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Following a quiet last few months, the month of November brought renewed attention and interest to the Athabasca Basin. On back of achieving major permitting milestones, both Denison Mines (DNN, DML) and NexGen Energy (NXE) are on track to end the month of November by outperforming peers given monthly gains of +10.9% and +4.0% respectively (November 28 close). Given the historic Canadian Nuclear Safety Commission (CNSC) technical reviews for each respective project (Wheeler River and Rook I), on back of the positive reviews we increase our target NAV multiple for each company. We increase our NAV multiple from 1.15x to 1.20x for Denison Mines and from 1.05x to 1.10x for NexGen Energy. As such, out 12-month price objectives increase to C$5.60 (previously C$5.25) and C$17.30 (previously C$16.45) respectively, representing upside of +72% and +46% from the most recent close.
The timing of Wheeler River and Rook I coming online in ~2028 signifies a critical point in what we continue to see as material uranium deficit which will steadily grow into 2040. This deficit will be accentuated by steady demand growth at ~3% CAGR coupled with an increase in resource depletion in the years ahead. This all points to higher incentivized prices needed to fast track new projects. That said, though some of the deficit (projected to be as much as ~50M lbs by 2040) will be met by new secondary supply (global laser enrichment) and state backed projects (China and Uzbekistan), the need for new publicly backed projects such as Wheeler River and Rook I will be critical.
New sources of supply for the west has become that much more critical as we enter a more polarized world with bifurcated supply arrangements. As seen above, we note that in FY/2023, the US sourced 50% of its uranium from western aligned nations (domestically, Canada and Australia) while the EU relied sourced less than 40% of its needs from western aligned nations. We believe that the average incentive price needed for a significant supply response is between the $90-$100 per lb level. We continue to stress that contrary to many opinions, the much talked about Russian temporary ban on exporting enriched uranium to the US is hardly the Cigar Lake type catalyst we've been waiting for. The spot is currently ~$77 per lb.
DENISON MINES
On November 25, Denison Mines announced that it filed a final Environmental Impact Statement (EIS) for the Wheeler River Uranium Project with the CNSC. This comes after completing the rigorous technical review portion of the federal Environmental Assessment (EA) approval process. Rigorous is no understatement as the EA process for Denison began in 2019 and incorporated feedback from multiple parties including indigenous nations and the CNSC's Federal Indigenous Review Team.
Denison received and responded to more than 500 public comments on the draft EIS, which resulted in a final version of the EIS that reflects the feedback of numerous Indigenous communities and organizations. Ultimately, the completion of the review and submission of the final EIS paves the way for actual construction, operation and eventual decommissioning. The CNSC staff will now review Denison’s final EIS submission for acceptance and will prepare their recommendations to the Commission members who will sit on the panel for the project’s public hearing. A date for the hearing has yet to be provided by the CNSC however we expect this to take place in 1H/2025. A positive outcome from the hearing and ministerial sign-off will conclude the federal permitting process. On the Provincial level, permitting is expected to conclude in the next few months ahead. The final investment decision should come in mid 2025. Following an estimated two-year construction period (capex at ~C$490M at 100% basis for Phoenix), we maintain our Wheeler River initial production estimate for Q4/2027.
Hosting the high grade Phoenix and Gryphon uranium deposits, the Wheeler River Project is the largest undeveloped uranium project located in the infrastructure-rich eastern portion of the Athabasca Basin. Currently trading at 0.69x discount to NAV, we increase our target NAV8% multiple for Denison, going from 1.15x to 1.20x. Our price objective increases accordingly to C$5.60 per share (previously C$5.25).
NEXGEN ENERGY
On November 19 the CNSC has provided NexGen Energy formal confirmation that the company has successfully addressed all information requests received as part of the Federal technical review. Much like with Denison, the next and final steps in the Federal approval process include scheduling a Commission Hearing Date for the project, subject to which the CNSC will render an approval decision on the project. NexGen's completion of the Federal EA technical review marks the conclusion to an endeavor started in 2019.
Recall that the wholly-owned Rook I project represents the largest development stage uranium project in Canada. With front end engineering (FEED) having already been completed in Q2/2024, when fully built and consistently producing over 20.0M lbs of uranium per year, NexGen will be one of the world's largest mining companies, for any commodity.
Total capex has been estimated at C$2.2B which includes early works and pre-production execution capital. We continue to maintain our estimate for production start in Q4/2028. Currently trading at 0.75x discount to NAV, we increase our target NAV8% multiple for NexGen, going from 1.05x to 1.10x. Our price objective increases accordingly to C$17.30 per share (previously C$16.45).
