NexGen Energy‘s (TSXV: NXE; US-OTC: NXGEF) shares have surged on the back of a stellar maiden resource estimate on the junior’s Arrow uranium deposit at its Rook 1 property in Saskatchewan’s Athabasca basin.
Based on holes drilled and assayed to the end of October 2015, Arrow boasts an inferred resource of 201.9 million lb. uranium oxide (U3O8) from 3.5 million tonnes of 2.6% U3O8. About 60% of the resource occurs in the deposit’s high-grade A2 subzone. The subzone contains 120.5 million lb. U3O8 in 410,000 tonnes grading 13.3% U3O8.
The estimate — calculated at a 0.3% U3O8 cut-off grade — incorporates nearly 60,000 metres, where 80 out of 82 holes drilled hit uranium mineralization in the deposit’s four main parallel structures, namely the A1, A2, A3 and A4 shears.
NexGen’s management describes the deposit’s resource as “top-tier” and “world-class,” with low discovery costs of 13¢ per lb. in its initial March 3 release and conference call.
“It simply elevates Arrow immediately into a tier-1 status and ranks Arrow as the single largest undeveloped uranium deposit in the Athabasca basin,” Leigh Curyer, the junior’s CEO, said on the call.
NexGen, however, replaced its initial release at the request of IIROC, removing the cost estimate and “top-tier” references, after the regulator briefly halted trading in the junior’s shares. This was likely because inferred resources have the lowest certainty that they could be economically extracted.
Analysts, unfazed by the amendment, applauded the resource’s size and high grade. “Maiden resources are not supposed to be this big right off the bat,” Cantor Fitzgerald analyst Rob Chang writes in a note to clients. “At 201.9 million lb. U3O8, Arrow already ranks as the third-largest deposit in the Athabasca basin.”
What impresses Chang as well as Raymond James analyst David Sadowski is Arrow’s high-grade quality and consistency at different cut-off grades. For instance, at an abnormally high 10% cut-off grade, the deposit contains 101.3 million lb. U3O8 grading 20.8% — half of the initial resource.
“This amount of material with this richness of uranium concentration has only ever been found at two other places on the planet: McArthur River and Cigar Lake,” Sadowski notes. (Cameco owns both of these assets in the Athabasca basin.)
Both analysts say they are unconcerned about the initial level of confidence in Arrow’s resource. “While an inferred resource is by definition the lowest confidence level, we are not worried about Arrow, since drill results show consistent grades, thickness, alteration and the fact that host rock [pelitic gneiss] stratigraphy is generally consistent along Arrow’s strike length,” Chang says.
The deposit measures 645 metres long and 235 metres wide, with mineralization starting at 100 metres below surface and extending down to 920 metres. It remains open in all directions.
NexGen is infill drilling the Arrow deposit and testing for extensions, as well as for mineralized zones along strike, as part of its 2016 winter drill program.
The program started in early January and has delivered to date some of the best holes, such as 63c and 64c2, based on radiometric results. Curyer points out those holes could “materially change” the resource once included in the estimate.
The winter program should wrap up by the end of April, with a resource update in the second half of 2016, Curyer says.
On the initial estimate, Arrow rose 28% to $1.24 per share. It has $31 million in its bank, which is enough to continue working into 2017.