to become one of the largest and certainly lowest cost uranium producers globally at a time when security and nuclear power are back at the center of global energy. I think we're going to have an interesting discussion here, but please join me in welcoming Travis McPherson, who's Chief Commercial Officer of NexGen Energy. Hello, Travis.
Hi.
So where I wanted to start is kind of a big picture question and ask you about the macro drivers that you're seeing today that give you confidence in the long-term outlook for NexGen, particularly where you are in the development cycle of this big project.
Yeah, it's always been a story about supply. Obviously, today you pick up the newspaper, you're hearing a lot about demand, whether it's AI-driven demand or just base load requirements. But it really is, in terms of the uranium thesis, it's really centered around supply and really a lack of supply. That's something that's been ongoing really since 2011 when Fukushima occurred, and then there was essentially no investment appetite for exploration, let alone developing anything.
So where we sit today with that coupled with demand now going a hockey stick up and to the right, it creates a perfect storm and something that investors are starting to pick up on certainly, and then utilities importantly are starting to really feel the bite of what has been over a decade of dramatic under-investment in the supply chain and, most importantly, the uranium side of the supply chain, because obviously there's a number of steps in the fuel cycle. Some people will highlight there's been bottlenecks in enrichment or conversion, and our point to that is really all other bottlenecks in the supply chain are actually very easy to address because you just need capital and permits.
The U.S. government right now with significantly constructive policy support and financial support across the board for critical minerals, and certainly that side of the supply chain, that's easy to fix, and it is getting fixed as we speak. It's never really been a bottleneck, but it was a perception of one, and there's no shortage of capital and permits going around to address that. On the uranium side, it's not just up to capital and permits as the world's starting to learn. If we take NexGen as an example, we found ourselves the world's best project in 2014, and we will be producing in four years from now, so 16 years all up from discovery through to first ore, and we didn't waste a day.
Having been there the whole time, I can tell you, we didn't waste a day or a minute of a day, and we had access to capital because we had the best project, we had focus of regulators, focus of communities, focus of investors. It's basically as fast as it could possibly be. Anything that's discovered tomorrow, you're talking about mid-2040s for it coming into production. This supply chain issue, which really underpins the whole constructive thesis of the uranium market, is persisting, and it's going to be here for many, many years to come.
You touched on demand and up to the right, it is obviously growing very quickly. Can you maybe speak to some of the factors that are driving that, the countries that are involved, and some of those policies you referred to that are allowing that to happen?
It's really global now.
Yeah.
If you go back five years ago, it was kind of mixed. There'd be certain countries that seemed to be really emphasizing nuclear as a key part of their energy strategy, then there were others that were pulling back and talking about shifting that policy around. Today, it's really hard to find a country that's not supportive of nuclear power. It's really because post-Fukushima, again, everyone took a step back and looked at safety and looked at all the other considerations. At the same time, there's what we like to call the renewables experiment, where people kind of leaned on those, the Greta Thunberg kind of policy, and it turns out it doesn't work. I'll save you all the You don't need to research it very much. It doesn't work.
That period of time happened, so now you see what typically happens where that realization sets in a little bit too late, and then policymakers around the world go, "Okay, we need more nuclear now." The industry just goes, "Well, we're not ready for that. We need a little bit of time to sort ourselves out and get the supply chains, get the workforce, and everything else." So it's a very good news story in that the policy support, whether you're talking about the U.S. here, where it's-- Pick an area of the nuclear uranium fuel cycle and you'll find policy that's constructive and supportive of it. You'll find financial support for it. You go to China, it's the exact same thing. You go to India, it's the same thing. You go to the Middle East, it's the same thing.
All over Asia, all these new countries coming into it. So it's really something that's global again. The policy is really, you can group them into buckets, but it's really around making it easier for permits, building them at scale. So not just doing one-off reactors, getting some kind of runway of reactors so you can leverage what you learned in the workforce to get some economies of scale, and then financial support for them in the form of de-risking cost overruns or anything else related to it.
If we could maybe turn the conversation to your contracting discussions with utilities. So when you sit down with your customers and future customers, what are they focused on today?
It hasn't really changed from what they always care about, which is security of supply. That's the paramount number one over and above all else by orders of magnitude. That is the most important thing. Look, we're negotiating, so they'll say they care about price and things like that, but the reality is they don't. They don't for a number of reasons: A, a lot of their customers, a lot of the financial and policy support from countries like the U.S., and just the unit economics of producing a kilowatt hour of power. They're really constructive. We offer something that legacy producers don't, which is new supply coming online. They haven't seen that in a very long time, certainly not new material supply.
If you put yourself in a utility and you care about security of supply, and in order to feel secure, you need obviously reliable sources, but you also want to diversify to de-risk that. For the last 20 years, it's been essentially an oligopoly market where you've had kind of two to three incumbent legacy players. Now here we come along, no state ownership, no state history in terms of we're fully commercial enterprise, independent enterprise, that are here to support the industry long term. The discussions are very constructive. We could have sold all of our material already, certainly. We're the ones kind of holding back signing contracts because we're four years away from first ore.
We have signed some kind of relationship-building ones and I guess to some extent a proof of concept on our pricing structure that we're after, which is really uncapped pricing. For those of you not as familiar with the nuclear sector, the way that it's historically worked is our stage, so we're breaking ground, we're building our mine, we're four years out. Legacy producers have typically fully contracted their production, all of their production for 10+ years out even more than they're capable of producing and all hedged. So no upside really. Obviously you see the consequences of that. Now they will tell you probably that, "Well, when times are bad, we keep producing, and so that's a good thing." We don't think that's a good thing. We think that's the market sending you a signal you shouldn't be producing, don't produce.
Keep your resource and get more margin. That's what our strategy's ultimately around is realize that market price, shorten the duration of the contracts, and be more patient with when and how we layer them in. The utilities, to their credit, understand that. Now, I don't know if they understand that broadly, but in our case they do, because again, we offer something that others don't, which is material ability to diversify their own supply chain. So yeah, if that means they have to hedge with an independent trader or a bank or something, fine. They understand that's cost of getting what's more important to them, which is security of supply, diversification of that supply.
You've alluded a lot there to your strategy in contracting. Thinking about this going forward, when do you start layering in those contracts and to what extent do you maintain some sort of spot exposure? How do you think about maintaining that upside?
Yeah, we've already layered in contracts, so we've got almost 12 million pounds over the first five years. There was a lot more demand for it, even in those individual contracts. We just kind of pared them back and said, "Let's see how the relationship builds," and that sort of thing. One of them came immediately back to us and wanted more. We do have two contracts with the same utility. That's how it's been to date. We've been a little bit more patient recently because we're funneling that interest for off-takes into, "Okay, you want uranium, we can give you uranium, but you have to give us the money up front" because we do need another, call it CAD 1.5 billion to finish building our mine.
A prepaid structure is something that's attractive to us, there's a lot of interest for, but that means we have to be even more patient with that. Let's live in the world where in the next six months we're financed one way or another, fully financed one way or another. At that stage, yeah, we'll continue building relationships, but we're not in a rush to sign contracts because even though we will realize the market price. Some people have said, "Well, what do you care? You're realizing the price at the time you deliver. So whether you sign it now or in the future, who cares?" There's also an element of we will be the world's largest supplier from a single mine.
It also is about sentiment and signaling to the market, to the utilities, "Yeah, we're here to support you, but it's not a one-way street. There's reciprocity to this" and just rebalancing the negotiations that have gotten way out of whack over the last 20 years and recognition of what we offer again. Sorry of an answer, we don't have 70% long-term off-takes, 30% spot. What I can guarantee you is we'll never over-contract and probably we won't be fully contracted going into production. We do want to maintain our ability to be active in the spot market because over time we do want to develop a more liquid spot market. We see absolutely no reason why there shouldn't be one. There isn't one today and there should be.
Every other commodity has basically gone through this, whether you go back to Standard Oil days or iron ore 20 years ago or lithium more recently. They all evolve over time. It takes time. You cannot do it overnight. It is not flipping a switch. But if you have a cornerstone low-cost producer like us that wants to do that and you have completely price-insensitive end users, it kind of sets up nicely for that change.
Interesting. Okay, we spent a lot of time on the macro. I think it is important to tackle the asset itself. Rook I, can you just walk us through the development process you expect over the coming years and what are the milestones we should all be watching to judge its success?
Yeah. We are off to a flying start so far. We kind of had a bit of a jogging start, so to speak. I do not want to say sprint start, but kind of a jogging start, in that we had three scopes approved under an exploration basis. So expanding our camp to house now 700 people at site, the exploration airstrip, and road upgrades to site. Those three scopes were about CAD 100 million in total and came in on time, on budget, and to scope. And what that meant is that, again, to this running point, I think a lot of projects you get approved, and then you have to start walking and jogging and running and then sprinting.
We have been able to now, because we got those things approved 12 months before we got approved, to really work out all the kinks, make sure all the systems work, make sure the culture is strong, make sure we have the right people in the right places, internal reporting, all of the stuff that you need to be successful. Test run, in some cases, some really important vendors and consultants and contractors and their staff and their systems. And what that has meant is now we are at a full sprint really quickly after getting our approval on March 5th. Basically the four years is really the critical path runs through the shafts and underground development, essentially for the full time, because we are sinking two shafts down into the ore body.
In early 2027, the next big milestone on that will be we will commence temporary freezing for the first 100 meters. Then by the summer of next year, we will be shaft sinking through that temporarily frozen ground once the hydrostatic lining's installed.
That puts you into first production in 2031.
2030, yep.
Yeah.
Second half of 2030.
Second half of 2030.
Yep.
Okay, let's speak about some of the upside. So your exploration asset, PCE, it's garnered a lot of attention in the last year or so. Can you explain why it's strategically important for NexGen, and then how it fits into the story going forward?
Well, I think simply it demonstrates that we're onto a district. We've always known that just given the history. We found Arrow at the very first drill hole. It's by far the world's best uranium asset. It's not even close. We're good. We're probably not that good. And it ranked, actually at that time, seventh out of 12 targets that we had at the time. We just had to drill that first because it was within 2 km of the lake, and the water in the lines would freeze if you were further than that. It kind of dictated, okay, we didn't want to drill that one first is what I'm getting at. Once we discovered that, obviously the focus was really on growing that, developing that, doing everything.
But a couple of years ago, we had capacity of the geological team to go out and see what else is out there, and we made this discovery, really, with very early success again, and it's 3.5 km away from Arrow. So what does it mean? It means, again, disclosure and everything, we need to do more work and subject to permitting and economic studies and all of that. But it's 3.5 km away. It looks bigger. There's more high grade. Exact same geotechnical setting as Arrow, and it's only 3.5 km away. So Arrow, once it's built, will pay all its capital back in a year, if not shorter, depending on the uranium price. But if the uranium price is flat today, all that's paid back in a year.
Anything at PCE is essentially free because we're not building a new mill 3.5 km away. We're not building a new power plant and all the other infrastructure. It's really able to leverage that existing infrastructure.
Okay, and maybe just a final word. If you step back and think about the business' growth over the next, call it four to five years, what is success going to look like for this company when we look back on this five years from now?
Well, we're in production for sure. Then, we're all big shareholders of the company, so we'll be giving a lot of money back to our shareholders. Look, we're really focused on doing what we do well and staying focused in our lane. There's lots of great copper companies out there and gold companies and lithium companies and everything else. Our view is investors can make a portfolio how they see fit of different commodities. We don't have to do that for them. We're going to stay in uranium. Obviously, we've got Arrow, which is going to continue to grow. We've got PCE. We'll find more. We've got organic growth for generations, essentially. We'll just stay very focused on that and leveraging the margins that we have to give a lot of money back to shareholders while we continue to grow organically.
That sounds fantastic. Travis, thank you for being here.
Thanks, Lawson.
Thank you folks for listening in.
Thank you. Thanks. It's good to be here.
That was great.