which are uranium-bearing materials that are not derived from conventional ore; and
• In Situ Recovery (“ISR”) operations.

The Company is also producing an intermediate REE product called mixed “RE Carbonate.” In 2020, the Company began evaluating the potential to recover REEs at the Mill. By October 2020, the Company had produced a mixed RE Carbonate, ready for separation, on a pilot scale from natural monazite sands. In December 2020, the Company entered into a contract to acquire natural monazite sands from a heavy mineral sands operation in Georgia, for the recovery of uranium and production of a commercially salable mixed RE Carbonate containing approximately 71% total rare earth oxide (“TREO”) on a dry basis. In March 2021, the Company began ramping up commercial-scale production of mixed RE Carbonate from these natural monazite sands. In July 2021, the Company announced the signing of a definitive supply agreement and began commercial shipments of RE Carbonate to a separation facility in Europe, which is the next step in producing usable REE products. On February 10, 2023, the Company closed on its previously announced mineral rights transfer agreements to acquire 17 mineral sand concessions in the State of Bahia, Brazil totaling approximately 37,300 acres or 58.3 square miles (the “Bahia Project”). Based on significant historical drilling performed to date, it is believed that the Bahia Project holds significant quantities of heavy minerals, including monazite, that will feed Energy Fuels’ quickly emerging U.S.-based REE supply chain. See “Rare Earth Element Initiatives,” below for more information.

The Company is in discussions with other entities around the world to acquire additional supplies of natural monazite sands and has worked with U.S. government agencies and national laboratories on various REE initiatives. The Company is modifying and enhancing its existing solvent extraction (“SX”) circuits at the Mill to be able to produce fully separated REE oxides, including NdPr oxide, in addition to uranium, as soon as early-2024. The Company is also evaluating other downstream REE activities, including metal-making and alloying at the Mill or elsewhere in the U.S., and is evaluating the potential for federal grants to help fund such efforts.

The Company also has a long history of conventional vanadium recovery at the Mill. The Company has several existing mines that contain vanadium resources, and the Mill has produced considerable quantities of vanadium during its operating history. From late 2018 to early 2020, the Company completed a campaign to recover vanadium from solutions in the tailings management system at the Mill (“Pond Return”) from which it recovered over 1.8 million pounds of high-purity V2O5.

Finally, pursuant to a strategic alliance with a technology development company, the Company is evaluating the feasibility of recovering radioisotopes from the Mill’s existing process streams for use in the development of medical isotopes for the potential treatment of cancer. This involves evaluating the potential to recover Th-232, and Ra-226 from the Company’s existing RE Carbonate and uranium process streams at the Mill and the feasibility of recovering Ra-228 from the Th-232, Th-228 from the Ra-228 and concentrating Ra-226 at the Mill. Recovered Ra-228, Th-228 and Ra-226 would then be sold to pharmaceutical companies and others to produce Pb-212, Ac-225, Bi-213, Ra-224 and Ra-223, which are the leading medically-attractive targeted alpha therapy (“TAT”) isotopes for the treatment of cancer. Existing supplies of these isotopes for TAT applications are in short supply, and methods of production are costly and currently cannot be scaled to meet the demand created as new drugs are developed and approved. This is a major roadblock in the research and development of new TAT drugs as pharmaceutical companies wait for scalable and affordable production technologies to become available. Under this initiative, the Company has the potential to recover valuable isotopes from its existing process streams for use in treating cancer, thereby recycling back into the market valuable materials that would otherwise not be recoverable.

The Mill, located near Blanding, Utah, processes ore mined from the Four Corners region of the United States, as well as Alternate Feed Materials that can originate worldwide. The Mill is the only operating conventional uranium mill in the U.S. and the only operating facility in the U.S. with the ability to recover vanadium from primary ore sources. The Mill is licensed to process an average of 2,000 tons of ore per day and to produce approximately 8.0 million pounds of U3O8 per year.

For the last several years, no mines have operated commercially in the vicinity of the Mill due to low uranium prices. As a result, in recent years, Mill activities have focused on processing Alternate Feed Materials for the recovery of uranium under multiple toll processing arrangements, as well as Alternate Feed Materials for our own account. Additionally, in recent years, the Mill has recovered dissolved vanadium through its Pond Return program from the Mill’s tailings management system that was not fully recovered during the Mill’s prior forty years of operations. During the nine months ended September 30, 2023, Mill activities focused primarily on processing monazite sands for the recovery of uranium and production of RE Carbonate and on construction of the modifications and improvements in the Mill’s SX building required to begin commercial REE separation in early 2024. The Company is actively pursuing additional monazite sands and Alternate Feed Materials for processing at the Mill.

The Company continues to pursue additional sources of feed materials for the Mill. For example, a significant opportunity exists for the Company to participate in the clean-up of abandoned uranium mines in the Four Corners Region of the U.S. The U.S. Justice Department and Environmental Protection Agency announced settlements in various forms in excess of $1.5 billion to fund certain cleanup activities on the Navajo Nation. Additional cleanup settlements with other parties are also pending. Our Mill is within economic trucking distance, and is uniquely positioned in this region, to receive uranium-bearing materials from these cleanups and recycle the contained U3O8, while, at the same time, permanently disposing of the cleanup materials outside the boundaries of the Navajo Nation in our licensed tailings management system. There are no other existing facilities in the U.S. capable of providing this service. During 2019 to 2022, the Company received shipments of material generated in the cleanup of a large, historically producing conventional uranium mine located in northwest New Mexico. In addition to generating revenue for the Company, this project demonstrates the ability of the Mill to responsibly cleanup projects similar to those on the Navajo Nation.

The Company’s ISR operation is its Nichols Ranch Project in Wyoming, which is on standby at current uranium prices.

While the current spot price of uranium has not supported production for many global uranium producers over the past several years, having resulted in significant production cuts, the spot price of uranium has improved in recent years to levels that we believe could support production if these prices are sustained and result in long-term supply contracts with nuclear utilities. To date, the Company has entered into three long-term contracts with U.S. nuclear utilities with deliveries that began during the second quarter of 2023 and will occur through 2030 at supportive pricing and other terms. In anticipation of potential price recoveries and additional contracts, we continue to maintain and advance our resource portfolio. We stand ready to resume wellfield construction and resume production at our Nichols Ranch Project and mine and process resources from our La Sal Project, Whirlwind Project and/or Pinyon Plain Project. We expect to begin ore production at at least one of these mines in early 2024, which will be stockpiled at the White Mesa Mill until such time that sufficient material is accumulated to justify a mill campaign, which is expected to occur in late-2024 or early-2025. We believe we can bring additional new production from other conventional mines, and/or Nichols Ranch to market within approximately twelve to eighteen months of a positive production decision. Longer term, we expect to develop our large conventional mines at Roca Honda and/or Sheep Mountain.

Update on Rare Earth Element Initiative

As previously disclosed, in early 2022, the Company began commercial-scale partial separation of lanthanum (“La”) and cerium (“Ce”) on a small scale from our RE Carbonate, resulting in a higher-value carbonate (“Partially Separated RE Carbonate”) using an existing SX circuit at the Mill, which represents the first commercial level REE separation to occur in the U.S. in many years. The Partially Separated RE Carbonate, which is now our salable product, is a more advanced RE Carbonate than was produced in 2021, as it contains a higher concentration of valuable neodymium and praseodymium (“NdPr”) (“High Value TREO”). As a part of the construction on the modifications and improvements at the Mill to enable the production of NdPr oxide, the existing SX circuit previously used to produce Partially Separated RE Carbonate has been dismantled, as it is no longer needed.

Rare Earth Element Initiatives

The Company is in advanced discussions with several groups holding natural monazite properties to secure additional supplies of monazite sands by offtake or otherwise, which if successful, would be expected to allow the Company to produce larger quantities of RE Carbonate, along with separated REE oxides in the future.

The Company continues to make progress toward full REE oxide separation capabilities at the Mill to produce both “light” and “heavy” separated REE oxides. The Company previously separated La and Ce from its commercial RE Carbonate stream utilizing existing Mill infrastructure to produce a Partially Separated RE Carbonate product with higher concentrations of NdPr and “heavy” (samarium (“Sm”)+) REEs. Energy Fuels is also proceeding with the modification and enhancement of its existing Mill infrastructure (“Phase 1”) to expand its “light” REE separation facilities to be capable of producing commercial quantities of separated NdPr oxide by early 2024, followed by planned further expansions to further increase NdPr production capacity and to produce separated dysprosium (“Dy”), terbium (“Tb”) and potentially other REE materials in the future (“Phase 2”) from monazite and potentially other REE process streams.

In 2022, the Company began construction on its “Phase 1” REE separation facilities, which includes modifications and enhancements to the SX circuits at the Mill. “Phase 1” is expected to have the capacity to process approximately 8,000 to 10,000 tonnes of monazite per year, producing roughly 4,000 to 5,000 tonnes TREO, containing roughly 800 to 1,000 tonnes of recoverable separated NdPr oxide per year, or sufficient NdPr for approximately 400,000 to 1 million EVs per year. Because Energy Fuels is utilizing existing infrastructure at the Mill, “Phase 1” capital is expected to total approximately $25 million. “Phase 1” is expected to be operational in early 2024, subject to receipt of sufficient monazite supply and successful construction and commissioning.

During “Phase 2,” Energy Fuels expects to expand its NdPr separation capabilities with an expected capacity to process approximately 15,000 to 30,000 tonnes of monazite per year and expected recovery of approximately 7,500 to 15,000 tonnes of TREO containing approximately 1,500 to 3,000 tonnes of NdPr oxide per year, or sufficient NdPr for 750,000 to 3.0 million EVs per year. “Phase 2” is also expected to add a dedicated monazite “crack-and-leach” circuit to the Mill’s existing leach circuits. The Company expects to complete “Phase 2” in 2026/2027, subject to licensing, financing and receipt of sufficient monazite feed.

During “Phase 2,” Energy Fuels also expects to add “heavy” REE separation capabilities, including the production of Dy, Tb and potentially other REE oxides and advanced materials. The Company will also evaluate the potential to produce La, Ce and possibly other REE products. The Company expects to have additional “heavy” REE feedstock stockpiled from “Phase 1” and “Phase 2” as feed for “Phase 3” REE separation. The Company expects to complete “Phase 3” in 2027/2028, subject to licensing, financing, and receipt of sufficient feed.

In addition, the Company completed its purchase of the Bahia Project in Brazil on February 10, 2023. The Bahia Project is a well-known heavy mineral sand (“HMS”) deposit that has the potential to supply 3,000-10,000 tonnes of natural monazite sand concentrate per year for decades to the Mill for processing into high-purity REE oxides and other materials. While Energy Fuels’ primary interest in acquiring the Bahia Project is the REE-bearing monazite, the Bahia Project is also expected to produce large quantities of high-quality titanium (ilmenite and rutile) and zirconium (zircon) minerals that are also in high demand.

Natural monazite of 3,000-10,000 tonnes is expected to contain approximately 1,500-5,000 tonnes of TREO, including approximately 300-1,000 tonnes of NdPr and significant commercial quantities of Dy and Tb. The Company is focused on monazite at this time, as it has superior concentrations of these four critical REEs compared to other REE-bearing minerals. These REEs are used in the powerful neodymium-iron-boron (“NdFeB”) magnets that power the most efficient electric vehicles (“EVs”), along with uses in other clean energy and defense technologies. For reference, a typical EV utilizes approximately one to two kilograms of NdPr oxide in its drivetrain. Based on this assumption, monazite from the Bahia Project alone is expected to supply enough NdPr oxide to power 150,000 to one million EVs per year. The uranium contained in the monazite, which is expected to be comparable in grade to typical Colorado Plateau uranium deposits, will also be recovered at the Mill.

The acquisition of the Bahia Project is part of the Company’s efforts to build a large and diverse book of monazite supply for its rapidly advancing REE processing business. The Company expects to procure monazite through Company-owned mines like the Bahia Project, joint ventures and/or other collaborations and open market purchases, such as the Company’s current arrangement with The Chemours Company. The Company is currently in advanced discussions with several additional current and future monazite producers around the world to supply Energy Fuels’ initiatives.

Known Trends or Uncertainties

The Company has had negative net cash flows from operating activities and net losses in previous years, in part due to depressed uranium and vanadium prices, along with low quantities of monazite to process into salable RE Carbonate, which has not allowed the Company to realize economies of scale. We are not aware at this time of any trends or uncertainties that have had or are reasonably likely to have a material impact on revenues or income of the Company, other than: (i) recent strengthening of uranium markets, which could result in the Company selling inventories and future production at increased prices and/or signing additional contracts with nuclear utilities for the long-term supply of uranium; (ii) U.S. government laws and programs, including a potential ban on Russian uranium imports and efforts to restore domestic nuclear fuel capabilities, which could result in improved uranium sales prices; (iii) volatility of prices of uranium, vanadium, REEs and our other primary metals; and (iv) the Company’s REE and TAT radioisotope initiatives, which, if successful, could result in improved results from operations in future years. We are not aware at this time of any events that are reasonably likely to cause a material change in the relationship between costs and revenue of the Company.

Continued Efforts to Minimize Costs

Although the Company is pursuing two new initiatives - its REE and TAT radioisotope initiatives - in addition to its existing uranium and vanadium products, which will require the Company to grow certain of its operations, the Company will continue to seek ways to minimize the costs of all its operations where feasible while maintaining its critical capabilities, manpower and properties.

Uranium Market Update

According to monthly price data from TradeTech LLC (“TradeTech”), uranium spot prices increased by 31% during the three months ended September 30, 2023 from $56.00 per pound as of June 30, 2023 to $73.15 per pound as of September 30, 2023. Weekly uranium spot prices per TradeTech during the third quarter ranged from a high of $73.15 per pound during the week of September 29, 2023 to a low of $55.30 per pound during the week of July 7, 2023. TradeTech price data indicates that long-term U3O8 prices increased from $56.00 as of June 30, 2023 to $60.00 as September 30, 2023. On October 27, 2023, TradeTech reported a spot price of $73.50 per pound and a long-term price of $62.00 per pound U3O8.

The following important developments in the uranium and nuclear industries occurred during the three months ended September 30, 2023:

• U.K.-based Urenco announced that it was expanding uranium enrichment capacity at its facility in New Mexico, including new centrifuge cascades. “New commitments from US customers for non-Russian fuel underpin this investment, which will provide an additional capacity of around 700 tonnes of SWU per year, a 15 percent increase at UUSA, with the first new cascades online in 2025,” according to Urenco. TradeTech, NMR, July 7, 2023.
• Vogtle Unit 3, owned by Georgia Power (a subsidiary of Southern Company) entered commercial operation in July 2023. This is the first new reactor in the U.S. in over 30 years. Final construction and testing continue on Unit 4, which is expected to enter operation in Q4-2023 or Q1-2024. TradeTech, NMR, July 31, 2023.
• Cameco announced that challenges at Cigar Lake and the McArthur River mine/Key Lake mill are expected to reduce its production forecast by approximately 1.7 million pounds and 1 million pounds of U3O8, respectively (2.7 million pounds total). TradeTech, NMR, September 8, 2023.
• Orano announced that it was placing its SOMAIR uranium mine in Niger into “maintenance mode” due to supply chain challenges caused, in part, by a coup d’etat. Orano stated that it has deployed teams at its Arlit and Akokan mines to ensure “business continuity.” TradeTech, NMR, September 15, 2023.
• Poland is advancing its nuclear program, with its first plant expected to be completed in 2023. As described in the Polish Nuclear Power Program, the nation expects to build up to six reactors in two to three sites by 2040. TradeTech, NMR, September 22, 2023.
• Kazakhstan, the world’s largest producer of uranium, announced plans to increase production in 2025. The strategy will be to return production at Kazakh mines to 100% of applicable subsoil use agreements, which equates to up to 15.6 million pounds of U3O8 per year. TradeTech, NMR, September 29, 2023.
• The China Nuclear Energy Association announced that China plans to produce approximately 10% of its electricity with nuclear by 2035. TradeTech, NMR, September 29, 2023.

The Company continues to believe that certain uranium supply and demand fundamentals point to higher sustained uranium prices in the future, including significant production cuts in recent years, along with significant increased demand from utilities, financial entities, traders and producers. Globally, the Company believes that nuclear energy is seeing greater acceptance by governments and policymakers as a solution to addressing the issues of climate change and energy security. The Company believes that financial entities purchasing uranium on the spot market for long-term investment continue to represent a fundamental shift in the uranium market due to increasing demand and removing readily available material from the market that would otherwise serve as supply to utilities, traders and others. Further, the Company believes that Russia’s ongoing invasion of Ukraine has sparked a widespread trend away from Russian-sourced nuclear fuel supply. The Company also continues to believe that a large degree of uncertainty exists in the market, primarily due to transportation issues, trade issues, the life of existing uranium mines, uncertainty on the timing and success of the commissioning of new mines, conversion and enrichment bottlenecks, the opaque nature of inventories and secondary supplies, unfilled utility demand, geopolitical risks including Russia’s ongoing invasion of Ukraine, and the market activity of state-owned uranium and nuclear companies.

No additional new uranium agreements were entered into by the Company during the three months ended September 30, 2023. However, the Company continues to closely monitor uranium markets and seek additional opportunities to enter into long-term sales contracts with utilities at prices that sustain production, cover overhead costs and provide a reasonable rate-of-return to investors while also providing the Company and its shareholders with exposure to further upside price movements. The Company plans to commence production at its Pinyon Plain mine in 2024 and is also continuing to evaluate its ramp-up back into production at certain of its conventional mines in anticipation of its fulfillment obligations, as well as the timing and method for the purchase and disposition of its uranium inventories, including selling into the spot market or as a part of one or more term contracts.

Rare Earth Element Market Update

REEs are a group of 17 chemical elements (the 15 elements in the lanthanum series, plus yttrium and scandium) that are used in a variety of clean energy and advanced technologies, including wind turbines, EVs, cell phones, computers, flat panel displays, advanced optics, catalysts, medicine and national defense applications. Monazite, the source of REEs currently utilized by the Company, also contains significant recoverable quantities of uranium, which fuels the production of carbon-free electricity using nuclear technology. According to industry analyst Wood-Mackenzie, most demand for REEs is in the form of separated REEs, “as most end-use applications require only one or two separated rare earth compounds or products.” (Roskill, Rare Earths, Outlook to 2030, 20th Edition). The main uses for REEs include: (i) battery alloys; (ii) catalysts; (iii) ceramics, pigments and glazes; (iv) glass polishing powders and additives; (v) metallurgy and alloys; (vi) permanent magnets; (vii) phosphors; and (viii) others (Adamas Intelligence). By volume, REEs used for permanent magnets (neodymium (Nd), praseodymium (Pr), dysprosium (Dy), and terbium (Tb)) and catalysts (cerium (Ce) and lanthanum (La)) comprised 60% of total consumption, yet over 90% of the value consumed.

Typical natural monazite sands from the southeast U.S. average approximately 55% TREO and 0.20% uranium, which is the typical grade of uranium found in uranium mines that have historically fed the Mill. Of the 55% TREO typically found in the monazite sands, the NdPr comprises approximately 22% of the TREO. NdPr is among the most valuable of the REEs, as it is the key ingredient in the manufacture of high-strength permanent magnets, which are essential to the lightweight and powerful motors required in EVs and permanent magnet wind turbines used for renewable energy generation, as well as in an array of other modern technologies, including mobile devices and defense applications. Monazite also contains higher concentrations of “heavy” REEs, including dysprosium (Dy) and terbium (Tb) used in permanent magnets, relative to other common REE ores.

The Company is currently primarily focused on NdPr, Tb, Dy and, to a lesser extent, La, Ce and Sm. The REE supply chain starts at a mine. REEs are mined both as a primary target, like the Mountain Pass REE mine in California, and as a byproduct, which is the case of Chemours’ Offerman Mineral Sand Plant, where the natural monazite sands are physically separated from the other mined sands. Mining creates an ore, which in the case of the Chemours material is the natural monazite sands that are physically separated from the other mined mineral sands. The ore then goes through a process of cracking and cleaning at the

Mill that may include acids or caustic solutions, elevated temperature and pressure to recover the uranium and free the REEs from the mineral matrix. After removal of the uranium, which will be sold into the commercial nuclear fuel cycle for the creation of carbon-free nuclear energy, this solution is cleaned of any remaining deleterious elements (including remaining radioactive elements) and made into an RE Carbonate, which is a form acceptable as an SX feedstock for REE separation. SX facilities then use solvents and a series of mixer-settlers for the separation of the REEs in the RE Carbonate from each other and to create the desired purified REE products (often as oxides) for the market or particular end user. Separated REE products are typically sold to various markets, depending on the use. Separated REE products can be made into REE metals and metal-alloys, which are used for magnets and other applications.

To date, the Mill has produced a Partially Separated RE Carbonate, substantially all of which has been sold to Neo Performance Materials (“Neo”). The Mill is currently modifying and enhancing its existing SX facilities to result in an SX REE separation circuit at the Mill, which, based on engineering to date, is expected to be capable of producing up to 1,000 tonnes of separated NdPr oxide per year. The Company is also currently evaluating the potential to produce other downstream REE materials, including REE metals and alloys, in the future at the Mill or elsewhere in the U.S.

REEs are commercially transacted in a number of forms and purities. Therefore, there is no single price for REEs collectively, but numerous prices for various REE compounds and materials. The primary value that the Company expects to generate in the short- to medium-term will come from NdPr, Dy, Tb, Ce, and La, as the price the Company receives from the sale of its RE Carbonate is tied to the prices of those REE oxides. In addition, the Company expects to produce separated REE oxides in the future. The following table sets forth certain REE compounds and materials mid-point prices in RMB¥/kg and their approximate value in USD$/kg according to date from Asian Metal:

The REE market is dominated by China, which produces approximately 83% of refined REE products with other Asia Pacific operations providing an additional 15%. According to WoodMackenzie, “Prices for rare earths in the years to come will follow different trajectories based on their involvement with the magnet industry.” WoodMacKenzie forecasts that prices for magnet elements, including neodymium (Nd) and praseodymium (Pr), will remain elevated through 2050, supporting new primary and secondary supply. Prices for elements used as additives or fillers in magnets, namely terbium (Tb) and dysprosium (Dy), will see “short-term price support followed by a steady decline as supply availability improves.” Prices for other non-magnet elements, including cerium (Ce) and lanthanum (La), will remain stable at roughly the cost of production.

While China consumes the most REEs in its manufacturing industries, much of it is consumed in the manufacture of end-use goods for export and by non-Chinese companies operating within China. REE separation facilities are additionally located in Vietnam, India, as well as Silmet in Estonia, and use a variety of feedstocks and sources with small-scale or experimental operational facilities located elsewhere (Russia included).

The Company sees its commercial production of RE Carbonate as the first step in an effort to restore the REE supply chain in the U.S., where one currently does not exist. Multiple potential domestic sources of mined mineral sands, including monazites, exist in North America and are potential feedstocks for the Mill; in addition, there is one producer of REEs from hard rock mining in California, which currently ships its material to Asia. On a global level, there is a potential to acquire natural monazite sands from the following locations: Australia, South Africa, Madagascar, New Zealand, the Philippines, Indonesia, Brazil, Malaysia, Thailand, India, Russia and others.

As demand for clean energy technologies and other advanced technologies increases in the coming years, the Company expects demand and prices for REEs to increase. Increases in supply sources for REEs are expected in conjunction with anticipated rising REE prices.

Vanadium Market Update

Vanadium is a metallic element that, when converted into ferrovanadium (“FeV”) (an alloy of vanadium and iron), is used primarily as an additive to strengthen and harden steel and make it anti-corrosive. According to market consultant FastMarkets, over 90% of FeV is used in the steel industry. In addition, vanadium is used in the aerospace and chemical industries, and continues to see interest in energy storage technologies, including vanadium redox flow batteries. China is the largest global producer of vanadium, with additional production coming from Russia, South Africa, and Brazil (Roskill).

During the three months ended September 30, 2023, the mid-point price of vanadium in Europe decreased by 8% from $7.98 per pound V2O5 as of June 30, 2023 to $7.38 per pound V2O5 as of September 30, 2023. The price of vanadium has ranged from a high of $8.38 per pound V2O5 between September 1, 2023 and September 7, 2023 and a low of $7.38 per pound V2O5 between September 29 and September 30, 2023. As of October 27, 2023, the price of vanadium is $6.73 per pound V2O5.

Vanadium markets have “shown steady declines over much of 2023,” according to reporting by Fastmarkets. The same report indicated that the, “end of the seasonal summer shutdown period failed to reignite end-user demand.” European ferro-vanadium prices at lowest since February 2021, September 25.

Operations Update and Outlook

Overview

The Company continues to believe that uranium supply and demand fundamentals point to higher sustained uranium prices in the future. The Company believes that nuclear energy, fueled by uranium, is experiencing a global resurgence with an increased focus by governments, policymakers and citizens on decarbonization, electrification and security of energy supply. In addition, Russia’s invasion of Ukraine and the entry into the uranium market by financial entities purchasing uranium on the spot market to hold for the long-term has the potential to result in higher sustained spot and term prices and, perhaps, induce utilities to enter into more long-term contracts with non-Russian producers like Energy Fuels to foster security of supply, avoid transportation issues and ensure more certain pricing.

In 2022, we entered into three long-term uranium contracts with major U.S. utilities. To deliver into these contracts, the Company is undergoing the necessary work to recommence production at one or more of our mines and ISR facility starting as soon as late 2023. Until such time when the Company has ramped back up to commercial uranium production, it can rely on its significant uranium inventories to fulfill its new contract requirements.

The Company continually seeks new sources of revenue, including through its emerging REE business, as well as new sources of Alternate Feed Materials and new fee processing opportunities at the Mill that can be processed without reliance on current uranium sales prices.

The Company is seeking additional sources of natural monazite sands to supply feedstock to its emerging REE projects (in addition to the recent acquisition of the Bahia Project discussed in Note 5 – Property, Plant and Equipment and Mineral Properties). The Company is also evaluating the potential to recover radioisotopes from its existing process streams for use in the development of TAT medical isotopes for the treatment of cancer, and continues its support of U.S. governmental activities to assist the U.S. uranium mining industry, including expanding the U.S. Uranium Reserve Program, supporting efforts to restore domestic nuclear fuel capabilities and advocating for the responsible sourcing of uranium and nuclear fuel.

We continually evaluate the optimal mix of production, inventory and purchases in order to retain the flexibility to deliver long-term value.

Mill Activities

During the nine months ended September 30, 2023, the Mill focused on its mixed RE Carbonate production and produced approximately 355 tonnes of high-purity, partially separated mixed RE Carbonate, containing approximately 160 tonnes of TREO while working to secure additional monazite ore feedstock to increase production. During the nine months ended September 30, 2023, the uranium recovered from processing monazite ore was retained in circuit and was not packaged as final U3O8 product. The Mill did not recover any vanadium during the quarter.

The Company expects to receive an additional 400 to 700 tonnes of monazite later in 2023 or early 2024, which the Company expects to process for the recovery of uranium and production of separated NdPr and a heavy REE (Sm+) RE Carbonate upon commissioning of the Mill’s Phase 1 REE separation circuit in early 2024 (see “Rare Earth Element Initiatives” above). The Company is also in active discussions with several parties globally to acquire additional quantities of natural monazite ore, which if secured and delivered to the Mill, could result in significant additional quantities of uranium and separated NdPr and heavy REE (Sm+) Re Carbonate production in 2024 and beyond.

No vanadium production is currently planned during 2023, though the Company continually monitors its inventory and vanadium markets to guide future potential vanadium production.

The Company is also actively pursuing opportunities to process additional sources of natural monazite sands, new and additional Alternate Feed Material sources, and new and additional low-grade mineralized materials from third parties in connection with various uranium clean-up requirements.

Conventional Mine Activities

During the nine months ended September 30, 2023, the Company performed rehabilitation and development work on its La Sal Complex and Whirlwind and Pinyon Plain Projects, including engineering, procurement, construction management, increased development activities, significant workforce expansion and needed rehabilitation of surface and underground infrastructure, for future potential production. The Company expects to continue its rehabilitation and development work on these Projects during the fourth quarter of 2023 as it prepares them for future production. Although the timing of the Company’s plans to extract and process mineralized materials from these Projects will be based on current contract requirements, inventory levels, sustained improvements in general market conditions, procurement of suitable sales contracts and/or the continuation of the U.S. Uranium Reserve Program or similar government programs, the Company is making the investments required to put one or more of these facilities into production as soon as later in the fourth quarter of 2023.

The Company is selectively advancing certain permits at its other major conventional uranium projects, such as the Roca Honda Project, which is a large, high-grade conventional project in New Mexico. The Company is also continuing to maintain required permits at its other conventional projects, including the Energy Queen and Pandora mines, as well as the Sheep Mountain Project. Additionally, the Company is evaluating processing options for future production at its Sheep Mountain Project and will continue to evaluate the Bullfrog Project. Expenditures for certain of these projects have been adjusted to coincide with expected dates of price recoveries based on the Company’s forecasts. All these projects serve as important pipeline assets for the Company’s future conventional production capabilities, as market conditions may warrant.

ISR Extraction and Recovery Activities

The Company expects to produce insignificant quantities of U3O8 in the year ending December 31, 2023 from Nichols Ranch. Until such time when (i) market conditions improve sufficiently, (ii) suitable term sales contracts can be procured, (iii) the U.S. Uranium Reserve Program is expanded, or (iv) a combination thereof, the Company expects to maintain the Nichols Ranch Project on standby and defer development of further wellfields and header houses. The Company currently holds 34 fully permitted, undeveloped wellfields at Nichols Ranch, including four additional wellfields at the Nichols Ranch wellfields, 22 wellfields at the adjacent Jane Dough wellfields, and eight wellfields at the Hank Project, which is fully permitted to be constructed as a satellite facility to the Nichols Ranch Plant. The Company sold its Alta Mesa ISR Project in February 2023. See Note 5 – Property, Plant and Equipment and Mineral Properties for more information.

Inventories

As of September 30, 2023, the Company had approximately 586,000 pounds of finished uranium inventories located at certain conversion facilities in North America. Additionally, the Company has approximately 409,000 pounds of additional U3O8 contained in stockpiled Alternate Feed Materials and other ore inventory at the Mill that can potentially be recovered relatively quickly in the future, as general market conditions may warrant. During the nine months ended September 30, 2022, the Company purchased 120,000 additional pounds of uranium and sold 300,000 pounds of uranium to the U.S. Uranium Reserve Program and another 260,000 pounds under a uranium term contract, resulting in the Company holding approximately 586,000 pounds of U3O8 in inventory as of September 30, 2023. At the end of 2023, we expect our total uranium inventories to be approximately 586,000 pounds of U3O8, subject to currently unplanned uranium spot sales and purchases.

The Company sold 79,344 pounds of vanadium during the nine months ended September 30, 2022. As of September 30, 2023, the Company holds approximately 906,000 pounds of finished V2O5 in inventory. There remains an estimated 1.0 to 3.0 million pounds of additional solubilized recoverable V2O5 remaining in tailings solutions awaiting future recovery, as market conditions may warrant.

Sales Update and Outlook for 2023

The Company sells uranium into its long-term contracts and continually evaluates selling a portion of its inventories on the spot market in response to future upside price volatility for delivery into additional long-term supply contracts if procured and/or for future additional sales. The Company also continually evaluates the potential to purchase uranium on the spot market to replace sold inventory, meet sales obligations and gain exposure to future price increases.

Uranium Sales

The Company entered into four uranium sale and purchase agreements in 2022: three with major U.S. nuclear utilities and one with the U.S. Uranium Reserve Program. Under these contracts, the Company sold 560,000 pounds of U3O8 during 2023 with a weighted-average sales price of $59.42 per pound, which was subject to the then-prevailing market prices at the time of delivery. In January 2023, the Company completed the sale of 300,000 pounds of its inventories located at the Metropolis Works uranium conversion facility (“ConverDyn”) to the U.S. Uranium Reserve Program, receiving total proceeds of $18.47 million ($61.57 per pound), resulting in a gross margin of approximately $35.85 per pound of uranium. In May 2023, the company sold 80,000 pounds of its inventories located at the Cameco Corporation conversion facility in Blind River, Ontario, Canada for total proceeds of $4.34 million ($54.19 per pound). In September 2023, the Company sold an additional 180,000 pounds of its U3O8 inventory located at the Cameco Corporation conversion facility in Blind River, Ontario, Canada for total proceeds of $10.47 million ($58.18 per pound). The Company has no additional contract deliveries scheduled for the remainder of 2023.

The three utility contracts require deliveries of uranium between 2023 and 2030 with base quantities totaling 3.0 million pounds of uranium over the period and up to 4.1 million pounds of uranium if all remaining options are exercised. Having observed a marked uptick in interest from nuclear utilities seeking long-term uranium supply, the Company remains actively engaged in pursuing additional selective long-term uranium sales contracts.

To provide the Company with additional flexibility to fulfill its contract obligations and gain direct exposure to potential future uranium price increases, the Company purchased a total of 301,052 pounds of U.S.-origin uranium on the spot market in late 2022 and early 2023 for a weighted-average gross price of approximately $50.08 per pound.

Vanadium Sales

As a result of then strengthening vanadium markets, during the nine months ended September 30, 2023, the Company sold approximately 79,344 pounds of the Company’s existing inventory of V2O5 at a weighted average price of $10.98 per pound of V2O5. The Company expects to sell its remaining finished vanadium product when justified into the metallurgical industry, as well as other markets that demand a higher purity product, including the aerospace, chemical and potentially the vanadium battery industries. The Company expects to sell to a diverse group of customers in order to maximize revenues and profits. The vanadium produced in the 2018/19 Pond Return campaign was a high-purity vanadium product of 99.6%-99.7% V2O5. The Company believes there may be opportunities to sell certain quantities of this high-purity material at a premium to reported spot prices. The sales during February and March 2023 were at a $0.60 per pound premium to the average spot price for V2O5.

Additionally, the Company intends to continue to selectively sell its V2O5 inventory on the spot market as markets warrant but will otherwise continue to maintain its vanadium in inventory.

Rare Earth Sales

The Company commenced its commercial production of a mixed RE Carbonate in March 2021. All RE Carbonate produced at the Mill in 2022 was sold to Neo for separation at Silmet. Until such time as the Company commissions its own separation circuits at the Mill, which is expected to be in early 2024, all or a portion of RE Carbonate production is expected to be sold to Neo for separation at Silmet and/or potentially to other REE separation facilities outside of the U.S. During the nine months ended September 30, 2023, the Company sold approximately 153,353 kilograms of TREO at an average price of $16.69 per kilogram of TREO. To the extent not sold, the Company expects to stockpile mixed RE Carbonate at the Mill for future separation and other downstream REE processing at the Mill or elsewhere.

While the Company continues to make progress on its mixed RE Carbonate production and additional funds are spent on process enhancements, improving recoveries, product quality and other optimization, profits from this initiative are expected to be minimal until such time when monazite throughput rates are increased and optimized. Throughout this process, the Company is gaining important knowledge, experience and technical information, all of which are valuable for current and future mixed RE Carbonate production and planned future production of separated REE oxides and other advanced REE materials at the Mill or elsewhere.

Results of Operations

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

The following table summarizes the results of operations for the three months ended September 30, 2023 and 2022 (in thousands of U.S. dollars):

*Not meaningful.

The following table sets forth selected operating data and financial metrics for the three months ended September 30, 2023 and 2022.

*Not meaningful.

For the three months ended September 30, 2023, we recognized net income of $10.47 million or $0.07 per share compared to a net loss of $9.25 million or $0.06 per share for the three months ended September 30, 2022. The change between periods was primarily due to: (i) sales of uranium concentrates for $10.47 million during the three months ended September 30, 2023; (ii) lower total other operating costs of $2.69 million; (iii) an increase in our unrealized gain on mark-to-market investments and marketable securities of $6.35 million between periods; and (iv) unrealized gain on the convertible note of $7.22 million, partially offset by increased costs applicable to revenues of $4.02 million between periods.

Operating loss decreased to $6.94 million for the three months ended September 30, 2023 from $13.66 million for the three months ended September 30, 2022, primarily due to increased revenues of $8.05 million and lower other operating costs partially offset by increased costs applicable to revenues of $4.02 million between periods.

Revenues

Uranium concentrates

Revenues from uranium concentrates were $10.47 million for the three months ended September 30, 2023 due to the completed sale of 180,000 pounds of our inventories to a major U.S. nuclear utility at a realized sales price of $58.18 per pound of U3O8. There were no revenues from uranium concentrates for the three months ended September 30, 2022.

Vanadium concentrates

Revenues from vanadium concentrates were $1.07 million for the three months ended September 30, 2022 due to the completed sale of 67,529 pounds of our vanadium inventories at a realized sales price of $15.86 per pound V2O5. There were no revenues from vanadium concentrates for the three months ended September 30, 2023.

RE Carbonate

Revenues from RE Carbonate decreased by $1.38 million to $0.29 million for the three months ended September 30, 2023 from $1.67 million for the three months ended September 30, 2022 primarily due to decreased volumes sold and lower realized prices. Lower sales volumes (calculated as the change in year-to-year sales volumes times the prior period realized price) accounted for an approximate $1.05 million decrease in RE Carbonate revenue between periods. Lower realized prices (calculated as the change in the year-to-year average realized price times current year sales volumes sold) accounted for an approximate $0.33 million decrease in RE Carbonate revenue between periods.

Alternate Feed Materials, processing and other

Revenues from Alternate Feed Materials, processing and other increased to $0.23 million for the three months ended September 30, 2023 from $0.19 million for the three months ended September 30, 2022, an increase of $0.04 million or 20%, primarily due to higher quantities of Alternate Feed Materials received and processed between periods.

Costs Applicable to Revenues

Costs applicable to uranium concentrates

Costs applicable to uranium concentrates were $5.27 million for the three months ended September 30, 2023 due to the completed sale of 180,000 pounds of our finished uranium concentrate at a weighted average cost of $29.25 per pound to a major U.S. nuclear utility. There were no costs applicable to uranium concentrates for the three months ended September 30, 2022.

Costs applicable to vanadium concentrates

Costs applicable to vanadium concentrates were $0.44 million for the three months ended September 30, 2022 due to the completed sale of 67,529 pounds of our vanadium inventories at a weighted average cost of $15.86 per pound. There were no costs applicable to vanadium concentrates for the three months ended September 30, 2023.

Costs applicable to RE Carbonate

Costs applicable to RE Carbonate decreased by $0.81 million to $0.28 million for the three months ended September 30, 2023 from $1.09 million for the three months ended September 30, 2022 primarily due to lower volumes sold and lower weighted average costs per kilogram between periods. Lower sales volumes (calculated as the change in year-to-year sales volumes times the prior period weighted average cost per kilogram) accounted for an approximate $0.69 million decrease in costs applicable to RE Carbonate between periods. Lower weighted average costs per kilogram (calculated as the change in the year-to-year weighted average cost per kilogram times current year sales volumes sold) accounted for an approximate $0.12 million decrease in costs applicable to RE Carbonate between periods.

Other Operating Costs and Expenses

Exploration, development and processing

Exploration, development and processing costs decreased to $2.52 million for the three months ended September 30, 2023 from $4.03 million for the three months ended September 30, 2022, a decrease of $1.51 million primarily due to costs incurred for our Bahia and Whirlwind Projects, as well as the continued progression of the RE Carbonate production program at the Mill.

While we expect the amounts relative to the items listed above to have added future value to the Company, the Company expenses these costs in part due to the fact that the Company has not established Proven Mineral Reserves or Probable Mineral Reserves as defined by S-K 1300 or NI 43-101 through the completion of a feasibility or pre-feasibility study for any of the Company’s projects as of the year ended 2022, with the exception of its Sheep Mountain and Pinyon Plain Projects.

Standby

Standby costs related to the care and maintenance of the standby mines are expensed along with standby costs incurred when the Mill is in standby status and is operating at minimal levels of production or packaging.

Standby costs decreased to $2.28 million for the three months ended September 30, 2023 from $3.56 million for the three months ended September 30, 2022, a decrease of $1.28 million primarily due to the Alta Mesa divestiture on February 14, 2023, as well as lower costs incurred at the Mill between periods.

Selling, general and administrative

Selling, general and administrative expenses include costs associated with marketing uranium, corporate costs and other general and administrative costs. Corporate costs consist primarily of payroll and related expenses for personnel, contract and professional services, share-based compensation expense and other overhead expenditures.

Selling, general and administrative (excluding share-based compensation)

Selling, general and administrative expenses (excluding share-based compensation) increased to $6.01 million for the three months ended September 30, 2023 from $5.79 million for the three months ended September 30, 2022, an increase of $0.22 million or 4%, primarily due to increased salaries and benefits in connection with additional headcount associated with the Company’s efforts to enhance its business processes to prepare for the current and future growth in activity in our uranium and REE operations, partially offset by reduced contract and professional services between periods. Our headcount increased to 140 full-time employees as of September 30, 2023 from 117 full-time employees as of September 30, 2022.

Share-based compensation

Share-based compensation increased to $1.29 million for the three months ended September 30, 2023 from $1.28 million for the three months ended September 30, 2022, an increase of $0.01 million, primarily due to annual 2023 grant of awards coupled with a higher grant date fair value, completion of the requisite service period for 2022 and additional headcount, partially offset by increased forfeitures during the three months ended September 30, 2023.

Other Income

Other income

Other income increased by $13.00 million, net to $17.41 million, net for the three months ended September 30, 2023 from $4.41 million, net for the three months ended September 30, 2022. The change was primarily due to: (i) an increase in our unrealized gain on mark-to-market investments and marketable securities of $6.35 million between periods; (ii) unrealized gain on the convertible note of $7.22 million; (iii) a realized gain of $0.18 million on our Convertible Note due to enCore’s early redemption of $20 million of the principal balance; (iii) an increase in interest income, net of $0.35 million due to increased investments in marketable securities between periods; and (iv) an increase in realized gain on maturities of marketable securities of $0.37 million between periods, partially offset by a decrease in foreign exchange to a loss of $0.24 million for the three months ended September 30, 2023 compared to a gain of $1.23 million for the three months ended September 30, 2022.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

The following table summarizes the results of operations for the nine months ended September 30, 2023 and 2022 (in thousands of U.S. dollars):

*Not meaningful.

The following table sets forth selected operating data and financial metrics for the nine months ended September 30, 2023 and 2022.

*Not meaningful.

For the nine months ended September 30, 2023, we recognized net income of $119.85 million or $0.76 per share compared to a net loss of $42.04 million or $0.27 per share for the nine months ended September 30, 2022. The change between periods was primarily due to (i) a gain of $119.26 million recognized on the sale of our Alta Mesa ISR Project in February 2023 and sale of our PFN tool in May 2023; (ii) sales of uranium concentrates for $33.28 million; (iii) a gain of $7.58 million during the nine months ended September 30, 2023 compared to a loss of $13.92 million nine months ended September 30, 2022 related to mark-to-market investments and marketable securities accounted for at fair value between periods; (iv) an unrealized gain on our Convertible Note of $6.97 million; (v) an increase in interest income, net of $3.10 million between periods due to interest earned on marketable debt securities and our Convertible Note; lower standby costs of $4.19 million between periods; and (vi) $2.76 million of underutilized capacity production costs applicable to RE Carbonate for the nine months ended September 30, 2022, partially offset by (a) costs applicable to uranium concentrates sales of $15.32 million during the nine months ended September 30, 2023; (b) lower sales of vanadium concentrates of $7.91 million; (c) increased exploration development and processing expenses of $3.01 million; and (d) increased selling, general and administrative expenses, including non-cash share-based compensation, of $3.79 million due to increased headcount associated with ramping up operating activities.

Operating loss decreased to $18.01 million for the nine months ended September 30, 2023 from $30.58 million for the nine months ended September 30, 2022, primarily due to (i) sales of uranium concentrates for $33.28 million; (ii) lower standby costs of $4.19 million between periods; and (iii) $2.76 million of underutilized capacity production costs applicable to RE Carbonate for the nine months ended September 30, 2022, partially offset by (a) costs applicable to uranium concentrates sales of $15.32 million during the nine months ended September 30, 2023; (b) lower sales of vanadium concentrates of $7.91 million; (c) increased exploration development and processing expenses of $3.01 million; and (d) increased selling, general and administrative expenses, including non-cash share-based compensation, of $3.79 million due to increased headcount associated with ramping up operating activities.

Revenues

Uranium concentrates

Revenues from uranium concentrates were $33.28 million for the nine months ended September 30, 2023 due to the completed sales of 560,000 pounds of our inventories to the U.S. Uranium Reserve Program and a major U.S. nuclear utility at a realized sales price of $59.42 per pound of U3O8. There were no revenues from uranium concentrates for the nine months ended September 30, 2022.

Vanadium concentrates

Revenues from vanadium concentrates decreased $7.91 million to $0.87 million for the nine months ended September 30, 2023 from $8.78 million for the nine months ended September 30, 2022 primarily due to lower volumes sold and lower realized prices between periods. Lower sales volumes (calculated as the change in year-to-year sales volumes times the prior period realized price) accounted for an approximate $7.69 million decrease in vanadium revenue between periods. Lower realized prices (calculated as the change in the year-to-year average realized price times current year sales volumes sold) accounted for an approximate $0.21 million decrease in vanadium revenue between periods.

RE Carbonate

Revenues from RE Carbonate increased by $0.44 million to $2.56 million for the nine months ended September 30, 2023 from $2.12 million for the nine months ended September 30, 2022 primarily due to increased volumes sold, partially offset by lower realized prices. Higher sales volumes (calculated as the change in year-to-year sales volumes times the prior period realized price) accounted for an approximate $1.54 million increase in RE Carbonate revenue between periods. Lower realized prices (calculated as the change in the year-to-year average realized price times current year sales volumes sold) accounted for an approximate $1.10 million decrease in RE Carbonate revenue between periods.

Alternate Feed Materials, processing and other

Revenues from Alternate Feed Materials, processing and other decreased to $0.76 million for the nine months ended September 30, 2023 from $1.44 million for the nine months ended September 30, 2022, a decrease of $0.68 million or 47%, primarily due to lower Alternate Feed Materials received and processed between periods.

Costs Applicable to Revenues

Costs applicable to uranium concentrates

Costs applicable to uranium concentrates were $15.32 million for the nine months ended September 30, 2023 due to the completed sales of 560,000 pounds of our finished U3O8 concentrate to the U.S. Uranium Reserve Program and a major U.S. nuclear utility at a weighted average cost of $27.35 per pound. There were no costs applicable to uranium concentrates for the nine months ended September 30, 2022.

Costs applicable to vanadium concentrates

Costs applicable to vanadium concentrates decreased $3.22 million or 85%, to $0.55 million for the nine months ended September 30, 2023 from $3.77 million for the nine months ended September 30, 2022 primarily due to lower volumes sold partially offset by increased weighted average costs per pound sold between periods. Lower sales volumes (calculated as the change in year-to-year sales volumes times the prior period weighted average cost) accounted for an approximate $3.30 million decrease in costs applicable to vanadium concentrates between periods. Higher weighted average costs per pound (calculated as the change in the year-to-year weighted average cost per pound times current year sales volumes sold) accounted for an approximate $0.08 million increase in costs applicable to vanadium concentrates between periods.

Costs applicable to RE Carbonate

Costs applicable to RE Carbonate increased by $1.00 million to $2.31 million for the nine months ended September 30, 2023 from $1.31 million for the nine months ended September 30, 2022 primarily due to increased volumes sold, as well as higher weighted average costs per kilogram. Higher sales volumes (calculated as the change in year-to-year sales volumes times the prior period weighted average cost per kilogram) accounted for an approximate $0.95 million increase in costs applicable to RE Carbonate revenues between periods. Higher weighted average costs per kilogram (calculated as the change in the year-to-year weighted average cost per kilogram times current year sales volumes sold) accounted for an approximate $0.05 million increase in costs applicable to RE Carbonate between periods.

Underutilized capacity production costs applicable to RE Carbonate

Underutilized capacity production costs applicable to RE Carbonate were $2.76 million for the nine months ended September 30, 2022. The underutilized capacity production costs were due to low throughput rates as the Mill ramps up to commercial-scale production of RE Carbonate. To date, the Mill has focused on producing commercially salable RE Carbonate at low throughput rates and has shipped its resulting product to Silmet. The Mill expects to increase its throughput rates as its supplies of monazite sands increase. There were no underutilized production capacity costs applicable to RE Carbonate for the nine months ended September 30, 2023

Other Operating Costs and Expenses

Exploration, development and processing

Exploration, development and processing costs increased to $9.43 million for the nine months ended September 30, 2023 from $6.42 million for the nine months ended September 30, 2022, an increase of $3.01 million or 47%. Exploration, development and processing costs were primarily related to expenses for our Bahia and Whirlwind Projects, as well as continued progression of the RE Carbonate production program at the Mill, which includes net realizable value adjustments to RE Carbonate inventory.

While we expect the amounts relative to the items listed above have added future value to the Company, the Company expenses these costs in part due to the fact that the Company has not established Proven Mineral Reserves or Probable Mineral Reserves as defined by S-K 1300 or NI 43-101 through the completion of a feasibility or pre-feasibility study for any of the Company’s projects as of the year ended 2022, with the exception of its Sheep Mountain and Pinyon Plain Projects.

Standby

Standby costs related to the care and maintenance of the standby mines are expensed along with standby costs incurred when the Mill in standby status is operating at minimal levels of production or packaging.

Standby costs decreased to $6.18 million for the nine months ended September 30, 2023 from $10.36 million for the nine months ended September 30, 2022, a decrease of $4.18 million or 40%, primarily due to the Alta Mesa divestiture on February 14, 2023, as well as lower costs incurred at the Company’s Colorado Plateau mines and the Mill between periods.

Selling, general and administrative

Selling, general and administrative expenses include costs associated with marketing uranium, corporate costs and other general and administrative costs. Corporate costs consist primarily of payroll and related expenses for personnel, contract and professional services, share-based compensation expense and other overhead expenditures.

Selling, general and administrative (excluding share-based compensation)

Selling, general and administrative expenses (excluding share-based compensation) increased to $16.75 million for the nine months ended September 30, 2023 from $13.70 million for the nine months ended September 30, 2022, an increase of $3.05 million or 22%, primarily due to increased salaries and benefits in connection with additional headcount associated with the Company’s efforts to enhance its business processes to prepare for the current and future growth in activity in our uranium and REE operations, partially offset by reduced contract and professional services between periods. Our headcount increased to 140 full-time employees as of September 30, 2023 from 117 full-time employees as of September 30, 2022.

Share-based compensation

Share-based compensation increased to $4.03 million for the nine months ended September 30, 2023 from $3.29 million for the nine months ended September 30, 2022, an increase of $0.74 million, primarily due to annual 2023 grant of awards coupled with a higher grant date fair value, completion of the requisite service period for 2022 and additional headcount.

Other Income (Loss)

Gain on sale of assets

For the nine months ended September 30, 2023, we recognized a gain on sale of assets of $119.26 million related to the sale of Energy Fuels’ Alta Mesa ISR Project to enCore for total consideration of $120 million consisting of $60 million cash and the $60 million Convertible Note, as well as the completed sale of our PFN tool utilized at Alta Mesa to enCore for total cash consideration of $3.10 million. See Note 5 – Property, Plant and Equipment and Mineral Properties for more information.

Other income (loss)

Other income was $18.60 million, net for the nine months ended September 30, 2023 compared to other loss of $11.46 million, net for the nine months ended September 30, 2022. The change between periods was primarily due to (i) an unrealized gain of $7.58 million on mark-to-market investments and marketable securities accounted for at fair value compared to a loss of $13.92 million on mark-to-market investments and marketable securities accounted for at fair value; (ii) an unrealized gain on our Convertible Note of $6.97 million; (iii) an increase in interest income, net of $3.10 million between periods due to interest earned on marketable debt securities and our Convertible Note; (iv) a realized gain on maturities of our marketable securities of $0.59 million; and (v) a realized gain of $0.18 million on our Convertible Note due to enCore’s early redemption of $20 million of the principal balance, partially offset by lower unrealized foreign exchange gain of $2.28 million between periods.

LIQUIDITY AND CAPITAL RESOURCES

Funding of Major Cash Requirements

Our primary short-term and long-term cash requirements are to fund working capital needs and operating expenses, capital expenditures and potential future growth opportunities through ongoing initiatives such as our REE program, Bahia Project, S-X project, Pinyon Plain operational readiness and TAT radioisotope initiative, as well as potential business and property acquisitions.

We expect to be able to fund working capital and operating expenses, capital expenditures and currently planned growth initiatives over the next 12 months through available cash balances and product inventory sales, if needed. We may also increase our working capital through issuances of Common Shares pursuant to the ATM in appropriate circumstances. We intend to continue to pursue the acquisition of monazite mineral rights and other uranium producing assets.

Shares Issued for Cash

The Company has an ATM in place, which allows the Company to make Common Share distributions to the extent qualified under a U.S. shelf registration statement on Form S-3 and one or more prospectus supplements. The Company’s current U.S. shelf registration statement was declared effective on March 18, 2021 and permits the Company to sell any combination of Securities (as defined therein) in one or more offerings having an aggregate offering price of up to $300.00 million. Most recently, on January 3, 2022, we filed a prospectus supplement with the SEC to our U.S. shelf registration statement, qualifying for distribution up to $50.00 million in additional Common Shares under the ATM. Sales made pursuant to the above summarized U.S. shelf registration statements and prospectus supplements are made on the NYSE American at then-prevailing market prices, or any other existing trading market of the Common Shares in the U.S. During the three and nine months ended September 30, 2023, the Company issued 2,048,172 Common Shares for net proceeds of $16.05 million under the ATM. See Note 7 – Capital Stock for more information.

Working Capital and Future Requirements for Funds

As of September 30, 2023, the Company had working capital of $162.50 million, including $54.54 million in cash and cash equivalents, $70.62 million of marketable securities, approximately 586,000 pounds of uranium finished goods inventory and approximately 906,000 pounds of vanadium finished goods inventory. The Company believes it has sufficient cash and resources to carry out its business plan for at least the next twelve months.

The Company manages liquidity risk through the management of its working capital and its capital structure.

Cash and Cash Flows

The following table summarizes our cash flows (in thousands):

46

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Net cash used in operating activities

Net cash used in operating activities decreased by $18.47 million to $10.98 million for the nine months ended September 30, 2023 from $29.45 million for the nine months ended September 30, 2022 primarily due to sales of uranium concentrates of $33.28 million less costs applicable to uranium concentrates of $15.32 million, partially offset by lower sales and costs of vanadium concentrates and increased selling, general and administrative expenses and exploration, development permitting and land holding expenses between periods.

Net cash used in investing activities

Net cash used in investing activities increased by $3.22 million to $15.89 million for the nine months ended September 30, 2023 from $12.67 million for the nine months ended September 30, 2022 primarily due to increased purchases of marketable securities of $87.46 million, the acquisition of the Bahia Project for $22.49 million, partially offset by $56.87 million in proceeds from the sale of the Alta Mesa ISR Project and PFN tool, maturities of marketable securities of $41.93 million and proceeds of $20.00 million from the early redemption of the Convertible Note. Additionally, additions to property, plant and equipment and mineral properties increased by $12.07 million between periods. See Note 5 – Property, Plant and Equipment and Mineral Properties for more information.

Net cash provided by financing activities

Net cash provided by financing activities increased by $7.58 million to $15.04 million for the nine months ended September 30, 2023 from $7.46 million for the nine months ended September 30, 2022 primarily due to increased proceeds of $8.16 million for the issuance of Common Shares for cash, net under the ATM between periods, partially offset by increased cash paid to settle and fund employee income tax withholding due upon exercise of stock appreciation rights of $0.84 million. See Note 7 – Capital Stock for more information.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of our unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent liabilities. Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. We evaluate our estimates and assumptions on a regular basis. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions used in preparation of our financial statements. We provide expanded discussion of our more significant accounting policies, estimates and judgments in the Annual Report on Form 10-K for the year ended December 31, 2022. We believe these accounting policies reflect our more significant estimates and assumptions used in preparation of our financial statements.

Off Balance Sheet Arrangements

See Note 12 – Commitments and Contingencies to the unaudited condensed consolidated financial statements for further information on off balance sheet arrangements.

The Company is exposed to risks associated with commodity prices, interest rates and credit. Commodity price risk is defined as the potential loss that we may incur as a result of changes in the market value of uranium, vanadium and REEs. Interest rate risk results from our debt and equity instruments that we issue to provide financing and liquidity for our business. Credit risk arises from the extension of credit throughout all aspects of our business. Industry-wide risks can also affect our general ability to finance exploration, and development of exploitable resources; such effects are not predictable or quantifiable. Market risk is the risk to the Company of adverse financial impact due to change in the fair value or future cash flows of financial instruments as a result of fluctuations in interest rates and foreign currency exchange rates.

Commodity Price Risk

Our profitability is directly related to the market price of uranium, vanadium and REEs recovered. We may, from time to time, undertake commodity and currency hedging programs with the intention of maintaining adequate cash flows and profitability to contribute to the long-term viability of the business. We anticipate selling forward in the ordinary course of business if, and when, we have sufficient assets and recovery to support forward sale arrangements, and forward sale arrangements are available on suitable terms. There are, however, risks associated with forward sale programs. If we do not have sufficient recovered product to meet our forward sale commitments, we may have to buy or borrow (for later delivery back from recovered product) sufficient product in the spot market to deliver under the forward sales contracts, possibly at higher prices than provided for in the forward sales contracts, or potentially default on such deliveries. In addition, under forward contracts, we may be forced to sell at prices that are lower than the prices that may be available on the spot market when such deliveries are completed. Although we may employ various pricing mechanisms within our sales contracts to manage our exposure to price fluctuations, there can be no assurance that such mechanisms will be successful. There can also be no assurance that we will be able to enter into term contracts for future sales of uranium, vanadium, RE Carbonate or REE oxides at prices or in quantities that would allow us to successfully manage our exposure to price fluctuations.

The Company currently has three long-term uranium supply contracts. All uranium sales not made under these contracts will be required to be made at spot prices until the Company enters into additional long-term contracts at satisfactory prices in the future. Future revenue will be affected by both spot and long-term U3O8 price fluctuations which are beyond our control, including: the demand for nuclear power; political and economic conditions; governmental legislation in uranium producing and consuming countries; and production levels and costs of production of other producing companies. The Company continuously monitors the market to determine its level of extraction and recovery of uranium in the future.

Interest Rate Risk

The Company is exposed to interest rate risk on its cash equivalents, marketable securities and restricted cash. The Company does not use derivatives to manage interest rate risk. Our interest income is currently earned in U.S. dollars. See Note 3 – Marketable Securities for more information.

Currency Risk

The foreign exchange risk relates to the risk that the value of financial commitments, recognized assets or liabilities will fluctuate due to changes in foreign currency rates. The Company does not use any derivative instruments to reduce its exposure to fluctuations in foreign currency exchange rates. As the U.S. Dollar is the functional currency of our U.S. operations, the currency risk has been reduced. We maintain a nominal balance in Canadian dollars and Brazilian Real, resulting in a low currency risk relative to our cash balances.

The following table summarizes, in U.S. dollar equivalents, the Company’s foreign currency (Cdn$/R$) exposures as of September 30, 2023 (in thousands):

Cash and cash equivalents $729

The table below summarizes a sensitivity analysis for significant unsettled currency risk exposure with respect to our financial instruments as of September 30, 2023 with all other variables held constant. It shows how net income would have been affected by changes in the relevant risk variables that were reasonably possible at that date (in thousands).

Credit Risk

Credit risk relates to cash and cash equivalents, trade, and other receivables that arise from the possibility that any counterparty to an instrument fails to perform. The Company primarily transacts with highly rated counterparties and a limit on contingent exposure has been established for any counterparty based on that counterparty’s credit rating. As of September 30, 2023, the

Company’s maximum exposure to credit risk was the carrying value of cash and cash equivalents, trade and note receivables, the Convertible Note and marketable debt securities.

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and to ensure that material information required to be disclosed is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding disclosure. The Chief Executive Officer and the Chief Financial Officer, with assistance from other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of September 30, 2023, and, based on their evaluation, have concluded that the disclosure controls and procedures were effective as of such date as was disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

There have been no material changes from the risk factors disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022.