RE:DML mentioned… 15:03 22 Sep 2023
NexGen Energy takeover likely as uranium M&A looks ready to heat up
Uranium prices have powered higher recently to levels not seen in 12 years, exceeding US$66 per pound for the first time since just before the Fukushima nuclear accident.
The price move appears to have been sparked by factors such as utilities scrambling to lock in fuel supplies, as uranium has reemerged as a critical carbon-free source of baseload power in the global battle to combat climate change.
Russia's invasion of Ukraine and subsequent US efforts to impose a uranium import ban from Russia has added to supply concerns, with the gas price spike having fueled thoughts building more nuclear reactors in Europe.
As well, the biennial report from the World Nuclear Association (WNA) predicts world reactor uranium requirements to surge to almost 130,000 tonnes, or about 285 million pounds, in 2040 up from an estimate of 65,650 tonnes in 2023, representing a 98% increase.
Rising uranium prices and tightening supply should boost merger and acquisition (M&A) activity in the sector as larger miners will need to secure future uranium sources just to keep up with demand.
Nexgen Energy Ltd (TSX-V:NXE) has become one of North America's top development stage uranium companies and, as such, should be considered a top takeover candidate.
The company's flagship Rook I Project, located in Saskatchewan's Athabasca Basin, is Canada's largest high-grade development-stage uranium resource.
NexGen's 2021 feasibility study (FS) estimates the project as having a net present value (NPV), using an 8% discount rate and a uranium price of US$50 a pound, of C$3.47 billion while operating at an estimated all-in-sustaining cost of just US$10 per pound. The study also forecasts after-tax free cash flow of C$1.04 billion from operations over the first five years.
The FS does not include the project's Inferred resource, which is estimated at more than 80 million pounds.
NexGen also has a 50% equity stake in IsoEnergy, which owns the Hurricane uranium deposit in the eastern Athabasca Basin that PI Financial analysts called "the most significant high grade plus-50-million-pound uranium discovery in years (one of the Athabasca's top 10 deposits)".
Industry giant Cameco Corporation (TSX:CCO) would be an obvious suitor for NexGen, as Cameco has operations in the Athabasca Basin that includes the large Cigar Lake and McArthur River mines.
Cameco had $2.5 billion in cash, cash equivalents, and short-term investments as of June 30, 2023.
Orano Canada Inc, a subsidiary of France's Orano group formerly known as AREVA Resources Canada, could also have interest as it has ownership stakes in Cigar Lake (40.453%), McArthur River (30.2%) and Key Lake (16.7%), although Canada's Non-Resident Ownership Policy (NROP) for uranium projects has, since 1987, restricted foreign ownership of uranium mines to a maximum of 49%, according to the WNA.
Denison Mines Corp (TSX:DML) or Uranium Energy Corp, meanwhile, could be potential merger candidates for NexGen Energy seeing that both companies have market caps lower than NexGen, which makes an outright acquisition unlikely.
Uranium Energy has a large uranium resource in the Athabasca Basin, having acquired a portfolio of exploration-stage projects from Rio Tinto that includes the high-grade Roughrider project.
The company currently holds $125.4 million in cash and liquid assets along with a debt free balance sheet.
And, Denison Mines is an Athabasca-Basin focused uranium exploration and development company. It owns an effective 95% interest in the Wheeler River Uranium Project, which Denison calls the largest undeveloped uranium project in the infrastructure rich eastern portion of the Athabasca Basin.
The company had C$46.5 million in cash and cash equivalents as of June 30, 2023.
Regardless of whether NexGen Energy receives an acquisition proposal soon, the months ahead are shaping up to be exciting for uranium investors.
Contact Sean at sean@paidpromotionalmessages.com