NexGen Energy Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 22, 2023

There are 8 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the NextGen Q3 Quarterly Conference Call. At this time, note that all lines are in a listen only mode. But following the presentation, we will conduct a question and answer Also note that this call is being recorded. And I would like to turn the conference over to Lee Carrier. Please go ahead, sir.

Speaker 1

Thank you. Thank you for joining NextGen Energy's 3rd quarter company update and financial results call. My name is Lee Correa, CEO of NextGen Energy. Joining me on The call today are Travis MacPherson, Chief Commercial Officer and Benjamin Solter, Chief Financial Officer. I'll commence with an update covering milestones and activities during the quarter and moving forward, prior to handing over and opening up the call for Q and A.

Speaker 1

Throughout the call, we will be making forward looking statements. So please visit our website for relevant disclaimers. Since the company was started in 2011, industry leaders have been saying no to greenfield projects. Irrespective of that, NextGen has backed our objective judgment and built an incredible team that knew the pursuit was not only possible, It's absolutely necessary. The decision making, dedication and commitment to setting new industry standards in every respect of our operations As a result of the NextGen, together with our valued shareholders and stakeholders, laying the foundation of now Being on the customer making an even bigger impact on global clean energy.

Speaker 1

Only 3 years after incorporation In 2014, we discovered the Arrow project deposit, sorry, the largest highest grade uranium deposit In Canada that's currently under development. And we opened up the southwest section of the Athabasca Basin as the future of world uranium production. Every day, NextGen has and confidently applies innovation to all aspects, both technical, environmental, Social and commercial, all whilst delivering in an industry leading cost and time efficiency relative to activity and market Today, on behalf of everyone at NextGen, I'm incredibly proud to reflect on November 8, NextGen secured provincial environmental assessment approval for the Rook I project, home of the Arrow deposit. Remarkably, Rook I stands as the 1st greenfield uranium project in Saskatchewan to reach this stage in more than 20 years And the first ever inside of Canada. This is a historic and well earned milestone.

Speaker 1

With securing this primary approval, the project is now elevated to seek finalization of the requisite federal approvals to commence construction And subsequently delivering the Rookwan project to operation. As part of this focus during Q3 2023, We submitted responses to the technical review comments we received in the Q4 2022 federal review process of the draft environmental impact statement. Our submissions are currently under review by the CNSC, and we look forward to the conclusion of this process. Furthermore, in September of this year, the CNSC accepted NextGen's initial license application to prepare the site and construct The project, this acceptance by the CNSC confirms completeness and compliance with all applicable CNSC licensing requirements. Once the provincial and federal approvals are both in place, the project development schedule is fully in our hands.

Speaker 1

The design of the Rookwan project is rooted in maximizing benefits and minimizing effects. Our development prioritizes environmental protection, ensuring minimal disruption to local ecosystems and wildlife. Currently, our work on the 2023 site program is approximately 60% complete, including the installation of the 200 person construction camp, Road enhancements and preliminary shaft preparation drilling. With regards to project engineering, front end engineering design or FEED, This is scheduled to be completed during this quarter. And further, advancement of detailed engineering for critical path aspects of the project.

Speaker 1

We have also been advancing process design work through the continued mill flow sheet testing through which we have validated The uranium concentrate product U-three zero eight that will be generated by the projects. In addition, we are in the process I'm continually seeking application of technology and innovation to mining methods to ensure the highest achievable cost And environmental efficiency, along with the priority of safety and well-being of all employees and contractors at site, This is a never ending process. Furthermore, the extensive process of awarding the shaft sinking contractors will be finalized within the coming months, Signaling an increase in activity on the ground at Rookwan. As we have noted in past quarters, next gen energy Sorry, nuclear energy is emerging as the critical source for reliable, efficient, clean energy. With increasingly favorable public appreciation of global and global policy momentum around nuclear energy, Demand for uranium continues to grow substantially, while supply significantly lags due to decades of underinvestment.

Speaker 1

Prices are up almost 50% this year alone, surpassing 20.10 highs and reaching $81.50 as per yesterday's UxC close. During the upcoming COP28 conference held in Dubai, which NextGen will be attending alongside Premier Mo of Saskatchewan, It is expected that the U. S. Will join the UK, France, Sweden, Finland and South Korea In committing to tripling nuclear capacity by 2,050, the U. S.

Speaker 1

Tripling their nuclear capacity over the next 25 years Would be an increase in uranium consumption by over £100,000,000 per year, and this is just in the U. S. Alone. These latest commitments are in addition to the prior ones committed by the likes of China and other countries that are Already well in progress. Demand for uranium today and through the next 3 decades has never been more positive.

Speaker 1

As the world now understands that nuclear energy is the linchpin to energy security and the energy transition. Many multiples of Brook 1's annual production will be needed and they aren't known globally today. It's our ongoing exploration efforts to find more arrows on our dominant land position in the Southwest. The security of supply from stable and ethically sourced is of utmost importance, and NextGen is ideally positioned With the project exhibiting strong technical and environmental setting, with high certainty on production volumes to meet the world's utility requirements. Our strategic long term contracting strategy reflects these attributes and we will continue our term book approach volume based and unhedged, thereby focused on optimizing returns for our stakeholders, while delivering to a growing nuclear industry.

Speaker 1

Our priority is clear in developing the Rook I project into production. In parallel, We are exploring our highly prospective properties located in southwestern section of the Athabasca Basin, adjacent to Rook 1. The industry is on track to see a 200 plus pound deficit by 2,040. In 2023, we drilled 22,100 meters and made numerous intersections of prospective structure and alteration, Providing a new understanding of previously unexplored corridors. The 2023 results provide a framework For a large scale follow-up exploration program in 2024, of which details will be presented soon.

Speaker 1

NextGen is leading a change in the sector. We recognize uranium is far too essential For our future to be anchored in the past practices, we recognize the conventional methods of building shareholder value, managing risk and addressing stakeholders' needs Good to meet present day dynamics. That's why we're approaching Rook 1 in a way that upholds all environmental, social, labor and economic standards. Our approach has delivered enhanced returns for our shareholders and our stakeholders. Throughout our conversation with utilities, Investors and others in the industry, a recurring sentiment is emerging loudly.

Speaker 1

There is pronounced interest in NexGen And an essential demand for new production from Western Suppliers. Amid geopolitical uncertainty and security concerns of supply, Many companies anticipate constraints affecting their contracted capabilities in the medium to long term. NextGen stands poised and eager to be the solution that enables companies to deliver clean energy to their customers With the confidence that their supply comes from a secured jurisdiction with the highest environmental, community and labor standards. For example, earlier this month, members of our team participated in Team Canada's trade mission to Japan, led by the Honorable Mary Ng, Minister National Trade, Export Promotion, Small Business and Economic Development. Japan is actively promoting greater use of nuclear energy, Maximizing the use of existing reactors and developing the next generation of reactors.

Speaker 1

The Trade Mission discussed the unparalleled opportunity for uranium sourced From stable democracies like Canada, quite literally the fuel to Japan's nuclear expansion. Before we move into the financial section of the call, I want to recognize Ben Salter for his appointment as Chief Financial Officer during the quarter. Ben has been a key figure in our growth story for the past few years, and his experience prior to NextGen is absolutely critical in positioning the company for future expansion. Additionally, NextGen also appointed Tracy Primute to our advisory committee, And she is focused on our community approach advancing education on climate and growing indigenous knowledge To benefit all involved with the project. As I've detailed today, we've set and met ambitious position ending on the 3rd September 2023.

Speaker 1

NextGen has a working capital balance of $357,800,000 as of September 30. To the end of Q3, 2023, NextGen has deployed approximately 91,400,000 In the successful exploration and development of the Rook I project against the current market capitalization of approximately 4,500,000,000. We're developing this mine with the community at the forefront, embracing opportunity for full and active engagement And partnership with the local priority area communities is a vital part of the process. Additionally, as at Santasem 29, NextGen has outperformed the S and PTSX Global Mining Index by approximately 41% this current year. As we near the completion of the approvals process for the project, we have received expressions of interest from Over 6 traditional lenders, we executed financing through convertible debentures from 2 supportive long term shareholders For US110 $1,000,000 together with strategically executing the ATM for another CAD150 million So less than a handful of existing and new shareholders, all at a maximum of a 1.5% discount to the spot share price at the time.

Speaker 1

Comparatively, other financings have been executed at up to 10% discounts. This dilution avoidance equates to 100 of 1,000,000 In preserved value and whilst saving approximately $10,000,000 in financing execution fees that would have otherwise applied. In parallel to securing financing, we are working towards index inclusion in the ASX 300. We expect this update in March 2024. This continued interest from lenders and shareholders reinforces that we have a sound strategy And there is strong support within the investment community to bring clean energy solutions to the market.

Speaker 1

To conclude, We continue to see strong shareholder support for the global appetite for uranium and nuclear power. We're incredibly proud and excited to drive the future of nuclear to solve what is currently one of the world's greatest challenges. Moderator, please let me go to Q and A.

Operator

Thank And your first question will be from Andrew Wong at RBC Capital Markets. Please go ahead.

Speaker 2

Hey, good morning. Thanks for taking my questions. So, just with regards to the provincial permitting approval, can you maybe just detail what does that allow you to do today With respect to construction, and then with respect to the federal environmental permit, when do you expect you'll see approval from that side of things?

Speaker 1

Yes. Thanks, Andrew. Yes, look, the provincial permit or approval It basically facilitates or is the main gating item to receiving the federal Approval. And we are permitted to do all site preparation work for the commencement Of construction. So at the moment, we're putting in a well, nearing completion of the 200 man construction camp.

Speaker 1

We've cleared the pads for both the exhaust shaft and the production shaft. We have also been commenced the preparation drilling for the both those Shafts, the production and exhaust shafts, a new bridge has gone in as well and a number of other ancillary Surface preparation works in readiness for construction. Major construction is dependent on the federal approval. Now the federal approval as we speak, we have submitted absolutely everything to the federal government now that the provincial approval Has been received and we are eagerly awaiting their response to all that information. We can't Issue anything else, we're absolutely complete.

Speaker 1

We are expecting on conclusion of that Imminently and in doing so, we received a commission hearing date sometime in 2024. Now importantly, even if that was to take the full 2024 to have the commission hearing date And no project has ever gone through a commission hearing date without being approved. We it doesn't inhibit the timeline In terms of construction, we are still doing the site preparation work and final engineering prior to major construction. In addition, we are about to appoint the shafts sinker after a very extensive tendering process, Which will be a major elevation in activities in terms of site preparation.

Speaker 2

So Maybe just going back a bit last quarter, I think there was commentary that after you received the Provincial approval, you'll be able to do some of the site work like you've mentioned. And then the timeline to getting Rook I online is about 4 years. So, You received that provincial permitting now. So, are we starting that 4 year clock now?

Speaker 1

Yes, I think that's reasonable. Obviously, subject to receiving the final federal approval sometime in 2024, that's very reasonable.

Speaker 2

Okay. Thanks. Thanks, Andrew.

Operator

Next question will be from Alexander Pierce at BMO. Please go ahead.

Speaker 3

Hi, Lee. Hi, all. So you're expecting completion of The feed and detailed engineering soon. Are you able to share when we may be able to see any of the outcomes from these and particularly with respect to maybe any opportunities you found or any kind of CapEx changes, etcetera?

Speaker 1

Yes. Look, We're continually looking at that. And as we speak, we haven't seen any Major changes in our design process from what we've had in the feasibility study. Yes, costs have gone up in line with inflation. And also we're making a number of process optimizations in the interest of the long term interest of the project.

Speaker 1

If it's material, we'll provide an update. But we're seeing nothing at the moment, which Is material to what has previously been disclosed. I would anticipate Sometime in the Q1 of 2024, we will have be in a position To be more conclusive around what the process optimizations and their results economically.

Speaker 4

Yes. And Alex, you will as Lee mentioned earlier, you will see the shop syncing appointment or shop syncer appointment Probably before Q1 or in early Q1, which is obviously a huge part of

Speaker 5

The scope of the project. So

Speaker 4

you will get an update there

Speaker 1

as well. Yes, that's going to be an exciting development and The incorporation of our the partners in the local community and the local project area It's going to be a very exciting announcement for all stakeholders involved.

Speaker 2

Thanks, Alex.

Operator

Next question will be from Chris Thompson at PI Financial. Please go ahead.

Speaker 6

Hey, guys. Thanks for hosting the call by the way. Just a quick question. Lee, I think you mentioned that you are about 60% through the 2023 work program, if I read you correctly. Does that mean you're a little behind based on budgets?

Speaker 1

No, no, it's that's physically that we're at about 60%. It's really the we've got some more work to do in this quarter, but annually, we'll be well within budget for 2023.

Speaker 6

Great. Thanks, Lee. And then I guess the final question and I guess Just referring to the previous caller talking about any sort of enhancements and what have you. Have you given any thought or can you maybe talk a little bit about the opportunity to

Speaker 1

Yes, that's an excellent question, Chris, and that's our focus. Look, given the market dynamics, we're looking at flexibility up and primarily around The hoisting and the shaft capacities at site and then also the subsequent flow on effect through the mill, It's yes, we're about midway through that at the moment. And we need to Really understand what does flexing up within the parameters of the approval are achievable, but I think that reflects our confidence in the market with what we're hearing from utilities around The production from Rook I. And we've always Yes, looked at the flexibility of the project, but it's fair to say over the last quarter, there's been an added Focus on that flexing capability of the Arrow mine prior to us settling on the final design. So, yes, watch this space.

Speaker 1

We expect to be more be able to be a bit more conclusive about it In the Q1 of 2024.

Speaker 4

Yes. And Chris, I might just jump in as well. It doesn't change anything that you would have heard from us in the past. We're exploring this flexibility up. I think it's obvious why we're confident that that opportunity to flex up exists Given the scarcity of this project at this time, but as always, we're not going to produce a pound that isn't There won't be maximal value for ourselves.

Speaker 4

So we're exploring it. We believe that the world is going to need a lot more from Arrow. But having said all of that, we're still going to be very disciplined with respect and make sure that we optimize the value of every pound generated from Era.

Speaker 6

Great, gents. Thank you very much.

Speaker 1

Thank you, Chris.

Operator

And your next question will be from David Talbot at Red Cloud Securities.

Speaker 7

Good morning, Lee. Thanks for the call here. Yes, sorry. Uranium price is certainly on the rise here. The commodities are cyclical.

Speaker 7

And Fukushima has shown us that things can happen that are unexpected. NextGen hasn't yet signed any forward contracts. You want to leverage those future prices. But Do you foresee the need to backstop any potential debt with offtakes, perhaps guarantee enough sales to at least cover your annual production costs And debt coverage requirements.

Speaker 1

Yes, it's a good question, David, and a very important one for all Investors to appreciate. We are seeking volume based Contracts at future market related prices at the time of delivery. We are very fortunate in the fact that we have an operation that we can ramp production up and ramp production down dependent on market conditions. And so we won't be locked into large amounts of sustaining CapEx year after year in committing to production 5 years Or longer out. So with that nimbleness, we don't it doesn't reflect the need to secure long term contracts Seeking a floor or the requisite ceiling that comes with seeking a floor.

Speaker 1

The other aspect too is even at £30,000,000 we have a very low annual operating Across those pounds. So from a financial risk assessment perspective, given the capital that we are going to deploy, Our contracting strategy merely reflects that technical certainty around production volumes that's flexible up and flexible down from 1 quarter to the next And also that very low operating cost.

Speaker 4

Yes. And just specific to the debt, David, because of the margins that Lee is referring to, we don't Have a requirement to commit a lot of production to backstop the debt payments with cash flows from those Offtake contracts, because as you well know, at current pricing, it pays the feasibility, say, CapEx back in less than 6 months.

Speaker 1

The other aspect too, we're seeing the marginal cost of production from Western World Producers are Approaching the mid-50s and going higher and that's natural given the Costs that everyone is experiencing, even with Fukushima, nuclear energy It was still whilst demand went down in Japan and Germany, it was still very buoyant everywhere else in the world. So as the lowest cost producer went in production, we don't see a scenario where our pounds Would be scaled back, even in that event.

Speaker 7

Okay. No, thank you for that. A lot of costs obviously rise and fall with production once on operations. So I can see you ramping up scaling back When it comes to requiring to sell £20,000,000 to £30,000,000 from a new producer, Do you find the NextGen getting the attention, sufficient attention from nuclear utilities right now? Are they U.

Speaker 7

S? Are they European? And what sort of strategy are you taking to approach potential clients?

Speaker 1

Look, we've had Charles Skoure, as you know well, on our team for probably 7 years now ever since we put out the first PEA. We've had an ongoing dialogue with utilities since that time. It's fair to say that those discussions and presentations Coming very strongly from the U. S, Europe and Japan. Frankly, Travis and I have never been busier on this particular aspect of the project.

Speaker 1

Utilities are looking for a diversified Western World Supply. And the response that we're receiving directly, That's why we're looking at possible flexing up of production beyond that £30,000,000 come 2028. The demand and supply gap is widening and the fragility over current Western world supply is very, very high. This isn't just good news for NextGen, it's good news for all the developers out there, the Denisons, the BOSS Energies, the OnCourse, Energy Fuels, all those companies who have been working hard over the last 10 decades, the market is far bigger than just next We're not looking to be the only supplier in the Western world. We're looking to be part of a diversified Western world fuel supply mix.

Speaker 1

When we're dealing with such a critical world energy need, both the provision of energy, but also from a clean reliable source. So Look, we were very I think we've demonstrated and since 2011, We have a very conservative approach, and it's based on facts and experience, and we test that regularly. From a market perspective, we've never been more confident with respect to the long term prospect Prosperity of the uranium market and what we all do know very, very clearly is that Western world mine supply can't react quickly. And so we're seeing the uranium price go up to $80 up 50% over the course of this year. I think we're in the very early stages Of the market recognizing that available supplies are very, very tight.

Speaker 1

And we need I'm just glad that ourselves Those other developers that I mentioned had been doing the work over the last 10 years in order to meet this critical world Demand. And so we see the opportunity for all of these developers as incredibly exciting Going forward and it's going to be more than over a decade long.

Speaker 7

Okay. Thank you, Lee, Travis, well done. It's been great watching NextGen go from pre discovery to now.

Speaker 1

Thank you, David. Appreciate the support all along.

Operator

Next question will be from Graham Tanaka at Tanaka Capital Management. Please go ahead.

Speaker 5

Hi, guys. Can you hear me?

Speaker 1

Yes, can hear you loud and clear, Grant.

Speaker 5

Yes, congratulations on your progress so far. I'm really interested in this Flexing up versus the marginal cost of supply of other mining companies and other mines that have maybe been shut in. So you've cited a £200,000,000 shortfall. What would be the total supply globally That you're referring to when you talk about a £200,000,000 shortfall, when would that be? And what would be the marginal cost Providing the first 100,000,000 of those £200,000,000 and then maybe the second 100,000,000 because it seems to me that the incremental

Speaker 4

Hi, Graeme. Good to talk. Yes, I think it's a good point. The reality is it's not clear on How the £200,000,000 deficit is going to get filled? So I can't we can't point to what that cost structure is because it's actually not really a cost Our incentive price issue, it's the fact that since 2011 effectively, there was a handful of companies doing exploration work, Only ourselves and really ISO that were successful in making new discoveries in Fission next door to us.

Speaker 4

And other than that, there hasn't been new discoveries and yet obviously there's been £180,000,000 to £200,000,000 a year consumed. So, yes, the incentive price, I think The trend is clearly going higher, but it really isn't you can't point to a price and say at that price, a lot of supply comes online. We're not in that world. You need to have the incentive price clearly go a lot higher because still today there's not a tremendous amount of grassroots exploration happening even yet. So you need the price to go higher to incentivize that and then obviously you need time and luck and everything else that goes into making a discovery and bringing it forward.

Speaker 4

I mean for us, We acquired the properties in 2012 and made a discovery in 2014 and then we're Talking about production in 2028, that's 14 years from first discovery through to production. And I think undeniably we have a true Tier 1 asset that was discovered on the very first hole and for a number of reasons was delineated very efficiently, Developed extremely efficiently. We didn't waste today. We had access to capital and that whole process still took 14 years or will take 14 years. So You make new discoveries today.

Speaker 4

They're not being made today. But even if you did, you're still talking about 14 to 20 years before those things come into production. So it is unclear how that deficit gets filled, Graham.

Speaker 5

Right. Okay. So the other question I had is for NextGen. To flex up, You have how many pounds proven and probable are indicated? And what Is your optimism or what is your sense based on your drill results at depth and to the three sides of ARO That you could add to annual production flexing up and extend your reserves and mine life at just aero alone Because that seems to be probably the fastest way for you to bring on incremental pounds.

Speaker 5

Thanks.

Speaker 4

Yes. So Arrow has got about £230,000,000 of Probable reserves, and then we've got another £80 +1000000 of inferred, which isn't incorporated in the feasibility study. And then as you point out, I mean, as you know, you've been with us in the story for a very long time, but we stopped drilling Not because we ran out of ore or anything, just because we had a critical mass of resources to take the next steps and develop a feasibility, all the economic plans in the mine and finance it and everything. So, once we get underground, That's when we're going to start exploring all around aero, along strike laterally and certainly at depth where we've already hit You know, uranium down there, which we're extremely encouraged by. So at Arrow alone, we're I mean, we're certain that it's going to grow.

Speaker 4

Obviously, we don't know to the extent yet, but we're very confident that there's going to be some material growth there. And then we're exploring all along that corridor and then parallel corridors. And once we've built Aero, and we're underground. The time to develop nearby deposits is actually quite quick because we're in that Yes, we're very confident in our ability To expand, Aero, certainly, and flex up. But even without doing that, we can still flex up, Because we don't need more pounds necessarily to flex up the mine.

Speaker 4

We have ample resources today to flex up the

Speaker 5

Okay. And the other factor besides potential reserve additional reserves, it's a time to market. You've cited 12 to 14 years for Arrow. And how much or how short would or how long would that time period be to bring on Incremental pounds, should you discover more in the Patterson Court or any of the other quarters you have since they're nearby similar rock, Etcetera, would it take 10 or 12 years or shorter?

Speaker 4

No, I mean, if you're talking about expanding aero itself, No, because you've already like if it's within the environmental assessment footprint, which something say at depth would likely be you're not talking about If you're talking about something regionally, then I mean to be determined because we'd have to go through Environmental Assessment Amendments, but I think it's safe to say it wouldn't take as long as it did take To develop Arrow because we're not starting from no drill holes on our project. The engagement efforts have been done etcetera. So There would certainly be significant time savings there, but it would be to be determined the specific Amount of months or years that it would take to make those amendments. But again, once we're in production, we can be doing those things simultaneously.

Speaker 1

Okay, great. Thank you. Thanks, Graham. Thanks, Graham.

Operator

Next question will be from Puneet James at 8 Capital. Please go ahead. Thanks.

Speaker 4

Good morning. I just

Speaker 2

had a quick one. Positive announcement in the space this week. The green bond framework in Canada now includes nuclear. Language focuses on reactors There, but just say investments in supply chain, you talked about traditional debt being available to you guys, but maybe talk

Speaker 4

Yes, thanks. Yes, definitely a possibility. I think as you point out, a lot of these policies that are coming out now Are focused on supporting demand, not necessarily supporting supply. I think that's where other elements like the critical mineral strategy, etcetera, More come into play in some of the tax incentives there. But yes, I think over time you'll likely see that because As those groups do more work and realize that demand needs to be supported for sure and I think that's being recognized and valued Accordingly, similarly, the supply side certainly needs and particularly primary supply certainly needs Support.

Speaker 4

Otherwise, that's all for naught. So, at the current moment, yes, very focused on demand, which Obviously, it has trickled down effects to the rest of the fuel cycle, but I wouldn't be Nice to see that evolve over time certainly. And it's something we're definitely keeping a very keen eye on as we build this capital stack to develop the project. Great. Thanks, Jonathan.

Speaker 4

Thanks, Praneet.

Operator

And at this time, we have no further questions registered. Please proceed.

Speaker 1

Well, thank you everyone With those questions and for listening in today, look, it's a very it's always an exciting time at NextGen With what we're working on and the team's commitment and dedication is absolutely outstanding. So, it's a very exciting time in the market. It's in the early stages of developing and NextGen is very well positioned So I thank you for your attention, your interest and your ongoing

Operator

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.

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