It may be as good as it gets, especially for a company operating in a sector of the mining business wallowing through the not-so-delightful doldrums.
The good news: NexGen Energy Ltd., a company focused on the “acquisition, exploration and development of Canadian uranium projects,” has entered into a binding term sheet that will allow it to receive US$110 million from Hong Kong-based CEF Holdings.
That investor, half owned by Li Ka-Shing, one of the richest men in China, and CIBC, will make a US$50 million equity investment and a US$60 million convertible debenture investment into NexGen, a TSX-V listed issuer that’s a few years away from production. The two sides have been working on the financing package since February.
CEF is part of a larger group of companies controlled by Li Ka-Shing that has invested in Canada for more than 30 years — those investments include a major stake in Husky Energy and paying $2.8 billion to acquire Reliance Home Comfort in March.
CEF’s initial investment
The investment comes just over a year after CEF made an initial US$60 million investment in the form of convertible debentures. When the latest financing closes, NexGen will have $200 million in cash balances.
More importantly, NexGen and CEF have entered into an investor rights agreement, a deal that largely restricts what CEF can do with its ownership. For instance, it’s not allowed to support a hostile bid, but is required to follow what the company says, for change of control situations and for the election of directions. “Basically we control our destiny,” said NexGen chief executive Leigh Curyer, adding the cash infusion will allow the company to “start the permitting process with the government having full knowledge on our ability to execute on it.”
As for the alternative, an equity financing in the public markets, Curyer said, “it would have been at a much lower price. Considering what was in front of us, the pricing we got and with the strong show of support for the voting alignment provisions,” we are very pleased with what occurred.
Investors have reacted favourably: since the investment was announced, the shares are up by about 10 per cent. They (NXE/TSX-V) closed Wednesday at $3.07. Earlier this year it traded north of $4. Four years back the stock traded at $0.25. On its latest deal it is selling common equity at $2.70 and selling converts at a $3.52 exercise price.
In a report, Tyron Breytenbach, an analyst with Cormark Securities, said NexGen “is (now) funded to the DFS (definitive feasibility study) and for early site development work.” He describes NexGen as the “most promising uranium discovery in years.”
As for the financings’ terms, Breytenbach noted, “when you are pairing up with the richest man in China, he has the ability to tell you when he writes a cheque. As a developer, when the money is there and represents a reasonable valuation, you take it.”
As for the additional debt, Breytenbach said if NexGen’s project works out as expected, then it will be able to repay it with “higher priced equity.”
Breytenbach is one of the nine analysts who cover NexGen. All nine rate it as a buy.
But not all analysts were happy with the financing. In a note, Rob Chang and Michael Wichterie from Cantor Fitzgerald said they were “not enamored with the strapping on of additional debt for an exploration company that does not generate revenue.” The two were also “perplexed” by the timing and terms of the financing, given that it was announced a few weeks before NexGen released its preliminary economic assessment, a report that’s expected to be very positive. Accordingly they argue NexGen could justify being offered “improved terms.”