Energy Fuels MOU with Madagascar unlocks path for US$2B Toliara project

Energy Fuels (TSX: EFR; NYSE: UUUU) has an initial agreement with Madagascar clearing the way for a final investment decision on its US$2-billion Toliara critical minerals project by early 2026. 

The memorandum of understanding (MOU) signed on Thursday confirms a 5% royalty under the country’s mining code and avoids giving the government a free-carried interest. These were key points for Energy Fuels, according to SCP Resource Finance mining analyst Justin Chan. The MOU also commits Energy Fuels to US$80 million in staged community investments.

“This MOU unlocks Toliara,” Chan said Friday in a note to clients. “For US$50 million in upfront community development, Energy Fuels secures an asset that could generate US$250–US$300 million in free cash flow annually.”

The MOU follows the Nov. 27 news that Madagascar had moved to lift its suspension of the project. In 2019, Madagascar suspended the Toliara project. The company had bought the project this April for A$375 million (US$241 million). It broadens Energy Fuels’ portfolio exposure to critical minerals beyond uranium.

The Toliara project, with an estimated capital expenditure of US$591 million, ranks among the largest recent foreign investments in Madagascar. The country’s largest foreign investment is the US$8 billion Ambatovy nickel-cobalt project that has operated since 2014. It’s a joint venture between Japan’s Sumitomo and South Korea’s KOMIR (formerly known as KORES). Also, the QIT Madagascar Minerals ilmenite mine is an 80-20 joint venture between Rio Tinto (ASX: RIO; LSE: RIO; NYSE: RIO) and the Malagasy government.

The MOU requires Madagascar to support the project. It must certify it under its Large Mining Investment Act. It must also maintain fiscal stability and ensure timely permit approvals.

The news prompted Chan to adjust his model. This added US$42 million to SCP’s estimated project net present value, now US$1.95 billion at an 8% discount.

Shares rose as much as 2.3% in early Toronto trading Friday, before settling at $9.54 in early afternoon bids. They’ve ranged between $5.71 and $11.02 over the past 12 months, and the company has a market capitalization of $1.9 billion.

Large development

Toliara centres on the Ranobe deposit, which holds 904 million tonnes of ore reserves grading 6.1% heavy minerals. It promises a 38-year mine life producing ilmenite, zircon, and monazite—a rare earth element source needed for technologies like electric vehicles and wind turbines.

Monazite from Toliara will supply Energy Fuels’ White Mesa mill in Utah, delivering 2,600 tonnes per year of neodymium-praseodymium oxide, roughly 40% of the mill’s future capacity.

CEO Mark Chalmers called the project a “generational” opportunity. “Toliara can provide critical minerals to the United States and global markets for decades while fostering local community benefits,” he said Friday in a statement.

Community spending

The MOU requires Energy Fuels to invest US$30 million upon project certification, US$10 million after a positive final investment decision, and US$40 million by the fourth year of operations.

Energy Fuels will contribute US$4 million to local communities each year once construction begins. It will invest US$1 million in social programs in the Atsimo Andrefana region before its final investment decision.