Nexgen Energy Ltd
TSX:NXE
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Nexgen Energy Ltd
Earnings Call Analysis
Q2-2023 Analysis
Nexgen Energy Ltd
NexGen Energy Ltd. is powering forward with the Rook I Project, having recently submitted crucial environmental assessments and licensing applications. The company has received provincial approval to commence a significant 2023 Site Infrastructure and Confirmation Program, vital for the anticipated increased activity at the site. This includes strategic exploration drilling programs, increasing total drilling meters to 22,500 for 2023, with the aim of thoroughly investigating high-priority targets.
As of June 30, 2023, NexGen boasts a healthy working capital of $89 million, reflecting a strategic allocation of roughly $39.4 million towards the permitting, exploration, and development of the Rook I Project. Bolstered by an over $1 billion interest in debt financing, the company's financial stance is solid and indicative of strong market confidence in NexGen's approach, environmental, social, and governance (ESG) commitment, and adherence to community-led development.
The federal government of Canada has been supportive, with statements from key officials pointing to an acceleration of energy projects, which aligns with NexGen's permitting progress for Rook I. Additionally, with an increasing number of requests for proposals (RFPs) in the sector, NexGen observes a heightened focus on supply chain security, with the company poised to meet the strong demands for stable uranium supply from politically secure sources.
NexGen's contracting strategy reflects a balance, safeguarding exposure to future uranium prices while planning to sign contracts linked to market prices at the time of delivery. The company's lenders align with this approach, as there is mutual agreement on the strategic benefit of maintaining full spot exposure upon delivery, thereby taking advantage of the production flexibility and the asset's strong market positioning.
The permitting and subsequent start of site construction are progressing, with NexGen awaiting provincial environmental approval, which is expected imminently. Additionally, the company has received unwavering community support, crucial for the project's momentum. Upon obtaining the provincial permit, a timeline of approximately four years to first production is projected, as inferred from the engineering schedule and pre-construction activities already underway.
NexGen believes that to meet the growing demand for uranium by 2030, the market price must substantially increase from its current level. New mine developments in the U.S., for example, might require a price over $100 per pound to kick-start material increases in production. With this anticipated rise in market prices and the significant cost advantage of uranium in nuclear utilities, there is potential for higher future prices beneficial to all stakeholders.
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Good morning. And welcome to the NexGen Q2 Quarterly Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]
Thank you. I will now hand the call over to Leigh Curyer. You may begin your conference.
Thank you, and good morning, everyone. Ladies and gentlemen, my name is Leigh Curyer, Chief Executive Officer of NexGen Energy. Thank you for joining our second quarter 2023 company update and financial results call. I will speak for about 10 minutes and then we will move on to the Q&A.
Joining me on the call today are Travis McPherson, Chief Commercial Officer; and Benjamin Salter, Vice President of Finance, Acting Chief Financial Officer.
Throughout the call, we will be making forward-looking statements. So, please visit our website for our full disclaimers on such statements.
This summer, we are seeing record temperatures globally. In July, Phoenix recorded 30 consecutive days over 43.3 degrees Celsius. There were forest fires across continents and warmer ocean temperatures. We cannot stay on the same path.
Global governments have set goals to reach net zero by 2050, with some ambitiously targeting 2030 for the first milestones. Many countries are acting now to bring more zero emissions nuclear power online and as the cleanest and most cost effective form of power generation, nuclear energy is the linchpin to the global energy transition.
Nuclear provides reliable, carbon-free, around-the-clock power and it is a reliable complement to the expansion of renewables like wind and solar as part of a clean energy mix. Currently, there are 436 nuclear reactors worldwide in operation, providing 10% of the world’s electrical needs.
Last month, we saw the U.S. commissioned in its first -- the U.S. commissioned its first commercial reactor in many years of the back of several license extensions issued over the last 12 months and Japan brought its first nuclear reactor online in nearly a decade.
Additionally, the Nuclear Energy Institute is intensely anticipating that 300 SMRs will come online before 2050. And as reported by TradeTech, these 300 SMRs alone would increase uranium demand by 100 million pounds, which is approximately 50% of the current annual demand.
We continue to see notable global support for nuclear energy. The Chief Executive at Rolls Royce recently said Europe will not reach its net zero targets by 2050 unless it embraces nuclear. An American entrepreneur Sam Altman stated that, nuclear is a way better deal than anything else out there in the provision of clean reliable energy reinforcing the cost effectiveness of nuclear and the need for a stable power grid.
Additionally, Parnassus Investments, an investment firm known for its strong and focused ESG leadership with rigorous fundamental environmental, social and governance criteria. They shifted and approved investments in nuclear. The company believes nuclear energy will be an essential fuel source in the transition to a low carbon economy.
Over the past quarter, we continue to see additional policy momentum that supports the clean energy future with nuclear at the center. European lawmakers agreed to endorse all nuclear power as a green technology for Europe’s industrial revival under the proposed Net-Zero Industry Act, granting it access to preferential funding.
Despite a decision 40 years ago to phase out nuclear power, Sweden’s government recently embraced nuclear energy as an essential way to increase electrical production and provide a stable energy system.
Just this week, the government announced its plan to build 10 new conventional reactors. This is in addition to two SMRs previously announced and the commitment to extend the lifetime of existing reactors whilst establishing generous loan guarantees for the additional reactors.
The reality is being realized renewables, wind, and solar alone cannot support a modern economy and population. This is the reality and the consequence of that reality is that nuclear is the direction countries are adopting to meet the energy demands.
And you are undoubtedly aware of the significant U.S. investments in nuclear energy in the U.S. through the Inflation Reduction Act, Bipartisan Infrastructure Law and The CHIPS and Science Act on top of the Advance Act focused on boosting the development of nuclear technologies.
Adding to this momentum is the growth of the SMR market, that I mentioned earlier. Ontario recent -- recently announced it was building three SMRs to power the province. The U.K. is launching an SMR competition to fund projects, and France and India are launching a cooperation program around SMRs and advanced modular reactors.
The demand for uranium is evident at its current price per pound, which stands just above $56. As the price remained steady in the mid-50s during this traditionally quiet summer period in the Northern Hemisphere, we are seeing increased interest from utilities to enter into offtake contracts.
And as we head into the second half of the year with the WNA in London in early September, where we historically see higher volumes transacted. We are well positioned for a sustainable and promising long-term future for the commodity.
Global nuclear capacity is currently 390 gigawatts, with The International Energy Agency estimate it will more than double by 2050. To meet this increase, uranium supply will need to nearly triple because by 2040 it would equate to 200 million pounds deficit and growing.
On the supply side, we have not seen the increase needed to meet the rising demand due to mine depletion, rising costs and geopolitical instability. And while we may be turning the corner in exploration and mining, especially when it comes to the Athabasca Basin, it still won’t be enough to meet the rising demand.
In addition to NexGen, there are a number of additional mining and exploration companies advancing respective projects, targeting to be in production during the next decade. That means action now.
Our Rook I Project will be the cornerstone to closing the gap within four years of permitting approval. Delivering up to 29 million pounds of uranium annually. With NexGen’s Rook I Project, it’s located in the premier stable democracy of Saskatchewan Canada. NexGen is committed to being a partner of choice for fuel buyers and nations actively seeking to mitigate or exclude volatile nations from their supply chains.
Rook I coming online within four years of permitting approval is a critical as it will help accomplish three imperatives. One, provide the world with reliable western supply, curtailing outside influence on our energy markets. Two, secure the energy transition for nations alive to energy security and targeting net zero. And three, avoid supply chain issues as we are currently seeing in the electrical vehicle market.
Business leaders must be able to drive the quarter and have the experience, vision and courage to see the bigger picture and that bigger picture is ever expanding. Having a strategy in place that anticipates and mitigates risk for customers, investors, employees and allied nations, as well as their citizens is how we approach it at NexGen, whilst being highly leveraged to terrific economic outcomes.
We have recently shared some of this thinking, because we fundamentally believe businesses have no reason to wait on policy mandates to do the right thing. Those four commitments we will only sell to nations who are allied for energy security and targeting net zero.
We will maintain a checklist of standards for all partners in the chain of custody of value uranium. We will keep our supply chain and operations onshore in these nations to guarantee the highest levels of security, safety, labor standards and local community partnership, and we will advocate for policies that support sensibly produced uranium to set a new standard for the industry.
While these commitments have been embedded in the NexGen strategy from the beginning, our supply chain diversity has become central to the discussion around decarbonization. We wanted to bring them forward and our recent news affirms our approach.
The coup in Niger has put the country’s uranium exports in serious question. Niger exports 6% or produces 6% of the world’s total supply and approximately 20% of Europe’s uranium. Additionally, this increasingly complicated geopolitical situation is a major risk for those operating there and for their investors. These events underscore the need to reduce the influence of governments that may not share our core values and interests.
Conventional approaches to stakeholder engagement and risk management must evolve to meet present day dynamics. This applies across many industries and mining is no different. A lot has changed since 1970s and we need leaders who can embrace the opportunities those changes create. This is why after decades in the sector, I founded NexGen in 2011.
Uranium is far too essential to our future to rest on industry practices of the past. Customers require supplies who can meet environmental, social, labor and security standards, and act as reliable partners to advance their businesses.
Communities deserve meaningful partnerships that create sustainable generational impact through positive social, economic and environmental outcomes that extend beyond mine dependent opportunities.
Doing things in NexGen way has led to amazing outcomes and extends to our relationships with indigenous communities in Saskatchewan. I am proud to say that during this past quarter, we signed an industry-leading impact benefit agreement with the Metis Nation of Saskatchewan Northern Region II and the Metis Nation Saskatchewan covering all phases of the Rook I Project.
The IBA defines the environmental, cultural, economic, employment and other benefits to be provided to the Metis Nation of Saskatchewan NR2 by NexGen in respect to the project and to confirm community consent and support for the project throughout its complete lifecycle.
This agreement follows the signing of benefit agreements with each of the Clearwater River Dene Nation, the Birch Narrows Dene Nation and the Buffalo River Dene Nation. That’s 100% support from all our local indigenous communities. This is a historical milestone for the Canadian mining -- for a Canadian mining company and a critical step to advancing the Rook I Project.
We are proud to share that the communities have joined us in advocating for regulatory approvals to realize the opportunity ahead for all of us. NexGen has reached a significant milestone in advancing the regulatory approvals for the 100% owned Rook I Project by submitting the final provincial environmental assessment and federal license application during the quarter.
We have also received provincial approval for the commencement of the 2023 Site Infrastructure and Confirmation Project -- Program at Rook I. This program includes comprehensive fieldwork focused on infrastructure upgrades, which will support the increased activity at site with the freeze holes on the critical path. The program is going smoothly and is expected to be executed on time and budget.
Before we get into the financial update, I wanted to reflect on some exploration drill programs on our Rook I property regionally and the SW1 property in the Southwest of the Athabasca Basin. Our drilling will continue to test high priority targets on both those properties and will provide a further update on this program once it’s complete. Total meters to be drilled during 2023 has increased to 22,500 meters.
Now, for an overview of our financial position ending on June 30, 2023. NexGen had a working capital of $89 million as of June 30, 2023. To the end of the quarter, NexGen has deployed approximately $39.4 million in the successful permitting, exploration and development of the Rook I Project.
On the financing side, last quarter, we shared that we received strong expressions of interest totaling over US$1 billion in debt. We have recently heard from additional parties also expression -- expressing their interest on that news becoming public. This engagement is a testament to the economic and ESG profile of Rook I and strong investor support eager to bring the Rook I Project online.
As we look forward to the rest of 2023 and into 2024, we are scheduled to meet critical milestones to advance the Rook I Project. These include, the acceptance and approval of the final provincial environmental assessment, two, the submission and acceptance of the final Federal Environmental Assessment, and three, completion of the final licensing and securing a commission hearing date for the conclusion of the permitting process.
While the Rook I site program progresses on time and within budget, I am proud of the work of the NexGen team. As a leader in the energy transition, we will continue to share our commitments with the world and bring to bear a generational project that will benefit all shareholders and local communities, while upholding industry-leading economic, social, labor and environmental standards.
Now, let’s transition to the Q&A and we encourage questions from all of you. I will hand it over to the moderator to commence.
Thank you. [Operator Instructions] Your first question is from Andrew Wong from RBC. Please ask your question.
Hi. Good morning. Thanks for taking my questions and thanks for the update. So I am just kind of curious, wanted to ask what your strategy to focus on selling to nations who are allied for energy security? And I am just wondering like how do you make that distinction which countries would that include or exclude today, and, yeah, just wanted to hear more about that. Thanks.
Well, I think, yeah, the recent events that we are seeing around the world in some countries where nations that are focused on the sensible provision of power to their populations is the key definition of that. Obviously, Canada, U.S., and many countries in Europe fall into that category.
When we are talking about such an important global objective, it requires leadership, and unfortunately, not all players in -- on the planet at time behave in the interest of all. So we are very openly stating what our values are and the direction in which we will head. So it’s basically open for any country to behave sensibly and act as a good world neighbor and they will be the countries that we will sell our offtake to.
Okay. And maybe just switching gears here a little bit, obviously, a lot of geopolitical challenges in the uranium market, definitely a lot of interest now in nuclear and we are seeing a renaissance in the nuclear industry. So, clearly, a need for more uranium and Canada can play a critical role and so can NexGen. Does that help with your approvals process and is there any update on the timeline for federal permitting?
Yeah. I think it is actually really just blowing the wind stronger into our backs. We have heard many statements from Environment Minister Wilkinson and also Chrystia Freeland regarding the acceleration of projects involved in clean energy meadows and the provision of energy in order to export to those good neighbor countries.
And look, we have already very advanced on the permitting front. There’s no doubt about that and making significant progress. But, yeah, it’s always nice to hear from a federal and provincial political level the support for your business initiatives.
Saskatchewan earlier in the year launched their Critical Minerals strategy and they used our offers in Saskatoon to launch that strategy, where they openly stated a doubling of uranium production by 2030. Yeah, that’s our project, Denison’s project, no doubt. So, yeah, incredibly positive tailwinds by both provincial and federal governments in Canada.
And again, I have said it in the past, Canada is an outstanding country for the development of resources projects, particularly uranium projects and it’s very rigorous, and that rigor is in the interest of the long-term success of the project.
And as I mentioned, when dealing with such a key component of energy transition and sensible energy, our policy is the key ingredient to a higher standard of living for the entire world population. It roughly has a very rigorous approach and we absolutely adopt that and appreciate that.
Okay. Thank you.
Thank you. Your next question is from Alex Pearce from BMO. Please ask your question.
Good morning, all. So, Leigh, you touched on this already, given that additional uncertainty you mentioned in Niger. Can you provide a little bit more commentary on how your conversations with utilities have changed in the last few months? And do you think we are getting closer to the point where utilities may be more willing to sign mutually acceptable contracting terms or prepayments, et cetera, that could help finance the project when the time comes?
Yeah. Hi, Alex. Yeah. Look, I think, the Niger thing has been on the back or in addition to what was already occurring. It’s -- we are seeing more RFPs being issued in the sector, which I think is highlighting that utilities are really starting to focus on their supply chains and the -- and actually the materialization of that sovereign risk, that was already around over 70% of mine production worldwide has always been there, but now it’s materializing in the form of we see the actions of Russia at the moment and now the coup in Niger and it really is highlighting that sovereign risk that’s always been there.
So naturally a lot of the Western world and European and Middle Eastern and Asian countries are looking at that supply chain and some countries are more vulnerable than others given their past alliance on some of those sovereign locations that are now in question.
And so, I think, you will see over time a change in the way some of the elements around contracting. What utilities want to see though is strong sovereign jurisdiction, that’s reliable and also strong technical delivery and certainty around production volumes.
And brining in Saskatchewan makes the first box and the second box, where everyone’s well aware of the technical strength of our project with the high levels of certainty around production volumes and moving into the latter part of this decade and into the following decades. Our profile certainly meets those two ingredients that utilities are seeking.
Great. Thanks, Leigh.
Thanks, Alex.
Thank you. Your next question is from Winston Miles from Eight Capital. Please ask your question.
Hey, Leigh. How is it going? Just wanted to wish you congrats on all the success this year and progress at the Rook I Project so far in 2023. There’s been a lot of talk by other companies, especially in the sector around your contracting strategy. I guess my question is, are they accurate with their assertions, you could kind of, quote-unquote, dump all your production into spot? And then, part two of that question will be, how is your contracting strategy impacted the debt process you have undertaken? Thanks a lot.
Yeah. Sure. I will answer the first part of that question, Winston, and then handover to Travis on the debt side, who is running that process. Look, we have been very, very clear, irrespective of how it has been compensated by others that we are simply taking an approach, which reflects the technical and sovereign nature of our project and so we are going to contract on that basis.
And basically what we are going to do is really be heavily levered to prices at the time of delivery and we -- our position is that the uranium price needs to go considerably higher in order to encourage production from a number of these development projects that are nearing permitting approval and even nearing production such as the Denison’s, Boss Energy, Paladin are out there as well.
And because of the supply gap being so great, we needed diversified uranium supply -- mines, uranium supply, particularly in countries that don’t exhibit those sovereign risk of other countries as we speak that produce a large portion of the wells uranium.
So we have purely going to leverage our sovereign aspect and our highly competent technical nature, which provides very high certainty around production volumes. And so we will be entering most likely in the shorter term contracts over shorter periods, from that fact, which basically keeps our company exposed to future uranium prices in a sensible manner.
We will be contracting portions of our production, there’s no doubt about that, but they will be tied to market prices at the time of delivery. And it’s very, very clear. I think the contracts are going to be moving more weighted to market prices at the time of delivery as we move forward and we are incredibly levered to that development. On the second part?
Yeah. Yeah. Winston, so on the debt side, I would say, the lenders that we are speaking to are more coming to the table, as Leigh mentioned earlier, wholeheartedly agree with our strategy frankly. They see the opportunity to maintaining. They know the position of this asset in the uranium market and taking advantage of production flexibility is important to optimizing the economic outcomes, which obviously benefits these lenders.
So from a debt side, one thing we flushed out very early with them is, this isn’t a typical mine, whether it’s uranium or another commodity. So price hedging and requirement for that is not required.
And as Leigh pointed out, it is not required for one reason, which is the technical profile of the mine and the consequential cost profile, but also philosophically with respect to this opportunity at hand to flex up and down the mine according to market demand to make sure that the uranium price stays stable and can bring online more stability in production, particularly, in the West.
So from a debt side, we will be signing a minor portion of production under volume-based contracts, no pricing mechanisms required, meaning full spot exposure at the time of delivery is fully accepted and agreed to by the lenders.
Excellent, Thank you.
Thanks, Winston.
Thank you. Your next question is from Chris Thompson from PI Financial. Please ask your question.
Hi. Good morning, gentlemen. Thanks for the intro there, Leigh. Good discussion, good recap, I guess, on what’s happening with the uranium market, wholeheartedly agree. Just a couple of quick questions. I hope you don’t mind. I just want to unpack some of the details that relate, I guess, on the permitting side. My understanding is, we are waiting for the conclusion of the final, I guess, provincial EIS approval permitting sometime this month, is that correct?
Yeah. It’s imminent. How -- exactly how far away that is, we will see. And -- but it’s fully with the Environment Department of the Province of Saskatchewan is where we are referring to the provincial environmental approval here. On a daily basis, we have done everything that we are able to do. And so -- the latest feedback is that we can expect that imminently.
That will then commence a 30-day public record period. And then at the conclusion of that, while the Minister -- the Environment Minister will be in a position to grant approval. We have recently four in mining with the project in Saskatchewan received approval within 14 days following the conclusion of that 30-day public record period.
So, Chris, it’s imminent. I can tell you the whole team here at NexGen, there’s not a day that on a daily basis, we ensure that we have done everything we possibly can. So it’s imminent. And in parallel to that, we have got the engineering proceeding really, really well and site construction preparation being undertaken at site as we speak.
Great. Thanks, Leigh. And then I guess the federal EIS side of things. When do you anticipate, I mean, I am asking your questions, you probably don’t have answers to, but I wanted to just provide just a little bit of color on the sort of lag, I guess, between provincial approval and federal?
Look, Chris, it’s a good question, because it’s a very detailed and rigorous process. The provincial one is incredibly material and the federal one will always come after the provincial one. We run the process in tandem and we have already completed a 120-day public comment period in 2022 on the federal basis.
We know all the questions that came in. The large majority of those questions were clarifications and referencing certain paragraphs in EIS, which as you are aware is a very large document and we have also at the same time had very lot letters of support from each of the full communities in the project area expressing their support for immediate regulatory approval.
So on receiving the provincial environmental assessment, we already have with the signing of that fourth agreement during the quarter, 100% community support and that’s been expressed both provincially and federally.
And so, I suspect the federal process will be within a reasonable timeframe following the provincial approval and that’s the indications where we received federally right throughout. And I think you will see things start to accelerate on the federal level once that provincial approval is in place.
And I want to be clear, once that provincial approval is in place, that federal process is going to be running in parallel to a lot of activity at site and so the federal government and CNSC see what’s happening and see the support from the local communities and looking forward to delivering Canada’s next uranium mine.
Beautiful. And then just, finally, just one quick, quick question and it’s something that, I guess, Travis did allude to a couple of minutes ago and that is the ability of the operation to flex up flex down production. Could you maybe expand a little bit on that and how you going to be communicating that to the market? Obviously, this is not a discussion now, but something that I think the market is going to want to know a little bit more detail on as you start development?
Yeah. So with the deposit being in such highly confident basement rock, we can flex production up and flex production down from one quarter to the next. We also have such an incredibly low cost base that -- the economics obviously play into that that flexibility. And so we are purely and very simply, leveraging the technical nature of the sitting in now to deliver that to the market.
And so it is a, I think, a highly advantageous element of the Rook I Project that is meeting our demand by the utility sector. So it -- to answer your question, Chris, it is purely around the technical setting and the low economic cost of producing a pound, which facilitates that flexibility.
Yeah. To be clear, Chris.
Okay.
To be clear, Chris, we are very confident on what we have outlined in terms of production volumes, like, we don’t see a world where we need less uranium from a mine like Arrow. But this is just to say that we have that optionality to make sure the uranium price stays on a strong sustainable price for the long-term.
And the feasibility study…
Great.
… based on 13,100 tonnes a day well. We are also putting in flexibility into that as well, because we actually have very strong advocates, that the world needs more than three Arrows online by 2030 and yet they don’t exist, with respect to that size and scale. So, yeah, that’s our position.
Beautiful guys. Thank you very much.
Thanks, Chris.
Thank you. Your next question is from Brian MacArthur from Raymond James. Please ask your question.
Hi. Good morning and thank you for taking my questions. I just wanted to follow up on the potential debt, obviously, getting a lot more interest than you had a little while ago. Do you still think you will have stuff in place like Q4, does it make more sense to wait longer or is it irrelevant because the way you are going to sign the contracts is just you are going to get delivered spot in the future so there’s no real value in waiting to get a higher price, you are better than kept money in the door upfront?
Yeah. I’d say with these other parties coming to the table, we are definitely flushing those out and seeing their level of interest and so that may push it back a little bit from Q4 into early in the New Year, but generally still tracking well and definitely not on the critical path in terms of a holdup or anything to actually start construction activities in shaft sinking the moment when we get that approval to do so.
Thanks. Maybe just, Leigh, you have talked about four years after permitting. Not to get technical on this, are we talking four years after we received the permit thereafter CNSC licensing, I mean, obviously, what I am really trying to get here is when do you think first production is potentially at the mine now?
L
Yeah. So it basically on the provincial permitting the feasibility study if we were start from scratch, said 42 months. And so we are going off the engineering schedule with respect to that timeline. But it is subject primarily to the provincial permitting approval, and in some elements, we have already got a head start, because we have already got an accommodation camp there, we are expanding it, we have already cleared the pads for the syncing of the production shaft and the exhaust shaft and we are doing the presale preparations as we speak. So we are already inching into that 42-month timeline from point times zero.
So those two components, which is influencing that and it’s subject to the timing of the actual provincial approval as the primary gating item. If you -- if we receive the provincial permit this quarter or next quarter in Q4 2023, you can reasonably assume based on all those factors, it’s going to be around four years or within four years following that approval based on the engineering schedule as currently defined.
Great. Thank you. And maybe if I ask one other philosophical question. You have talked about -- you have got obviously a very unique asset, large, good jurisdiction, low cost and you are going to be somewhat selective in who you sell to. Do you think that allow you to get a premium price from those customers versus what historically maybe been quoted in the market, we will be able to build in anything for that do you think?
Yeah. Brian, you are exactly right. It is a very unique asset that hasn’t been in the market before and all we are doing is leveraging it given its characteristics both sovereign-wise and technically and cost-wise.
And I think as you see other dynamics in the market playing out around sovereign risk around certain sources of production and technical risk and then the advent of highly focused investment funds expecting companies to have late ESG profiles, that environment with a very tightening market with limited supply from good actors.
I think a good eventuated into that situation and I think, well, I don’t think all we are doing is keeping leverage to that outcome, which I think is paramount and in the interest of investors and stakeholders, community, governments, everyone associated with the project.
You got to also take into account that the cost of the uranium going into a nuclear utility makes up such a small component of the overall cost. So utilities or the ability for them to pay substantially higher prices, whilst they don’t want to pay an extra dollar than they have to, but the market is the market and given the low cost that uranium makes up although an overall nuclear utility, terrific scope to -- for higher prices going forward.
Great. Thanks, Leigh, and Travis for answering all questions. I will get back in line. Thank you.
Thank you, Brian.
Thank you. [Operator Instructions] Your next question is from Graham Tanaka from Tanaka Capital Management. Please ask your question.
Yeah. Thank you, Leigh, and Travis. I have got a couple of questions. One relates to sort of the macro. You talked about the need for over three Arrows to come online by 2030. What is your best guess as to what the price would have to be a clearing market price to incentivize additional mines to be able to meet that demand? What kind of price level would you need to see in U.S. dollars and where would that come from, are there any prospects that are close? Thanks.
Yeah. So you need to look at it, what’s the region, I think, regionally, because obviously, the Athabasca Basin has significantly higher grades and lower cost profiles than other countries in the U.S.
Yeah, there’s projects under development, but lower grade and hence have a higher economic cost and then in Australia as well, you have got some smaller projects are still going into production which have a slightly lower cost base.
So it really depends on the nature of the projects that we are talking about, obviously, the Athabasca Basin projects require a lower U.S. price to get in production outside the U.S. and Australia need higher prices.
In the past, when we saw uranium prices go to $140 a pound in the late 2000s, a lot of the U.S. project -- development projects did not go into production. Projects in Namibia as well did not go into production with uranium prices over $100.
As you are aware, I am formerly a chartered accountant. I am very cost driven and data focused and look at cost structures in terms of defining our strategy ourselves and understanding where we are placed in that.
I think, overall, to answer your question simply, uranium prices are going significantly higher. We see production at the moment barely breaking even, even at current prices. So I believe the uranium prices are going significantly higher and it has to go significantly higher to get additional production on board on a diversified front.
It’s more than just the Athabasca Basin developers. It’s also we need development in the U.S., we need development projects in Australia, all coming online to meet this very important well goal of sensible energy provision.
Okay. So would you hazard a guess as to what kind of clearing price would be needed or price to be seen back over US$100 or US$90 or US$80? What kind of level do you think needs to incentivize additional mine additions?
Sure. So in the U.S., you want to say over $100 a pound to see any material increase in uranium production and…
Okay.
… when you consider they produce 50 million pounds -- they consume 50 million pounds per annum yet produced less than one. That’s probably going to be one of the driving metrics in this market moving forward.
So one of the interesting things, Graham, is like, it is less of a question about price, because even if we had $100 uranium today and have that for the next five years, it’s not clear at all where you get to those three Arrows, like, they are just -- they are not in the pipeline.
We went through post-Fukushima a very long period of time like over a decade when there was no investor appetite, no exploration being done anywhere outside of ourselves, Denison, Fission, and a couple of others globally. So you need to have elevated prices, what Leigh was mentioning in terms of those incentive prices, but it’s not like you just get those incentive pricing in a bunch of production comes online.
Okay.
It’s going to take a long time to get discovery is made, developed, et cetera.
Okay. So this links up with my next question which is, what is the upside flexibility for NexGen to be able to increase its production, both at the future mill and the mine itself at Arrow, as I believe if you can confirm it, it was still open at depth and two or three directions. And as well, what can you -- what do you need to do from an exploration, development point of view to bring on another Arrow in one of the other Patterson Corridors, which you are exploring today? Thank you.
Yeah. Well, we currently have a resource base of 350 million pounds. It’s very, very significant and so our proposed mine plant at 1,300 tonnes a day is very, very small physically, yet will produce around 30 million pounds per annum. It’s clearly evident that that could be expanded in the future.
But as we speak, we are going in that 30 million pounds per annum capability. There is undoubtedly a huge exploration upside at Rook I alone and we have got two other land packages as well that along the boundary of the Athabasca Basin in the previously Southwestern region.
Just on the Patterson Corridor line where we found Arrow in the very first Rook I, the Arrow deposit on the Rook I Project on the very first drill hole within a 4.5-kilometer radius, the Fission 7 kilometers along the same corridor with 130 million pounds. F3 have recently made a discovery up the road adjacent to our RS 1 project where we are exploring at the moment.
I think you are going to say that area producing uranium until many, many, many decades. And even the Patterson Corridor and the Rook I Project with really unexplored probably less than 10% of it as we speak. And we have got another eight corridors in parallel on that project that we need to explore. So with that, but also having mineralization below Arrow. I think it’s undoubtedly that there’s resource expansion, very high resource expansion potential as we continue to explore.
I just was wondering to what extent if there is really is a great shortage and the price goes way say considerably above $100. Would NexGen be incentivized to crank up production and also expand the mill operation and how much would that cost?
Yeah. Of course. It’s certainly possible. We haven’t done that costing yet, but based on what we have already learned about our current proposed mine, I am absolutely confident it would be both economically and technically achievable.
Okay. Great. Thank you very much. Good luck.
Thank you.
Thank you. Your next question is from Andrew Wong from RBC. Please ask your question.
Hi. Thanks for the follow-up. I just wanted to ask, what kind of construction works and just what kind of site works can you get done with the provincial permitting? And also given that your provincial permitting could be imminent, what kind of construction do you plan to have done within the next six months to 12 months? Thanks.
Yeah. So we have I have got a lot of the early-stage items 100% engineered at the start of the construction period. The detailed final engineering that we are doing is focused mainly on the surface infrastructure and surrounding the mill. So on receiving permitting approval, we can get into it immediately.
The work will primarily revolve around the shafts to begin with and noting that we are not actually touching any uranium during the first three years of construction. So it’s all very benign activities and we are currently detailing those with the province as we speak.
Okay. Great. Thanks.
Thanks, Andrew.
Thank you. There are no further questions at this time. I will now hand the call over back to Leigh Curyer. Thank you.
Thank you, host. Yes. So thank you for everyone’s attention. It’s a very exciting time for the company, a very significant inflection point going from pre-provincial approval to post-provincial approval imminently.
The company is ready and the team is ready and that with the overlying market developments, both on the demand side and the supply side make an incredibly exciting time for all of our shareholders and stakeholders and again it’s an absolute privilege to be involved and the commitment of the team is absolute.
So thank you for everyone -- thank you everyone for your attention. If there is any additional questions that you might have, please don’t hesitate to reach out to Monica, Travis or myself, and yeah, we look forward to speaking with you again.
Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect.