NexGen Aims to Be Canadian Uranium Player

Geoffrey Morgan and Jackie Edwards
Thu, October 19, 2023 

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(Bloomberg) -- Canada’s NexGen Energy Ltd. is looking to Australia’s equity market as it sets up financing for its first-ever uranium mine back home, a project with a $1 billion price tag.

That’s partly because its co-founder heralds from Down Under and the market has a depth of experience with mining stocks. But more important is Australia’s $2.2 trillion pensions industry, creating what NexGen’s Chief Commercial Officer Travis McPherson termed “unrelenting” demand for assets.

So, while the Vancouver-based firm had crews preparing grounds to drill a shaft in Saskatchewan this summer, its executives were in Sydney and Melbourne to drum up interest in its stock as the company pursues inclusion in benchmark indexes to better access retirement funds.

Over the past decade, the prospector-turned-miner has seen its penny stock surge about 20-fold on the Toronto exchange as it received regulatory approval to exploit a major uranium deposit. The shares, also traded in New York and Sydney, have gained upward momentum this year, riding the wave of renewed interest in nuclear power as the world seeks emissions-free energy.

Now, with a market capitalization of around A$4.4 billion ($2.8 billion), NexGen ranks among the 100 largest publicly traded firms in Sydney. But the Australian listing sees just a fraction of the volume of its North American peers, with slightly more than 70,000 shares daily for the 180-day average, compared with more than 2.5 million each in Canada and the US. NexGen sold $150 million worth of shares in the US to Australian investors, which were then allowed to trade in Sydney, helping to boost liquidity, according to the company.

“We expect NexGen’s next major raising to include a large component of ASX listed stock,” said George Ross, an analyst at Argonaut Securities in Perth, Australia. “In our opinion, NexGen could become the default uranium position for many Australian investors,” and the company’s Rook 1 development is “unmatched in the market,” he said.

Rook 1 is the largest development-stage uranium project in Canada and is projected to produce for nearly 11 years once built, according to NexGen.

The miner is targeting membership on the S&P/ASX 300 Index and, eventually, S&P/ASX 200 Index, which would open the door to Australia’s pension funds, or superannuation funds as they’re called locally with about A$3.5 trillion in assets, buying large amounts of stock. Depositary receipts are eligible for index inclusion, according to the Australian Securities Exchange.

The next S&P/ASX 200 rebalancing is in December, with the S&P/ASX 300 due in March, according to S&P Dow Jones Indices, which didn’t respond to a request for comment on thresholds for inclusion.

The superannuation funds have recently become a focus for Wall Street bankers seeking to gain access to their growing pools of capital. Workers in the country contribute 11% of their earnings to these pension funds and that threshold is rising to 12%. The funds, in turn, have been looking for new areas to generate returns.

“The demand really is unrelenting because it’s just a constant inflow of capital,” NexGen’s McPherson said.

NexGen has lined up non-binding interest for $1 billion of debt financing for its Rook 1 project and has C$350 million ($255 million) in cash, putting it in a position to cover the estimated C$1.3-billion capital cost. However, McPherson said the company will take the next six to 12 months to “create the most optimal capital stack — which could involve no more equity or could involve some equity.”

Given inflationary pressures in recent years, PI Financial analyst Chris Thompson says he expects costs may rise above the current estimate, and could require an additional C$300 million to fund the mine. “All of this is going to catalyze the need for a capital raise,” Thompson said. NexGen looking to Australia is logical as the market is familiar with mining companies, from early stage to producing projects.

Miners top the list of materials stocks that account for about a quarter of the S&P/ASX 200 and S&P/ASX 300 indexes, the biggest sector after financials in the benchmarks. That far exceeds the group’s 12% weighting in Canada’s S&P/TSX Composite and the less than 3% in the S&P 500.

NexGen’s McPherson said an Australian listing made sense for the company because it already had an Aussie investor base and Chief Executive Officer Leigh Curyer is Australian. The company does not intend to list anywhere else now that its goal of S&P/ASX 300 inclusion is in sight, he said.

“I think we’re done now,” McPherson said.

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