Epstein-Research Blog | Even After Run, NexGen Energy Ltd. Shares Have Big Upside Potential | Talkmarkets
Founder, Chairman, CEO, President, Treasurer, Analyst at Mockingjay, Inc.
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In 2011 Peter Epstein, CFA, left a $3 billion hedge fund where he was a senior natural resources analyst to help increase awareness of a number of natural resource companies in which he's invested in. 


Even After Run, NexGen Energy Ltd. Shares Have Big Upside Potential

Date: Thursday, March 24, 2016 4:31 PM EDT

Even After Run, NexGen Energy Ltd. Shares Have Big Upside Potential

Peter Epstein, CFA, MBA  epstein.peter4@gmail.com   http://EpsteinResearch.com

NexGen Energy’s (TSX-V: NXE) / (OTC: NXGEF) tremendous Maiden Inferred resource, both its size & grade (202 mm Inferred lbs. at 2.63% U3O8 with a 0.25% cut-off, including a higher-grade core of 120.5 million lbs. at 13.26% U3O8caught participants off guard. The most highly anticipated, scrutinized number in the uranium space, wildly underestimated. 202 million pounds vs. a reported range of 60 to 173.5 million! In the week following the, “number,” NexGen shares soared 52% to $1.48, more than triple last March’s levels in the low-to-mid $0.40s.  Why did conventional wisdom miss the mark by so much? 

Did the contours of the Arrow deposit make it difficult to assess the initial number? Did the low number of dill holes (82) trigger doubts about drill hole spacing? Did some rely too heavily on computer modeling? Did analysts gravitate towards consensus estimates? Were investors content to err on the side of caution? 

I believe a combination of i) group-think, ii) a failure of imagination and iii) an abundance of caution, was a key factor in the significant underestimation of the maiden resource. As a result, eminently realistic upside scenarios were relegated to outlier status. With this in mind, I believe the Company’s valuation could increase very substantially, without becoming egregious, as NexGen advances Arrow this year and next. 

The implications of an ongoing skew in the conventional wisdom is that factors upon which the valuation hinges are unwittingly, and wittingly, too conservative. Looking at the widely cited, Enterprise Value (“EV”)/lb. ratio, NexGen is trading at US$1.45/lb. (on a pro forma 225 million lb. resource & 335 fully-diluted (“fd”) shares). I strongly believe that the Company’s true value is substantially higher. 

Screen Shot 2016-03-23 at 7.51.00 PM

Please consider the following, 

++ With zero debt & $31 million in cash (plus $9 million in warrant proceeds), NexGen is not only funded well into 2017, covering winter & summer drilling, a first resource upgrade and other milestones, it’s funded through a potential takeout. A takeaway here is that without an equity raise, institutions have to buy shares in the open market. 

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