NXE - TD Report - Speculative BUY rating & $4.50 target ReadEvent
In light of the planned release of the maiden preliminary economic assessment (PEA) for Arrow, scheduled for early Q3/17, we have taken the opportunity to reiterate our base case economic assumptions. In addition, we updated our estimates to reflect the company's most recent financial results.
Impact: NEUTRAL
In our view, the next key catalyst for the company is the planned release of its PEA in early Q3/17. The PEA is expected to provide the market with a framework on how the company plans to develop Arrow ahead of a more detailed pre-feasibility study (PFS) scheduled for H1/18.
Our base case estimates for Arrow, which are unchanged, assume a 6.45Mt resource grading 2.01% U3O8 with a production startup in 2024 ramping up to full production in 2026. We allow for a 4-5 year permitting timeline based on the initiation of permitting in H1/18.
We assume a pre-production capex of $1.2bln and a 17-year mine life producing an average of 16mmlb U3O8 per year at total cash costs including royalties of US$21.60/lb. Following the three-year anticipated ramp-up to full production, we believe production at Arrow could exceed 20mmlb U3O8 per year for the first seven years as it targets higher grades during these early years. We calculate an after-tax 8%NAV of $2.2bln and 10%NAV of $1.69bln using a long-term uranium price of US$55/lb and a 0.82 CAD/USD exchange rate.
High-grade zones could add to potential project economics — In our view, given the configuration of the Arrow deposit, we believe that the expansion of the A2 high-grade zone (currently 164.9mmlb U3O8 in the indicated category) and the identification of the A3 high-grade zone should allow for a mine plan which targets low-tonnage high-grade ore in the early mine-life, which could potentially increase the IRR and lower the payback period.
TD Investment Conclusion
We are maintaining our SPECULATIVE BUY rating and our $4.50 target price. We continue to view NexGen as one of the top long-term uranium investment plays due to the tier-1 potential of its Rook I property.
Read more at https://www.stockhouse.com/companies/bullboard?symbol=t.nxe&postid=26406705#iZ2ktLGwS8FUVmiF.99