Why this ASX stock could be the future of Australian energy shares
There are a number of Australian energy shares available to invest in on the ASX such as AGL Energy Ltd (ASX: AGL), Pilbara Minerals Ltd (ASX: PLS), Woodside Energy Group Ltd (ASX: WDS) and New Hope Corporation Ltd (ASX: NHC). However, there's another ASX stock in the sector that I'm particularly optimistic about.
I'm talking about the ASX uranium miner Nexgen Energy (Canada) CDI (ASX: NXG). Nuclear energy may not be taking off in Australia, but it could soon see significant growth in demand in the coming years.
I'll run through a few reasons why this business is very attractive for exposure to energy.
Increasing demand overseas
Countries around the world have indicated they want to move away from coal as a key source of baseload power. But, renewable energy is not seen as the sole solution.
Fund manager L1 has pointed out that in 2023, more than 20 countries, such as France, the UK and South Korea declared that they want to triple nuclear capacity by 2050. Meanwhile the US President Trump has signed executive orders that give effect to a target of quadrupling US nuclear capacity by 2050.
Additionally, companies heavily involved in AI have indicated they require significantly more energy, which is why businesses like Microsoft, Alphabet, Amazon and Meta Platforms have all recently signed deals to utilise nuclear energy.
The increasing demand could lead to a higher uranium price, which would be particularly beneficial for the Australian energy share's profitability.
Compelling deposit(s)
The business owns 100% of Rook I, where it's developing the world's largest undeveloped uranium deposit which is called Arrow in Saskatchewan, Canada.
According to L1, the project could produce 29 million pounds of uranium in the first five years, which would make it the largest uranium mine globally.
Pleasingly, the scale of the project should mean that the operating costs should be low compared to other projects around the world.
Additionally, Nexgen may have found a new deposit within a few kilometres of Arrow that could have extremely high-grade mineralisation, which could be of material scale. If so, that could allow the business to increase production and utilise the mining infrastructure to its maximum potential.
Strong future profits?
L1 is currently forecasting that the business could generate annual operating profit (EBITDA) of C$2.8 billion and post-tax cash generation of C$1.7 billion once the project is fully operational. These projections use a potential resource price of US$80 per pound of uranium, when the resource price could actually be noticeably higher.
Considering the Australian energy share has a market capitalisation of C$7.5 billion, according to Google Finance, those projections suggest the business could be very cheap and significantly undervalued.
If it was to start paying dividends later this decade, investors could benefit from significant payments in the coming years, at the current valuation.
The post Why this ASX stock could be the future of Australian energy shares appeared first on The Motley Fool Australia.
Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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