INTERVIEW: Uranium-developer NexGen to avoid long-term price caps

Canada-based NexGen Energy Ltd. plans to sell most of its uranium production under long-term contracts, but for shorter terms than traditional deals with legacy producers, Travis McPherson, chief commercial officer of the uranium project developer, told Platts. The company also sees promise in a recent Canadian push to speed up mine permitting, according to the executive.

NexGen is developing Rook I, a uranium project in Saskatchewan, Canada, expected to be one of the world's largest uranium mines. The mine will produce around 30 million pounds of U3O8 annually during the mine's initial 12-year life, according to the company.

Platts, part of S&P Global Energy, spoke with McPherson at the Mining Forum Americas conference in Colorado Springs, Colorado, about NexGen plans. The interview has been edited for clarity and length.

Platts: What is the company's view on the latest push in Canada to speed up permitting and how effective do you see that being?

Travis McPherson: It's really important to do it. Kudos to the federal government under [Prime Minister Mark] Carney's leadership for actually tackling it because, frankly, for the prior 10 years, it was just a topic that wasn't spoken about.

Time will tell if they are effective, but I think it's a step in the right direction, a material step in the right direction. Like anything, we need to see it actually enacted and proven on some projects. But there's every reason to be optimistic about it.

The Canadian government right now seems very focused on the fact that our competitive advantage is natural resources, which it is. It absolutely is. The only problem has been, can we build? Can they get approved? And that's really within the government of Canada's purview and ability to change, and they've identified that and are changing it. But like anything, you do need to see it in action.

Relating to your contracting strategy, what are your plans for uranium sales once in production, given that other big uranium miners tend to avoid the spot market, preferring longer-term contracts?

Our mandate is simple: maximize the value of every single pound that we produce and sell.

How do you [get into a situation where] that doesn't happen? It's by hedging your production. Capping your upside. Whether that's with base escalated prices -- so fixing the price today and then escalating it over time with some inflation figure -- or a collar contract that has a floor and a ceiling. Either way, you're limiting your upside exposure

Our plan is to sell the majority of our production under long-term contracts. Or, in other words, not into the spot market. We want our price under those long-term contracts to be the market price at the time we deliver. We don't want caps. We're saying whatever the price is in the future when we deliver, we want that price or as close to that price as we can get.

You mentioned shorter contract lengths than traditional ones by legacy producers.

It's just simply a risk reward. What's the benefit of selling all that optionality way into the future for no benefit today. Let's just sell for the first 5 years. That's a lot more certain, nine years out from today for that contract to end as opposed to 15, or 20, or 25 years out.

What is the company's view of mergers and acquisitions? Does the company see itself trying to compete in the mining space with other producers as a way to grow production?

We're focused on what we do and do it very well. For the next four years, we're building Rook 1 and getting that successfully into operation. Nothing is going to happen between now and then. At the same time, we are organically growing with the Patterson Corridor East (PCE), 3.5 kilometers away — our new discovery.

In terms of buying other things, that's not interesting to us. We have set up IsoEnergy, which is a company where we own 30%. We set that up [in 2016] originally to explore all of the properties that we had in the Eastern Athabasca Basin as NexGen that were great properties and deserve to be drilled. But because we were so focused on Arrow and Rook I, we weren't going to get to them. They've done a phenomenal job going out acquiring, exploring, successfully discovering things and also acquiring lots of stuff in the uranium space. That gives us great optionality kind of indirectly.

Now, once we're in production, we'll have to see what the landscape looks like. If somebody has made a phenomenal discovery that looks outstanding, yes, we'll try to acquire something like that, probably. But for the foreseeable future, we're building Rook 1 and Arrow. That's the primary focus.