NexGen Energy Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 14, 2024

There are 10 speakers on the call.

Operator

Good morning. My name is Julie and I will be your conference operator today. At this time, I would like to welcome everyone to the NextGen's Energy Q1 2024 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session at the end.

Operator

Before we begin, please note that the following caution respecting forward looking statements, which is made on behalf of NextGen Energy and all of its representatives on this call. The statements made on this call will contain forward looking information that involves risks and uncertainties. Actual results could differ materially from a conclusion, forecast or projection in the forward looking information. Certain material factors or assumptions were applied in producing forecasts and projections are detailed in the forward looking information. Additional information about those material factors and assumptions are contained in NextGen Energy's filings and they are available on SEDAR Plus website at www.sedarplus.

Operator

Ca. Mr. Lee Courier, CEO and Director of NextGen Energy, you may begin your conference.

Speaker 1

Thank you, Julie. Welcome and thank you to all our shareholders and stakeholders around the world for joining NextGen's Q1 2024 update and financial results call. I'm Lee Currier, Founder and Chief Executive Officer of Next Gen Energy. Joining me on the call today is Travis MacPherson, Chief Commercial Officer and Ben Salter, Chief Financial Officer. From a company and industry perspective, it's been a great Q1 to 2024.

Speaker 1

Now I'll commence by providing an update on the industry landscape and uranium market, which is entering into an unprecedented phase with last night President of the United States, Joe Biden, signing into law legislation that bans the import of Russian uranium and unlocking $2,700,000,000 in spending to support the buildup of U. S. Domestic uranium supply. This purely reflects the particularly high risk surrounding a large percentage of current mine sources and available supplies. We'll provide a progress in advancing the Rook I project, specifically federal permitting, which is in the final stages with the CNSC, project development with respect to front end engineering design and detailed engineering progress exploration, which includes the early stage discovery of new mineralization in the first drill hole at the target on an entirely new conductor corridor 3.5 kilometers from the one that hosts the mighty arrow deposit.

Speaker 1

And financing, including discussion related to 2 transactions in the last fortnight, the Australian dollar 250,000,000 CDIs raised exclusively on the ASX, which closed this morning pre market and the strategic purchase of £2,700,000 of U-three zero eight, which given last night's ban being passed into law is ultimately very, very timely. NextGen, on closing, now has cash and liquid assets of approximately CAD930 1,000,000 in preparation for construction of the Rook I project. After this discussion, I'll then move into a Q and A portion on the call, where I invite you all to ask questions. In the last 6 months, we're highly encouraged to see governments worldwide adopt energy policies and strategies that are aligning strongly with nextgen recognition back in 2011 of the role sustainable and cost effective nuclear energy will play in the 2020 decade and beyond. Increasingly, nuclear is being recognized as the critical component of the global energy mix, addressing the need for clean, efficient and secure energy sources.

Speaker 1

The world is on an aggressive path to bring more nuclear power online, tripling by 2,050, both in the form of new builds in places like China, India, the UAE, UK and France, as well as restarts and extensions in large and key nuclear markets such as Western Europe, Japan, South Korea and the United States. This expansion is increasingly critical as electrification of our world accelerates, notably through the expanding adoption of artificial intelligence and electric vehicles. Both need a reliable and base low power source, leading to a paradigm shift in the energy market. We've seen this urgent need for a nuclear renaissance to continue expressed by many thought leaders, including tech giants such as Microsoft and Amazon, as well as the likes of Sam Altman, OpenAI and Brad Gerstner, legendary venture investor. Demand is robust, sustainable and growing significantly faster than anyone forecast, causing the focus to shift to the ability of the industry to supply this key energy fuel.

Speaker 1

Supply, however, tells a different story, a narrative of fragility and decline. The confluence of over a decade of extreme underinvestment, supply disruptions, dwindling inventories with the overlay of significant geopolitical risk is precipitating a new market reality, one in need of more dependable uranium sources and has led to uranium spot during this past quarter, reaching new 15 year highs at US107 dollars a pound. In the face of supply challenges, new sources must be found through the purposeful exploration efforts and then developed, which take time, even for those companies doing their good work like ourselves and our Canadian development company colleagues Denison, Fission, UEC and ISO Energy in Canada. It's not simple, convenient or quick to find and develop any mineral project. It's at least a minimum of 15 years before new undiscovered sources come online.

Speaker 1

It's more important than ever to advance the Rookwan project into production this decade, and the NextGen team is delivering on that objective. In Canada, the federal government has recognized this importance and strongly emphasized its commitment to expanding the nuclear sector, both domestically and globally. This includes efforts to expedite the approval process for nuclear projects in Canada and increased funding availability, as highlighted in the most recent federal budget. NextGen is through 1 project and all its shareholders and stakeholders are extremely well positioned for this Canadian government commitment. The importance and reality for the need of Allied supply chains was bluntly reflected last night with the signing prohibiting Russian Uranium Imports Act.

Speaker 1

This is set to take effect 90 days and the U. S. Imports of Russian uranium in a phased manner through 2028. This legislation begins a new unprecedented era in the uranium market and is expected to tighten the market considerably leading to significant and long term upward pressure on uranium prices. Consequently, for all these reasons, utilities are seeking to diversify their highly concentrated nuclear fuel supply chains in Adelaide jurisdictions.

Speaker 1

The Rook I project stands out as the world's largest and lowest cost future producer for an exceptionally sound technical and environmental setting, evidenced by its vertically stacked ore body that is large, high grade and located in ideal hard rock conditions with clean ore, making it truly unparalleled in the global uranium landscape. We're encouraged to know that our valued government partners and local communities acknowledge the importance of Rook One's generational profile and recognize that Rook One will cement Canada as a global leader in the delivery of uranium as part of the green energy solution. Looking ahead, NexGen is energized to progress the Ruukwan project into construction and production through our innovative culture, deep expertise, operational excellence and our collective commitment to being a key contributor to the essential, global, clean energy transition. Over the Q1, we continue to execute our strategy to permit Rook 1 for construction. After receiving Saskatchewan provincial environmental approval of the Rookwan project on November 8, 2023, which was the 1st greenfield uranium mine and mill project in Canada to receive provincial EIA approval in over 20 years, we immediately submitted responses to the CNSC technical comments.

Speaker 1

On February 12, 2024, at conclusion of the prescribed 90 days following that submission, NextGen received only 49 comments remaining to address and once done so successfully, will have concluded the federal environmental impact study. We're extremely pleased with this CNSC review and have been finalizing our subsequent responses to these remaining 49 comments, which we'll be submitting imminently this week or early next and will be reflected in the news release at that time. This is all in the backdrop of full support from our local indigenous community partners who have all signed impact benefit agreements with NextGen on the full lifecycle of the Rook I project. On project development, the 2023 site confirmation program is informing and validating the final detailed design of the production exhaust shafts, water treatment, underground tailings management facility, mill and surface infrastructure. This work is estimated to be completed at or around the end of Q2, where we will then provide an updated cost summary on CapEx, OpEx and project economics.

Speaker 1

Regarding procurement, we are finalizing details of shaft sinking contract award and advancing the procurement of the mine hoist system, which will be awarded in the near future. Additionally, we are awarding various ancillary site contracts, including the LNG power plant during the second half of this year. As we shared earlier this year, our 2024 winter exploration program has returned successful results at a brand new discovery on the Patterson Corridor East, which lies 3.5 kilometers East of Arrow on a separate conductor package. The intense mineralization discovered in RK14183 meant that we focused the balance of winter exploration solely in this area. So first, under expand the extent of the system.

Speaker 1

The geological similarities between Patterson Corridor East and Arrow are stark have dictated the summer program will focus on this area for a considerable period of time. The early exploration holes at Arrow in early 2014 were hitting the top of the strong and large mineralization below. This discovery and the holes drilled to date suggest a similar setting of an extensive mineralizing event in the vicinity. Results of the remaining 2023 program are imminently pending and the 2024 summer drilling program will be commencing late May and will be an expanded program from winter and all on this new discovery. All discoveries have their own unique nature and this will be no different.

Speaker 1

But note, the execution of this drilling program is incorporating the same industry leading technical approach and discipline as deployed at Arrow on discovery and in a manner which was the most time and cost efficient per meter drilled in the discovery of a +100,000,000 deposit in the world. Regarding contracting, our discussions continue to advance well with respected nuclear power utilities. We have been recognized as a significant producer in the future with a strong understanding of NexGen's key positioning in any utilities future supply portfolio. As evidenced in the industry market commentary, contract negotiations for 2020 A and beyond are occurring now. Last week, NextGen announced the purchase of £2,700,000 of physical uranium at US92.50 dollars per pound via the issuance of US250 million dollars convertible debenture at a 30% premium to our 5 day VWAP share price.

Speaker 1

This debenture is on the same terms of which we have successfully executed in the past with CEF Li Ka Xing in 2016 'seventeen, Queens Road Capital and more recently, Sole Paterson's in Australia, which all incorporate an investor rights agreement that contains shareholder voting alignment, standstill, sale and transfer restriction covenants and anti hedging through short selling options, swaps or derivatives. The rationale to procure uranium now is logical given our stage of development in approaching final permitting and construction and more so the contracting cycle for delivery from 2028 and beyond is occurring now. That's right, right now. Last night signing of the Russian uranium ban fully enforced by 2028 means the importance of procurement for this time and beyond has even more significantly elevated in the last 24 hours. Nuclear Fuel is unique in the sense it's a highly specialized input of production for power utilities that takes many years to procure and not commonly available if caught short.

Speaker 1

The producers and spot market is no longer flush with inventory levels to accommodate any unexpected shortfalls. Given the supply side dynamics of fragility, utilities are rightfully focused on security of supply now. This purchase shows utilities, NextGen has their back and is a responsible reliable supplier, reflecting respect and understanding of their risks and requirements for successful operation. With respect to the price of $92.50 per pound, based on recent spot market purchases over the last 6 months, £100,000 has been resulting in rather than $1.50 upward price movement. We are confident we have purchased extremely diligently and at the same time as enhancing our contracting and debt financing approach.

Speaker 1

With respect to the debt package, which we will continue to advance through due diligence and schedule concluding shortly after federal approval, this includes many different potential avenues and significant capacity is being evaluated with maintaining leverage to future uranium prices. Evidenced by expressions of interest from lenders, which now totals roughly US1.4 billion dollars which provides substantial excessive capacity to fund and execute the projects. We continue to experience strong institutional and retail shareholder support from Australia and the broader Asia Pacific region, who exhibit strong demand for unhedged uranium development opportunities. Our listing and subsequent inclusion in the ASX 300 Index on March 18 marked a significant milestone, reflecting our company's continual commitment to finding new shareholder markets, exposure and in the process, leveraging optimal outcomes for our shareholders and stakeholders. In line with this objective, 2 weeks ago, NextGen issued a Canadian $224,000,000 placement to ASX investors, which together with the issuance of the $250,000,000 convertible takes our cash and liquid assets to approximately CAD930 1,000,000 and that is excluding our investment in ISO Energy.

Speaker 1

We have significantly addressed the equity component of funding construction of Rook 1, providing the market with clear visibility of our objective of taking Rook 1 immediately into construction on receiving federal approval with the value of that milestone unencumbered. In September of 2023, NextGen has raised approximately CAD540 1,000,000 with a discount to market being industry leading 1.5 to 4% discount, while still mining sector leading share price performance. Further, this has been during a period CES have liquidated their shareholding. This represented approximately 18% at the beginning of last September to only yesterday being advised is now holding less than 0.1%. We are very proud of this investment return to CEF since 2017 of over 500 percent and equally excited it has been replaced with new, predominantly large Australian based shareholders with an affinity for a new world mining company delivering exceptional returns.

Speaker 1

By the end of Q1 2024, we will have invested approximately CAD459 1,000,000 in the successful exploration and development of the Rook 1 project. And this has resulted in a current market capitalization of CAD5.4 billion. The day prior to the announcement of the uranium purchase last week, NextGen hit a new all time high market capitalization at Canadian $12.14 per share and led all year to date 1 year rolling tables relative to its peers. The £2,700,000 purchase of uranium represented approximately 4% dilution to that market cap and has placed NextGen in a far stronger position than what it was prior to announcement. Before we turn to the Q and A, I'd like to mention Susannah Pierce's nomination for election to our Board of Directors at our upcoming AGM in June.

Speaker 1

And this is referenced in the next gen management information circular issued last week. Susanna currently presides as President and Country Chair of Shell Canada. Her expertise and experience in the global energy industry and genuine engagement with local indigenous communities and government stakeholders makes her a natural fit for our organization. I encourage everyone to read the NextGen Management Information Circular, which details all aspects of our approach, governance and diligence in delivering the world's largest environmentally, socially and elite economic uranium development project. Our team's strength lies in its diverse composition, enriched by top tier talent from a variety of backgrounds, reflecting a wide reaching perspective that enhances our approach.

Speaker 1

In 2023, total employees by gender statistics were 66% male and 34% female, compared to a Canadian average of females in mining measuring 16%, more than double. Proudly, 80% of Brook One site employees were from the local priority area. Over $44,000,000 has been spent on the local priority area supplies in 2023, which stimulates economic development within local communities and builds long lasting and self sustaining community resilience. As we move forward with the project, we continue to add to our high performance team, building and investing in skilled talent pool is central to our continued success and local economies success. In summary, we are moving forward with the support of our valued indigenous partners, our shareholders, the regulatory and governmental authorities of our dedicated team.

Speaker 1

As we look toward the rest of 2024, our focus is advancing the Rook I project. We are at a pivotal and exciting time for our company. And as always, it's a privilege to share our continued growth with you as we work together to secure the energy transition. Now, let's transition to the Q and A and we encourage questions from all of you. I'll hand it over to the moderator.

Speaker 1

Thank

Operator

you. Your first question comes from Andrew Wong from RBC. Please go ahead.

Speaker 2

Hey, good morning. Thanks for taking my questions. So it's great to hear you're about to resubmit the EIS soon. Just kind of I just wanted some clarity around the timeline. So after you submit, what are the specific steps and timeline that needs to happen before a public hearing can be scheduled?

Speaker 2

And what actually happens during the public hearing? Could there be some public commentary that comes out that needs to be addressed in that process? And then after that, what's the timeline before the from the public hearing until you get some sort of final decision from the minister?

Speaker 3

Yes.

Speaker 1

Thanks, Andrew. Yes, look, so we're very pleased with the response that we received from the CNSC. Like to have 277 questions in the first place according to our consultants was unprecedented at this stage of a project. We're down to 49 and they're really whilst every aspect is very, very important and we're respectful of that, We are submitting imminently either late this week or early next. Now as prescribed by the rules and regulations, the CNSC is entitled to another 90 days to review and close out those remaining 49 aspects.

Speaker 1

On closing those 49 aspects out, the EIS will be deemed final. At that point, it will then establish a commission hearing date. Now every project that has gone to a commission hearing has been approved within 60 days. I think whilst all aspects are very, very important and material, it's very, very significant with respect to concluding BEIS And we are very much looking forward at the conclusion of this next 90 day period, which I think is at the end of July off the top of my head. And very much look forward to those 90 days.

Speaker 1

That's for sure. Now with respect to other public comments that can arise, well, the federal government has already ran its 120 day public comment period back in 2022. And those questions that we've already addressed were directed at those public and technical comments. So from our perspective, it's very, very well has been very rigorous, has incorporated all stakeholders. And this is on the overlay of having 100% community support from the communities in the local project area who have all reviewed and signed off on the EIS as we have presented to the CMSC.

Speaker 2

Okay. That's great. And then just talking about the Rip One project itself, you've been pretty clear on, I think, your intention to bring it into production. Sounds like there could potentially be a construction start within the next 6 to 12 months. So can you just talk about the technical team that you have in place already?

Speaker 2

What's the size of that team right now? And how much more do you need to build it out? How quickly can you hire the labor force to need to build the project?

Speaker 1

Yes, sure. So we are on receiving federal approval, we'll be in a position to start immediately the following week. We have done 100% engineering

Speaker 4

of a lot

Speaker 1

of the site infrastructure aspects, the preliminary works in order to commence construction in earnest and all the early stage items are 100% engineered. The remaining engineered items around the specifics in the mill to put that into perspective around the wiring. And so we're ready, subject to federal approval to immediately start. And with respect to the team, we have currently about 76 people in our Saskatoon head technical office. And at NextGen, our culture is absolute responsibility.

Speaker 1

And so we have a dedicated next gen person for every aspect of our operations. That's not just the construction of the project that exhibits in geology, the financial side, commercial side, everything. So we have been very, very strategic and well planned in acquiring the personnel and the technical expertise that we want ever since 2017. We knew at that stage we had a project and we're taking it forward into production. That's elevated as we speak.

Speaker 1

And to give you one example, like on the safety side of things, we're now breaking that out into very specific areas of safety at surface, underground radiation experts. And given the profile of the project and the culture that NexGen is exhibiting, we're very, very pleased with the caliber of the applicants that we're receiving, not just within Saskatoon and Saskatchewan, but also from outside of Saskatchewan. And so Saskatchewan is going to be experiencing an inflow of skilled labor as a consequence. With respect to the labor force on the ground, well, our community team led by Adam Engle and Dylan Smart in Saskatoon have already been running training programs with the various government technical colleges in Saskatchewan. And the take up of those training programs has been absolutely phenomenal.

Speaker 1

And so we are well prepared on both fronts and it exhibits our commitment to making as many of the jobs as local as achievable. And so you're going to also be seeing an inflow of population into the local community area on the commencement of construction of the project.

Operator

Your next question comes from Puneet Singh from Haight Capital. Please go ahead.

Speaker 5

Hi, good morning. Just a couple of questions on the convertible. Just regarding strategy, the way that uranium prices traded, why not do this a couple of years ago? And what specifically were you seeing in the market that made you pull the trigger now?

Speaker 1

Yes. Look, you're quite right. We've always been confident that the price of uranium is going high even 5 years ago. And it's going to go higher. But the decision to purchase pounds of uranium now is completely in line with our stage of development.

Speaker 1

We're about to we're in the final stages of federal approval. We're immediately on receiving approval to start construction. And the contracting cycle for 2028 beyond is now. And so that predicated given the fragility around current production and available supplies like the producers have had a significant drawdown of inventory on hand over the last 2 years. And then also the spot market is incredibly tight.

Speaker 1

And dealing with the nuclear fuel, the utilities want a surety of delivery. So us acquiring £2,700,000 is very significant in our contract negotiations with utility and recognizes the utilities risks around security of supply. And so the timing of that is evident today. And I would say the Russian ban introduced last night has elevated that significantly into a new era that is unprecedented, frankly.

Speaker 4

Yes. Hey, Puneet, it's Travis here. I would also just add that, yes, with respect to the timing like 3, 4, 2 years ago even, we weren't at the point of these negotiations with the utilities, but they're now and to Lee's point, the world that the utilities live in is it's 2028 tomorrow. And so those that's where the decision to in terms of the exact timing, it's not a while we're extremely bullish on the uranium price obviously for all the reasons and more that Lee has outlined in the opening remarks, it wasn't purchased on the basis that we're speculating on the uranium price. It's really tied to the development of the aero project as it relates to contracting, which obviously feeds into the debt financing discussions that we're having as well.

Speaker 5

Okay, got it. And then just building on that then, if it's tied to the utilities, should we expect more purchases from you guys? Or how should we look at that in terms of a strategy contracts versus physical inventory?

Speaker 4

Yes. Look, you're not going to see us like materially fill obviously the production volumes that are coming out of ARO. And those contracts that we do sign will be filled predominantly by Arrow's production like vast, vast majority of this. Again, to Lee's point, these £2,700,000 and whether it grows from here or not to be determined, I think we're very happy with £2,700,000 that we got because it does just provide a bit of an insurance policy to the utilities. And again, really I think demonstrates that the understanding of the supply challenges, meaning the available insurance that exists out in the market is very limited.

Speaker 4

And while

Speaker 1

it is very, very unique to the nuclear fuel market in respect to mining. It is a necessity of a startup operation. But it's not unique when you would have seen other developers do a similar thing as they approach production. BOSS Energy have done it, Denison have done it as well. So it's not unique in that sense.

Speaker 1

And it does reflect though the aspect of commencing a uranium mine.

Speaker 5

Okay, got it. Thanks, Liam.

Speaker 1

It really does reflect we are taking this project into production. Okay, great.

Operator

Your next question comes from Katy Lechappelle from Canaccord Genuity. Please go ahead.

Speaker 6

Hey guys, thanks for taking my question. I have 2, but I just want to quickly follow-up on Puneet's question. With respect to the contract negotiations that you're having right now, what sort of volumes or tenure would you be looking to lock down when you are looking to sign contracts?

Speaker 1

Well, I'll start with the question and hand over to Travis. We are our current negotiations with 4 main utilities at the moment, all varying degrees. We've been very, very clear that we are looking for 3 year offtake arrangements that are tied specifically to market prices at the time of delivery. Volume levels at the moment are commercially sensitive, but given the supply and demand gap that all market commentators are saying in 20 and beyond, then I say this morning that an Australian bank came out with $150 uranium price forecast for year end 2025. I've got no doubt that we're going to be filling contracts to the tune of what ARO is capable of producing annually.

Speaker 4

Yes, and I might just add, yes, there either the there's no urgency. We need to sign some contracts or it's optimal to sign some contracts in this kind of timeframe that we're in now. In terms of the specific volumes, say, day 1 when we look out for the foreseeable, say, 3 to 5 years of Arrow's production, I mean, there's the to the extent we take on and finance it with the debt, which we're, again, going down that path right now, There will be a minimum level. I think in order of magnitude, it's minimal in the context of Arrow's overall production to shore up the cash flows necessary to make those debt service payments and make it comfortable for utilities or the lenders. And then as we progress from today onwards, I think you'll just see contracts and off take negotiations and deals get done progressively as we march from today through to ultimate startup of production.

Speaker 6

Got it. That's super helpful. Maybe just one other question. In the prepared remarks, you mentioned that you guys are going to provide updated capital as well as operating costs around the end of this quarter or early Q3. Can you provide any detail on where you guys are seeing some of the largest impacts on the cost side?

Speaker 1

Yes. I'll start and again hand over to Travis. But on the cost side and as I explained in an earlier call, the inflationary impact on the CAD1.3 billion as estimated in the 2021 feasibility study to date is at around $320,000,000 Labor wages has been probably the biggest one out of everything on a weighted basis. But we're also experiencing some decreases in raw materials as well. The biggest cost component of the construction is the 2 shafts.

Speaker 1

And we'll be entering into a contract which limits subsequent inflationary and pressure on the construction of both the production and exhaust shafts. But to answer your question, Katie, it's predominantly around labor.

Speaker 4

Yes. And I think just on the inflationary I think it's important as well that that is not some kind of that is not calculated based on some kind of market indices like we went unit cost by unit cost comparison from the feasibility side to today to make sure that we understand exactly what that is. And then the remaining aspects over and above the inflationary impacts are being finalized now through some ongoing test work and finalization

Speaker 1

there. With respect to the just we've got under just shy of CAD1 1,000,000,000 in the treasury now and with the debt process over expressions of interest over US1.4 billion dollars We have got more than enough capacity with respect to even taking into account the impact of inflation onto the feasibility study, we are very, very well financed in order to execute this project with our current cash and liquid assets including the debt expression of interest.

Operator

Your next question comes from Craig Achetty from TD Cowen. Please go ahead.

Speaker 7

Hi, good morning, guys. Just a follow-up question regarding the timing of the purchases that you did like from my perspective, I thought your Tier 1 asset, Tier 1 jurisdiction that you guys would be in the driver's seat with regards to offtake discussions and that you would not have to enter into purchase agreements now. Can you just talk to those discussions? Are you seeing the utilities not that rushed right now to enter into contracts? Are they not short material?

Speaker 7

Just some sense on that because I think in previous discussions, you guys have talked about potential to do even like a forward sale of uranium? Thanks.

Speaker 1

Yes. Look, sorry, Greg, and good morning. In terms of the description box seat, well, we're working with the utilities to get contracts in place and arrangements in place, which meet win wins. So it's not like we're going to flex our muscles and have a win loss situation. We are developing relationships with these key utilities for the long term and that uranium purchase reflected us and understanding their sensitivities around a startup operation, which exists for any startup operation.

Speaker 1

And as we're saying, Denison and BOSS, etcetera, have done a similar thing, which is very, very astute and reflects their understanding of the contracting process. There's no doubt that the focus on the security of supply is now significantly elevated and elevating week by week with these market developments. We are entering into an unprecedented stage. Yes, there is a possibility of a forward sale of a contract, but that may not necessarily be with a utility. We're receiving expressions of interest from not just utilities, but also financial players with respect to that possibility.

Speaker 1

So our approach is one that is understanding the utilities specific requirements and one which is about a win win for both the producer and utility taking into account the risks around producing nuclear energy.

Speaker 4

Yes. I might just add, Craig, that this is really about optimization and our view of how to do that best. Like we can get contracts without necessarily having purchased uranium. I mean that's obviously been done before, but this is around really I think the best way of thinking about it is we're trying to maximize the value of the plus £350,000,000 we have in the ground. And buying some uranium now like £2,700,000 to help us potentially optimize what those contracts look for the sale price of that plus £350,000,000 is a really good and astute move.

Speaker 4

So, yes, it's not look, you're right and we're all right like this asset is what it is and it represents what it represents in the uranium market, which is unique and of scale and quality. But this is around optimizing that. We're not just sitting back and saying, well, we have the best, so take it or leave it. This is about working with the utilities and evolving the market over time.

Speaker 7

Okay. Thanks for that, guys. Maybe just a follow-up, just given the expressions of interest you've had on debt and the financing you guys have done over the last couple of weeks here. You had talked previously about potential to project equity with a non mining partner. Is that still on the table?

Speaker 7

Or is that sort of off the table just given the recent financings?

Speaker 1

No, it's still a possibility. But I would say maybe less so, given the recent and look, part of and I get the commentary about why would you do it now when you've got such a significant milestone coming up with federal permitting. But similar to the uranium purchase of £2,700,000 having the treasury in place prior to approval is a necessity to give the CNSC and the federal government of Canada knowledge that we have the funds in place. It's a very important aspect. And so doing it prior to that federal approval news coming through and obviously subject to concluding the process respectfully.

Speaker 1

We now have that in place. And on receiving that approval, well financed in order to construct the Rook I project. So I think that's very, very clear and we appreciate the opportunity to really provide the color behind that because on face value, as I said, we get well, it's less dilutionary post milestone, but this way got in front of it. And it reflects the practicality of building a mine with regulators, but also gives that significant milestone that the company is going to deliver on federal approval, absolutely clear air for it to be reflected in the value of the organization at that time. So it's very, very exciting for all shareholders and stakeholders.

Speaker 4

Yes. And Craig, just with respect to the joint venture you referenced, and it's true for the debt and everything else, I think all these things are and being in a negotiation demonstrating that you have other options is really important. So, by having a really robust balance sheet today helps optimize again the debt discussions that we're having because we're not it's not a we're not in a weak position there like we have other options, similar with the joint venture discussion, like we can then work to actually optimize those. We show we have other paths and other opportunities to fund it and we do. It's true.

Speaker 4

We have lots. It shouldn't be surprising to anyone. There's lots of ways to fund this project under our stewardship.

Speaker 7

Okay. Thanks for that guys. Maybe just a quick question. Just on the early works, I think your budget, it's been about $46,000,000 to the end of last year. Can you just give us an update kind of where that's at?

Speaker 7

And then I think on the last conference call, you said your budget for this year was around 170, excluding exploration. And is that still the case? Thanks.

Speaker 1

Yes. It's subject to the timing of the federal permit. The deployment of capital will increase significantly on mainly receiving that federal approval. So we're well under budget frankly for 2024 and incredibly well financed through into 2027, frankly, based on the cash we have on hand at just under CAD1 1,000,000,000 as we

Speaker 3

see.

Operator

Your next question comes from Orest Wowkodaw from Scotiabank. Please go ahead.

Speaker 8

Hi, good morning. Two questions, if I could. The first one, Lee, your comments about having financing in place in order to show the government or give the government confidence in your ability to build the project. Does that suggest that you plan to confirm all of the debt financing as well prior to permitting?

Speaker 1

Yes, prior or just after federal permitting the debt, the way it works is that the equity has to be spent first. So it's not a given that we will arrange that prior to federal permitting or just after, we're working on it now. But the debt is obviously subject to federal permitting approval and getting into construction and after you've spent the equity. So I wouldn't say it's contingent on it, but it's a function of it.

Speaker 8

Okay. And then alternatively, just on the inventory and the purchase of physical, I think that surprised pretty much all of us in terms of that transaction. Your comments about you could add more, is there like when I look at what Cameco carries from an inventory perspective, about £10,000,000 to £12,000,000 that's about a third of their annual sales. Is that ultimately where you think you might have to get to in terms of volume on hand in terms of being able to sign offtake agreements down the road?

Speaker 1

No. Look, they're completely different operations with completely different technical risks. So as you're aware, chemical mines are in the sandstone, requires freezing in order to keep the cavities open. We're in the hard We drill a cavity into the hard rock and it will be open for 1,000 years. So we have the flexibility to ramp production up and ramp production relative to market conditions at that time.

Speaker 1

We can afford having a far lower level of inventory on hand at any particular time, but during commissioning having £2,700,000 on hand is very, very astute. So it is a quantity which we have targeted and have acquired with a very sound technical and economic basis behind it to help launch the company into production at that time. So Cameco's inventory up until a couple of years ago was always over £30,000,000 representing entire years production. I think that just goes to show the availability of supplies and fragility of supply is of mine supply is very, very high at the moment. And so I think the whilst it may have surprised people, it is a function of a company going into production.

Speaker 1

I think in light of the market circumstances, which we have read very, very accurately since 2011. The astute nature and timing of that purchase will materialize in the near future.

Speaker 4

Yes, Norris, it's not so two things. I wouldn't definitely wouldn't read any parallels or correlations between the percent of anyone else's production profile and how much inventory they hold and draw a correlation to therefore how much we need to hold or anything. As I said, we don't need to have any pounds to get a contract. It's not like there it's a requirement to get a contract. It's about optimizing what those contracts look like.

Speaker 4

And we feel very comfortable with, again, this insurance policy, the amount that we have now, to provide that to therefore optimize and maximize the value that those contracts that we do sign now represent again the all the bounds that we have in the ground.

Speaker 8

But I guess, does £2,700,000 really make a difference at the end of the day, given it's, call it, 10% of your annual sales? Like, is that sufficient to actually move the needle with respect to giving utilities confidence?

Speaker 4

Yes. Yes, because the concern is not around once you ramped up. Look, we're very confident in our ability to ramp up our mine. This isn't about our view on production startup risks or anything. This is just a perception that utilities could have or have around any new mine starting up that there are risks associated with that.

Speaker 4

And so having £2,700,000 just again, it's an insurance policy like, again, insurance policy, you don't buy that and cover all the value whatever you're insuring. This is about just that small window of time, say 3 to 6 months when the mine is ramping up for the first bit and just providing a bit of insurance around that to therefore again optimize the value of these contracts.

Speaker 7

Okay.

Speaker 8

Thank you very much.

Operator

Your next question comes from Graham Tanaka from Tanaka Capital Management. Please go ahead.

Speaker 3

Yes. Thank you. So I just want to understand, so trying to tie this all together, the establishing of inventory I understand is to help you stage, create an inventory in hand and allow you to negotiate on stronger terms with utilities with greater confidence with inventory in hand even as you're starting up the mines. So I'm trying to understand what your timing was on purchasing at current prices and the financing it with quasi equity with the convertible. What were your alternatives you could have waited?

Speaker 3

You could still wait and do this a year from now or you could have done it a year ago? I'm just curious about your timing and what the current price and your outlook for prices in the future had to do with your timing? Thank you.

Speaker 1

Sure. Thanks, Graham. As in the call, it specifically relates to the fact that the contracting cycle for 2028 and beyond is now. That is what the utilities are focused on. And so when you're having those discussions for offtake in 20 20 and beyond, it's relevant to buy the pounds now.

Speaker 1

So yes, we could have bought it earlier if we were just making a trade because we're always very confident the uranium price was going a lot higher. And we think it's going significantly higher in the future at 92.50 dollars It was at the time we bought it $93.85 on the spot market, £100,000 purchases over the last 6 months has resulted in at times greater than $1.50 increase in the spot price. So if we bought those £2,700,000 on the spot market, the price probably would have got driven up to over $120 a pound based on those past transactions over the last 6 months. So we've bought them extremely astutely. With respect to the financing of it in issuing a convertible debenture, it was at a 30% premium to our 5 day VWAP, only CAD14.80.

Speaker 1

So incredibly good use of an instrument, which is on the identical terms to the one we've done with CEF very successfully, QRC very successfully and more recently with Sole Paterson's out of Australia. We're very it's not like your typical convertible, it's a bit of a hybrid that we developed with Warren Gilleman. And it works very, very well for us and has worked very, very well in the past. And when it comes with voting alignment and it's with one party, we know exactly what we're dealing with. And it wasn't a drain on the current cash balance.

Speaker 1

So the other aspect too, like we're very, very cost conscious. We avoided the broker fee of US10 $1,000,000 in implementing that convertible as well. So it's a very successful transaction and it's actually while it serves a 30 day a 30% premium to our 5 day VWAP at the time, it was also a 33% premium to the raise we did in Australia only 7 days beforehand. So that speaks for itself in terms of the strength of that financing.

Speaker 3

Well, I understand and thank you very much for that explanation. Just curious what the potential is for future equity raises should you deem the market attractive relative to what your needs might be on future expansion, whether it be for exploration, say, 1 or 2 of your other Patterson Quarter or other opportunities become very ripe for development? I hope I'm not getting too far ahead of myself here, but what could be your additional capital requirements going forward? Or is this enough now to take you through full production as well as continuing exploration? Thank you.

Speaker 1

This cash balance of just under cash and inventory just under CAD1 billion plus with the debt expressions of interest I think speaks for itself. It's far in excess of the CapEx that we need to take Group 1 into production receiving the federal permit. This new discovery would be a completely exclusive aspect, which was still in the very early days of understanding. It would be amazing, frankly, to have another arrow on our hands. And if doing so and if that's what eventuates, we'll navigate that financing accordingly.

Speaker 1

I think whilst that may have shocked some investors, the close proximity of both of them, I hope today has explained the rationale behind it, which reflects a company which is taking a into production. I've just asked everyone to look at our history of financing along the way. We've done it in the most least diluted manner every time at a very cost efficient manner every time in the context of the market, very small discounts to the spot share price at the time or at 30% premiums through the use of convertible. And whenever we do raise money and we do have another arrow on our hands, it will be the same discipline and approach that we've always exhibited. But in the short term, yes, we are very, very well covered between what we have on hand plus the debt that we're working on to more than adequately get ARO into production.

Speaker 4

Yes. And Graham, if we look your world, which is a very exciting world, where this new discovery turns into the other Aero, What we have in terms of the plans, the CapEx and all of that to build Arrow will stay what it is. Something new that comes along that we discover and looks like it can go into our mine and everything that will likely come in later in the mine life. So it's not like, say this turns out to be another era that we I wouldn't think of it or there's no yes, there's no way of thinking of it where all of a sudden the CapEx is doubled because we've made new discovery or something like that. It's really would come in later in the mine life, obviously all the infrastructure would be built to develop Era.

Speaker 3

So the timing of any future exploration in advance of even developing a second or third mine should you be successful would come when you are generating surplus cash flows anyway from the Rook I project, correct?

Speaker 1

Exactly, Graham. Look, I think there's the geological evidence suggests we didn't hit the big mother load on the very first drill hole back in 2014. This new discovery would suggest we've got a lot more mineralization on our hands. We've actually got significantly more mineralization at the bottom of Arrow that and in and around Arrow that we haven't fully defined on our balance sheet. But 3.5 kilometers away will come into the probably most likely coming during the end of the Arrow mine life will be fully funded from the cash that's generated out of Arrow.

Speaker 1

So I think your perspective on no future equity requirements is very, very real.

Speaker 3

That's great. Change your subject a little bit, I just get some industry feedback that there are some more traditional suppliers in the industry that are not that confident shall we say that a pricing of long term contracts at market prices would be an acceptable to many utilities. So I'm just curious in your discussions with utilities, how many utilities have you had discussions with that are leading to you're being confident that you can actually sign multiyear contracts from a new mine that are going to be priced at market and what is the at market going to be a function of 1 or 2 or 3 market spot market entities or what how are you going to set that marketplace? Thanks.

Speaker 1

Yes. Well, Graham, just frankly, you've heard that from other companies in the sector, be it other companies or anonymous people on social media. We're dealing with and only dealing with based on our discussions with utilities. So everyone's got an opinion. It reminds me of Fortescue Metals Group back in the mid-2000s, developing a mine in between 2 majors.

Speaker 1

A lot of comments about, well, you can't do this, you can't do that. Analysts saying that they'll lie down on the railway tracks because they'll never be ore coming out from their mine. That happens. And I'll just encourage everyone to focus on the actual facts as we present them. And we present the facts with full compliance with the rules and regulations under the securities legislation.

Speaker 1

So that is evident. We're aware of it, but we're only going to continue to do in fact. And I'm telling you what our discussions are indicating. And that is what we're doing. But every situation is different.

Speaker 1

Our mine is completely different to whatever has existed before. It's got a far lower technical risk. And hence, it provides greater flexibility in terms of contracting and the contracting will be different. Every mine's contracts reflect its technical risk. Ours happens to have a lower one.

Speaker 1

And so we're just leveraging that. So if it's not common or hasn't been done in the past, so be it. We are about moving forward into the future. And everyone's aware that the cost of pounds for a utility is such a small percentage of their overall operating cost. So the need in that sense is less weighted with oil coming from a project such as Rook 1.

Speaker 4

Yes. And Graham, I think there's lots of other future suppliers, which the world needs a lot more future suppliers coming to production that are also undertaking this type of a strategy, which I think is helpful in moving the market and evolving the uranium market into something that has more we're about maximizing we're about maximizing the value of every pound that's produced. And so that's what we're about. And to us that means, yes, understanding our technical risk, understanding our resulting cost profile, which is industry leading and low. And so we're able to confidently and prudently expose ourselves, our stakeholders, our shareholders to those optimal outcomes in a rising price environment and subsequently be completely protected in a world where the uranium prices go down for whatever reason, both because of our cost structure, but also because we will hold supply back then.

Speaker 4

And we have the ability to ramp production up and down very quickly because of the technical setting. So that is what we're targeting, what we're about. And I think undeniably is in the best interest of all of our shareholders and stakeholders.

Speaker 3

Great. And just another completely different subject, the debt financing, what do you envision roughly to be the debt total debt capital raise and what kind of interest rates are you assuming in your projections? We've seen a rise in the yield curve. I'm just curious, you're having discussions with the debt providers already, I'm sure. So I'm just wondering what kind of range that would be and to what extent that might have an influence on profitability going forward?

Speaker 3

Thanks.

Speaker 1

Yes. We currently have US1.4 billion dollars in debt expressions of interest. The rates that we're experiencing standard commercial rates that you're seeing, Graham. But we don't spend an extra dollar than we have to, but the interest coupon on the debt considering it will be over such a short period of time will not be material to the company. So the debt decision is more driven by the structure, who it is with and not having excessive penalties for early repayment.

Speaker 1

So that's our approach and our thinking around it.

Speaker 3

And so I know that you're talking about debt terms not being long because the cash flows from the mine production will be able to pay off the debt pretty quickly, correct?

Speaker 1

Correct. Yes. Thank you very much. Good luck. Thank you, Graham.

Speaker 1

Thanks, Graham.

Operator

Your next question comes from Fred Berliner, Private Investor. Please go ahead.

Speaker 9

Good morning. I am concerned that the whole complexion of the company has changed. You had a vast land holding of uranium and now you're going into the mining business, which is fraught with cost, fraught with unpleasant surprises, and you are now debt laden. I don't understand why at this point you would be gambling on the price of uranium when you can just sit there with a product in the ground and watch it rise. So please explain to me how you I mean going into the mining business is just so difficult.

Speaker 9

And for you to cross that divide, you have to have real expertise and experience. And I don't know if you got it. So please enlighten me.

Speaker 1

Yes, and good morning, Fred. Look, all valid risks of mining. Mining is not a simple endeavor, but everyone at the company has been in the business from very large mining companies to the smallest. And I would say we've faced far greater challenges earlier on in our incorporation back in 2011 with actually just trying to find a discovery in the first place than what we have in front of us. When we went out to the other side of the basin, we were laughed at by some of the industry leaders saying you'll never find economic mineralization out there.

Speaker 1

Well, we have to have discovered the largest and most economic and environmentally elite mineralization that exists on the planet. We then got told you'll never get a permit. Well, we got the provincial permit in the quickest time ever and the first one in the last 20 years and the federal permit will be no different. We have assembled the best of the best into the company and we'll continue to do so. We had partnerships with extraordinary organizations where we're going to be introducing additional innovation and optimizing efficiency and safety.

Speaker 1

So yes, you're quite right, mining is a challenging game, no doubt about it. But our track record has demonstrated clearly that we understand exactly what we're doing, the risks and the opportunities. And we approach it in a manner which employs fact based objectivity from all the relevant disciplines required to be successful. And so the permitting aspect, even when we're in production in the future, when we look back, what was the biggest risk? It was always going to be around the permit because it's got the most variables variable and the largest number of stakeholders involved.

Speaker 1

But we've already got the provincial permit and the federal permit is in the final stages. And we look forward to that permit and getting just into construction. We're then narrowed down to just one aspect. And we love nothing more than having everything in our control. And construction will predominantly be 100% in our control.

Speaker 1

So very exciting time for investors. We're at a real inflection point. And the moment we receive that federal permit, we'll be constructing the mine and accelerating towards cash flows, which will take us into a top 10 minuteing company worldwide. So whilst you may not have seen NexGen as a brand, construct a mine, the people within our organization have in their previous roles. And so we're very excited and energized more than ever for these next funds.

Speaker 4

Yes. And Fred, I might just add to like I think it's important to put in context that this while this all sounds big, like a big mine going to produce lots of uranium, you're talking if this was a gold mine, you wouldn't have even heard about it in terms of the tons that we're moving a day. Like it's a very small physical mine, all conventional. And so, yes, look, if we're developing a very complex mine, it's very large or complex as I said. Yes, I mean, on a risk adjusted basis, you got to consider those things.

Speaker 4

But for us, we're building a very tiny little conventional underground gold mine in effectively granite hard rock setting, using long haul stoping and conventional processing at surface like except the difference obviously being the product that we're producing is extremely valuable and extremely strategic because it's actually an energy metal in the green energy transition. So, yes, mining is not easy, but the size of the price here is enormous.

Operator

Your next question comes from Reade Rubin from Private Investor. Please go ahead.

Speaker 1

Good morning. On the mill, what is the budget for the completion of the mill? And what will the annual capacity be? And let me point out, as far as I know, there's only 1 mill in the Lower 48. Yes.

Speaker 1

So as per the feasibility study of 2021, and hello, Reed, it's been a while since spoken pre COVID. So appreciate your support throughout here. Yes, so as per the feasibility study in 2021, the mill represented approximately onethree of the overall CapEx. That's under that will need reinflation adjusted. And we'll provide those numbers at or around the end of Q2.

Speaker 1

There is one yes, and we will be building a mill, which has a capacity of £30,000,000 per annum output. 30 mil per annum? Yes. That's a fabulous mil. Thank you very much.

Speaker 1

Thank you, Brad. And there

Operator

are no further questions at this time. I will turn the call back over to the CEO, Lee, for closing remarks.

Speaker 1

Thank you, Julie. Yes. So I thank everyone for their time and interest and questions on today's call. We are incredibly excited about the balance of 2024 and as mentioned this inflection point as we look to conclude the federal permitting process with the CNSC. Store is stronger than ever.

Speaker 1

Rook 1 went in production. We're going to be at the bottom of the cost curve and fully exposed to future uranium prices. The provincial permit is in place and the federal permitting is in the final stages. And this uranium market is entering into a new unprecedented era. And NextGen is incredibly well positioned, ready and leveraged to it all.

Speaker 1

So I thank you for your interest and look forward to our next call, the Q2 call for 2024. Thank you.

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Earnings Conference Call
NexGen Energy Q1 2024
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