NexGen’s Arrow Deposit has a renowned reputation for its uranium potential. However, the company has taken steps recently that are quite puzzling and should raise alarm bells among investors. Due to skyrocketing costs and the unexpected sponsorship of the F1 Racing Team, which seems to be a diversionary tactic, the company’s ulterior motives are being questioned. Is NexGen as solid as its resources make it to be?
NexGen Energy Ltd. is a Canadian uranium explorer and developer focused on uranium property acquisition and development, particularly in the Athabasca Basin region of Saskatchewan. Founded in 2011 and located in Vancouver, British Columbia, it is the first, to a certain extent, in the business by nature, as it is dedicated to developing the Rook I Project hosting the high-grade Arrow Deposit and regarded as one of the country’s largest undeveloped uranium deposits. The company stresses environmental stewardship and social governance over all operations.
NexGen Energy is focused mainly on uranium exploration and development. The company’s lead project is the Rook I property, which encompasses the Arrow Deposit and several other major discoveries including South Arrow, Harpoon, Bow, and Cannon. It will earn most of its revenue through the production and sale of uranium once the projects are developed. Currently, it is engaged in advanced engineering and exploration drilling to support future mining operations.
NexGen serves a diverse portfolio of clients with this kind of end market, including nuclear power utilities that require uranium to generate energy. The end market primarily consists of companies in the nuclear energy sector, looking for reliable sources of uranium to meet growing energy demands while transitioning toward cleaner energy solutions. High-grade deposits form the core focus of NexGen’s portfolio, positioning it strongly within the global supply chain for uranium as demand for nuclear energy continues to grow.
The NexGen Arrow Deposit may be the next new thing in the uranium world, but investors are now rethinking the recent spending decisions. A 70% jump in pre-production cost, from CAD$1.3 billion to CAD$2.2 billion, is the real reason for the downfall of the project as it lost its IRR from a sensational 71.5% to a lesser 39.6%. For a company that still has a few more years to go before production, that is a tough pill to swallow. Along with a giant uranium inventory purchased at premium prices and the looming funding gaps, the financial situation is starting to look shaky.
Then there are NexGen’s questionable splurges, like sponsoring Aston Martin’s F1 Racing Team. Sure, it can enhance visibility, but one wonders: what does it have to do with uranium mining? The shareholders want their company to show how it is investing in its development, not in ostentatious marketing or risky ventures with no probable return. Such decisions reflect the priorities of the company.
Thus, the core of our bearish thesis is the fact that NexGen’s spending strategy is inconsistent with the company’s stage of development. With soaring costs, puzzling marketing moves, and big financing needs still on the horizon, NXE isn’t making the kind of financial choices that inspire confidence. For now, we’re staying on the sidelines.
NexGen Energy does not rank on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 32 hedge fund portfolios held NXE at the end of the second quarter which was 33 in the previous quarter. While we acknowledge the potential of NXE as a leading AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NXE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.