NexGen Energy Ltd. (NXE) Earnings Call Transcript & Summary

Thanks for joining us on the NexGen webinar today. Before we start, I'd caution that the presentation might contain some forward-looking statements, which can be viewed on the company's website. With us today are Leigh Curyer, who is the CEO of NexGen Energy; and Travis McPherson, who's the SVP of Corporate Development. NexGen is listed on the TSX and on the NYSE under the ticker NXE and has the biggest yet to be developed uranium asset in the world with an NPV of $3.7 billion. Leigh and Travis will take us through an update since their last presentation with us in May. And then we'll open up the conversation to Q&A. So feel free to enter any questions in the dialogue box below. With that, I'll leave it to Leigh to give us an update.

Yes. Thank you, Tina and Deborah, and it's great to be on Adelaide Capital again to give an update on NexGen Energy. As Tina alluded to, NexGen is developing what is the world's largest highest-grade project located in the northern part of Saskatchewan in the mighty Athabasca Basin where the deposits in the basin, on average, are over 100x that of deposits in the other parts of the globe. [indiscernible] in order to discover, develop and operate a mine, and particularly uranium mining back in 2016, and for a very long period prior to that. The Athabasca Basin in Saskatchewan was the home of uranium production worldwide in terms of it was the largest producer of uranium. And we all know Kazakhstan has taken that mantle since 2016 through the expansive development of their ISL fields. But with Arrow being discovered in February 2014 and all the development work that we've done over the last 7 years, we are very much looking forward to advancing the Arrow project right through [indiscernible] in the near future. Not just Arrow, at NexGen, we also have an extensive land position throughout that Southwestern section of the mighty Athabasca Basin. The land position is over 320,000 hectares. And we also have a 54% ownership of IsoEnergy, which recently discovered the Hurricane deposit in the eastern side -- northeastern side of the Athabasca Basin, which is home to the current mills that are operating in the area. So that's the traditional side of the Athabasca Basin, where we've seen a lot of production and [indiscernible] and development. NexGen is in the eastern side -- sorry, the southwestern side of the basin with what is a phenomenal asset and currently going through permitting. We are -- we've submitted a number of engineering studies. Our first one was a preliminary economic assessment in August of 2017, which really we did highlight the economic power of the Arrow deposit. That was then elevated to a pre-feasibility study released in November of 2018, which showed very good consistency through the PEA, into the PFS with a far more data points. Basically, we brought the drilling in from 50-meter centers to 25-meter centers. We got a complete uplift and the resource as a consequence of that and [indiscernible] the engineering assumptions. We are in the final stages of completing our feasibility study, which we are scheduled to release in December of this year. And again, I want to emphasize to investors out there, you're going to see a very strong persistency into that feasibility study as well. But what comes with it is another level of detailed validation of the resource and all engineering characteristics and environmental characteristics of the Arrow projects. So we're very much [ hopeful ] to that. It will come with a updated resource statement as well because in some sections of the deposit, we've even tightened the drill spacing to 9 to 10 meters. And so we've had just under 400,000 meters of drilling and a very good assessment on all the [indiscernible] aspects and all the environmental aspects of the project, which we've been working on over the last 7 years. That feasibility study is going to be embedded into our environmental impact statement, which we'll be launching in the mid part of 2021. And at that point in time, we'll have a complete documentation, formalization, all that extensive work we've done over the last what was before 2014, but all the way back to 2013. And as a lot of the investors in NexGen know, we have an incredible support book from the local communities with respect to the project. And yes, as an organization, we're very proud of a lot of those programs that we have initiated and worked alongside with the communities with respect to the focus on the schools and health, education, recreation and also economic and employment. So that is where we are -- a very brief snapshot as to where we are. What has happened since we discussed or presented [ at Adelaide Capital ] since last April was that -- yes, that was on back of COVID just launching. And we saw a rapid increase in the uranium price go from $20 a pound up to $30 -- just under $34. As we would normally expect during the summer months, and we see every year, and I've been in uranium since 2002, and this year has been no different over July and August, you always see a lightening of the traction volume in the spot market. And we're seeing the price kind of range from around $32 to $34 a pound at the moment. It's about $31 a pound. And we saw effectively a 50% increase of uranium price at the start of COVID. You'd normally expect to see that price come way back down. And if there's ability for that price to come right back down, I think we would have already seen it. So I think whilst we're seeing a lightening in uranium transacting volume over the summer months, what we take away is, is that we haven't seen that price go down. And we're just about to come in the fourth quarter, which is traditionally from late September all the way through to May and even June. That is when you see the heavy weighted transacting of uranium on the spot market during those periods. And we're about to come into that period, just as we are going to feel the consequences of all the production cuts that occurred as a consequence of COVID. Travis will no doubt give you some figures with respect to the reduction in uranium production as [indiscernible] but I think that the bigger takeaway, distressed supply side in the uranium market was already clear all the way between '16, and we've seen substantial reductions in Kazakh production, and we see that they've committed to keeping those reductions in place right through to the end of 2020. And so this isn't some temporary consequence on the supply side. This -- the consequence of this is going to be felt well into this decade and the latter parts of this decade. And we've seen that in uranium before. There's been -- like I was in the industry back in 2002 and then 2004, which was off the back end of a 10-year hiatus in the uranium price, where it didn't go above $10, all of a sudden went up through to $140 a pound between 2004 and 2008. And that is purely a consequence of the complete underinvestment of the decade leading into that period. We've had exactly the same thing, 2011, Japan caused a complete underinvestment in the supply side of uranium. And we're about to feel the consequences of that. And demand is now the most it's ever been historically. It's now exceeded what it was the year prior to 2011, and we're seeing an absolute expansion in nuclear energy on a global scale. Clean air energy is the #1 actual item on the planet in order to fix up the environment and lift the average standard of living through putting in safe, reliable, clean air nuclear power throughout the planet. And I think what COVID has highlighted is that the focus [indiscernible] on the quality of living is now more relevant than ever. And you've seen the Canadian government, both federally, but also provincially, led by Saskatchewan, where we reside, really put a lot of focus and effort into small modular reactor development. We've seen in the U.S. The first small modular reactor has just been commercialized. And I just want to make the point. It feels like it's -- some of the commentary in the media is that this is new technology. It's not new technology. It's an adaptation of small modular reactors that the U.S. military have been using since the '60s in submarines and aircraft carriers, where they're about the size of a Mini Cooper and they power those aircraft carriers for over 20 years before they need to rebuild them. Yes, imagine deploying that type of power source, which is clean, in parts of Africa where only 2% of the population [indiscernible]. When I said earlier, it can -- it's the #1 actual item to increasing the world's average grade of living amongst the entire population, it is clearly that. So it's a very exciting position that NexGen is in as a company. We're working on a project which is going to have a material impact on the global population from an environmental perspective and average standard of living perspective. And as shareholders of NexGen, you get not only that -- those 2 fantastic objectives, but also, I think you're going to experience just phenomenal returns based on where we are today and the path that we have ahead of us that we are successfully executing on.

Thanks, Leigh, for giving us an update and a bit of a macro picture as well. Travis, I don't know if you have any general comments on the macro picture to add into that.

Yes. I mean I totally, obviously, agree. I think when you kind of step back, what COVID's really done is obviously, I mean, notwithstanding the tremendous negative impacts of it, but there are some silver linings, and one of which is -- I mean we put out a graphic where you saw a picture of places in Delhi or in China where they haven't been able to see the stars and neither seen the Himalayan mountains in entire generations. And with all the pollution stopping, they've been able to do that and see those things for the first time. And I don't think the world is going to want to go back to the way that it was. And the only way to sustain that going forward, and I think it is getting recognition importantly in really important markets, is through nuclear. I mean you've seen China commit to net zero emissions by 2060 now for the first time ever. Again, the only pathway to do that is with a substantial build-out in -- or alliance on nuclear. It's not the only way, but it has to be a key part. And I think that's recognized globally with the decision-makers and policymakers.

Yes. I think I'm surprised, even though there's been a move, I guess, more in the spring on the pricing of uranium, I'm surprised it hasn't moved as dramatically. We're still a long ways away from the highest. So there's definitely more to come. Let's open it up to Q&A.

For now, let's talk about the fundamentals of Cigar Lake here because that's something that's obviously pretty topical in September. I think in July, they said they were announcing a restart, but I haven't heard much news on that front. Do you guys have an update on -- or any thoughts on what's happening in Cigar Lake?

Yes. I think what we've heard from the company representation that they made [indiscernible] for everyone, considering what was previously announced about closing it. But it's good to see. And the market is far bigger than just Cigar Lake alone. Cigar Lake is a very important production source for U.S. utilities, in particular, because the, yes, northern [indiscernible] Canada providing safe, reliable uranium from a very sound political jurisdiction is very key to the fuel procurement. And so we're pleased to see that it's going back online. And I think, the -- Tina, to your point, was -- then uranium price was around $30 a pound. I think everyone needs to have a realistic expectation [indiscernible] those important production centers, such as Cigar Lake, can't -- will require and McArthur River and Cameco are being very transparent with that in saying that they need materially higher prices in order to produce profitably from those production sources. That's just a function of where the market is at the moment. And I think it's in the interest of all shareholders and observers in the uranium market to have a real objective view of the state of supply. It's under enormous stress. Uranium prices at current levels, even though it's gone up 50% since the start of COVID, [ actually ] nowhere near where they need to be in order to maintain those very important production centers here in Saskatchewan. So as [indiscernible] commodities are investing in gold and copper and all those other ones, but uranium [indiscernible] most exciting price forecast profile out of all the commodities in the resources space as we speak. And I -- we're being in a period of 10 years of really very limited excitement. But as I say to investors, go back to 2004 and 2008, those phenomenal returns and [ fast pricing ] uranium to $140 a pound in 4 years. And the result that had on uranium equities right around the globe was just phenomenal plan. And I just think this period that we're coming into is going to be even more significant than back then because we don't today have the 5 top producing mines that we had back then. Those are the far better security of supply that [indiscernible] we see today. I think the price forecast for uranium during this next stage and period in [indiscernible] has set the record for the most phenomenal that's ever been seen before.

Yes. And it's interesting because I know that Cameco has publicly said that they won't be able to make up for the lost production this year. And then you have the Kazakhs who are having their own issues and being impacted by COVID, saying that they could have as much as a 20% of impact on production going into 2022. So that's obviously a major contributor to the supply. I think that's going to have a significant impact on pricing as well.

[ Huge thing they're in ]. And look, they've typically been one of the largest suppliers to the spot market over recent years from Kazakhstan. And now they've even been very transparent in saying we are likely going to become spot purchases. So it's a real double whammy where you've got the entities that was [indiscernible] not only removing that supply from the spot market, but now actually looking to buy on the spot market from other sources. So yes, I think it's incredibly positive with respect to the uranium price forecast going forward. And I think, well, a lot of the uranium traders that we speak to and have very sound track records all agree that they feel that the price of uranium is going to be substantially higher in the near future as we're coming into that traditional buying season of spot uranium.

Yes. I might just add something quickly. I think it's also important, like uranium is one of these commodities that the spot price actually isn't a good indicator of the fundamentals of the industry. And I mean -- I guess, it's important from an investor point of view to have some kind of relevance on a price, but the reality is, to Leigh's point, what we talked about earlier, the industry is extraordinarily healthy today. Like, there's a massive -- I mean, in terms of -- from a supplier perspective, it's an extremely constructive environment, like you have massive deficits, structural deficits growing long term, no kind of immediate way to fix that really other than just building new mines and getting new mines operating as old mines shut down and that sort of thing. So it's a really healthy environment, and it's just kind of frustrating, I guess, at times when everyone is just focused on the day-to-day move in the spot price, which really isn't an indicator at all of those fundamental pieces that are going on.

Yes. And looking a little bit further out, I think Kazatomprom has said also publicly that the current pricing level doesn't support any CapEx build-out. So that's another consideration that's going to affect supply in the long term. And maybe in terms of CapEx and operating costs, you guys can touch on NexGen's operating costs and what you expect that to look like.

Would you like to lead that?

Sorry, I could -- you were kind of breaking up, Tina. I couldn't quite hear you. What was the question?

Maybe you guys can just reiterate your operating costs that you're expecting from NexGen's assets.

Yes. Yes. No, it's the lowest in the industry by a reasonable margin for sure. And that's really driven by the technical setting and the grade and the size of it, obviously. But it is quite unique. Without getting into the specific details, but effectively you're mining conventionally. So think of it as like an underground gold mine. But because it's uranium in the Athabasca Basin, the value of the rock that you're extracting relative to the costs incurred for exploiting it is massive. So the costs are really, really low. Margins are really high, and therefore, the returns are high. And the CapEx intensity is the lowest in the industry. Like, if you have that typical chart of CapEx intensity, we're in the bottom left corner, where you want to be for that, so.

Just getting into some of the audience questions. Can you comment on the IBA situation, specifically on the Métis going public?

Yes. Sure. Look, we have a very long history since 2013 with the communities and the Métis Nation, with Saskatchewan as the umbrella organization for the Métis locals. And as you know, we've had a very long history in terms of operating in the area and very, very especially with all the local residents. The -- in 2019, we executed study agreements, which reflected a lot of that work consultation engagement that we've done and the programs that we've done in the communities [indiscernible] do a traditional land use studies, joint working group meetings, et cetera, to incorporate the traditional land use and cultural studies into our environmental impact statement. And both parties have agreed to act in good faith to conclude an IBA. Now we are still very much on that track. The [indiscernible] have directed or profiled the statement of plan with respect to those negotiations, and it will be heard in the courts in the very near future. We are very transparent and -- in terms of our approach to the negotiations and very confident in our position. So I really have a lot more to add other than that -- other than -- yes, we're working side-by-side with the communities, of which [ we're ] in the local project area and have a great relationship with all of them.

On the corporate governance side of things, Brad Wall has obviously joined the team about a year ago, maybe a little bit more than a year ago. Can you speak to how he's been contributing to the team so far?

Yes. Brad did join the Board. It's -- yes, it's actually almost probably 2.5 years since he joined the board. And he's been a great director in the sense of providing us guidance on the -- navigating the political environment. [indiscernible] but also, he's much more than that. I think that's why he's such a great premier. He just has an absolute passion for working on companies and projects, which he sees is going to have a fantastic benefit to a very large number of the population, particularly in his province of Saskatchewan. And he immediately saw what we were doing as a company and wanted to be a part of it. And he's got -- he's been a fantastic contributor to everything NexGen's done. And I just want to make the point. It's just not on [ he provides us ] commentary on political aspects but on all aspects of the project as well. So yes, he's fantastic addition to the Board, along with also [indiscernible] directors, some whom have been [indiscernible] but also, yes, Sybil Veenman [indiscernible] as well, Karri Howlett as well -- who is also on the Board of SaskPower. We've got Warren Gilman, who I'm sure all of you here are very aware of in terms of his track record with successfully investing in resource projects worldwide. And so I think we have a fantastic Board covering all the relevant skill sets in order to advance this project. And I think it's a real strength of the company, the Board and the executive in terms of their skills and experience. And they all live and breathe the objective of advancing this project in order to create as much positivity, with many people as possible, not only in Saskatchewan, but also Canada and the rest of the world with the provision of clean air energy fuel.

So as you advance the project, have you been talking to any of your neighbors, like Fission, UEX about ways to potentially work together to reduce CapEx or share infrastructure?

Yes. And look, we have a natural fantastic relationship with all our neighbors in and around the Southwestern section of the Athabasca Basin. And we have shared resources in the past, and we will share resources in the future. We are a fantastic neighbor, and they're fantastic neighbors to us. There's no doubt there's some aspects of sharing [indiscernible] et cetera, would make sense. And in the future, I'm sure that will happen. How that -- what that looks like right at this moment, very difficult to say. And I actually can't say because that is for a future period.

And any progress on strategic partnerships, mergers, potential offtakes? Where is NexGen on that front?

So with respect to offtake, NexGen has -- and Travis and I have had a dialogue with utilities for a long period of time. Now ever since the discovery, it immediately drew the interest of utilities as they consider those [indiscernible] in Canada or in the #1 jurisdiction globally. And when you look at the technical profile of Arrow, the security of supply is clearly evident when we will be up in [Audio Gap] production. So we have made that dialogue for quite some time now. And as we've advanced through PEA to PFS, and we are almost at completion of our feasibility study, and then incorporating that into our environmental impact statement, I think that dialogue is going to increase even further. We have made a conscious decision at NexGen not to conclude any offtake agreements until that period of time after the FS after submission of the EIS. Having said that, we are in regular dialogue and the interest in securing offtakes from the Arrow project is clearly evident.

There was a question from the audience on why there's a 6-month span between filing the EIS and the feasibility study.

Well, the EIS incorporate is -- well, the environmental impact statement is far more broader than the [indiscernible] the deposit and the engineering aspects of the project with an environmental component. But the EIS incorporates all environmental aspects as well as incorporating traditional land use studies and cultural studies into the document. So the FS is a material component of the EIS, but there's also other sections. And so it's just -- a lot of those processes are still ongoing, running in parallel to the FS. And they'll culminate into that final document approximately 6 months after the completion of the FS.

And in our last webinar, you had alluded to potentially continuing some drilling around Arrow and the extension because you've only drilled really 10% of the total forward. Or is that something that you're still considering? Or what would be the timing of that decision process?

Yes. It's a good question, Tina. It's one that we constantly receive from investors. And I get it, Arrow is massive. We all know that, but we have only explored a very small section of the Patterson Corridor along the Rook I project. And we have also an 8 -- well, 8 subsequent corridors in parallel to the Patterson Corridor on the Rook I property, which we would love to get drill reads into also. But just on the Patterson Corridor, look, our hit rate of holes drilled and in sector mineralization is a shade under 100%, unheard of in any other project in uranium anywhere on the planet. And that, in a sense, says, have we been bold enough? Have we tested it more fully enough? And even though it's massive, we have no mineralization in and around Arrow at depth [indiscernible] but considering it's so massive based on all the drilling we've done to date, we made the decision back in 2014 to start looking at the engineering components of the project. And for this interim period, we are focused on finalizing the feasibility study and the environmental impact statement in order to lodge that in mid-2021. We could revert back to doing some exploration in the future. But that would be secondary to filing the -- completing the FS and filing the environmental impact statement. But no, it's something that we're constantly wrestling with because we know the mineralization there, exploration, incredibly exciting. And I've got no doubt we'll be back there in the future drilling [indiscernible]

Well, there's certainly a lot of uranium on the property already. So it would seem like it's not hard to find for NexGen anyway...