According to Haywood Securities:
 
https://clients.haywood.com/uploadfiles/secured_reports/nxejun302017.pdf
 
NexGen Energy Ltd. (NXE-T, $2.84)
 
Rating: Buy
 
Target Price: $6.00
 
Return: 111% 
 
Overall Risk Rating:  Very High
 
CEF Re-Ups Investment in NXE with Additional US$110M Financing Ahead of PEA
 
Valuation | Our 12-month target of $6.00 is based on a 1.0x multiple of our estimated corporate net asset value (NAV) per share of $5.97, based on a discounted cash flow (DCF10%) analysis of our conceptual uranium mining operation at Arrow.
 
Impact – Positive | The US$110 million in additional financing will leave NXE with ~C$200 million in the treasury, and will be used to advance the Rook 1 project, and should easily carry the Company through to a production decision and beyond.  We see the equity + debt deal as net-positive when examining the trade-off between the benefit of reducing uncertainty around future financing dilution versus what we view as reasonable all-in dilution to shareholders including the convertible debenture structure, while increasing the stake of a premier investor whose interests continue to be well aligned with existing shareholders via multiple provisions including Board voting alignment, share sale restrictions, and a standstill agreement applicable above a certain ownership threshold.
 
Deal Structure:  US$110M (~C$78M) binding term sheet with CEF Holdings (50% owned by Li Ka-shing and 50% by CIBC).
 
Unsecured convertible debenture: US$60 million (C$78M) 5-year, 7.5% interest; no rights or claims to the assets or future production (no off-take agreement). Annual interest payments (7.5%) amount to US$3.0M in cash (5%), plus 2.5% in shares (US$1.5 M, representing 0.2% dilution annually at current share price and FX rate).
 
Conversion price is US$2.69 (~C$3.50 at announcement) per share representing a 29.5% premium to the 20-day VWAP.
 
NexGen can redeem the debentures at par plus accrued/unpaid interest on/after the 3rd anniversary of the issue date if the 20-day VWAP of NXE shares exceeds 130% of the conversion price.
 
Equity Financing: US$50 million (C$65M) issuing 24.1 million common shares at C$2.70 per share (30% premium to 20day VWAP).
 
Extends Maturity Data of Existing US$60 million convertible to match the maturity date of new US$60 million convertible (5-years from close of new deal).
 
Comment:  While we await closing to fully integrate the deal into our valuation model, preliminary examination suggests a neutral valuation impact when we substitute the deal structure for the existing dilution assumptions in our model, and assume conversion at maturity (no principal repayment). With a neutral valuation impact (in our model), we view the deal as net-positive, as it expands the relationship with a premier strategic investor and reduces financing uncertainty through the Feasibility Study and permitting stages.
 
Risks | We assign a Very High Risk rating given NexGen’s status as a pre-resource exploration play with no certainty of cashflow generation or exploration success. We expect the Company to rely on future equity financing to fund operations.
 
Catalysts | 1) Drill results from summer `17 drilling – H2/17; 2) Preliminary Economic Assessment study of Arrow – July`17.