The entire footprint of NexGen Energy’s (TSX: NXE; NYSE-AM: NXE) proposed Arrow mine is smaller than a university campus, but could produce 21% of the world’s uranium once in production, the company says.
The high-grade uranium deposit in Canada’s Athabasca basin would produce 25.4 million lb. uranium oxide (U3O8) per year over an estimated mine life of nine years — leapfrogging the company into the ranks of top producers among the 36 countries that make up the Organization for Economic Cooperation and Development.
“It sounds like a massive mine, but in reality, we’re talking about 1,000 tonnes of ore per day — it’s a tiny, tiny mine,” says Travis McPherson, NexGen’s vice-president of corporate development. “What’s unique about this is the grade and setting. We have these parallel, vertically stacked sheets of uranium in basement rocks, so they’re very easy to access through a shaft, and it’s very competent.”
In addition, Arrow is a basement-hosted (ingress-type) deposit that would not call for freezing to extract mineralization, due to the competent ground setting, compared with sandstone-hosted (egress-type) deposits, which can have challenges, owing to mineralization ‘perched’ within the unconsolidated and wet Athabasca sandstone unit — which requires freezing.
The deposit has massive cavities, where the company plans to store its tailings. Although this is expensive, NexGen says it is the best option. “We’ve seen some very unfortunate tailings incidents globally, and it has highlighted the importance of this,” McPherson says. “Most mines economically can’t justify storing waste streams below surface, but because this is such an economically strong mine, we can justify it.”
McPherson estimates that storing the tailings underground will make up 21% of the mine’s cash-operating costs, so it’s “not the most economic” option, but notes NexGen is “completely committed to setting a new standard for global environmental and social mine management.
“We want all Canadians to be proud of this mine, and tell people we have the best mine from an environmental and social perspective in the world.”
NexGen completed a prefeasibility study (PFS) on Arrow in November 2018, and is on track to complete a bankable feasibility study and submit an environmental impact statement in the first half of 2020.
The PFS estimates average annual production from the underground mining operation of 25.4 million lb. U3O8 at an average annual operating cost of $5.81 (US$4.36 per lb.) U3O8, an average annual throughput rate of 1,039 tonnes per day, and an average annual grade of 3.09% U3O8.
At US$50 per lb. U3O8, Arrow would yield an average annual after-tax net cash flow of $909 million. The post-tax net present value is an estimated $3.7 billion, and the after-tax internal rate of return, 56.8%.
Initial capex of $1.25 billion would be paid back, post-tax, in 1.2 years.
Arrow’s mineralized area is 308 metres wide by 895 metres in strike, with mineralization starting at 110 metres’ depth, and extending to 980 metres. The deposit has an indicated resource of 256.6 million lb. U3O8 contained in 2.89 million tonnes grading 4.03% U3O8, including the A2 high-grade core of 181 million lb. U3O8 contained in 0.46 million tonnes grading 17.85% U3O8. Inferred resources stand at 91.7 million lb. U3O8 contained in 4.84 million tonnes grading 0.86% U3O8.
This year, the company is finishing a 125,000-metre drill program to take Arrow — part of the company’s Rook 1 property — to the next level.
Seventy thousand metres of the work program are geared towards converting the indicated resource into the measured category. “We tend to agree — that’s probably overkill. You don’t have to have measured resources to get a feasibility study — indicated resources will suffice — but given the next phase after the feasibility study, which will include permitting, financing and capex, we want to have no questions unanswered.”
McPherson notes that the 70,000 metres won’t do much for the project technically, in terms of the consistency of the infill drilling, because the continuity “is clearly evident in that indicated area,” but “really is just to tick those boxes, because we are committed to building the world’s largest, lowest-cost uranium mine … we need to make sure there are no areas where financiers or regulators would have any questions.”
The program’s other 50,000 metres are designed to convert inferred resources into the indicated category, and McPherson emphasizes that the company’s goal is not to add ounces now, because it can do that once in production.
“We have yet to close off the deposit anywhere,” he says. “So we thought, let’s not focus anymore on getting more pounds, because once we’re in production underground, we can delineate the deposit further — and no doubt find more resources.”
Results at the end of May from another 20 holes (7,970 metres) showed the continuity of mineralization within the high-grade core of the deposit, with hole 229c2 intersecting 47 metres of total composite mineralization, including 12 metres of total composite off-scale radioactivity (>10,000 to >61,000 counts per second), within an 86-metre section. Hole 235c1 intersected 43 metres of total composite mineralization, including 7 metres of total composite off-scale radioactivity (>10,000 to >61,000 cps), within a 93-metre section. Assays will be ready in eight to 12 weeks.
“The continuity of mineralization that we see at Arrow in the mine plan areas in the A2 and A3 shears is very unique. You don’t normally see that,” McPherson says. “Every hole we’ve got in that indicated to measured category is just as we expected, so we’re confirming what we already know, and, in doing that, it’s really saying something about the deposit, and that is that this continuity is unquestionable.
“If we were hitting two out of every three holes in terms of that being on par with what we thought, that would still be a good result. We would still be within a range of good results for infilling a good high-grade deposit, whether it be uranium or gold, or whatever,” he continues. “The fact that we’re hitting three out of three holes — 100% — the same strong grade and width, it’s just very, very rare.”
The full drill program will be completed before the end of October.
McPherson is also optimistic about future uranium demand and prices. While the spot price languishes at US$24.50 per lb., he argues that 85% — if not more — of uranium is sold to nuclear power facilities and transacted under long-term contracts, in which prices are determined based on the all-in cost of production. “Needless to say, it’s significantly higher than $24.50,” he says. “It’s unfortunate that the spot price is even quoted, because it’s not a true reflection of what the production costs of uranium are.”
While most contracts typically last 10 years, with confidential terms, sometimes the terms get out, which was the case a few years ago, when Berkeley Energy reportedly signed a long-term contract in Spain at US$45 per pound.
McPherson says there haven’t been any long-term contracts signed since Japan’s Fukushima disaster in 2011, and while the signing of contracts should have started again recently, delays in the U.S. over the trade act’s Section 232 petition have put some contract negotiations on hold.
Nevertheless, he points to the industry’s strong fundamentals. China plans to more than double its reactor fleet over the next decade, while India, Saudi Arabia, United Arab Emirates, Russia and Ukraine all plan substantial reactor build-outs that will need new sources of fuel. At the same time, demand on global energy grids will require orders of magnitude of growth in nuclear to meet decarbonization targets, he says.
He says there has been material supply rationalization from Cameco, Kazatomprom and other producers. Last year, more than 25 million lb. U3O8 of aggregate supply came out of the market, equating to 18–20% of global mined supply.
As for Arrow, “we could not have picked better attributes,” he says.
“We’re right on the edge of the Athabasca basin, and it was thought there couldn’t really be basement-hosted uranium mineralization there, so we thought we’d find unconformity-hosted deposits,” he says.
“The fact that we found this size and grade in the basement rock, 155 km away from the closest town, and right off a provincial highway with no surface water and no underground issues with water flow or rocks, and completely vertical and with very clean metallurgy — well, a good mine would have a few of those, but no mine in any commodity would have all those things going for it — not to mention, it’s in Saskatchewan in the middle of Canada, so it ticks all of the boxes.”
NexGen holds over 260 sq. km of exploration ground in the southwest Athabasca basin.
Colin Healey of Haywood Securities says the company is one of his top picks due to the “disruptive potential of the Arrow deposit, with its massive scale and strong economics.
“We believe that it is critical for existing major producers to control this deposit because of its disruptive potential and that this is their only option to preserve the value of their existing deposits, and maintain their ability to affect price with production curtailments.”