VANCOUVER — NexGen Energy (TSX: NXE; NYSE-MKT: NXE) has unveiled its maiden mine plan for the high-profile Rook I uranium project along the southwestern edges of Saskatchewan’s Athabasca Basin.
On July 31, the company released a preliminary economic assessment (PEA) that outlines a 1,450-tonnes-per-day underground mine with a 17-year life. The study estimates initial capital expenditures totaling nearly $1.2 billion.
The mine plan is underpinned by the flagship Arrow deposit, which hosts 1.18 million indicated tonnes grading 6.88% triuranium octoxide (U3O8) for nearly 180 million contained lbs., and 4.25 million inferred tonnes at 1.3% U3O8 for 122 million contained lbs.
The company notes that the PEA does not include around 66,000 metres of drilling completed over the past six months.
“Recent drill results have materially expanded Arrow beyond the PEA footprint,” explained CEO Leigh Curyer during a conference call. “For example, just last week we announced the discovery of Arrow South on a separate conductor. This study simply indicates that [the project] is a phenomenal, economically powerful mineral asset in its current state.”
The company has opted for a long-hole stope approach due to the “geometry of the high-grade Arrow ore body,” and assumes that material would be fed into a “conventional uranium processing plant,” where recovery is expected to be 96% over life of mine.
Arrow is reportedly an optimal candidate for long-hole stope mining “due to its stacked high-grade veins with strong continuity on strike, dip and vertical extent.” NexGen notes that the deposit geometry allowed for roughly 93% of the mineral resource to be converted into “mineable resources.”
The operation would generate 18.5 million lbs. of U3O8 annually over life of mine at total unit operating costs of $8.37 per lb. The PEA assumes that uranium output is front-end loaded, with annual production in the first five years averaging 27.6 million lbs. U3O8.
NexGen’s “base case” assumes a US$50 per lb. U3O8 price, which generates a 56.7% after-tax internal rate of return (IRR) and 1.1 year payback period, as well as a $3.49 billion net present value (NPV) at an 8% discount rate.
Assuming a US$25 per lb. U3O8 price, Rook I’s economics include a 27% IRR, a 2.4 year payback period, and a $1 billion NPV.
“We’ve put significant effort into looking at the uranium market during the period when Arrow could realistically commence production. [Research] indicates a significant supply deficit emerging in the 2020 range,” Curyer elaborated.
“In my experience, projects with these types of economic outcomes are very rare. The very minimal payback period will provide the company with outstanding financing options, which will allow us to keep the share structure optimally tight. It is our mission to make Arrow the leading, and most profitable, source of mined uranium,” he continued.
NexGen is hoping to “significantly reduce the surface footprint of the project” by relying on cemented-paste fill tailings. The waste material would be mixed with cement and delivered back underground to be used to backfill stopes, while any excess tailings would be placed in an underground storage facility. Curyer added that he believes the design could set a “new environmental standard globally.”
The company is targeting a pre-feasibility study (PFS) on Arrow by mid-2018, which would then lead into the permit process.
NexGen closed a US$110 million financing with Hong Kong’s CEF Holdings in late July that involves US$50 million in equity and US$60 million in unsecured convertible debentures.
The company issued 24 million shares priced at $2.70, while the debentures carry a 7.5% coupon rate over a 5-year term and can be converted into equity at US$2.69 per share.
“The allocation of dollars and drill rigs is something we deal with on a daily basis. There’s obviously additional resources to define at Arrow, both in terms of the existing footprint and on the extensions,” Curyer said. “I think we’re still early in the game here in terms of understanding the size, and Arrow South looks like a complete mirror of what we’re already seeing, and it could be of a similar size.”
The company recently announced a new uranium discovery 400 metres south of its Arrow resource, when two exploration drill holes cut “a large and robust uraniferous alteration system,” currently defined by narrow massive pitchblende veining and off-scale radioactivity.
NexGen has guided for a 25,000 metre “development and exploration” program over the summer that will leverage seven drill rigs.
The company gained around 11¢ on 1.5 million share trade volumes following the PEA release en route to a $3.15 per share close at press time. NexGen maintains 338 million shares outstanding for a $1.07 billion press-time market capitalization.
“The study really demonstrates that Arrow is in a class of its own. Not just in terms of uranium, but across other main mineral commodities and from a global economic perspective,” Curyer concluded.
Source: The Northern Miner