With the largest undeveloped uranium deposit in what is considered to be the ‘world’s leading’ uranium basin, NexGen Energy (TSX:NXE) is in a position to dominate the predicted global price rise for uranium. NexGen holds the Rook 1 project in the Athabasca Basin, located in northern Saskatchewan, Canada. The TSX-listed company is putting the blocks in place through expert drilling and exploration to develop a world class project in one of the world’s most unique uranium basins.
According to NexGen’s corporate development manager Travis McPherson the Athabasca Basin is home to some of the world’s highest grade uranium.
“It is essentially the only place in the world that has these types of grades and tonnages. The global average grade of production mined is approximately 0.1% U308, in the basin you regularly see 100 times that grade.”
NexGen’s primary deposit, the Arrow deposit situated in the southwest of the Athabasca Basin, has shown very impressive grades and tonnages released in a March 2016 maiden resource estimate. Outlined as consisting of 201.9 million pounds at 2.63% U308, within that there is a high grade core component of 120.5 million pounds at 13.26% U308 – 130 times the global average grade of production. However, that resource estimate is based on drilling up until October 2015 of 82 holes, it does not take into account NexGen’s successful 2016 exploratory drilling programmes.
“[We drilled] just under 60,000m at [a cost of] about C$27 million to delineate that maiden resource estimate, that equates to $0.13 per pound discovery cost.”
The company has manoeuvred itself to be in a great position to take this project through to commercial production. The board and executive all have years of uranium-specific experience, the Arrow deposit has several advantages over conventional Athabasca mines, NexGen has overseen a successful 2016 winter drilling programme and is continuing with the summer drilling programme, they hold a large land position and have targeted further exploration within the Rook 1 property and the uranium market is expected to have a long term structural deficit as China’s demand continues to increase and the global supply of high grade uranium decreases.
CEO Leigh Curyer and chairman Chris McFadden picked up the Rook 1 property package in the year following Fukushima, having left their roles at First Reserve International and Rio Tinto at the same time. The Southwest portion of the Athabasca only saw modern exploration in 2012, according to McPherson – since that time NexGen has raised approximately $150 million and has delineated the largest undeveloped uranium deposit in the Athabasca Basin.
Curyer and McFadden’s level of expertise extends throughout the management team and company. McPherson says that VP of exploration Garrett Ainsworth is the pioneering geologist for the Southwest Athabasca.
“He is the primary reason why anyone is exploring in the southwest of the Athabasca Basin, because it was his idea in 2007 to acquire land with a junior and explore for high-grade uranium there.”
While the Athabasca Basin is the world’s leading home for high grade uranium, the mines that have recently come online – namely Cameco’s Cigar Lake and McArthur River uranium mines, which McPherson says are two of the world’s true ‘super-mines’ – have faced technical operational challenges.
The Athabasca Basin is defined by the sandstone unit which forms a bowl in Northern Saskatchewan. The issue the sandstone poses is that it is quite permeable and saturated with water in parts, making it very difficult to extract ore using conventional mining techniques. McPherson commends Cameco on how they have got both the aforementioned mines online despite the technical challenges in extracting the ore, however the risk of their mines potentially flooding exists. Arrow is hosted completely in the competent basement rock and therefore no flooding issues are expected which sets Arrow apart.
The Arrow deposit
McPherson is confident that, while it won’t be easy, Arrow has very few of the challenges associated with similarly located mines. He says there are no major technical challenges in extracting ore, from the test work already completed the recovery rates are high.
The deposit also has low deleterious elements such as arsenic which can make it more expensive to mine. The grade and size of the deposit puts it at the top of the list of undeveloped uranium deposits in the basin and it is hosted in competent basement rock with no surface or ground water issues identified. Currently, the Arrow deposit has all the right ingredients to develop into a leading global uranium producer.
“When you go down the list Arrow ticks all the boxes you want from a uranium asset,” McPherson says.
2016 drilling programmes
NexGen’s initial drill programme to produce the maiden resource estimate targeted 50m drill spacing and systemically tested Arrow across the area of mineralisation. This year, having already made the discovery, NexGen focused on infilling the spacing and taking it down from 50m to 25m, specifically in the core high-grade component.
“We wanted to tighten up the drilling at Arrow so we could convert inferred pounds into indicated. In doing that the actual grades have been higher than what we saw in the drilling that led to the maiden resource estimate, likewise we have expanded the higher grade domain. We have seen growth across the deposit but also we have seen excellent continuity of geometry, grade and thickness across Arrow.”
Tightening the drill spacing was one focus for drilling this year, the other was to test along strike and trend. Arrow is open in all directions and NexGen wants to determine the overall footprint of it as efficiently as possible.
Late in the winter programme they hit a new area of mineralisation 180m southwest of Arrow. The summer drilling has been focused on understanding that new area of mineralisation to the southwest, identifying new discoveries (which they were successful in doing on 11 August 2016 with the announcement of the Harpoon iscovery) as well as to expand and infill the Arrow deposit itself.
McPherson laid out a timeline of key objectives leading up to a potential 2017 pre-feasibility study.
“It’s about balancing, delineating and expanding Arrow, the 180m zone, Harpooon and some other regional exploration targets. Essentially the breakdown is 75% on Arrow which includes the 180m southwest area and 25% on regional discoveries and new zones which includes Harpoon. That’s just the exploration drilling, then we are also doing the detailed metallurgy, environmental baseline monitoring, geotechnical, hydrogeology and other studies which is essentially the backbone which together with the drill data will form the basis of a pre-feasibility study and permit application which we expect to deliver before the end of 2017.
“We are going to have an updated resource estimate which will either be before the end of this year or early 2017 depending on when we get our final assays back from summer 2016 drilling.”
NexGen have taken advantage of the local expertise available in the Athabasca Basin. They are using the same consultant who worked successfully on Cameco’s MacArthur River mine permit application. NexGen also works with local contractors and employees to support its surrounding communities and economies.
In terms of exploration outside of Arrow, NexGen are wholly focused on the Patterson corridor. They hold about 9km of prospective uranium trend. McPherson warns there are challenges in that you can miss high grade deposits of 80% uranium by 5m and not get a sniff of it. NexGen has already discovered the Bow deposit, found in March 2014, the Cannon area which has anomalous radioactivity and uranium but no high grades as yet and recently Harpoon which is already hitting high-grades similar to what the company is seeing within Arrow.
The future for uranium as a market commodity is also very interesting for NexGen. The current spot price for a pound of uranium is US$26, but very little uranium is transacted in the spot market (estimates of approximately 10-15% of the total market transacts here).
It is the term market which currently sits at $44 per pound where most uranium is transacted currently. This is where utilities sign long term contracts with producers and receives an agreed number of pounds based on a pricing formula for five, 10, 20 years.
With China’s demand for new reactors and India building up their nuclear industry, demand is growing steadily at 2-5% annually and McPherson predicts that if the uranium price is not significantly higher by 2020, there will be a severe supply deficit.
It is on the supply side where all the instability lies, “The situation is that 90% of global production is under technical or sovereign risk, 40% of global production comes from Kazakhstan, there hasn’t been any major hiccups yet but geopolitically with the influence that Russia has it can be a little fragile. In other countries such as Niger and other African jurisdictions the political stability isn’t as strong as it might be in Canada,” McPherson says.
“There has to be a material increase in the price to incentivise new production online,” he adds. “We as a company and generally as an industry understand that the price move will be substantial and will happen quickly when it does.
There is a simple demand-supply equation that will turn from surplus to deficit relatively quickly and substantially leading into the next decade which is perfect considering Arrow would likely enter production sometime in the post-2020 era.”