NexGen Eyes Uranium Price Upside During Rook I Build | Travis McPherson - NEXGEN ENERGY LTD

Hello and welcome to Kitco Mining with me, Paul Harris. Today is Thursday, October the 15th, and we are talking about uranium. Joining me now is Travis McPherson, Chief Commercial Officer of NextGen Energy. Travis, welcome to KITCO. Yeah, thank you for having us. We're very excited to be here and happy to talk about NextGen. Excellent. I'm looking forward to our conversation. We are going to talk about next gen and your rook one project but before we do so i'd like to ask you a little bit about the uranium market next gen of course you've reached a major inflection point this year with your rook 1 project you received the final federal approval in march and you entered an expected four year construction period for a project designed to produce up to 30 million pounds a year of u308 at the same time uranium spot prices have approached 90 to 100 us dollars per hour per per pound. And long term prices are at their highest level in at least 18 years. But uranium equities have generally failed to sustain comparable re-rating. Starting with this, the big case for uranium. And as I mentioned, spot prices have approached that 90 to 100 US dollars per pound, long term price multi-year highs. Are these prices sufficient to incentivize the new production that the market will require to fill in this forecast reduction deficit? Yeah, no, the short answer is no. No, we're not. We're nowhere near where we need to be to incentivize new production and frankly, even sustain existing production. So we've got a long way to go for sure. As you point out, uranium prices have risen materially. They are at you know multi-decade highs but you know they're they're still not high enough and you know a great example of this is actually if you look over the past 10 years you've had uranium prices 5x over a 10-year period yet you have supply globally essentially stay flat so there's not many commodities in the world that the commodity price 5x is in supply stays flat there's a couple of reasons for that one primary driver is the fact that we had you know a very prolonged bear market um which meant essentially outside of next gen iso energy which we started and one or two others essentially no investment uh being made across the uranium supply chain uh for the better part of really 15 years so uh now that's coming home to roost and you know unsurprisingly these things happen where you know it's a forgotten industry and then policy makers wake up one day and say we love this now and we want it in a really material way okay miners go go get it for us and and you know the reality is we're talking about moving atoms here and we can't uh change the laws of physics and so it just takes time uh to to do it and uh and as i said we're not even at the point where the i mean next gen is unique and i'm sure we'll get into it in terms of the project but at large the industry i mean there's no incentive to go explore right now there's not incentive to to uh bring new projects on because even at current prices they're they're not making any money now travis i mean this is interesting because the the uranium supply deficit that's been predicted or forecast for several years um to what extent are the utilities concerned about future availability because they tend to buy on you know long-term cycles they look to lock in the supplies they need in the long term and we'll perhaps get into talking about how how contracts and contract terms are evolving but they must be uh you know getting quite concerned because they could predict presumably see a you know a wall coming that they're going to crash into and say you know where's the uranium coming from that's exactly right paul um they are getting concerned for sure um look it's always i i would say it takes longer than people think sometimes to psychologically change when you're in an oversupplied market for 15 years you know and things change rapidly like they are as we speak you know it's not like you can just shift your mind overnight and and realize like oh the things you've been doing for the last 15 years aren't going to be are going to work for the for the foreseeable future so we've got to make a 180 degree turn here so it is definitely happening um and in in you know again in our case uh we are you know overwhelmed with uh demand and interest for our product so you know the the industry understands where this is going and as you point out it is an industry that you know is is based in in uh in the future so to speak so utilities aren't looking at necessarily uh uranium demand tomorrow they're looking at it kind of in the next few years and so and when you look out you know certainly when when our project comes online in 2030 you know that's a that's an even more precarious supply chain than we we see today because you have mines that have been relied upon for a long time getting to the end of their useful lives and depleted and and so on a net basis even our project is phenomenal and large as it is isn't even really addressing the problem on a net basis so travis this this supply crunch has been brewing for quite a while and and this year last year we've seen a couple of other additions or additional factors that may impact that uh of course uh what's happening with russia ukraine the russian sphere of things and also on the demand side ai data centers a number of the companies that are building these are increasingly looking to developing their own power sources to power these which of course inclusive includes nuclear small modular reactors things of that nature that will also require uranium how do you how are these things changing the pictures yeah i mean look it's it's uh you know specific to ai i think you know we've been saying it for a long time it is it is very real it's a serious demand driver of electricity and and certainly nuclear demand as you point out because all of these hyperscalers are partnering and developing and investing in nuclear as their preferred option for sustainable long-term base load power requirements that are very very efficient and clean so that is a reality but the important thing here is even if you axed all of that overnight you still have this massive supply deficit and so that is a really important fact in our business particularly now because you know there has been so much focus on ai and everything and and you know i think in some respects it's been very good because it's really emphasized hey how sustainable is our power systems how sustainable is her electricity grid all of that and and so it really has shone a light on nuclear at large but again for for an investor or the thesis around somebody like next gen to hold true you actually can say assume there's no ai demand at all and there's still a really compelling case because again it's been based on a 15-year bear market with no investment across the whole sector um and so uh that's really what it's based on So, NextGen, you're looking at bringing production online in 2030, as you mentioned, bring production into a market that faces an increasing deficit and rising prices. That's obviously the perfect storm for a developer such as NextGen. The company's contracted more than £10 million of annual supply, I believe. How much production do you want to contract before that first output because i imagine as you get closer that 2030 the indication is prices are going to be higher so you're balancing you know a bird in the hand today perhaps two three or four in the ham tomorrow yeah no exactly and and you know our when we step back our strategy is really simple which is maximize the value of every pound we produce and sell and uh we're in a really unique position in that we have this very conventional uh underground very small underground uh and very high grade uranium mine uh in in saskatchewan and so that enables us a lot of flexibility around how much we produce and sell and and so enables us to really leverage uh and and take advantage of that as it relates to our our overall objective of maximizing the value of every pound that we produce um so what does that practically mean it means we will continue to remain patient so notwithstanding the fact we have significant demand for our product um and and desire to sign those contracts today and we will continue to sign contracts as we go but we're not in a rush to sign a lot of contracts um we're not against it but we've not that's not our focus is not to you know uh essentially go out to the market and say have whatever you want take it all um and be done with it like we view our responsibility is to respect the fact that we have this very special asset in the ground and our responsibility to bring it out uh responsibly over the next uh four years and then start to produce it and when once we start to reduce it make sure that we're maximizing the value of it not just be the biggest producer or just sell as much as we can um again to be very clear the world wants all of our production and more and they want it sooner um but you know our jobs are to stay disciplined and make sure that um you know we don't give away optionality for nothing and so we will continue to sign contracts over the next few years but we don t have a set metric in our minds of you know it's going to be uh 80 percent contracted by 2030 or or whatever we're basically going to do sign contracts as they make sense to us as we continue to develop um and uh and then once we start to produce uh we'll make sure that we optimize uh what we have thank you travis how given all of these things all these you know it's a very fluid situation in some ways how is that seeing the contracting process evolve and if i may want to give a use a parallel for copper concentrates in the past copper concentrators were negotiated on multi-year contracts maybe three-year contract now they're very much one-year contracts at best maybe even six-month contracts um and they're becoming less opaque is something similar happening in the uranium space yeah a hundred percent and and it's really you know uh been driven by us as a new entrant with this project coming in we you know when we step back there's no way you can argue that that um more transparency and more liquidity in a market is a bad thing it's a good thing and and so that's always been our kind of focus since we started looking at marketing and selling our product is is does it make sense to you know do it the exact same way it's been done in the past and and the short answer is absolutely it does not uh because you know the past was what really that those those contracting strategies that were employed while they probably made sense at a point in time or given certain projects technical characteristics in our unique situation at this current time and what we see into the future it certainly doesn't make sense to do it that way and um and so uh as you point out every commodity has effectively evolved into a more liquid transparent clear market that like go back to the standard oil days uh you could brought up an example with copper you know natural gas in europe iron ore uh about 25 years ago they've all kind of started in these oligopoly markets where it's over the counter and it's negotiated bilaterally and then they evolve into something that's more um or less opaque as you put it and uh and that's our focus for sure is to do that now we can't flip a switch and do that overnight and so you know phase one is to shorten those the duration of those contracts so whereas in the past you know producers would at our current stage sell all of their production and more way out into the future like 10 15 years out into the future so you know if it's 15 years of deliveries you're talking about 20 years into the future you're you're looking out into um we're not going to do that um we are going to shorten the duration of those contracts tie them to the to the prevailing market price of the time that they're delivered under and uh and a few other elements that that kind of just i would say just modernize uh the contracts uh to reflect the realities of of of this commodity evolving thank you travis um past couple of years we've seen new market entrants in terms of etfs exchange traded funds that uh you know buy and store basically physical uranium what what commercial impact has that had um them being able to come in and basically soak up soak up product well i think all they really did was add liquidity to a market and it really just uh added some price discovery to the market um and and we've seen what's happened and and it's a really positive thing that it did happen because it you know it has helped um utilities and the industry see that hey there actually is a problem here and there's a problem brewing and uh and prices need to rise and once they do rise then utilities are willing to uh to buy buy uranium again so yeah it's it's been a positive thing it's certainly not a material um uh component in the market meaning like fundamentally it's you know i think they're they're a useful kind of tool for investors to diversify how they invest in uranium but from a fundamental perspective like it's not like real demand meaning it's not a material amount of actual demand like the industry consumes about 200 million pounds of uranium every year in nuclear reactors around the world which is just growing um and uh and and so what they buy is not you know against that backdrop is not material but um as i said it's been important for um adding that liquidity and transparency to the price Thank you, Travis. Now, this brings me to perhaps one of the key questions of our conversation. Given that the outlook for uranium and nuclear is very, very positive, you've got supply constraints, you got rising prices. So the question that a lot of investors have is, this being the case, why have the share prices of uranium equities, why have they been pretty stagnant? Why aren't they expanding and rising because of this? Yeah, no, that's a fair question. I think definitely part of it is, you know, the structurally and also companies have been really promoting the whole AI component of it. And so what we've seen is a high correlation with the AI basket in terms of equities. So, you know, something happens with open AI or core weave or something. And then next thing you know uranium equities are getting hit which doesn't make any sense fundamentally but it's just because there's been this kind of grouping um together now what i would say related to that is that you know where we sit today um you know you're not paying for any of that uh as an investor like uh it's not like these things these uranium equity certainly next gen is accounting for you know multi-digit annual growth rates and electricity around the world related to ai it certainly isn't it's um you know because as you point out like you've seen uranium prices go up uh over the last year about 10 and equities down 15 to 20 on average i mean that's a you know 30 percent divergence um and and the fundamentals as we've talked about have not uh deteriorated at all in fact quite the opposite they've just continued to improve um so from our perspective what an opportunity absolutely now when uh rook one comes on stream that's going to be what 30 million pounds a year uh in a 200 million pound market that's what a 15 increase in the market is there potentially the the fact that the the market is factoring in that and is perhaps seeing you know weaker prices because of that when rook comes online i don't think so um you know again based on a couple of factors one is just the the mathematical reality of where we are where you know today we need two arrows today to fill the deficit by 2035 it's estimated about 100 million pound annual deficit so more than three uh arrow type projects getting um you know frankly they'd have to be found and built in the next nine years for that to to be met obviously that will never happen. And that already does account for aero coming into production. So no, I don't think so. That reality combined with the fact, again, that in our discussions with utilities, there's no indication of that. I mean, again if that were true, I mean we wouldn't be having many conversations I would guess because if I was a utility and I felt like, well they're just going to bring this on and it's going to crush the price, why would you go out to buy uranium? And yet they are. Fair comment. Let's talk a little bit more about RookOne and Arrow. As I mentioned earlier, you've entered construction. The capex there is, what, 2.2 billion Canadian. What phase of construction are you at at the moment? Where are you in the build? We got our approval on March the 5th, and so we're in the beginnings of our major construction um programs all related to the critical path activities and and and some critical path activities primarily gated by the shaft sinking um or shafts uh there's two shafts that will be sinking so a lot of the work uh from then till till now and continuing is related to um getting underground next year in in shaft sinking and that is all going um to schedule to budget and and importantly to scope so uh the team is completely um um uh executing executing very very well and you know i think part of that is is related to two factors one you know a seven year permitting process is a very long permitting so we've been able to leverage that time and basically run tests and test everything more than you normally would for a project just given that amount of time that we had test you know people processes the project itself physically um etc so essentially we could we once we got approval i mean we couldn't run any more tests to to whether it's geotechnical metallurgical hydrogeological systems etc like that they'd been tested so um uh that's that's been very important and then the other element is that we got approved through the uh province of saskatchewan for three exploration related scopes tied to an exploration airstrip a camp expansion and road upgrades um and the those three scopes were roughly 100 million dollars um to do and those were done uh to schedule uh scope and budget and so that was kind of like almost a mini test run in exploration activities but uh infrastructure and construction that uh that meant we were uh able to kind of test test those things again while doing that while waiting for our approval such that you know once we got our approval we were really at a full sprint and where we are today which is again executing extremely well on the project thank you you've got a four-year build ahead of you more or less so what for for the company are the the greatest scheduling capital risk elements of that build uh yeah i mean look we're building a mine so you know obviously for those that aren't you know are coming to mining uh from somewhere else you know mining is a difficult business there's no no way around that however this project is uh is very very unique and advantageous in that again it's compact very very small um it's uh hosted within this granite basement rock it's shaft access it's vertical in nature the deposit itself and it's basically these huge panels of high-grade uranium uh vert uh vertically situated and stacked next to each other so it's really if i mean quite frankly if you know we flash back to 2013 when we were all talking about hey let's go look for a uranium project to hopefully find something to build it we couldn't have put all these characteristics in it because they just never existed and wasn't really thought possible to have this many advantages in in in a project so um yeah it's a it's uh it's a very very um unique project and it's and it something that because of all of that we we like people ask us sometimes like what keeps you up at night i can tell you absolutely nothing keeps me up at nine because everything that we see we actually see we don't see any red flags or material risks and the and the risks that we do see we actually see being able to be turned into opportunities frankly um why well a because we've always had an element of conservatism because again the very unique thing here with next gen is that we found this project ourselves back in 2014 we did so on the basis of again hopefully finding something to bring it into construction operations and ultimately close it down so every single drill hole every single study every single team member hired or fired was all done on the basis of optimizing for constructing operating and and closing a mine down um so we've had that very long history and continuity uh through the entire thing and uh and so that's really meant that you know we've always viewed it as okay be conservative because we don't need to make this look any better like it's already the best project by miles so we don t need to like gussy it up to make it look better um so in fact we can do the opposite and we can add a lot of conservatism to it and it's still phenomenal so that behooves us to do that and we've always done that um and then uh and then yeah it's it's it's uh it's again something that we've been planning for a very long time and so everybody at the project at the company is just extremely excited because this is the element now where it's all within our control you know when you're going through a permitting process there's a lot of elements that are outside of your control and you can influence but you can't control and now this is all within her control and again we have this rock solid foundation over many many years and and uh and and and again we've now started and we're executing extremely well so we have a reason to be confident Thank you. As mentioned, you'll be producing 30 million pounds per year from 2030. Is there a possibility of being able to bring production online sooner than that? Yeah, there's opportunities that we're looking at and evaluating, for sure. But I think four years we're comfortable with, and it's a very realistic timeframe. So yes, there are opportunities and that's our job is to to always look at those opportunities evaluate them and where appropriate um attack them and execute on them um but as we said today i think four years is is what we're comfortable with thank you and i mentioned that the capital cost 2.2 billion dollars canadian a couple of questions there how confident are you you'll be able to deliver that on budget and how have you financed the development yeah so we haven't seen any uh any material changes to that capex number you know we've signed some recent contracts major contracts like shaft sinking that you know were uh included in that 2.2 billion dollar number where you know from two years ago to today certain elements of those contracts uh inputs have changed but they kind of wash out because again like if we look at the shaft sink contract as a specific example, it's made up really of like labor unit rates and hours to do the work. And because again, going back to what I said earlier around how we've always carried a lot of conservatism, we carried conservatismo both in labor unit rights and hours such that yes, labor unit writes have gone up over the last two years. But But hours have also adjusted as we define the shaft sinking delivery more clearly over the last two years. So that meant that dollar for dollar the same over a two year period. And that's really true across what we've seen so far and what we see into the future. So can we guarantee that we'll deliver the project exactly to $2.2 billion in exactly four years? No, we can't. But what we can absolutely guarantee is that it will be done faster and optimally from an expenditure perspective and to scope than anyone else could. Because again, we were the ones that have found this and brought this forward to this point better than anyone's seen before. There's absolutely no reason why that will change going forward. Thank you. Now with the four-year construction, you're going into that sort of shallow part of the Lausanne curve. Four years is a long time to be in that part of Lausannes curve. What kind of things can the company do to remain front of mind for investors during that period where perhaps there's not a lot of news flow? Yeah, I think, look, when you step back at the Laussanne curve, I there's an assumption in that that there's alternatives like i.e investors can like want to invest in gold um and a company starts going into development well they can take their money out of that and put it into something else in uranium that just doesn't exist there aren't other a bunch of next gens to invest in uh and and it's a very concentrated market with very few um you know investable equity equities there so i think that's a big component of it is just that you know whereas again with other commodities where there's lots of substitutes and alternatives i can see why the lasagna curve would would would really set in on some companies uh but this is a one of one and and a very unique situation the other element obviously is even if you get into kind of a subtle lasagna curve let's say with uranium prices doing what they will do most likely you can have the whole curve just go up and up and off so even if the shape stays the same you can have it shift up uh and and you know there's lots of examples in the past of that um and then what what we can do to control that uh or influence that is is certainly by um a being very transparent with the major milestones and what they mean and providing context through um the build and we we kind of started that in september with our investor webinar where we went through all of those milestones over the next four years and kind of emphasized which ones are are important and uh and when we expect to do them and who who's doing them uh at next gen so that's a big part of it um the other part of is is which we haven't really talked about yet but is our our patterson corridor east um discovery which is three and a half kilometers away uh from arrow or the rook one project and it is uh you know it's it's earlier days but it's uh it's if it shows all the same characteristics as arrow and just you know again obviously we have to do a lot more work um in terms of you know um scoping studies and 43-101s and and permitting amendments and things like that but just when you step back and you think okay you have some you have the world's best project here at arrow which you know once in production pays all the capital back in 12 months or less um and then three and a half kilometers away in that same competent grounds conditions you have another arrow type project there well i mean you can imagine the types of synergies and benefits you could potentially see there and could potentially be realized so um i think as as we continue to build our project as we continue um be very transparent about those milestones and show that progress i think that will automatically bring forward that that that rewriting that will happen that material rewriting will happen when we're in production i think it will bring it forward and then concurrently with that we will you know continue to develop this uh next phase of uh of this rook one project's life thank you travis now you mentioned some of the milestones that you talked about in september so maybe uh we can leave with our audience what uh they can expect to see the next two or three milestones coming out of the development going forward yeah so the big one will be uh starting the temporary freezing uh for the shaft so we have to like you do in lots of parts of canada but you have to temporarily freeze the top 100 meters of basically just overburden like gravel and till and stuff you have to temporarily freeze that and then you hydrostatically line it and then you key into that granite basement rock and you release the freezing forever so step one start that freeze um that's a big milestone because the sooner we can do that obviously the soonerwe can get underground uh the second phase naturally to that will be the freezing ending and the pre-sinking starting that's another major milestone that will happen next year as well and then getting into uh and then giving through that overburdening into the Basement Rock is another major milestone. And then finally, getting into the groove of sinking and what are those rates? Because we feel like we've had, we've carried conservative sinking rate assumptions there. So, you know, we'll see once we get into it, how conservative they are and the opportunities that could present themselves as a result of that. Well, I wish you the best of luck with the build. Jefferson McPherson, thank you very much for joining me today. Yeah, terrific, Paul. you and thanks to kitco for all everything you guys uh do and have done for many years well thank you very much you're more than welcome and of course to our viewers if you like what you see don't forget to hit that subscribe button i'm paul harris and this is kitco Thank you for your time and have a good mining.