UPDATED COST ESTIMATES AT ARROW WEIGH ON VALUATION
THE TD COWEN INSIGHT
We have updated our estimates to reflect both NexGen's Q2/24 financial results (released yesterday evening) and the updated project economics at its flagship Rook I (Arrow) project released last week (note). The net impact reduced our NAVPS by 8% and resulted in a reduction in our target price to $12.00 from $13.00. Management will host its conference this morning at 8:30am ET (1-800-836-8184).
Impact: SLIGHTLY NEGATIVE
Cost update at Arrow — NexGen released updated capital and operating cost estimates
at Arrow last week. Total development capital is now forecasted at $2.2bln, up from $1.3bln 3.5 years ago (~70% increase), which was well above the $320mm (~25%) increase management suggested on its Q1 earnings call in May. Management added further clarity in its Q2/24 filings, noting that inflation accounted for ~$310mm of the increase, with the ~$590mm balance attributed to 'enhancements identified through advanced engineering'. Consensus estimates for total development capex were ~$1.7bln, in line with the May conference call.
LOM cash costs were revised upwards to US$9.98/lb U3O8, or $13.86/lb (up from US $5.69/lb, or $7.58/lb). Management attributed ~40% of the increase to inflation, and ~60% to advanced engineering and procurement. LOM sustaining capital is now expected to be $785mm, or ~$70mm annually, versus the 2021 FS forecast of $362mm. Management highlighted that estimates include 'progressive reclamation' work on the underground tailings facility.
For greater context on the confidence level of the updated forecasts (accuracy range of +/- 10%), project engineering was ~45% complete when the estimates were updated (vs. 18% as of 2021 FS). We note that the updated estimates are based on 2023 dollars, so there could be additional inflation risk to date.
We have revised our estimates and now model $2.3bln in total capex, from 2025 through 2027, with first production in H2/2028. Our updated operating cost estimates now include cash costs of $13.89/lb U3O8 and AISC of $34.76/lb.
Balance sheet — NexGen held cash balances of $572mm at June 30, bolstered by the issuance of ~25mm shares during the quarter, including ~20.2mm from its ~$216mm
ASX offering in May. $141mm remains available on the company's ATM program. The ~2.7mmlbs U3O8 acquired during the quarter is being accounted for at cost (~$341mm) as a long-term asset.