ECONOMIC UPDATE AT ARROW EXPECTED MID- YEAR
THE TD COWEN INSIGHT
We have updated our estimates to reflect NexGen's Q1/24 results, recent financings, and details from its conference call. Overall, the transactions and our assumptions of higher capex and opex have resulted in a slightly lower NAV, which did not change our C$13.00 target price. The next key catalysts for the company will be economic, permitting, and exploration updates in the coming weeks.
Impact: MIXED
Permitting update — Management highlighted on its conference call that it is planning to submit responses to the 49 remaining federal government information requests (IRs) later this week or early next. The government has up to 90 days to respond and submit any additional IRs. Assuming acceptance, with the EIS, the company would be looking for the CNSC to establish a Federal Commissioning Hearing Date to approve and issue a Uranium Mine and Licence for Rook I (Arrow). Given this remains a fluid and iterative process, we believe that a permitting decision could come in late 2024 or early 2025.
Upcoming capex revision — Management is planning to release updated capex and economic details on Arrow sometime in late Q2/24 or Q3/24. However, on the call, management noted that capex has increased ~$320mm over and above the $1.3bln capex estimate from the project's 2021 feasibility study, with labour making up the largest
part of this increase. We have revised our development capital assumptions at Arrow to $1.9bln (from $1.65bln previously) to factor-in some additional conservatism, which has lowered our project NAV for Arrow. Management is planning to announce a contract for the construction of the project's two shafts (the largest component of project capex), which will limit the subsequent inflationary pressure on construction.
Financing strategy — NexGen shares have underperformed its peers since announcing a US$250mm convertible financing to purchase 2.7Mlbs of uranium (note). Management added on its call that the uranium purchase was done effectively as an 'insurance policy' to have pounds to deliver into future offtake agreements for which management is in active discussion. Given the tightness in the spot market and future demand profile, we were surprised by the need to make any physical purchases at this stage of the nuclear market evolution, especially considering the Biden Administration's signing into law of the Prohibiting Russian Uranium Imports Act.