NexGen Energy (ticker: TSX:NXE), in its Q1 2024 earnings call, provided a comprehensive update on its financial status, uranium market dynamics, and the advancement of its Rook I project. CEO Leigh Curyer highlighted the company's strategic positioning in light of recent U.S. legislation banning Russian uranium imports and the consequent $2.7 billion spending to bolster domestic supplies. With a market capitalization of $5.4 billion, NexGen has raised significant capital and secured strong shareholder support, positioning itself to meet the growing global demand for uranium. The company is prepared for the upcoming construction phase of the Rook I project, backed by a robust financial foundation including $930 million in cash and liquid assets, and $1.4 billion in debt expressions of interest.
Key Takeaways
- NexGen Energy has raised substantial funds, with a market capitalization of $5.4 billion and approximately $930 million in cash and liquid assets.
- The company has strategically acquired 2.7 million pounds of physical uranium, bolstering its supply security.
- NexGen is in the final stages of federal permitting for the Rook I project and plans to start construction immediately after approval.
- The company has received strong institutional and retail shareholder support and is listed on the ASX 300 index.
- NexGen's CEO emphasized the growing recognition of nuclear energy and the need for new uranium sources, positioning the Rook I project as a key supplier.
Company Outlook
- NexGen is confident in the uranium market's future and is focused on advancing the Rook I project.
- The company is well financed through 2027, with enough capital to cover project expenditures and potential future exploration.
- NexGen is prepared to hire skilled labor and has invested over $44 million in the local community.
Bearish Highlights
- Labor wages have been identified as the biggest cost component for the company.
- The company is aware of the challenges in the uranium supply market and the importance of securing new sources.
Bullish Highlights
- Recent U.S. legislation banning Russian uranium imports is likely to benefit domestic suppliers like NexGen.
- The Rook I project is poised to contribute significantly to the uranium supply, with NexGen aiming to become a top 10 global mining company.
Misses
- There were no specific misses reported during the earnings call.
Q&A Highlights
- NexGen's debt financing terms are expected to be short-term, given the anticipated cash flows from production.
- The company has a history of cost-efficient and non-dilutive financing.
- NexGen's mill is planned to have an annual capacity of 30 million pounds, with budget and capacity details to be provided later.
- The company is only dealing with utilities for contracts, reflecting each mine's technical risk.
NexGen Energy's earnings call painted a picture of a company strategically navigating the uranium market with a clear vision for its Rook I project. The call underscored NexGen's proactive measures to secure supply and financing, setting the stage for its anticipated role as a significant player in the global uranium supply chain.
InvestingPro Insights
NexGen Energy (NXE) has recently been the subject of investor focus, with a market capitalization of $3.84 billion indicating a notable presence in the uranium sector. As the company advances its Rook I project and responds to market dynamics shaped by geopolitical factors, it's important to consider several real-time data points and insights from InvestingPro.
InvestingPro Data metrics reveal a complex financial picture:
- The company's P/E Ratio stands at a high 94.66, suggesting a premium valuation relative to earnings.
- With a Price / Book ratio of 5.69 for the last twelve months as of Q1 2024, the stock is trading at a significant multiple of its book value.
- Despite a challenging period, reflected in an EBITDA decline of 41.78% for the same period, the company's stock has experienced a substantial 76.16% one-year price total return, highlighting investor confidence in its long-term prospects.
InvestingPro Tips offer additional context to these figures:
- NexGen holds more cash than debt on its balance sheet, a reassuring sign of financial stability as it embarks on the construction phase of the Rook I project.
- The stock has seen a significant downturn over the last week, with a 17.26% drop in the one-week price total return, which could present a buying opportunity for those who believe in the company's long-term strategy.
For readers interested in a deeper dive into NexGen Energy and additional metrics, InvestingPro offers a wealth of insights. There are 13 additional InvestingPro Tips available, which could provide further guidance on the company's financial health and market position. To access these tips, readers can visit https://www.investing.com/pro/NXE and can use the coupon code PRONEWS24 to receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript - Nexgen (NXE) Q1 2024:
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 NexGen's Energy Q1 2024 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session at the end. [Operator instructions]. Before we begin, please note that the following caution respecting forward-looking statements, which is made on behalf of NexGen 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 NexGen Energy's filings and they are available on Cedarplus website at www.sedarplus.ca. Mr. Leigh Curyer, CEO and Director of NexGen Energy, you may begin your conference.
Leigh Curyer: Thank you, Julie. Welcome and thank you to all our shareholders and stakeholders around the world for joining NexGen's Q1 2024 update and financial results call. I'm Leigh Curyer, Founder and Chief Executive Officer of NexGen Energy. Joining me on the call today is Travis McPherson, Chief Commercial Officer, and Ben Salter, Chief Financial Officer. From a company and industry perspective, it's been a great first quarter to 2024 and 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 $2.7 billion in spending to support the build-up of US domestic uranium supplies. 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 progressive; 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 kilometres from the one that hosts the mighty Arrow deposit. And financing, including discussion related to two transactions in the last fortnight, the AUD250 million CDIs raised exclusively on the ASX, which closed this morning pre-market and the strategic purchase of 2.7 million pounds of [indiscernible], which, given last night's ban being passed into law, is ultimately very, very timely. NexGen, on closing, now has cash and liquid assets of approximately $930 million in preparation for construction of the Rook I project. After this discussion, I'll then move into a Q&A portion on the call, where I invite you all to ask questions. In the last six months, we're highly encouraged to see governments worldwide adopt energy policies and strategies that are aligning strongly with NexGen's 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. The world is on an aggressive path to bring more nuclear power online, tripling by 2050, 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 the electrification of our world accelerates, notably through the expanding adoption of artificial intelligence and electric vehicles. Both need a reliable and baseload 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 (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN), 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. 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 $107 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 IsoEnergy 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. It's more important than ever to advance the Rook I project into production this decade, and the NexGen team is delivering on that objective. In Canada, the federal government has recognised this importance and strongly emphasises 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. NexGen is Rook I 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. This is set to take effect 90 days, banning US 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 allied jurisdictions. The Rook I project stands out as the world's largest and lowest cost future producer for an exceptionally sound technical and environmental setting, evident by its vertically stacked ore body that is large, high grade and located in our 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 I's generational profile and recognize that Rook I will cement Canada as a global leader in the delivery of uranium as part of the green energy solution. Looking ahead, NexGen is energised to progress the Rook I 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 first quarter, we continue to execute our strategy to permit Rook I for construction. After receiving Saskatchewan Provincial Environmental Approval of the Rook I project on November 08, 2023, which was the first greenfield uranium mine and mill project in Canada to receive provincial EEA approval in over 20 years, we immediately submitted responses to the CNSC technical comments. On February 12, 2024, at conclusion of the prescribed 90 days following that submission, NexGen 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 finalising our subsequent responses to these remaining 49 comments, which we will be submitting imminently this week or early next and will be reflected in a 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 NexGen 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 surfer 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. Regarding procurement, we are finalising details of the 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 kilometres east of Arrow on a separate conductor package. The intense mineralisation discovered in RK-14-183 meant that we focused the balance of winter exploration solely in this area to first understand the extent of the system. The geological similarities between Patterson Corridor East and Arrow and 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 mineralisation 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, 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 plus 100 million pounds deposit in the world. Regarding contracting, our discussions continue to advance well with respected nuclear power utilities. We have been recognised as a significant producer in the future with a strong understanding of NexGen's key positioning in any utility's future supply portfolio. As evidenced in industry market commentary, contract negotiations for 2028 and beyond are occurring now. Last week, NexGen announced the purchase of 2.7 million pounds of physical uranium at USD92.50 per pound via the issuance of a 250 million convertible debenture at a 30% premium to our five-day VWAP share price. This debenture is on the same terms of which we have successfully executed in the past with CEF, Li Ka-shing in 2016 and '17. Queens Road Capital and more recently, Salt Pattersons 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, then construction and more so, the contracting cycle for delivery from 2028 and beyond is occurring now. That's right, right now. Last night's 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. 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 NexGen 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 six months, 100,000 pounds has been resulting in greater 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. 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 approximately USD1.4 billion, which provides substantial, excessive capacity to fund and execute the project. 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, two weeks ago, NexGen issued a $224 million placement to ASX investors, which together with the issuance of the $250 million convertible, takes our cash and liquid assets to approximately $930 million Canadian and that is excluding our investment in ISO energy. We have significantly addressed the equity component of funding construction of Rook I, providing the market with clear visibility of our objective of taking Rook I immediately into construction on receiving federal approval with the value of that milestone unencumbered. In September of 2023, NexGen has raised approximately $540 million with a discount to market being an industry leading 1.5% to 4% discount while still mining [ph] sector-leading share price performance. Further the 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% 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. By the end of Q1 2024, we will have invested approximately $459 million in the successful exploration and development of the Rook I project and this has resulted in a current market capitalisation of $5.4 billion. The day prior to the announcement of the uranium purchase last week, NexGen hit a new all-time high market capitalisation at $12.14 per share and led all year-to-date one year rolling tables relative to its peers. The 2.7 million pound purchase of uranium represented approximately 4% dilution to that market cap and is placed NexGen in a far stronger position than what it was prior to announcement. Before we turn to the Q&A, I'd like to mention Susannah Pierce's nomination for election to our board of directors at our upcoming AGM in June and this is referenced in the NexGen management information circular issued last week. Susannah currently presides as President and Country Chair of Shell (LON:SHEL) 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 NexGen 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. 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 Rook I signed employees were from the local priority area. Over 44 million 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 poor 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. As we look toward the rest of 2024, our focus is on 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&A, and we encourage questions from all of you. I'll hand it over to the moderator.
Operator: [Operator instructions] Your first question comes from Andrew Wong from RBC (TSX:RY). Please go ahead.
Andrew Wong: Hey, good morning. Thanks for taking the questions. So it's great to hear you're about to resubmit the EIS soon. Just kind of -- 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 and what actually happens during the public hearing? Could there be some public commentary that comes out that needs to be addressed during that process and then after that, like what's the timeline before the -- from the public hearing until you get a final decision from the Minister?
Leigh Curyer: Yes. Thanks, Andrew. Yeah, 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 for this stage of a project. We're down to 49 and they 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. 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 the EIS 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, 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.
Andrew Wong: Okay, that's great. And then just talking about the Rook I project itself, you've been pretty clear on I think your intentions to bring it into production. It sounds like there's could potentially be a construction start within the next six months to 12 months. So you just talked about the technical team that you have in place already. 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 that needs to build a project?
Leigh Curyer: Yeah, 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 of a lot 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. With respect to the team, we have currently about 76 people in our Saskatoon head technical office and at NexGen, our culture is absolute responsibility, and so we have a dedicated NexGen 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 elevating as we speak 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 calibre 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 labour as a consequence. With respect to the labour force on the ground, well, our community team, led by Adam Angle 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 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.
Andrew Wong: Appreciate all of that. Thank you very much.
Operator: Your next question comes from Puneet Singh from Eight Capital. Please go ahead.
Puneet Singh: Hi. Good morning. Just a couple questions on the convertible, just regarding strategy, the way the uranium price has 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?
Leigh Curyer: Yeah, look, you're quite right. We've always been confident that the price of uranium is going higher, even five 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. We're about to -- we are in the final stages of federal approval. We are immediately on receiving approval, start construction, and the contracting cycle for 2028 and 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 two years and then also the spot market is incredibly tight. And dealing with the nuclear fuel, the utilities want a surety of delivery. So us acquiring 2.7 million pounds 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.
Travis McPherson: Yeah. Hey, Puneet, it's Travis here. I would also just add that, yeah, with respect to the timing like, three, four, two years ago, even we weren't at the point of these negotiations with the utilities. We're there now and to Leigh's point, the world that the utilities live in is it's 2028 tomorrow and so that's where the decision in terms of the exact timing, it's not a -- while we extremely bullish on the uranium price obviously, for all the reasons and more that Leigh 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 Arrow project as it relates to contracting, which obviously feeds into the debt financing discussions that we're having as well.
Puneet Singh: Okay, got it. And then just building on that, then if it's tied to the utilities, would we, should we expect more purchases from you guys or how should we look at that in terms of a strategy, contracts versus physical inventory?
Leigh Curyer: Yeah, look, you're not going to see us like materially fill. Obviously, the production volumes that are coming out of Arrow and those contracts that we do sign will be filled predominantly by Arrow's production, like vast, vast majority of it. This again, to Leigh's point, these 2.7 million pounds and whether it grows from here or not, to be determined, I think we're very happy with 2.7 million pounds 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.
Travis McPherson: And while it is very, very unique to the nuclear fuel market in respect to mining, it is a necessity of a start-up 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 and it does reflect, though, the aspect of commencing a uranium mine. It really does reflect, we are taking this project into production.
Operator: Your next question comes from Katie Lachapelle from Canaccord Genuity (TSX:CF). Please go ahead,
Katie Lachapelle: Hey guys. Thanks for taking my question. I have two, 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 tenor would you be looking to lock down when you are looking to sign contracts?
Leigh Curyer: Well, I'll start with the question and hand over to Travis. We are -- our current negotiations with four main utilities at the moment, all varying degrees. We've been very, very clear that we are looking for three year off-take 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 seeing 2028 and beyond, and I see this morning that an Australian bank came out with $150 uranium price forecast for the year end 2025. I've got no doubt that we're going to be filling contracts to the tune of what Arrow's capable of producing annually.
Travis McPherson: Yeah. And I might just add, yeah, 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 one when we look out, for the foreseeable, say, three to five years of Arrows production, to the extent we take on and finance it with the debt, which we're again going down that path right now, there'll 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 start-up of production.
Katie Lachapelle: 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?
Leigh Curyer: Yeah, 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 $1.3 billion as estimated in the 2021 feasibility study to date is at around $320 million. 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 two shafts, and we'll be entering into a contract, which limits subsequent inflationary pressure on the construction of both the production exhaust shafts, but to answer your question, Katie, it's predominantly around labor.
Travis McPherson: Yeah, yeah and I think, just on the inflationary thing, 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 site 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 there.
Leigh Curyer: With respect to -- we got under just, just shy of a billion dollars Canadian in the treasury now. And with the debt process over expressions of interest, over 1.4 billion US, we have got more than enough capacity with respect to even taking into account the impact of inflation on to 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.
Katie Lachapelle: Awesome. Thank you, guys. I appreciate the detailed response.
Operator: Your next question comes from Craig Hutchison from TD (TSX:TD) Cowen. Please go ahead.
Craig Hutchison: 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 one asset, tier one jurisdiction that you guys would be in the driver's seat with regards to off-take 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? 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.
Leigh Curyer: Yeah. So Craig 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 start-up operation, which exists for any start-up operation. And as we've seen, Dennison 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 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 are receiving expressions of interest from not just utilities, but also financial players with respect to that possibility. 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 the utility, taking into account the risks around producing nuclear energy.
Travis McPherson: Yeah, I might just add, Craig, that this is really about optimization and our view of how to do that best, we can get contracts without necessarily having purchased uranium. 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 million pounds we have in the ground and buying some uranium now, like 2.7 million pounds to help us potentially optimize what those contracts look for the sale price of that plus 350 million pounds is a really good and astute move. So. Yeah, 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.
Craig Hutchison: Okay, thanks for that, guys. Maybe just follow up. Just given the expressions of interest you've had on debt and the finances you guys have done in the last couple of weeks here, you had talked previously about potential due project equity with a non-mining partner. Is that still on the table or is that sort of off the table, just given the recent financings?
Leigh Curyer: No, it's still a possibility, but I would say maybe less so given the recent finance and look, and I get the commentary about, well, 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 2.7 million pounds, 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, 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 a milestone, but this way we've got it in front of it and it reflects the practicality of building a mine with regulators, but also gives that significant milestone that the company's going to deliver on federal approval. Absolutely clear air for it to be reflected in the value of the organisation at that time. So it's very, very exciting for all shareholders and stakeholders.
Travis McPherson: Yeah. 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 negotiations. 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. We have lots. It shouldn't be surprising anyone. There's lots of ways to fund this project under our stewardship.
Craig Hutchison: Okay, thanks for that, guys. Maybe just a quick question, just on the early works, I think your budget, it spent about $46 million to the end of last year. Could you just give us an update, kind of where that's at and then I think on the last conference call, you said your budget for this year was around $170, excluding expiration and is that still the case? Thanks.
Leigh Curyer: Yeah, it's subject to the timing of the federal permit. Yeah. The deployment of capital will increase significantly on immediately 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 $1 billion as we see.
Operator: Your next question comes from Orest Wowkodaw from Scotiabank (TSX:BNS). Please go ahead. Hi.
Orest Wowkodaw: Good morning. Two questions, if I could. The first one, Leigh, 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?
Leigh Curyer: Yeah, prior or just after federal permitting, the debt, the way it works is that 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.
Orest Wowkodaw: 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 (NYSE:CCJ) carries from an inventory perspective of 10 million pounds to 12 million pounds, 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 off-take agreements down the road?
Leigh Curyer: No, look, they're completely different operations with completely different technical risks. So as you're aware, Cameco's mines are in the sandstone requires freezing in order to keep the cavities open. We're in the hard rock. We drill a cavity into the hard rock and it'll 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. We can afford having a far lower level of inventory on hand at any particular time, but during commissioning, having 2.7 million pounds 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 million pounds representing entire year's 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 whilst it may have surprised people, it is a function of a company going into production. 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.
Travis McPherson: Yeah, Orest, it's not -- so two things. I 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 it's a requirement to get a contract. It's about optimizing what those contracts look like 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, value that those contracts that we do sign now represent again all the pounds that we have in the ground.
Orest Wowkodaw: But I guess, does 2.7 million pounds 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?
Leigh Curyer: Yes. Yeah. Because the concern is not around once you're ramped up. Look, we're very confident in our ability to ramp up our mine. This isn't about our view on production, start-up 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. And so having 2.7 million pounds, just again, it's an insurance policy. Like get an insurance policy, you don't buy that and cover all the value of whatever you're insuring. This is about just that small window of time, say it's three to six months when the mines ramping up for the first bit and just providing a bit of insurance around that to therefore again, optimize the value of these contracts.
Operator: Your next question comes from Graham Tanaka from Tanaka Capital Management. Please go ahead.
Graham Tanaka: Yeah, yeah, thank you. So just wanted 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, trying to understand what your timing was on purchasing at current prices and financing it with quasi equity, with a convertible, what were your alternatives? You could have waited. 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.
Leigh Curyer: 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 off-take in 2028 and beyond, it's relevant to buy the pounds now. 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. It was at the time we bought it $93.85 on the spot market. 100,000 pound purchases over the last six months has resulted in, at times greater than $1.50 increase in the spot price. So if we'd bought those 2.7 million pounds on the spot market, the price probably would have got driven up to over $120 a pound US based on those past transactions over the last six 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 five day VWAP, CAD14.80. 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 Sol Patterson'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 Gilman 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. So the other aspect too, like we're very, very cost conscious. We avoided the broker fee of $10 billion US in implementing that convertible as well. So it's a very successful transaction and it's actually, whilst it was a 30-day -- a 30% premium to our five day VWAP at the time, it was also a 33% premium to the raise we did in Australia only seven days beforehand. So that speaks for itself in terms of the strength of that financing.
Graham Tanaka: 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, one or two 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.
Leigh Curyer: This cash balance of just under cash and inventory, just under a 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 One into production, receiving the federal permit. This new discovery would be a completely exclusive aspect, which we're 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. 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 mine into production. I just ask everyone to look at our history of financing along the way. We've done it in the most least dilutive 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 if we do have another arrow on our hands, it'll be the same discipline and approach that we've always exhibited. But in the short term, yeah, 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 Arrow into production.
Travis McPherson: Yeah. And Graham, if we live your world, which is a very exciting world, where this new discovery turns into the other Arrow, 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 mind and everything, that will likely come in later in the mine life. So it's not like, say, this turns out to be another Arrow that I wouldn't think of it, or there's no way I'm thinking of it, where all of a sudden the CapEx has doubled because we made a new discovery or something like that. It really would come in later in the mine life and obviously all the infrastructure would be built to develop Arrow.
Graham Tanaka: 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?
Leigh Curyer: 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 mineralisation on our hands. We've actually got significantly more mineralization at the bottom of Arrow and in a round Arrow that we haven't fully defined on our balance sheet. But yeah, 3.5 kilometres away will come into the probably, most likely come in during the end of the Arrow mine life will be fully funded from the cash that's generated out of Arrow. So, I think your perspective on no future equity requirements is very, very real.
Graham Tanaka: That's great. Changing the 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, quote unquote, would be 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 your being confident that you can actually sign multi-year 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 one or two or three market spot market entities or how are you going to set that market price? Thanks.
Leigh Curyer: Yeah. Well, Grant, just frankly you've heard that from other companies in the sector, be it other companies or anonymous people on social media. We are 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 two thousands developing a mine in between two majors. 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 awe coming up from, from their mine. That happens. And I 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. So that is evident. We're aware of it, but we're only going to continue to deal with fact and I'm telling you what our discussions are indicating, and that is what we're doing. But every situation is different. 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 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 all coming from a project such as Rook I.
Travis McPherson: Yeah. 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 transparency and liquidity. I think that's a good thing. And that, again, for us, I think we've also been clear that 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, yeah. Understanding our technical risks, 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 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.
Graham Tanaka: Great. 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. Thanks.
Leigh Curyer: Yeah. We currently have $1.4 billion 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 then 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 the not having excessive penalties for early repayment. So that's our approach and our thinking around it.
Graham Tanaka: And so, in other words, 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.
Leigh Curyer: Correct? Incorrect.
Graham Tanaka: Yes. Thank you very much. Good luck.
Operator: Your next question comes from Fred Berliner, Private Investor. Please go ahead.
Fred Berliner: 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 going into the mining business, it's just so difficult 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.
Leigh Curyer: Yeah. And good morning, Fred. Look, all valid risks of mining. Mining is not a simple endeavour, 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 base and we were laughed at by some of the industry leaders saying, you'll never find economic mineralization out there. Well, we have discovered the largest and most economic and environmentally elite mineralisation 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 will continue to do so. We have partnerships with extraordinary organizations where we're going to be introducing additional innovation and optimizing efficiency and safety. So, yeah, 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 and the most variable -- and the largest number of stakeholders involved, 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. So it's a very exciting time for investors. We're at a real inflection point, and the moment we received that federal permit, we'll be constructing the mine and accelerating towards cash flows which will take us into a top 10 mining company worldwide. So whilst you may not have seen NexGen as a brand constructor 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 phase. A - Travis McPherson Yeah. 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 were moving a day. Like, it's a very small physical mine, all conventional and so, yeah, look, if we're developing a very complex, mine, it's very large or complex, as I said. Yeah, on a risk adjusted basis, you got to consider those things. But for us, we're building a very tiny, little conventional underground gold mine in a 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 yeah, mining is not easy, but the size of the prize here is enormous.
Operator: Your next question comes from Reed Rubin, private investor. Please go ahead.
Reed Rubin: 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 one mil in the lower 48.
Leigh Curyer: Yeah. So, as for the feasibility study of 2021, and hello, Reed, it's been a while since we've spoken pre-COVID, so appreciate your support throughout here. Yeah. So, as per the feasibility study in 2021, the mill represented approximately a third of their overall CapEx. That's under -- that will need to be inflation adjusted and we'll provide those numbers at or around the end of Q2. There is one that. Yeah and we will be building a mill which has a capacity of 30 million pounds per annum output.
Reed Rubin: 30 mil per annum.
Leigh Curyer: Yes.
Reed Rubin: That's a fabulous mill. Thank you very much.
Operator: And there are no further questions at this time. I will turn the call back over to the CEO, Leigh, for closing remarks.
Leigh Curyer: Thank you, Julie. Yeah. 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. Story is stronger than ever. Rook I 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 NexGen is incredibly well-positioned, ready and leveraged to it all. So thank you for your interest and look forward to our next call, the Q2 call for 2024. Thank you.
Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.
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