Rook I development ongoing while new discovery could raise strategic value
Our view: We continue to see the Arrow deposit and Rook I project as the best in-development uranium project with strategic importance as the uranium market heads toward a significant deficit by late-2020s/ early-2030s. We think the potential to add a significant resource within the vicinity of the Rook I project could further raise the strategic value of the asset and provides further potential upside.
Key points:
Promising drill results point to significant resource upside to complement Rook I: NexGen announced the discovery of significant uranium mineralization on the SW-2 property approximately 3.5km east of the large Arrow deposit being developed for the Rook I project. The company noted uranium mineralization metrics in drill hole RK-24-183 are much better than the initial discovery drill hole for Arrow and sees potential for significant exploration upside. NexGen plans to focus drilling efforts around this new exploration area in 2024 as part of the 30,000-metre drill program announced in February. While still early days, if exploration is successful, a uranium resource within the nearby vicinity of Arrow could be highly complementary to the Rook I project and further raise the strategic value of the asset within the uranium industry.
Permitting progress remains ongoing: Federal permitting of the Rook I project remains ongoing, with the CNSC (Canadian Nuclear Safety Commission) returning the draft EIS (Environmental Impact Statement) to NexGen to address comments from the federal and Indigenous review team. Management has indicated NexGen expects to submit responses within the next several weeks. The next steps would be for the CNSC to complete review of the final EIS, followed by the public hearing process. Our model assumes approval in 2025 and production start in 2030, but there could be upside to our forecast if management executes well and the project is started sooner than anticipated.
Funding options broadening on strong interest in a strategic uranium asset: We estimate NexGen has a cash balance of ~$390M, including ~ $130M raised through the at-the-market equity program in Q1/24. We believe this cash balance is more than sufficient to fund exploration and pre-construction activities through to full construction at Rook I. Management has also indicated growing interest from debt funding options with expressions of interest totalling $1.25B, up from $1.1B previously. The company plans to complete final technical studies and decide on total funding mix in H2/24.
Reiterate Outperform, $11 PT: We have slightly lowered our NAVPS estimate to $10.64/sh, from $10.81/sh, primarily due to recent share issuance.