Where do we go from here for the world's best undeveloped uranium mine?
Our view: We continue to see significant potential in the Rook I project, which we view as one of the best undeveloped uranium mines in the world necessary to meet the coming uranium supply deficit. We also think NexGen shares are in an enviable position as one of the few large and liquid names available to investors. We remain supportive of the project and see long-term value in shares that just moved down ~20% vs. recent highs, but management will need to execute well and address recent developments and investor concerns to restore confidence. Reiterate Outperform and $11 PT.
Key points:
Recent equity raises in preparation for construction: NexGen has cumulatively raised ~C$1B through a combination of share issuance (ATM and equity raise in Australia) and convertible debentures. Management has indicated capital is required to fund project construction that could start as early as H2/24 according to their stated timelines. However, investors have raised concerns on share dilution, timing of the raises (both in relation to each other and project construction timing), and use of proceeds. We think if management can execute on the project timelines and the raised capital is used efficiently, then these investor concerns should be alleviated.
Federal approvals process timeline: We believe federal approval of the Rook I project is a key milestone and main focus for investors, which was started in February 2019. The process has been rigorous, with the draft EIS (environmental impact statement) going back and forth between the company and CNSC, as is normal. We think management has done well to secure local community support and move the process along, highlighted by provincial approval in late 2023, but the complicated process has resulted in investor uncertainty that could benefit from more specific timelines and guidance on the process from management.
Technical expertise to construct a mine: NexGen has stated intentions to construct the Rook I project, with a 3-4 year construction timeline and potential production by 2028. Management believes the company has the in-house technical expertise to bring the project to production, and has indicated low development risk due to favourable geology, high- grade, a conventional mining approach, and low ore throughput. However, mining projects are rarely taken from discovery to production by a junior development company without significant challenges. We think investors are increasingly focused on NexGen’s technical capabilities as mine construction nears and more detail on the company's technical competence could improve confidence.
Still a world-class uranium project needed to meet rising demand: We continue to view the Rook I project favourably, given significant resource size, grade, and geology, along with potential resource and exploration