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Energy Fuels continues to enjoy healthy margins thanks to long-term contracts

The uranium producer has been able to maintain a strong working capital position and overall balance sheet
Long-term contracts will help the company ride out the current down-cycle

Energy Fuels Inc (TSE:EFR, NYSEMKT:EFR) realised strong sales during the second quarter from its portfolio of term uranium contracts.

The company sold 300,000 pounds of triuranium octoxide (U3O8) in the April to June quarter at an average realized price of US$50.14 per pound.

Total revenues in the quarter clocked in at US$21.64mln, versus US$25.00mln in the same period of 2016.

Production in the quarter totaled 112,000 pounds..

Uranium production in the quarter totaled 112,000 pounds of U3O8. The company continues to expect 2017 uranium production of between 640,000 and 675,000 pounds, of which 204,000 pounds have already been produced. 

The net loss in the quarter narrowed to US$14.98mln from US$19.22mln the year before.

The uranium miner ended the reporting period with US$34.2mln of working capital, including cash and cash equivalents of US$18.7mln and some 370,000 pounds of uranium concentrate in its inventory.

Strong working capital..

“As a result of these sales, capital management, and other sources of revenue, we have been able to maintain a strong working capital position and overall balance sheet,” said Stephen Antony, chief executive officer of Energy Fuels.

“The flexibility of our White Mesa mill is again proving to be a key asset to the company, as we pursue various revenue-generating opportunities that have the potential to meaningfully strengthen the company's finances in the future, including processing additional alternate feed materials, potentially earning fees from land clean-ups, as well as potentially recovering copper and vanadium. Indeed, vanadium prices have moved sharply higher in recent months,” he noted.

“Energy Fuels has considerable idle vanadium production capacity, as a co-product of uranium production at certain of our mines which are currently on standby, that we could deploy within a relatively short period of time to capture continued and sustained strength in these markets," Antony informed investors.

During the quarter, the company continued the resource evaluation program at its Canyon Mine, which has been identifying large areas of high-grade and copper mineralization over the last few months.

Shareholders waiting for a new resource estimate for the Canyon Mine should not have to wait much longer, with the company expecting to announce an uplift in resources in the current quarter.

“We also continue to believe that the Canyon Mine, when brought into production, will have low overall costs per pound, in-line with the lowest cost conventional uranium mines operating in the world today, and we are identifying low-cost methods with our significant existing infrastructure at the White Mesa Mill to monetize the copper that have the potential to further reduce our uranium cost-per-pound,” Antony said.

Unique in the US uranium sector..

“Energy Fuels is truly unique in the US uranium sector. We have term uranium sales contracts and other ways to generate revenues. These are providing us with some protection in today's weak uranium market. At the same time, we have a portfolio of fully-permitted and developed projects ready to quickly increase the company's low-cost uranium production in improving markets,” he declared.

During 2017, the company expects to earn around US$6.5mln in toll revenue for processing certain alternate feed materials for a third party, of which US$3.1mln was earned in the first half of 2017.

The company also continues to pursue new sources of revenue, including additional alternate feed materials, toll processing of alternate feed materials, and other sources of feed for the Mill.

Rodman repeats a 'buy'...

“We highlight that the company has expressed its interest in pursuing additional alternate feed sources going forward, potentially resulting in another stable stream of income,” said Rodman & Renshaw as it reiterated its 'buy' recommendation on the stock.

The broker believes that long-term contracts offer some shelter in the current weak uranium price environment.

It noted that profit margins remained strong at 30% in the first half of 2017, which was a slight improvement on the first half of last year.

“We attribute the healthy margins to the firm's current portfolio of term uranium contracts that are locked in at prices significantly higher than the current spot price; however, net loss attributable to the company was US$14.9mln or US$0.22 per share, an improvement over the 1H16 net loss of US$0.38 per share,” analyst Heiko Ihle said.

.The broker noted that output at White Mesa is expected to trend higher for the remainder of this year, due to anticipated higher recoveries from pond returns, which should partially or fully offset any reductions from the Nichols Ranch asset.

Rodman & Renshaw has a price target of C$5 for the stock, which currently trades at C$2.23, up 0.5% on the day.

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