NexGen Energy: a uranium legend in the making
Yesterday, a Vancouver-based mineral exploration company drilled one of the best holes in the history of uranium exploration. NexGen Energy’s (NXE.TSXV) AR-15-44b resulted in 56.5 meters grading 11.55% including 20 meters at 20.68% U3O8, and shares in the junior company soared 10.45% Monday. The result was widely hailed by the analyst community. Cantor Fitzgerald’s Rob Chang now estimates NexGen’s Arrow resource to be 114.8 million pounds of uranium at an average grade of 0.89%. Mr. Chang has a Speculative Buy rating and no price target on NexGen’s shares, which closed at $0.74 Monday. He did however speculate that on a takeout, quality projects in the area could fetch $6-8 per pound of uranium in the ground, or $2.34-$2.73 per NexGen share. While Mr. Chang’s resource model is early-stage and speculative in nature, we share the analyst’s enthusiasm for NexGen. EnergyandGold.com was fortunate to get on a call with NexGen CEO Leigh Curyer to discuss drilling progress and get an update on the company.
Leigh Curyer: Throughout the management and board of NexGen we are uranium professionals with a long history in the uranium sector. We have a very focused approach on the type of mineralization we are looking to develop, and in a very short period of time we have discovered what looks to be a world class uranium discovery in the Athabasca Basin.
The management and board of NexGen have a lot of experience in the uranium industry. Our chairman, Christopher McFadden, used to be head of corporate development for Rio Tinto’s energy division. We also have uranium geologist Craig Perry, who was previously at Rio Tinto and Oxiana (which was sold to Zinifex for $6 billion in 2008). Also, our Jim Currie just won AMEBC’s award for mining engineering excellence for his contribution to the developing of the New Afton mine in Northern BC. Richard Patricio has over 15 years in the corporate sector in mining. I should also mention Garrett Ainsworth, who won AMEBC’s Colin Spence award for his contribution to the discovery of the Patterson Lake South deposit while he was the project manager for the Alpha Minerals/Fission JV.
Another differentiator of the company is our focus on having a high ratio of dollars in the ground compared to our overheads. We are currently exploring at a ratio of 8:1 ($8 in the ground for every $1 of overheads). No one competes with us on that basis, not only in uranium development & exploration but amongst all of the commodities. What sets us apart is that we are onto a world-class uranium project, we are uranium professionals, our team has been in the industry for a long time, and covers all of the disciplines from discovery all the way through to production.
Scott Armstrong (E&G): Can you tell us about your summer drill program?
Leigh Curyer (LC): It’s 25,000 meters, we’ve got 5 drill rigs of which 3 will be focused on looking for extensions of Arrow which remains open in every direction and at depth. Also we will be focusing on delineating the high grade core within Arrow. Two other drill-rigs will be focused regionally, one on our Bow discovery which is 3.7 km northeast of Arrow but is still in the early stages. Then the other rig will be drilling target areas about 10km away from Arrow to the southeast, along the Derkson Conductor Corridor, which has historically been identified as a potentially uraniferous corridor. So we’re looking forward to not only developing Arrow but also in parallel getting a sense of how good the broader Rook I project is. When you look at the geophysical signature of Arrow, it’s actually replicated many times across the Rook I property package. We’re not suggesting that all those geophysical targets will be mineralized like Arrow is, but needless to say we’re incredibly encouraged by that prospect if indeed one of those targets is mineralized similar to Arrow. If we can prove this, the value of the Rook I project will be challenging for the top project in the entire Athabasca Basin.
To add to that we’re using directional drilling this summer, so basically we’re getting 25,000 metres equivalent at Arrow alone by utilizing directional drilling. This enables us to accurately drill out the high-grade core zone of the Arrow project whilst maximizing the number of holes that enter the mineralization. This allows us to focus the other rigs on trying to get a handle on the prospectivity of the entire Rook I land package which remains largely unexplored.
E&G: Where do you see the company 3-4 years from now and what is your long-term vision for NexGen?
LC: 3-4 years from now we will likely have the Arrow resource estimate updated a few times by then and be well into the economic studies and development of the project. We will have a lot of work done with respect to the environmental studies and licensing and we will be well into the permitting process. In 3-4 years we should have a solid understanding of the scale of the mining footprint of the project, and I’m just talking about Arrow specifically there. We also would hope that we will be onto another mineralized zone nearby to Arrow on one or more of the multiple targets we have on the Rook I package.
We are not just looking at Arrow as the future of the company, we are also looking at developing the Rook I project overall and understanding just how mineralized it is. We believe the land position, as large and prospective as it is, has the potential to have a series of projects that develop well into the future.
E&G: I know you have no control over what the uranium market does but I would like your insights into where uranium is going and what the key catalysts are. There was a report out from Morgan Stanley over the weekend highlighting the potential for large uranium supply shortfalls beginning in 2030 as more reactors come online in China and India, however, that’s at least 15 years away and doesn’t exactly help the NPV of a resource project today. What is your outlook for uranium over the next 5 years and what are some catalysts that could really send the uranium spot price soaring back above $50/pound?
LC: I think the fundamentals are very strong with respect to demand and supply. On the demand side it is actually quite predictable given the lead time to permitting and building reactors across the world. So I see the demand for nuclear fuel increasing at a steadily growing rate. China, India, the Gulf countries, Japan, Europe, South Korea, etc. are all focused on attaining a lower carbon footprint while demanding higher energy consumption per capita. This require nuclear energy.
On the supply side I think that is actually going to be one of the drivers for the price of uranium. I have looked at all the projects around the world from a technical, financial, and sovereign risk perspective when I was at First Reserve International and there is no meaningful production that can come online to fill that supply gap over the next 5-7 years. The WNA predicts a supply shortfall starting before 2020 now there are no mines that can deliver that supply gap that will be ready to produce before 2020. Mines can not just switch on, even mines on stand-by take a few years to ramp back up to full-scale production. The sector as a whole has stated that they will not be deploying capital in an environment with sub $70/lb uranium because the returns on capital cannot justify it. On top of that you’ve got current existing mine supply under stress and rotting; Rossing, Olympica Dam and other projects have had technical challenges which have cut supply. More recently Rio Tinto announced the Ranger expansion will be put on hold which removes 7-8 million pounds per annum from the supply forecast. I think it’s going to be more supply driven than it is demand driven; roughly 80-90% of the world’s uranium supply is under a severe technical or sovereign risk.
E&G: What are NexGen’s next major milestones?
LC: We’ll be looking to publish a maiden resource estimate on the Arrow project before the end of the year or during the first quarter of 2016. That will be purely dependent on the assays of the summer drill program coming back, if we get them back early enough we will have a resource estimate published before the end of the year. More immediate to that, we have begun our aggressive 25,000 meter summer program where we will attempt to find the extent of Arrow’s mineralization and also zap the heart of Bow as well as hopefully hit another mineralized zone on the Derkson corridor.
E&G: According to a recent news release, NexGen has approximately $30 million in its treasury. How long do you see this capital lasting NexGen?
LC: With that money we are set until the end of 2016. We are basically financed for the next 18 months with our current drilling campaign which is one of the largest in the Basin. We don’t expect to go back for financing until the end of 2016 by which time we will have a resource and be well into economic studies as which point we will be attracting the financing interests of the financing firms that look to invest during feasibility through to production. We are already drawing the attention of those private equity firms with respects to development financing and continue to build on those relationships as we move closer to that stage.
E&G: Could you please tell us about the infrastructure at the Rook 1 property as well as what it will it take to get Rook 1 into production?
LC: About 70 kilometers northwest of Arrow is AREVA’s former Cluff Lake mine and mill which produced over 60 million pounds through the 90’s at a grade of roughly 0.9%. From a permitting perspective, the area is familiar with mining. The fact Arrow is land-based means we don’t have a to permit or move a lake which is something that other deposits in the Basin historically have had to work around. That is clearly advantageous from a development economics point of view but also from a permitting and social impact perspective.
Closing statement from NexGen Energy CEO Leigh Curyer: We are well very capitalized. With regards to people, we have the team from discovery through to production and intend to bring Arrow the entire way. Finally, the project: Arrow is a land based, high-grade uranium project in one of the best jurisdictions for uranium mining in the world and is hosted in competent basement rock. It really couldn’t get better than that.
To put some of this into perspective, the global average resource grade is 0.1% and the Athabasca Basin is known for having 100 times that average grade production. Its the highest grade uranium district in the world. Unfortunately a lot of the deposits and projects have technical risks even though they have such high grades because of this Athabasca sandstone formation which is porous and allows water to seep into it. You’ve seen this at Cigar Lake where water ingress has been a serious challenge for them, although they have successfully been able to develop a solution to that. At Arrow because the mineralization is completely hosted in the basement and starts at only 100 meters from surface means that these types of technical challenges seen at Cigar won’t be an issue at Arrow.
E&G: Thank you Mr. Curyer for the update on NexGen. Readers, add NXE.V to your watch-list and follow NXE in CEO.CA Chat.
This is not investment advice. At the time of publication, author is a shareholder in NexGen Energy but has no business relationship with the company. He reserves the right to trade shares in NexGen, on a long or short basis, without notice to readers. All facts are to be checked and verified by reader. As always please do your own due diligence. The author of this post owns shares of this company. This article contains forward-looking statements that are based on NexGen Energy LTD current expectations and estimates. Forward-looking statements are frequently characterized by words such as “plan”, “expect”, “project”, “intend”, “believe”, “anticipate”, “estimate”, “suggest”, “indicate” and other similar words or statements that certain events or conditions “may” or “will” occur. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause actual events or results to differ materially from estimated or anticipated events or results implied or expressed in such forward-looking statements. Such factors include, among others: the actual results of current exploration activities; conclusions of economic evaluations; changes in project parameters as plans to continue to be refined; possible variations in ore grade or recovery rates; accidents, labour disputes and other risks of the mining industry; delays in obtaining governmental approvals or financing; and fluctuations in metal prices. There may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. Any forward-looking statement speaks only as of the date on which it is made and, except as may be required by applicable securities laws, NexGen Energy LTD disclaims any intent or obligation to update any forward-looking statement, whether as a result of new information, future events or results or otherwise. Forward-looking statements are not guarantees of future performance and accordingly undue reliance should not be put on such statements due to the inherent uncertainty therein.