A different UUUU DD and the stark dislocation in the valuation of assets

Original Reddit comment

The author argues the base-case valuation for Energy Fuels is too optimistic because titanium/mineral sands segments face demand shock and structural profit drags.

UUUU — AVOID The author argues that the titanium and mineral sands segments are overvalued in the base case because that market has been hit by a demand shock and mature producers are priced far below the project NPV. New sources of supply are expected to continue softening titanium prices. The Donald project structure means Energy Fuels pays full market price for monazite and only recoups profits from its overall share, so titanium struggles could significantly drag down returns.

You should be far more conservative in your base case valuation of the titanium/mineral sands segments. That market has been hit badly in the last 12 months and mature, dividend-paying ilmenite producers are priced far below your $1bn NPV for Toliara due to the ongoing demand shock (see Kenmare Resources $300m market cap). Rare earths segments may push those projects forward through construction but titanium prices will continue to soften with those new sources of supply hitting the market. The structure of the Donald project means that Energy Fuels pays full market price for the monazite, and only recoups profits from their share of the overall company, so titanium struggles could significantly drag down returns.