The definitive guide to ASX uranium stocks, Part 2: NexGen Energy

This is Part 2 of my mini-series on ASX uranium companies. Make sure to check out Part 1 on BHP Group and my in-depth look at the demand and supply dynamics of the uranium market.

The interloper

NexGen Energy (ASX:NXG) is listed on the ASX, but apart from its Aussie CEO Leigh Curyer, it's very much a Canadian company (FYI, NexGen's shares are also listed on the Toronto Stock Exchange and the New York Stock Exchange under the symbol NXE).

NexGen is focused on developing its 100% owned Rook I Project which is located in the southwestern Athabasca Basin of Saskatchewan, Canada. Rook I is part of NexGen's broader Arrow Deposit, which has Measured and Indicated Mineral Resources totalling 3.75 million tonnes ("Mt") at a grading of 3.10% U3O8, containing 257 million pounds ("Mlb") U3O8. You can add in another 80.7 Mlbs of Inferred Resources at 0.83% U3O8. 

NexGen Arrow Deposit Mineral Resource Estimate, 3 November 2023. Source: NexGen

In June, NexGen obtained the necessary environmental and social approvals for a mine at Rook I, and it's presently upgrading and constructing infrastructure to support increased activities ahead of the mine's construction. FEED studies are ongoing, with a view to progressing to detailed engineering and procurement phases.

Read the last paragraph as: "Give-or-take minimum 12-months before official mine construction commences, and at least 24-30 months from first production".

Based upon NexGen's 2021 Feasibility Study (equates to a DFS or BFS), it expects Rook I to produce 29 million pounds U3O8 per annum in the first five-years of its eleven-year forecast mine life. All-in-sustaining cost ("AISC"), which is a common measure of operational production costs used to compare mining companies, is a world-class US$7.58/lb.

These metrics will make Rook I one of the largest and lowest-cost uranium mines in the world this decade.

In terms of project economics, the feasibility study suggests Rook I has an After-Tax NPV of US$3.47 billion assuming a uranium price of US$50/lb, and US$5.8 billion assuming a uranium price of US$75/lb at an 8% discount rate. Keep in mind the current uranium spot price is around US$78/lb, and NexGen's market capitalisation is US$4.6 billion.

Summary of Arrow Deposit Feasibility Study, 3 November 2023. Source: Nexgen

You can see the sensitivity to NexGen's valuation in these numbers. As an ultra-low cost producer, it has plenty to gain if prices keep pushing higher. Also, as it is largely a single-project company, the very basic rule of thumb of comparing market cap to NPV has some value. As we'll see, the next three companies are less amenable to this type of analysis.

Funding is an important piece of the puzzle when assessing any uranium development project. Without funding to construct and operate a mine, NPVs are worthless. On this point, NexGen appears to be largely there given it has lined up US$1 billion in non-binding debt financing and has around $270 million cash in the bank as at September 30 - compared to the US$1.3 billion capital cost to construct the mine.

Bigger picture, NexGen says it has also intersected numerous other mineralised zones on trend from Arrow along the Patterson Corridor at Rook I. This mineralisation will be subject to further exploration before its economic potential can be assessed. Importantly, NexGen has further exploration upside potential to complement its substantial medium-term production potential.

Next time…

Next time I’ll continue my investigation of ASX uranium pure plays with a company that is going into production as you read this sentence. Boss Energy (ASX: BOE) is possibly one of the few uranium companies globally that will have an opportunity to really capitalise on the current rally in the uranium price. Stay tuned!

Missed any of the previous articles in this series?

Check out my articles on the other Top 5 ASX Uranium Companies: Part 1: BHP Group, Part 3: Boss Energy, Part4: Paladin Energy, and Part 5: Deep Yellow, and my article on Demand and supply dynamics of the uranium market.

Don't forget to read…

To get a better understanding of the jargon used in the analysis of mining companies, I suggest you read these articles on how to interpret mining company resources, reserves, and drilling results and the stages of mining company development.