Valued at $5.3 billion by market cap, NexGen Energy (TSX:NXE) is among the top TSX stocks, given its returns in the past decade. Since February 2014, NXE stock has surged over 2,200%, comfortably beating the broader markets by a wide margin.
A Canada-based company, NexGen Energy, is focused on optimally developing the Rook I project into the largest low-cost producing uranium mine globally. It has a strong portfolio of highly prospective projects, including Rook I, which consists of 32 contiguous mineral claims totalling an area of 35,065 hectares located in the Athabasca basin.
The world is likely to transition towards cleaner energy sources such as uranium to fight climate change. Alternatively, geopolitical tensions have increased pressure on the limited supply of uranium, delaying this transition in the process. NexGen believes the Rook I project is crucial to meet global uranium demand and to deliver clean and secure energy solutions.
Given these factors, let’s see if NexGen Energy is a good stock to buy right now.
What is the Rook I project?
NexGen claims that Rook I is the largest uranium asset under development. It is identified as one of the leading resource projects globally and is of strategic importance. The project will be capable of producing around 30 million pounds of uranium each year, providing more than 50% of Western supply, given current dynamics.
According to the company’s presentation, NexGen allocated $1.3 billion in capital expenditures to develop the Rook I project. While the company is yet to begin producing uranium, it expects the project to deliver a free cash flow of more than $2 billion in the first five years of operation.
NexGen is utilizing a volume-based contracting approach. Its all-in-sustaining-costs profile provides downside protection, allowing NexGen to provide customers with a flexible supply of the commodity.
NexGen emphasized that more than 300 million tonnes of CO2 would be eliminated annually from Rook I’s uranium fuel, which is the equivalent of taking approximately 70 million cars off the road each year. In fact, it will generate enough energy to power 46 million homes each year.
Uranium demand is forecast to grow
According to NexGen Energy, uranium demand is forecast to grow 127% by 2030 and 200% by 2040. Rising demand will create a 240-million-pound deficit in 2040, which will continue to widen as growth in annual demand will triple in the next three decades. A growing supply deficit requires five new Rook I-sized projects to be found, permitted, financed, and constructed in the next 20 years.
NexGen has stated that restarting idle operations or planning new mines will be unable to meet demand. Further, more than 75% of the current uranium supply is state or quasi-controlled, which increases national security concerns.
While the global shift towards uranium-powered energy is inevitable, just three countries produce material uranium, suggesting a supply deficit is on the cards.
The Foolish takeaway
It’s evident that investors are betting heavily on NexGen’s ability to execute its plan successfully, resulting in strong cash flow growth once the Rook I project is operational. NexGen stock might be a top investment choice for investors with a high-risk appetite.
