Energy Fuels $UUUU have just published a new feasibility study for Vara Mada (previously called Toliara) project in Madagascar. Let's dive into the positives, the question marks and reach some conclusions.
**✅Positives**
\- $1.8B NPV10 from a major, world class heavy mineral sands resource
\- Long life (38y LoM) with potential to expand further
\- Low technical risk
\- Experienced team, realistic assumptions
\- Engagement with the government continues despite the coup
**🟡Things to watch out**
\- **Contrary to some comments I've seen, IMHO price assumptions in the study are not very conservative.** They are just about right taking into account the size of the project which may influence the markets they will be selling too (especially considering the geographical constraints for some of the products), the likely need to secure long term offtakes and small issues with some products (e.g. high U+Th content in zircon)
\- **Inevitable exposure to Chinese buyers for products ex. monazite is a risk.** US government may be less than thrilled to see a company they (presumably may) fund do lots of business with China. Likewise, it's not in China's interest to see this project succeed from REE PoV (but China is not necessarily a monolith so this may not be a blocker).
\- **Zero infrastructure and expertize around.** Everything from roads, bridges, ports all the way too power and water supply needs to be build essentially from scratch and skilled labour will likely have to be imported. Not impossible to pull off but it creates potential for cost blowouts and magnifies👇
\- **Country risk.** Madagascar has been a mess for decades and it's the main reason why $UUUU were able to buy this project at a good price. The company is doing all the right moves but as of today
\- **ESG TODOs.** They are yet to secure surface rights to all lands required to develop the project. Locals need to be resettled. Cultural heritage sites as well as a critically endangered chameleonhave been identified in the area. ESIA needs to be updated
\- **Over 20% of LoM revenue comes from White Mesa, not external clients.** For accounting reasons, $UUUU treat export of monazite to US port as revenue in Toliara's DCF but in reality this is cash coming from one pocket of Mark Chalmers to another. For this to turn into real value on corporate level, White Mesa must make at least this much from selling REE products after substracting port<->mill logistics, processing and capex. All eyes on the White Mesa focused study that's coming soon. I hope the company will present numbers in that study in a way that avoids double counting monazite revenue :)
**💡Summary**
Taking risks into account, I believe that 12% discount rate would be more appropriate at this stage (implying \~$1.35B NPV) for this otherwise world class project.
$UUUU did a great job acquiring Toliara when they did. It will be the cornerstone of their REE strategy. Having said that, the stock is certainly not cheap. There is plenty of potential negative catalysts ahead ... but also equally many positive. Jury is out.