Madagascar lifts suspension on Energy Fuels’ critical minerals project

Madagascar has lifted its suspension on Energy Fuels‘ (TSX: EFR; NYSE: UUUU) Toliara critical minerals project, aiding the company’s diversification from uranium as it restarts development on what could be a “crown jewel” in the African nation’s economy.

Toliara, which Madagascar suspended in 2019 to negotiate fiscal terms, holds a mining permit allowing the production of ilmenite, rutile and zircon. Energy Fuels can resume work on track to make a final investment decision for the US$591-million capex project by early 2026. The company acquired Toliara in April with the purchase of Australia’s Base Resources for A$375 million (US$241 million). 

“Today’s Toliara suspension lift is a major positive catalyst,” SCP Resource Finance said on Thursday. “Today validates Energy Fuels’ conviction they could add immediate value to Toliara.”

The project has an after-tax net present value of US$2 billion at an 8% discount and may generate US$250 million to US$300 million a year in free cash flow, according to SCP mining analyst Justin Chan. Toliara could supply 2,600 tonnes a year of rare earth mineral neodymium-praseodymium to Energy Fuels’ White Mesa processing mill in Utah. The company’s rapidly expanding rare earth elements (REE) oxide production facility seeks to complement the company’s core business of uranium. 

“The overall strategy we see is a diversified US$300 to US$500 million free cash flow a year business with geostrategic importance from uranium and rare earths and stable cash flows from mineral sands,” Chan said. 

‘Generational’ project

Energy Fuels will look to add REE production to the existing mining permit, CEO Mark Chalmers said Thursday. The suspension lift represents a “very significant step” in the project’s development, he said. 

“Having closely evaluated countless mining projects around the world during my 45-year career, the Toliara project is truly a generational mining project, having the potential to provide the U.S. and the rest of the world with large quantities of critical minerals for many decades,” he said in a release.

Energy Fuels’ stock gained 3.6% to $9.91 on Thursday afternoon in Toronto, taking the Colorado-based uranium producer’s market capitalization to $2 billion.

38-year mine

According to a definitive feasibility study from 2021, the Toliara project, underpinned by the Ranobe deposit, is estimated to contain 904 million tonnes in ore reserves at 6.1% heavy minerals, which are sufficient to support an initial 38-year mine life.

The project has an internal rate of return of 32.4% and average earnings before interest, tax, depreciation and amortization of US$371 million per year, according to a 2023 prefeasibility study that incorporated monazite production into the project’s economics. Monazite is a rich source of REEs used in magnets (neodymium and praseodymium, dysprosium and terbium), electric vehicles, and a variety of other clean energy and advanced technologies.

As the monazite will be a very low-cost byproduct of Toliara’s primary ilmenite and zircon output, production of REE oxides at the mill is expected to be low-cost and globally competitive, the company says. 

Processing monazite from Toliara will also add about 75,000 lb. of low-cost uranium production (at an incremental cost of about US$8 per lb.) per year at the mill. It amounts to about 3 million lb. of recovered uranium oxide over the life of the project, according to company estimates.