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

Dave Harrison from JPMorgan. I'm delighted to be here with the team from NexGen. And I'd like to introduce Leigh as the CEO and the founder of this company. And he's going to walk through his deck. And at the end of that, we'll turn it over for questions to the audience and for those on the webcast.

Thank you, Dave, and welcome, everyone. I'd just like to start by thanking JPMorgan for inviting NexGen to this energy conference. I'm Leigh Curyer. I'm the Chief Executive Officer of NexGen Energy. I'm thrilled to be here today to discuss the energy transition, NexGen and the opportunity that's in front of us all. Before I begin, I have to note that I may use forward-looking statements and information that predicts, projects or uses future references and expectations as possibilities. Now let's dive into why we're here. So why nuclear? Why NexGen Energy. Just yesterday, the CEO of Rolls-Royce, Mr. Tufan Erginbilgic, said Europe cannot reach net zero without embracing nuclear energy. The aspect of nuclear energy as baseload power is absolutely imperative renewables, absolutely, but as a baseload source of power, we need nuclear energy. And at NexGen, we're ready to help. At full production, every 25 days NexGen Energy will produce enough nuclear fuel to power Manhattan Island for the entire year. Today, the energy sector is responsible for 75% of all of worldwide global emissions, 60% in the U.S. and 80% worldwide is generated by burning coal, natural gas and petroleum, and it just is not sustainable any longer. Leading governments and companies have set ambitious [ path ] to net 0 by 2050, with 2030 being the first year of a long milestone. To meet this goal, we must embrace nuclear energy immediately. And it's not just governments that are implementing policies of pro-nuclear and increase in the use of nuclear energy. It's also investment funds, Parnassus investment fund, a fund worldwide recognized for incredibly high elite ESG standards have just approved the investments into nuclear energy amongst their portfolios. And at NexGen, we agree nuclear energy is the linchpin. There is no other carbon-free source of energy that is able to reliably deliver baseload power and support this key energy transition worldwide. When we shore up and diversify our supply chain, we do 3 critical things. We secure the energy transition of nations that are allied for energy security and targeting net 0. We also curtailed some of the bad actors out there. It's well documented that Russia's influence on energy policy in Europe. And in the case of the U.S., where the U.S. imported 44% of its nuclear fuel last year from Russia is just unsustainable and unwarranted. And also, we will avoid critical supply chain disruptions like we're currently seeing in the electric vehicle market. Currently, more than 71% of uranium production is from state-owned and quasi-owned state-controlled countries. This creates very high economic risk, national security risk and energy security situations. We need to look to nations allied for energy security targeting net 0. With recent developments and with respect to potential U.S. sanctions and threats of nationalization, production from geopolitically stable nations, allied sources is increasingly important, and this is where NexGen comes in. We're in a position of strength to lead the way forward. At our flagship Rook I project located in Saskatchewan, Canada, a top 3 mining jurisdiction globally. We will be the largest source of low-cost, high-grade uranium in the world. Rook I will deliver up to 30 million pounds of uranium annually. To put that into context, that is enough power to supply 46 million homes year-round. That's the top 5 states in the U.S., California, Texas, Florida, New York and Pennsylvania. No other project in the world has that clean air energy fuel capability other than Rook I. And as per this slide, it will save the equivalent of around 70 million vehicles of CO2 emissions off the road every year based on the U.S. grid mix. That's close to 70x Tesla's annual production of 1 million EVs. Now Tesla is a fantastic, but they are only the conduit of energy. Currently, as I alluded to earlier in the presentation, 60% of U.S. power is generated by burning coal, natural gas and petroleum. It's clear that uranium is far too essential for future to rest on mining and contracting methods of the past. Now let's talk about things that make NexGen, an innovative leader. For the economics of our project are absolutely incredible, at $50 a pound when in full production, NexGen will be on path to becoming a top 10 world mining company, generating in excess of CAD 1 billion every year. And this is a long-term project. We are permitting for a 24-year mine life. This graphic here shows the deposits in the region of the Athabasca Basin. Some of these deposits are incredibly challenging ground conditions, highlighted by the ones in the yellow Athabasca sandstone. Consider it like wet toothpaste at 600 meters below surface, highly pressurized. This requires highly technical, expensive advanced mining methods to extract the ore safely, and it takes incredibly financial -- incredibly high financial resources to stop and start production when demand ebbs and flows. This gray area highlighted in the crystalline basement rock is where Arrow is located. We have extremely competent ground conditions in order to extract the ore. You can think of it like the walls at St. Patrick's Cathedral in Fifth Avenue. It's incredibly strong and competent. Because we have exceptionally sound technical setting, we have great flexibility in production from [ 1 need ] to the next, and we'll be able to nimbly adjust production on short notice to meet demand and manage supply. This flexibility means NexGen can fully optimize and be leveraged to higher future uranium prices. For context, Saudi Arabia produces 12% of the world's oil production. NexGen will be producing around 25% of the world's nuclear fuel when in full production. With an asset located in the premier stable democracy, NexGen is committed to being a partner of choice. To solidify our position, we have committed to the following: having our operations and supply base exclusively in Canada, a leading global producer of uranium over the past 30 years. And in other allied countries leading the energy transition. As these jurisdictions uphold security, labor and importantly, safety regulations; two, selling our uranium only to these same allies leading the energy transition towards net 0. And thirdly, when we are ready to bring our fuel to market, we will institute a check list of standards for partners and those involved in the supply chain to ensure high levels of security, safety and labor standards. So I know I've covered a lot today, but I wanted to reiterate 3 key points. We have a significant opportunity in front of us. By investing in NexGen, you're investing more than a mine. You're investing in decarbonization, energy security worldwide and a sustainable clean future for our current and future generations. I'm excited to talk more, but I'll hand over to Dave to take any questions.

Okay. I'll start with one myself and then we'll open it up. But I wanted to understand your contracting strategy a little bit better. And if you could keep going from that on how the startup of your mine will impact sort of overall supply demand when it first comes on?

Sure. The contracting strategy of any resources company really does reflect its technical reduction profile. Uniquely in the Western world and in the Athabasca Basin, we have what is the world's largest project under development, and it's situated in the competent basement rock. That means we have very -- in a mining sense, very simple extractive methods. And hence, we have very high levels of certainty around production from one period to the next. We believe uranium prices are headed far higher, and we will produce and sell into the market under contract to utilities with prices that are reflecting market prices at the time of delivery.

Great. Thanks. Any questions in the group here? Don't be shy. Frank?

Leigh, could you give us the time line for development of the Rook I project?

Sure. Well, we're already in the process of drilling the holes in preparation for the production and exhaust shafts as we speak. It is subject to government permitting approval. Last week, we walked through an enormous gate in that process in having the fourth and final community in our local project area signing an impact benefit agreement. So we have full 100% community support. We are in the final stages of reviewing the environmental impact study process, and we are very confident that imminently government approval at the provincial level and then followed by the federal level will be shortly thereafter. From the moment we have those approvals, it's a 40-month build process. Now we are eating into that as we speak because we are commencing some of the early-stage infrastructure works. But it's -- with that expectation of permitting approval in the next 12 months, you would see us in production in '27, '28.

Just to elaborate on your question. How is the relationship with the Saskatchewan government and how do you kind of view them, foe -- friend or foe, partner, not partner?

Yes. Well, I am Australian and my first job in mining was in South Australia, which has reportedly a great regulatory framework, but it does have a level of political opposition as well. We got through that permitting process. And I have to say, though, my experience right around the world in permitting resource projects, specifically uranium, Saskatchewan is the best by a long margin that I've experienced. The Premier, the environment minister, they're all on speed dial, always asking what else can they do to help a company. And look, I move halfway around the world due to that framework that the Saskatchewan government has put in place, not only is it geologically a phenom in the Athabasca Basin, Saskatchewan, the government's stewardship of resource development is unrivaled.

That's great. Any other questions?

Yes, can you speak about the cost to build the mine, the financing, best-case scenario when this comes online and worst-case scenario, if you're thinking about it from that perspective?

Sure. So as per our feasibility study in February of 2021, it's USD 1 billion to build the mine, now at $50 a pound uranium, and we're currently at 56.70 -- sorry, sorry at $57 less. It has a payback period of 11 months. So it's got extremely high internal rate of return after tax. And the construction period is 40 months. As I said earlier, we're very, very confident with respect to receiving permitting approval imminently. And so best-case scenario, early 2027, but being very respectful of the government process and the avenues that they need to go through to complete approval. Worst-case scenario, well, I don't think there is one, it's just a matter of time as opposed to if -- financing, we've already received expressions of interest for over USD 1 billion. That's a combination of traditional mining source firms, but also some of the government funds that are being set up in order to support projects -- resource projects in the energy transition. The Canadian government is very, very vocal about fast-tracking projects, which help meet the energy transition, not just battery metals, but also uranium and the Saskatchewan government also announced their critical mineral strategy from our office in Saskatchewan, where they want to see a doubling of uranium production by 2030. So that's our project that they're referring to.

What's the plan for the raise or the timing of the raise?

Yes. We have approximately $100 million in the bank at the moment. That fully funds us through the next 15 months. We will be doing a component of equity somewhere between now and that 12-month period. Look, the project can sustain a large amount of debt. So whatever equity is raised will be very immaterial in totality between now and positive cash flow. And any equity that we do raise, we will be paying back shortly after the mine goes in production.

One last one. How do you plan to sell the -- I mean there is a lot of pounds obviously into the market all at once. Would you sell under long-term contract, spot? Would you sell the -- I mean how do you plan on marketing all these pounds?

Yes. With our introduction into the market -- the project, as I said earlier, has the capability of producing 25% of the world's mine production. When we take into account that the likelihood of Russian controlled or Russian quasi-controlled supply, which currently makes up around 6% of the world's mine production may be prevented from coming into allied nations. We have very strong demand from U.S. and European utilities in particular. We have very high levels of certainty of production from one quarter to the next. We can ramp production up, ramp production down because we're in the competent basement setting. And so with our introduction into the market, you're going to see shorter-term contracts evolve. They're going to be quantity based, but shorter in term. And the utilities have been very enthusiastic about our entry into the market. And it's very similar to what you saw in iron ore back in the early 2000s, Fortescue Metal Group came in. That market was almost entirely contracted, dominated by BHP, Rio Tinto and Vale. And now the market is nearly all spot. Now I'm not saying we're going to sell just directly in the spot. We are going to sell under contract, but contracts based on quantities that are tied to the market prices at the time of delivery.

It makes a lot of sense to replace the uranium coming from Russia. But to what extent your business model incorporates nuclear energy growing overall?

So the demand for nuclear energy at a base case, I think you can -- going forward will grow at a minimum of 2% to 3% annually. The advent -- and particularly, it's not necessarily new reactors that are driving that even though there's currently about 60 reactors under construction worldwide. We're seeing extensions of existing reactors that were scheduled to close, 2 in Illinois, Diablo Canyon in California are 3 well-documented cases. On top of that, Rolls-Royce, small modular reactor development and also Bill Gates company developing the first small modular reactor in Wyoming. The growth for nuclear energy is incredibly strong. And it's just not energy provision. It's also clean energy provision. The advent of small modular reactors is the single most factor that can improve the world's average standard of living. When you consider that populations on the African continent, less than 3% have power at night. It's an incredible opportunity for the world to lift the average standard of living for very large populations that don't currently have power at night. And having that energy is clean, nuclear is the only answer, like baseload power, you need baseload clean energy, nuclear is the go to. And I think what we're seeing with governments and investment funds, they're recognizing the science of nuclear as opposed to some of the false ideologies that have been generated in the past. And in my time, which is over 20 years in the sector, I've never witnessed such like the general populace out there advocating so strongly for nuclear. And I think the small modular reactors are a large part of that.

If you could talk a little bit about the change in dialogue that you saw with the governments and regulatory authorities in -- that might have started, say, in February 2022 with the unfortunate events in Ukraine. Just -- and have you seen the U.S. government and U.S. regulatory authorities also reaching out to you?

Yes, yes, the Canadian government, in particular, U.S. government with the Inflation Reduction Act. Look, in Germany, like I think it's a classic case of energy reliance on Russia. They've shut down their nuclear reactors, very heavily reliant on natural gas and particularly sourcing that from Russia. And I think Canada and the U.S. are really leading the world in ensuring that, that energy transition balance is up. And Justin Trudeau in Canada and Wilkinson, the Energy Minister has been very vocal about supporting projects in Canada and the U.S. to really replace countries like Russia that may not be at the moment, really demonstrating friendly neighbors worldwide.

Great. And I'd be interested in hearing a little bit more about your relationships with the indigenous people of -- particularly in Saskatchewan. And you talked about the agreement that you signed last week. But if you could kind of also go through some of that in a bit more detail, it would be great.

Yes. Look, NexGen is recognized for leading the sector in -- for a Canadian resources company anywhere in the world actually, for our approach to communities and the environment. The -- a lot of people ask, what's your secret? And it really is based on respect, we went to introduce ourselves before drilling the first drill hole at the project. We've always optimized jobs, contracting, community programs along the way, and that was without agreements. So when it came to negotiating the agreements, we already had a real strong foundation of trust and respect. And those agreements really do formalize our approach side-by-side with the community over -- right through to closure. And I think one of the differentiators between NexGen and some of the practices in the past, is that our programs and contracts aren't focused purely as mine dependent. We're already setting up businesses in the community that are non-mine dependent. And so when the mine does eventually close maybe in 5 plus decades from now, there will be a thriving bustling sustainable community. And it's been greatly appreciated. And it's actually a privilege to be a part of and involved in, in seeing that our efforts are positively impacting a lot of people. And a lot of those people we won't even meet because the community is quite large. But it's a privilege to be involved.

That's great. Just out of curiosity, how many people -- when you're up and running, how many people would you have working at the site?

Yes, it will be a rotating shift of around 350, so 700 on site at any particular time. And so that probably accounts for about 1,300 overall as a workforce now. A lot of those jobs are going to be housed locally within 150 kilometers of the mine. So we're going to be witnessing a population inflow to the northern part of Saskatchewan, which is very, very important for all the families that live there. A lot of the kids move south. And obviously, they'd prefer them to be closer to home. And I think that's good from a number of aspects, economically as well for the project fly-in fly-out, has a lot of aspects to it, which a lot of are negative, frankly, on mental health of workers, et cetera. So to have our workforce so close to the project and to their families, I think really [ does sit ] for a wonderful environment to execute on this resource project.

I'm sorry, just a reminder on how many permits you guys need and just the relative timing of when you would expect? You may have mentioned it before, I apologize if you did.

No. So there's 2 main approval processes, one with the provincial government, which -- and the federal government. And so just to give you a status update, where we lodged our environmental impact study in June of last year. It's gone through a 120-day public comment period federally. So we received all the comments in, of which we actually received very few. And I think that's a function of the amount of groundwork that we've done with all the communities prior to lodging the EIS. It's -- there's a provincial approval, so the Feds will rely on the provincial environment department to run the science and the community aspects. We're in the very final stages of that. And so we are expecting clearance to lodge our final EIS imminently. And then you will see ministerial approval within about 60 days following that date. Then there's a federal approval, which relies heavily on that province. So the federal approval won't ever occur before the provincial. And we would expect that within 9 to 12 months following the provincial approval. Now we're running licensing in parallel, and that's in the final stage as well. So -- we are already, as I said, in the process of the preliminary infrastructure for construction. The site is construction ready, and it's engineered as well, all the components in the early stages of construction are fully engineered, and we've got the team in place and the finance ready behind us.

Would you update feasibility study at some point or no? Will you update the...

As we go through engineering, we're constantly updating it. We've seen no material variances from what we had in our feasibility study in February of 2021. Look, we're subject to inflation just like everyone else, but we are even seeing some items come down in price. Now that supply chains are sorting themselves out post COVID and so we are seeing very strong consistency still with respect to what we determined in the feasibility stage.

Well, I'll just wrap up. I've asked my questions and feel like the audience has. And Leigh wanted to thank you and your team for supporting our conference and coming, and thank you very much, and wish you really best of luck in moving this project ahead. The world needs it.

Thank you, Dave, and thank you to JPMorgan and yourself for inviting us here today.

Yes. Cheers. Thanks.