NXG 1.47% $9.00 nexgen energy (canada) ltd

Operator: Your next question comes from Orest Wowkodaw from...

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    Operator: Your next question comes from Orest Wowkodaw from Scotiabank. 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.



 
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