Post by
danche on Apr 01, 2024 2:18pm
Advancing a Unicorn Uranium Asset in a Decarbonizing World
Scotia Outperform $13.50
We have initiated coverage on the common shares of NexGen Energy Ltd. (NexGen; NXET), an exploration- and development-stage company focused on uranium in the prolific Athabasca Basin in Northern Saskatchewan, with a Sector Outperform rating (Speculative risk ranking) and a one-year target of $13.50 per share. Our target is based on 1.7x our 10% NAVPS estimate and has an attractive implied return of 31%. We believe NXE shares warrant a premium valuation given the company’s world-class Arrow deposit – a large high-grade uranium discovery on the cusp of development and ongoing exploration upside – combined with a very attractive long-term fundamental outlook for uranium.
Uranium fundamentals shine bright. Despite capacity restarts, we forecast the uranium market to remain in a multi-year structural net deficit position, due to massive planned reactor build in China and the dual Western world agenda of decarbonization and energy independence. Although Arrow’s development may temporarily disrupt the market around the end of this decade (at peak, we estimate Arrow will be the world’s largest uranium mine at ~13% of global primary output), we believe this supply will be required to meet growing global demand from nuclear
Premium valuation is warranted. We estimate that NXE shares are currently trading at a P/NAV(10%) of 1.31x and at an in situ EV/uranium pound of resource (Arrow only) of ~$16/ lb. This compares with industry leader Cameco Corporation’s (CCO-T; Sector Outperform; $71.00 target) P/NAV(8%) of 1.43x and relevant development/exploration peers’ ~$12/lb average. The spot P/NAV(10%) is only 1.03x. We expect NXE shares to trade at a significant premium to development/exploration peers given the Arrow deposit’s world-class nature and relatively advanced development stage, which also make the company a potential takeover target. We expect several near-term catalysts for the shares, including the receipt of federal permits, project financing, and ongoing exploration results; an updated FS is due by year-end.