Analysts walking towards the Arrow discovery on NexGen's Rook I property (Source: CEO.ca)
For over a year we’ve been following NexGen Energy’s (NXE:TSXV) potential to discover the next high-grade uranium deposit. Last week, we attended the inaugural analyst site visit at their high-grade uranium discovery called Arrow, at Rook I, the company’s Northwest Saskatchewan project in the Athabasca Basin, home to the world’s richest uranium mines.
The project is located next door to Fission Uranium’s Patterson Lake South (PLS) discovery, which is both a blessing and a curse. On the one hand, being next door to a project of that potential size and grade is always great because everyone knows mineralization doesn’t stop at property borders. On the flipside, investors have been spoiled by a barrage of news releases on spectacularly high-grade uranium intercepts from PLS, which makes standing out that much more challenging for NexGen.
NexGen executives — Leigh Curyer (President and CEO), Garrett Ainsworth (Vice-President of Exploration) and James Sykes (Senior Project Geologist) among them — treated a group of investors and analysts to an in-depth information session on the company’s summer drill program and its recent high-grade uranium find. Here’s what we learned.
Analysts viewing core for the first time. (Source: CEO.ca)
NexGen has a highly prospective land package in the world’s best uranium producing region and is run by an accomplished management team.
The company has significant land packages at both the historic east and southwest sides of the Athabasca Uranium Basin. It holds an option to earn an initial 70% interest in the Radio property, which is on trend with Rio Tinto’s NE Saskatchewan Roughrider deposit (indicated resources: 17.2Mlbs at 1.98% U308 and inferred resources: 30.13Mlbs at >11.00% U308).
NexGen holds a 100% interest in the Rook I project, which hosts Arrow. The Rook I claims are part of a total package that make up the largest single SW Athabasca Basin land position. Fission plans to publish a maiden resource estimate before year-end. Analysts believe their PLS deposit hosts between 50 and 200 million pounds of high-grade uranium.
Garrett Ainsworth, 34, and his father Ben are credited as co-discovers of the PLS deposit. The younger Ainsworth joined NexGen as VP of Exploration earlier this year after his company Alpha Minerals merged with Fission, consolidating the PLS discovery. He attributes his passion for early-stage discoveries as one of the reasons he chose to join NexGen.
Geologist James Sykes is Ainsworth’s point man running the program on-site, and was with Hathor Exploration when it discovered the Roughrider uranium deposit (sold to Rio Tinto for $650 million in 2011. Sykes remained with Rio, then joined NexGen in 2013).
NexGen’s Rook I is showing very encouraging results
The company first drilled at Rook I about a year ago with 12 holes, 11 of which found significant clay and hematite alteration. But it wasn’t until early 2014 that NexGen discovered uranium mineralization at Arrow with RK-14-21.
They have since reported a near-100% hit rate at the Arrow discovery, with 25 of 27 holes hitting uranium. Their latest assay from hole AR-14-15 intersected two different mineralized zones from 564 metres to 626 metres deep, including 22.35 metres of 3.42% U308. NexGen has outlined a 515 by 215 metre mineralized zone which is open at depth, where grades appear to be improving, and in all other directions.
NexGen has detected the presence of dravite at Arrow, which is typically associated with the world's highest-grade uranium deposits, including McArthur River and Cigar Lake.
Arrow is young
The Arrow discovery is in its infancy — it’s six months old. In fact, the whole district is very young to drilling.
As Mr. Sykes put it, “The southwest part of the Basin is like the east side was in the 70s when all the big discoveries were made.” Although there have only been a few holes drilled into Arrow, the amount of high-grade uranium mineralization NexGen has encountered has some of the industry’s best-known uranium analysts and investors excited, including Dundee, Cormark, Pinetree Capital, Raymond James and others.
With its expanded summer 2014 drill program, NexGen hopes to learn enough from Arrow to develop a plan in the fall that they can aggressively pursue this winter. Rook I has many interesting, prospective geophysical targets and NexGen’s technical team is only restricted by the number of available drill rigs they have - three currently, all of which are drilling Arrow.
Why Rook I rocks
The Rook I property is the largest land package located in the most exciting uranium play on the planet (Exhibit 1). Average uranium grades found in the area are many magnitudes higher than the global average of 0.04% to 0.08% U308 (World Nuclear Association). McArthur River, for instance, hosts a deposit with an average grade of 24% U308.
Exhibit 1: Rook I is part of a large land package NexGen holds in the southwest part of the Athabasca Basin
(Source: Company Reports)
Arrow is located in the Hook Lake district (now referred to as the PLS district), on trend with and sandwiched between the massive PLS discovery to the south and the Hook Lake project to the north. The northern properties are owned, respectively, 39.5% by Cameco and AREVA, and 21% by Purepoint Uranium.
We are also starting to see similarities between Arrow and Eagle Point, the part of Cameco’s Rabbit Lake complex characterized by stacked, vertical, high-grade uranium mineralization. Dravite alteration also helped Cameco vector in on mineralized zones at Eagle Point (hosts 24 million pounds of uranium in reserves).
NexGen has tested only a fraction of their prospective geophysical targets (Exhibit 2). Their biggest restriction is their lack of drill equipment, which they plan to address during the fall technical meetings.
The discovery at Arrow validates NexGen’s property and makes its various other geophysical targets that much more intriguing. They will likely look to test targets outside of Arrow this winter.
Exhibit 2: A few of the geophysical targets on only a small portion of the Rook I land package:
(Source: Company Reports)
A new discovery
Arrow is made up of stacked vertical mineralized shear zones which the company continues to test both vertically and laterally. They have identified a potentially 300 metre deep by 25 metre wide steeply dipping mineralized zone (which AR-14-15 intersected). The mineralization is open at depth and looks to improve there as well.
The latest assay from hole AR-14-15 makes the investment case for NexGen the strongest it has ever been. The company hit two highly anomalous high-grade uranium zones, which encountered as high as 55.8% U308 over 0.45 metres (Exhibit 3).
“You simply don’t get these grades if there wasn’t a massive inflow of hydrothermal fluids to concentrate the uranium to this extent,” VP of Exploration Ainsworth commented during the site trip.
Exhibit 3: Arrow discovery zone composited mineralized zones
(Source: Company Reports)
When we visited the Arrow prospect, we were taken to the collar of hole AR-14-15, with Sykes and Ainsworth providing ample commentary on the deposit (Exhibit 4).
The hole was drilled as a “scissor” to holes RK-14-28, -30, -32, to further investigate the structural controls of mineralization at Arrow. Athabasca Group sandstone was intersected from 114.8 to 130.9 metres where local bleaching was observed approaching the unconformity at 130.9 metres. The basement rocks below consisted of primarily garnetiferous quartz-rich semipelitic to quartzitic gneiss varying to garnetiferous graphitic pelitic gneiss. Dravitic fracture coatings and quartz flooding features are intermittent throughout. Intense clay altered breccias are common throughout structural intervals.
Again, the significance of strong dravite alteration and Athabasca sandstone should not be overlooked, given its frequent occurrence around the biggest and richest unconformity-linked deposits discovered to date. Fission has yet to find this sandstone at the PLS deposit.
Exhibit 4: Ainsworth standing at the collar of drill hole AR-14-15, the best hole to date
(Source: CEO.ca)
Hole AR-14-15 was drilled across and intersected the lower portions of the vertical mineralization. For the rest of the company’s summer program, it will be testing the hole’s vertical extension, as well as the other parallel zones that were encountered in previous drilling including in hole RK-14-37 (Exhibit 5).
Since the visit, the company released more holes that encountered highly anomalous radioactivity. These included: AR-14-27, -25 and 26. Hole AR-14-26 encountered the deepest mineralization to date and remains open below 797.2 metres.
The Arrow discovery is located on a large gravity low anomaly area in the middle of a fractured and offset VTEM conductor. They will be drilling across the fault structure, which is thought to be the cause of the offset of the VTEM conductor.
The recently drilled AR-14-21a aims to test the upper portions of that second vertical structure. It was drilled as a step-out to the northwest of known mineralization to expand the width of the Arrow zone. The unconformity between Athabasca Group sandstone and basement rock types was intersected at 126.0 m. The basement is comprised primarily of garnetiferous semipelitic to pelitic gneiss with graphitic intervals common between 438.4 to 464.8 m.
A total composite of 74.42 metres of mineralization, including 2.15 metres off-scale radioactivity, was intersected within a 281.1 metres section (from 288.9 to 570.0 metres). Assays are pending on this hole.
Hole AR-14-27 intersected 111.05 metres of total composite mineralization including 2.2 metres of off-scale radioactivity (>10,000 cps) within a 185.95 metres section (from 226.65 to 412.6 metres). Assays are also pending for this hole.
Exhibit 5: Part of the 0.45 metre interval that assays 55.8% U308 (hole AR-14-15) and is semi-massive uranium mineralization comprising mostly uraninite and coffinite
(Source: CEO.ca)
How NexGen plans on drilling targets fast and accurately
NexGen’s summer drill program is focused on efficiently exploring the newly discovered Arrow target to assess its continuity and size. By drilling angled holes, the company is identifying the geometry of the mineralization. They have already defined a 515-metre strike length by 215-metre width (Exhibit 6).
Exhibit 6: Arrow drill hole locations against gravity survey
(Source: Company Reports)
NexGen has drilled a total of 24 holes at Arrow this summer, and an additional 9 holes throughout the region. It has reported CPS numbers on 19 of the holes at Arrow and 9 on regional targets. Only 1 assay result from Arrow has been reported, with 23 pending from Arrow and 9 from other zones (see Exhibit 7).
Exhibit 7: Table showing the pending CPS and assay results
(Source: CEO.ca)
After drilling at a rapid pace, management decided to boost the budgeted drilling by 5,000 metres to 18,500 metres. According to Mr. Curyer, the budget of $7 million will only increase by $500,000 (total $7.5 million). In other words, they’re getting 37% more metres for only 7% more money. This speaks volumes to the team’s ability to drill accurately and efficiently, and means that when the maiden resource estimate comes out next year, these could be some of the cheapest pounds of uranium discovered.
It’s hard to calculate exactly what Fission spends on drilling each metre on an ‘all-in’ basis (including assays, camp, fuel, etc.), but given they are drilling from barges, it must be of a magnitude higher than NexGen. In 2013, Fission drilled 26,668 metres, which cost them approximately $16 million. That means they were drilling at just over $600 per metre versus the $400 per metre NexGen is currently drilling.
The water Fission is drilling through is shallow, but nevertheless raises the cost of drilling substantially, which represents a significant comparative advantage for NexGen and their Arrow discovery.
Differentiating itself
NexGen has now made a bona-fide uranium discovery that has yet to pique the interest of the investment community at large. However, early movers are starting to build their position ahead of the crowd. With a market capitalization approximately 1/8th of Fission’s, the leverage appears to be on the side of NexGen.
Speaking with the analysts, I’m convinced of the significance of NexGen’s Arrow deposit. The re-rating from grassroots explorer to discovery delineation is where some of the largest gains are made, and usually this occurs quite quickly. The time it is taking the market to digest this discovery is a gift for investors.
As this was the first time analysts were on site and able to view the drill core first hand, the project is likely to gain supporters, which should also translate in a higher share price. Shares are up over 23% since NexGen released the first assay result and volume has also increased.
With the huge success of the PLS discovery and the amount of money it has generated for investors, it’s possible some investors will take their profits from Fission and allocate them to NexGen. Some of the analysts I spoke to on the trip said they are already seeing this.
The message they are relaying to their clients: “You should own both.”
Catalysts and Milestones
- Continue drilling and finish summer program (end of September)
- Assays pending for latest drill holes (ongoing)
- Marketing in US and UK (early September)
- Conduct investor site visit (September)
- Release final holes of summer program (throughout fall)
- Outline plan for winter program including geophysics, radon surveys and drilling (November)
- Maiden resource estimate (H2/2015)
Click HERE to view the entire photo album
Disclaimer: This letter/article is not intended to meet your specific individual investment needs and it is not tailored to your personal financial situation. Nothing contained herein constitutes, is intended, or deemed to be -- either implied or otherwise -- investment advice. I am biased with regards to NexGen Energy, having a business and personal relationship with management and insiders of the company. I am an investor in the company since 2013, and in 2014 they became an advertiser on our free industry website, CEO.ca. I may add to my position and intend to sell the entire position at a profit but will not do so within 30 days from today. This letter/article reflects the personal views and opinions of Travis McPherson and that is all it purports to be. While the information herein is believed to be accurate and reliable it is not guaranteed or implied to be so. The information herein may not be complete or correct; it is provided in good faith but without any legal responsibility or obligation to provide future updates. Neither Travis McPherson, Tommy Humphreys, nor anyone else, accepts any responsibility, or assumes any liability, whatsoever, for any direct, indirect or consequential loss arising from the use of the information in this letter/article. The information contained herein is subject to change without notice, may become outdated and may not be updated. The opinions are both time and market sensitive. Travis McPherson, entities that he controls, family, friends, employees, associates, and others may have positions in securities mentioned, or discussed, in this letter/article. While every attempt is made to avoid conflicts of interest, such conflicts do arise from time to time. Whenever a conflict of interest arises, every attempt is made to resolve such conflict in the best possible interest of all parties, but you should not assume that your interest would be placed ahead of anyone else's interest in the event of a conflict of interest. No part of this letter/article may be reproduced, copied, emailed, faxed, or distributed (in any form) without the express written permission of Travis McPherson. Everything contained herein is subject to international copyright protection.
