Nexgen Energy Ltd (NXE) 2023 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the NexGen Q3 Quarterly Conference Call. (Operator Instructions) Also, note that this call is being recorded.

And now I would like to turn the conference over to Leigh Curyer. Please go ahead, sir.

Thank you. Thank you for joining NexGen Energy's third quarter company update and financial results call. My name is Leigh Curyer, CEO of NexGen Energy. Joining me on the call today are Travis McPherson, Chief Commercial Officer; and Benjamin Salter, Chief Financial Officer. I'll commence with an update covering milestones and activities during the quarter and moving forward prior to handing over and opening up the call for Q&A. Throughout the call, we will be making forward-looking statements. So please visit our website for relevant disclaimers.

Since the company was started in 2011, industry leaders have been saying no to greenfield projects. Irrespective of that, NexGen has backed our objective judgment and built an incredible team that knew the pursuit was not only possible but absolutely necessary.

The decision-making, dedication and commitment to setting new industry standards in every respect of our operations has resulted in NexGen, together with our valued shareholders and stakeholders, laying the foundation of now being on the customer making an even bigger impact on global clean energy. Only 3 years after incorporation, in 2014, we discovered the Arrow project -- deposit, sorry, the largest highest-grade uranium deposit in Canada that's currently under development. And we opened up the Southwest section of the Athabasca Basin as the future of world uranium production.

Every day, NexGen has and confidently applies innovation to all aspects, both technical, environmental, social and commercial, all whilst delivering an industry-leading cost and time efficiency relative to activity and market capitalization. Today, on behalf of everyone at NexGen, I'm incredibly proud to reflect on November 8, NexGen secured Provincial Environmental Assessment approval for the Rook I Project, home of the Arrow deposit.

Remarkably, Rook I stands as the first greenfield uranium project in Saskatchewan to reach this stage in more than 20 years and the first ever inside of Canada. This is a historic and well-earned milestone. With securing this primary approval, the project is now elevated to see finalization of the requisite Federal approvals to commence construction and subsequently delivering the Rook I Project to operation.

As part of this focus during Q3 2023, we submitted responses to the technical review comments were received in the Q4 2022 Federal review process of the Draft Environmental Impact segment. Our submissions are currently under review by the CNSC, and we look forward to the conclusion of this process. Furthermore, in September of this year, the CNSC accepted NexGen's initial license application to prepare the site and construct the project.

This acceptance by the CNSC confirmed completeness and compliance with all applicable CNSC licensing requirements. Once the Provincial and Federal approvals are both in place, the project development schedule is fully in our hands.

The design of the Rook I Project is rooted in maximizing benefits and minimizing effects. Our development prioritizes environmental protection, ensuring minimal disruption to local ecosystems and wildlife.

Currently, our work on the 2023 site program is approximately 60% complete, including the installation of the 200-person construction camp, road enhancements and preliminary sharp preparation drilling.

With regards to project engineering, front-end engineering design, or FEED, this is scheduled to be completed during this quarter. And further, advancement of detailed engineering for critical path aspects of the project. We have also been advancing process design work through the continued mill flow sheet testing through which we have validated the uranium concentrate product, U308, that will be generated by the project.

In addition, we are in this process of continually seeking application of technology and innovation to mining methods to ensure the highest achievable cost and environmental efficiency, along with the priority of safety and well-being of all employees and contractors at site, this is a never-ending process. Furthermore, the extensive process of awarding the shaft sinking contractors will be finalized within the coming months, signaling an increase in activity on the ground at Rook I.

As we have noted in past quarters, NexGen Energy -- sorry, nuclear energy is emerging as the critical source for reliable, efficient, clean energy with increasingly favorable public appreciation of global -- and global policy momentum around nuclear energy. Demand for uranium continues to grow substantially. While supply significantly lags due to decades of underinvestment, prices are up almost 50% this year alone, surpassing 2010 highs and reaching $81.50 as per yesterday's UXC close.

During the upcoming COP28 Conference held in Dubai, which NexGen will be attending alongside Premier Moe of Saskatchewan. It is expected that the U.S. will join the U.K., France, Sweden, Finland and South Korea in committing to tripling nuclear capacity by 2050. The U.S. tripling their nuclear capacity over the next 25 years would be an increase in uranium consumption by over 100 million pounds per year, and this is just in the U.S. alone.

These latest commitments are in addition to the prior ones committed by the likes of China and other countries that are already well in progress. Demand for uranium today and through the next 3 decades has never been more positive as the world now understands that nuclear energy is the linchpin to energy security and the energy transition. Many multiples of Rook I's annual production will be needed and they aren't known globally today. Hence, our ongoing exploration efforts to find more Arrows on our dominant land position in the Southwest.

The security of supply from stable and ethically sourced is of utmost importance. And NexGen is ideally positioned where the project exhibiting strong technical and environmental setting with high uranium production volumes to meet the world's utility requirements.

Our strategic long-term contracting strategy reflects these attributes, and we'll continue our term book approach to volume based and unhedged, thereby focus on optimizing returns for our stakeholders while delivering to a growing nuclear industry.

Our priority is clear in developing the Rook I Project into production. In parallel, we are exploring our highly prospective properties located in the Southwestern section of the Athabasca Basin, adjacent to Rook I.

The industry is on track to see a 200-plus pound deficit by 2040. In 2023, we drilled 22,100 meters and made numerous intersections of prospective structure and alteration, providing a new understanding of previously unexplored corridors. The 2023 results provide a framework for a large-scale follow-up exploration program in 2024, of which details will be presented soon.

NexGen is leading a change in the sector. We recognize uranium is far too essential for our future to be anchored in the past practices. We recognize the conventional methods of building shareholder value, managing risk and addressing stakeholders' needs to adapt to meet present day dynamics. That's why we're approaching Rook I in a way that upholds all environmental, social, labor and economic standards. Our approach has delivered enhanced returns for our shareholders and our stakeholders.

Throughout our conversations with utilities, investors and others in the industry, a recurring sentiment is emerging loudly. There is pronounced interest in NexGen and an essential demand for new production from Western suppliers. Amid geopolitical uncertainty and security concerns of supply, many companies anticipate constraints affecting their contracted capabilities in the medium to long term.

NexGen stands poised and eager to be the solution that enables companies to deliver clean energy to their customers with the confidence that their supply comes from a secured jurisdiction with the highest environmental, community and labor standards. For example, earlier this month, members of our team participated in Team Canada's Trade Mission to Japan, led by the Honorable Mary Ng, Minister of International Trade, Export Promotions, Small Business and Economic Development.

Japan is actively promoting greater use of nuclear energy, maximizing the use of existing reactors and developing the next generation of reactors. The Trade Mission discuss the unparalleled opportunity for uranium sourced from stable democracies like Canada, quite literally the fuel to Japan's nuclear expansion.

Before we move into the financial section of the call, I want to recognize Ben Salter for his appointment as Chief Financial Officer during the quarter. Ben has been a key figure in our growth story for the past few years, and his experience prior to NexGen is absolutely critical in positioning the company for future expansion.

Additionally, NexGen also appointed Tracy Primeau to our Advisory Committee, and she is focused on our community approach, advancing education on climate and growing indigenous knowledge to benefit all involved with the project.

As I've detailed today, we've set and met ambitious goals and done so while maintaining and establishing new industry-leading standards. For an overview of our financial position ending on the 30th September 2023, NexGen has a working capital balance of $357.8 million as of September 30. To the end of Q3 2023, NexGen has deployed approximately $91.4 million in the successful exploration and development of the Rook I Project against the current market capitalization of approximately $4.5 billion.

We're developing this mine with the community at the forefront, embracing opportunity for full and active engagement and partnership with the local priority area communities as a vital part of the process. Additionally, as at September 29, NexGen has outperformed the S&P/TSX Global Mining Index by approximately 41% this current year. As we near the completion of the approvals process for the project, we have received expressions of interest from over 6 traditional lenders. We executed financing through convertible debentures from 2 supportive long-term shareholders for USD 110 million.

Together, we're strategically executing the ATM for another CAD 150 million to less than a handful of existing and new shareholders, all at a maximum of a 1.5% discount to the spot share price at the time. Comparatively, other financings have been executed up to 10% discounts. This dilution avoidance equates to hundreds of millions in preserved value and whilst saving approximately $10 million in financing execution fees that would have otherwise applied.

In parallel to securing financing, we are working towards index inclusion in the ASX 300. We expect this update in March 2024. This continued interest from lenders and shareholders reinforces that we have a sound strategy, and there is strong support within the investment community to bring clean energy solutions to the market.

To conclude, we continue to see strong shareholder support for the global appetite for uranium and nuclear power. We're incredibly proud and excited to drive the future of nuclear to solve what is currently one of the world's greatest challenges.

Moderator, please open the call to Q&A.

(Operator Instructions) And your first question will be from Andrew Wong at RBC Capital Markets.

So just with regard to the Provincial permitting approval, can you maybe just detail what does that allow you to do today with respect to construction? And then with respect to the Federal Environmental permit, when do you expect you'll see approval from that side of things?

Yes. Thanks, Andrew. Yes. Look, the Provincial permit or approval is basically it facilitates or is the main gating item to receiving the Federal approval. And we are permitted to do all site preparation work for the commencement of construction. So at the moment, we're putting in a -- well, it was nearing completion of the 200 man construction camp. We've cleared the pads for both the exhaust shaft and the production shaft.

We have also been commenced the preparation drilling for the -- both those shafts, the production and exhaust shafts. A new bridge has gone in as well, and a number of other ancillary surface preparation works in readiness for construction. Major construction is dependent on the Federal approval. Now the Federal approval, as we speak, we had submitted absolutely everything to the Federal government now that the Provincial approval has been received.

And we are eagerly awaiting their response to all of that information. We can't issue anything else we're absolutely complete. We are expecting on conclusion of that imminently. And on -- in doing so, we would receive a commission hearing date sometime in 2024. Now importantly, even if that was to take the full 2024 to have the commission hearing date and no project has ever gone through a commission hearing date without being improved, we -- it doesn't inhibit the time line.

In terms of construction, we are still doing the site preparation work and final engineering prior to major construction. In addition, we are about to appoint the shaft sinker after a very extensive tendering process, which will be a major elevation in activities in terms of site preparation.

Okay. That's great. So maybe just going back a bit. Last quarter, I think there was a commentary that after you received the Provincial approval, you'll be able to do some of the site works like you've mentioned. And then the time line to getting Rook I online is about 4 years. So you received that Provincial permitting now. So are we starting that 4-year clock now?

Yes. I think that's reasonable. Obviously, subject to receiving the final Federal approval sometime in 2024, that's very reasonable.

Next question will be from Alexander Pearce at BMO.

So you're expecting completion of the FEED and detailed engineering soon. Are you able to share when we may be able to see any of the outcomes from these and particularly with respect to maybe any opportunities you found or any kind of CapEx changes, et cetera?

Yes. Look, we're continually looking at that. And as we speak, we haven't seen any major changes in our design process from what we've had in the feasibility study. Yes, costs have gone up in line with inflation. And also, we're making a number of process optimizations in the interest of the long-term interest of the project. And if it's material, we'll provide an update. But we're seeing nothing at the moment which is material to what has previously been disclosed. I would anticipate sometime in the first quarter of 2024, we'll have -- be in a position to be more conclusive around what the process optimization and their result economically.

Yes. And Alex, you will -- as Leigh mentioned earlier, you will see the shaft sinking appointment or shaft sinker appointment probably before Q1 or in early Q1, which is obviously a huge part of the scope of the project. So you will get an update there as well.

Yes. That's going to be an exciting development and the incorporation of our -- the partners in the local community and the local project area is going to be a very exciting announcement for all stakeholders involved.

Next question will be from Chris Thompson at PI Financial.

Just a quick question. Leigh, I think you mentioned that you're about 60% through the 2023 work program, if I read you correctly. Does that mean you're a little behind based on budgets?

No, no. It -- that's physically, but we're at about 60%. It's really the -- we've got some more work to do in this quarter. But annually, we'll be well within budget for 2023.

Great. And then, I guess, the final question, and I guess just referring to the previous caller talking about any sort of enhancements and what have you. Have you given any thought or can you maybe talk a little bit about the opportunity to flex up and flex down production when you enter production?

Yes, that's an excellent question, Chris, and that's our focus. We're -- look, given the market dynamics, we're looking at flexibility up and primarily around the hoisting and the shaft capacities at site and then also the subsequent flow in effect through the mill. It's -- we're about midway through that at the moment. And we need to really understand what this flexing up within the parameters of the approval are achievable.

But I think that reflects our confidence in the market with what we're hearing from utilities around the production from Rook I. And we've always looked at the flexibility of the project, but it's fair to say over the last quarter, there's been an added focus on that flexing capability of the Arrow mine prior to us settling on the final design. So yes, watch this space. We expect to be more -- we'll have a bit more conclusive about it in the first quarter of 2024.

Yes. And Chris, I might just jump in as well. It doesn't change anything with that you would have heard from us in the past. We're exploring this flexibility up. I think it's obvious why we're confident that, that opportunity to flex up exists given the scarcity of this project at this time. But as always, we're not going to produce a pound that isn't needed. There won't be maximal value for ourselves.

So we're exploring it. We believe that the world is going to need a lot more from Arrow. But having said all of that, we're still going to be very disciplined with respect to make sure that we optimize the value of every pound generated from Arrow.

(Operator Instructions) And your next question will be from David Talbot at Red Cloud Securities.

Uranium price is certainly on the rise here, but commodities are cyclical. And Fukushima has shown us that things can happen that are unexpected. NexGen hasn't yet signed any forward contracts. You want to leverage those future prices. But do you foresee the need to back up any potential debt with offtakes, perhaps guarantee enough sales to at least cover your annual production costs and debt coverage requirements?

Yes. It's a good question, David, and a very important one for all investors to appreciate. We are seeking volume-based contracts at future market-related prices at the time of delivery. We are very fortunate in the fact that we have an operation that we can ramp production up and ramp production down dependent on market conditions. And so we won't be locked into large amounts of sustaining CapEx year after year in committing to production 5 years or longer out.

So with that nimbleness, we don't -- it doesn't reflect the need to secure long-term contracts seeking a floor or the requisite ceiling that comes with seeking a floor. The other aspect, too, is even at 30 million pounds, we have a very low annual operating costs across those pounds. So from a financial risk assessment perspective, given the capital that we are going to deploy, our contracting strategy merely reflects that technical certainty around production volumes, that's flexible up and flexible down from 1 quarter to the next and also that very low operating cost.

Yes. And just specific to the debt, David, because of the margins that Leigh is referring to, we don't have a requirement to commit a lot of production to backstop the debt payments with cash flows from those offtake contracts because, as you well know, at current pricing, it pays the feasibility, so CapEx back in less than 6 months.

The other aspect, too, Dave, we're seeing the marginal cost of production from Western world producers are approaching the mid-50s and going higher, and that's natural, given the costs that everyone is experiencing. Even with Fukushima, nuclear energy was still -- whilst demand went down in Japan and Germany, it was still very buoyant everywhere else in the world. So as the lowest cost producer went in production, we don't see a scenario where our pounds would be scaled back even in that event.

Okay. A lot of costs obviously rise and fall with production once on operations. So I can see you ramping up, scaling back as needed. When it comes to requiring to sell 20 million to 30 million pounds from a new producer, do you find the NexGen is getting the attention -- sufficient attention from nuclear utilities right now? Are they U.S.? Are they European? And what sort of strategy are you taking to approach potential clients?

Well, look, we've had Charles Scorer, as you know well, on our team for, well, probably 7 years now ever since we put out the first PEA. We've had an ongoing dialogue with the utilities. Since that time, it's fair to say that those discussions and presentations have been more prevalent over the course of 2023.

The interest is coming very strongly from the U.S., Europe and Japan with -- frankly, Travis never been busy on this particular aspect of the project, utilities are looking for a diversified Western world supply and the response that we're receiving directly, that's why we're looking at possible flexing up of production beyond that 30 million pounds come 2028.

The demand and supply gap is widening, and the fragility over current Western world supply is very, very high. And this isn't just good news for NexGen, it's good news for all the developers out there, the Denisons, the Boss Energy, the enCores, Energy & Fuels, all those companies who have been working hard over the last 10 decades, the market is far bigger than just NexGen alone. We're not looking to be the only supplier in the Western world, we're looking to be part of a diversified Western world fuel supply mix when we're dealing with such a critical world energy need, both the provision of energy, but also from a clean, reliable source. So look, we were very -- I think we've demonstrated and since 2011, we have a very conservative approach, and it's based on facts and experience, and we test that regularly.

From a market perspective, we've never been more confident with respect to the long-term prospect or prosperity of the uranium market. And what we all do know very, very clearly is that Western World mine supply can't react quickly. And so we're seeing the uranium price go up to $80, up 50% over the course of this year. I think we're in the very early stages of the market recognizing that available supplies are very, very tight.

And we need -- I'm just glad that ourselves and those other developers that I mentioned has been doing the work over the last 10 years in order to meet this critical world demand. And so we see the opportunity for all of these developers is incredibly exciting in going forward, and it's going to be more than over a decade long.

Okay. Thank you, Leigh, Travis. Well done. It's been great watching NexGen go from prediscovery to now.

Thank you, David. I appreciate this all along.

Next question will be from Graham Tanaka at Tanaka Capital Management.

Can you hear me?

Yes. We can hear you loud and clear, Graham.

Yes. Congratulations on your progress so far. I'm really interested in this flexing up versus the marginal cost of supply of other mining companies and other mines that have maybe been shut in. So you've cited a 200 million pound shortfall. What would be the total supply globally that you're referring to when you're talking about a 200 million pound shortfall? When would that be? And what would be the marginal cost of providing the first 100 million pounds of those 200 million pounds and then maybe the second 100 million pounds because it seems to me that the incremental costs would be rising considerably over time in those last incremental pounds?

Graham, good to talk. Yes. I think it's a good point. The reality is, it's not clear on how the 200 million pound deficit is going to get filled. So I can't -- we can't point to what that cost structure is because it's actually not really a cost or incentive price issue, it's the fact that since 2011, effectively, there was a handful of companies doing exploration work. Only ourselves and really Iso that were successful in making new discoveries in Fission next door to us.

And other than that, there hasn't been new discoveries. And yet, obviously, there's been 180 million to 200 million pounds a year consumed. So yes, the incentive price, I think the trend is clearly going higher, but it really isn't -- you can't point to a price and say at that price, a lot of supply comes online. We're not in that world. You need to have the incentive price clearly go a lot higher because still today, there's not a tremendous amount of grassroots exploration happening even yet.

So you need the price to go higher to incentivize that. And then obviously, you need time and luck and everything else that goes into making a discovery and bringing it forward. I mean, for us, we've acquired the properties in 2012 and made a discovery in 2014. And then we're talking about production in 2028. That's 14 years from first discovery through to production. And I think, undeniably, we have a true Tier 1 asset that was discovered on the very first hole, and for a number of reasons, it was delineated very efficiently, developed extremely efficiently. We didn't waste today. We had access to capital, and that whole process still took 14 years or will take 14 years.

So you make new discoveries today. They're not being made today. But even if you did, you're still talking about 14 to 20 years before those things come into production. So it is unclear how that deficit gets filled, Graham.

Right. Okay. So the other question I had is for NexGen that to flex up, you have how many pounds proven and probable or indicated? And what is your optimism or what is your sense based on your drill results at depth and to the 3 sides of Arrow that you could add to annual production flexing up and extend your reserves and mine life at just Arrow alone because that seems to be probably the fastest way for you to bring on incremental pounds?

Yes. So Arrow has got about 230 million pounds of probable reserves. And then we've got another 80-plus million pounds of inferred, which isn't incorporated in the feasibility study. And then as you point out, I mean, as you know, you've been with us in the story for a very long time. But we stopped drilling not because we ran out of ore or anything just because we had a critical mass of resources to take the next steps and develop a feasibility -- all the economic plans in the mine and finance it and everything.

So once we get underground, that's when we're going to start exploring all around Arrow, along strike laterally and certainly at depth where we've already hit uranium down there, which we're extremely encouraged by. So at Arrow alone, we're -- I mean, we're certain that it's going to grow. Obviously, we don't know to the extent yet, but we're very confident that there's going to be some material growth there. And then we're exploring all along that corridor and then parallel corridors. And once we've built Arrow and we're underground, the time to develop nearby deposits is actually quite quick because we're in that confident basement rock.

So yes, we're very confident in our ability to expand Arrow certainly and flex up. But even without doing that, we can still flex up because we don't need more pounds necessarily to flex up the mine. We have ample resources today to flex up the mine.

Okay. And the other factor besides potential reserve -- additional reserves, it's the time to market, you've cited 12 to 14 years for Arrow. And how much -- how short would -- or how long would that time period be to bring on incremental pounds should you discover more in the Patterson Corridor or any of the other corridors you have since they're nearby similar rock et cetera? Would it take 10 or 12 years or shorter?

No, I mean if you're talking about expanding Arrow itself, no, because you've already -- like if it's within the environmental assessment footprint, which something, say, a depth would likely be, you're not talking about material time at all. If you're talking about something regionally, then -- I mean, to be determined because we'd have to go through environmental assessment amendments. But I think it's safe to say it would take as long as it did take to develop Arrow because we're not starting from no drill holes on a project, the engagement efforts have been done, et cetera.

So there would certainly be significant time savings there, but it would be to be determined the specific amount of months or years that it would take to make those amendments. But again, once we're in production, we can be doing those things simultaneously.

Next question will be from Puneet Singh at Eight Capital.

I just had a quick one. Positive announcement in the space this week, the green bond framework in Canada now includes nuclear. Language focuses on reactors there, but just site investments in supply chain. You talked about traditional debt being available to you guys, but maybe talk about something like that being possibly included in your eventual financing package?

Yes. Thanks. Yes, definitely a possibility. I think, as you point out, a lot of these policies that are coming out now are focused on supporting demand, not necessarily supporting supply. I think that's where other elements, like the critical mineral strategy, et cetera, more come into play and some of the tax incentives there. But yes, I think, over time, you'll likely see that because as those groups do more work and realize that the demand needs to be supported for churn, I think that's being recognized and valued accordingly.

Similarly, the supply side certainly needs -- and particularly primary supply certainly needs support. Otherwise, that's all for not. So at the current moment, yes, very focused on demand, which obviously has trickle-down effects to the rest of the fuel cycle, but I wouldn't be surprised to see that evolve over time, certainly. And it's something we're definitely keeping a very keen eye on as we build this capital stack to develop the project.

And at this time, we have no further questions registered. Please proceed.

Well, thank you, everyone with those questions and for listening in today. Look, it's a very -- it's always an exciting time at NexGen with what we're working on and the team's commitment and dedication is absolutely outstanding. And it's also a very exciting time in the market. It's in the early stages of developing, and NexGen is very well positioned for that going forward.

So I thank you for your attention, your interest and your ongoing support in any objectives that we've set ourselves. Thank you.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.