VANCOUVER (miningweekly.com) – There are about 30 aspects around the recently unveiled maiden preliminary economic assessment (PEA) on uranium exploration junior NexGen Energy’s Arrow deposit, which is part of the Rook 1 project in the south-west of Saskatchewan’s Athabasca basin, that separates it from its development peers and even the majors.

The size and high grade of the Arrow deposit, combined with its location inside competent basin rock, have not been seen in any other major discovery in the basin, and the PEA has confirmed that Arrow will, in today’s terms, be the single largest uranium mine in the world, NexGen VP of corporate development Travis McPherson told Mining Weekly Online in an interview on Thursday.

NexGen, which owns a 100% interest in the Rook 1 project, made the Arrow discovery in February 2014, followed by other discoveries such as the Bow discovery in March 2015, the Harpoon discovery in August 2016 and the South Arrow discovery as recently as July.

The Rook 1 project comprises 32 contiguous mineral claims totalling 35 065 ha. It is on trend with the smaller Triple R deposit, first discovered by Fission Uranium in November 2012, and which sparked a staking rush in the region previously thought to lie outside of the world-famous high-grade Athabasca basin, host to the world’s highest-grade uranium mines.

The PEA calculated an after-tax net present value (NPV), at an 8% discount rate, of C$3.49-billion, with an internal rate of return (IRR) of 56.7%. Based on current after-tax project NPV and IRR, Arrow stands out as among the most economically attractive assets at a development stage globally.

The capital costs (capex) for the planned underground mine, process plant and supporting infrastructure at Arrow are estimated at C$1.66-billion, including initial capital costs of C$1.19-billion. The initial capital cost includes a contingency of 25% or C$237-million.

The capex is expected to be repaid in 1.1 years, while the operation will deliver 27.6-million pounds of uranium oxide (U₃O₈) in the first five years and 18.5-million pounds a year over the mine’s 14.4-year life. This places the mine on track to produce about 20% of global output, above that of the largest Western producer Cameco and only second to Kazatomprom, the national operator of Kazakhstan, which accounts for 21% of global output.

The PEA assumed a uranium price of $50/lb, and average unit operating costs for the first five years of operation have been pegged at between C$5.53/lb ($4.42/lb) and C$8.37/lb ($6.70/lb) over the life of the mine, far below current spot prices of about $20/lb.

“Despite conservative per unit cost assumptions, due to technical setting and grade, per pound cost is estimated to be the lowest of any conventional mine globally. This highlights the competitive advantage NexGen has with simple technical setting and high-grade profile,” McPherson stated.

STRONG MINE METRICS
The PEA envisions a production profile supported by conventional long-hole stope mining averaging 1 448 t/d, at an average head grade of 1.73% U₃O₈ over the life-of-mine. It is predicted that mine production will be fed into a conventional uranium processing plant, where uranium recovery is projected to be 96% over the life of the mine.

The PEA stipulates that cemented paste fill tailings will be used, where tailings are constituted into a paste, mixed with about 5% cement and delivered back underground. The cemented paste fill tailings will be used to backfill stopes and the excess will be placed in a purpose-built underground tailings storage facility.

Among many other benefits, this tailings management process is expected to significantly reduce the surface footprint of the project, McPherson pointed out.

Importantly, he stressed that the positive results of the PEA are a function of a conventional long-hole stope mine plan conceivably extracting compact near-vertical high-grade uranium mineralisation, localised in competent crystalline basement rocks. This means Arrow will likely not have surface or underground water management problems.

“Arrow is considered an optimal deposit for long-hole stope mining because it comprises stacked high-grade veins, with strong continuity on strike, dip and vertical extent. Additionally, there are natural pillars due to the spacing between the mineralised A1 through A4 shears.

“Due to the geometry of the Arrow deposit, about 93% of the mineral resource was converted into mineable resources. The positive results of the PEA are further supported by a high process recovery rate, due to simple mineralogy and low deleterious elements,” McPherson advised.

The PEA was based on compliant indicated resources, as at December 2016, of 1.18-million tonnes grading 6.88% U₃O₈, for 179.5-million pounds of U₃O₈. It also has a total inferred resource of 4.25-million tonnes grading 1.3% U₃O₈ for 122.1-million pounds of U₃O₈. The PEA does not include the results of the company's winter or summer 2017 drill programmes, which will include more than 66 000 m of further drilling.

PRICE POTENTIAL
McPherson believes that long-term contracting by utilities is ramping up, following a hiatus of several years starting in 2012. Peak contracting, which usually attracts higher prices than the spot market for producers and locks in long-term security of supply for utilities, took place between 2005 and 2009, when the uranium price peaked at about $135/lb.

“We’ve recently seen two new contracts signed at $44/lb. We’re confident that with Arrow’s profile, the potential for $50/lb exists today,” McPherson stated, noting that there is about one-billion pounds of uncontracted demand forecast over the next decade, with most long-term contracts expiring in 2019/20.

Moreover, NexGen is looking forward to an emerging supply gap from the early 2020s, when the market is expected to grapple with a supply deficit of about 40-million to 70-million pounds of yellowcake. “A return to normalised contracting will mean a return to normalised pricing,” McPherson stated.

‘BLUE SKIES’
McPherson advised that NexGen has just added another drill rig to its seven-rig summer drill programme, which kicked off in July.

The main objectives of the 2017 summer drill programme are to expand the growth of the inferred mineral resource through continued systematic step-out drilling around the current resource domains in the A1 through A4 shears; to expand the indicated mineral resource in high-impact areas of the high-grade domains in the A3 shear through targeted in-fill drilling; and engage in development activities that include geotechnical, hydrogeological, metallurgical and environmental work.

The summer drill programme resulted in the South Arrow discovery, a new zone of “off-scale” radioactivity about 400 m south of the Arrow deposit and remains open in all directions. The discovery is defined by the local occurrence of narrow massive pitchblende veining measuring more than 61 000 counts per second (cps).

The South Arrow discovery has been tested with only two holes and both intersected narrow intervals of off‐scale radioactivity within a large and robust envelope of highly prospective hydrothermal alteration. "Off-scale" means more than 10 000 cps total count gamma readings by gamma scintillometer type RS-120.

This data, combined with the winter drilling programme, and another winter drill programme expected to start in January, will be used to compile a preliminary feasibility study, due in mid-2018.

The TSX- and NYSE-listed company remains well funded, having recently closed a private placement of 24.15-million common shares at C$2.70 each ($2.07), for gross proceeds of $50-million and a second part of the financing comprising $60-million in principal amount of 7.5% unsecured convertible debentures, with affiliates of Hong Kong-based strategic partner CEF Holdings and/or its shareholders. McPherson said the company has about C$190-million cash in the bank with which to progress the Rook 1 project.

However, McPherson pointed out that, with the commodity cycle moving in favour of the company, and combined with a best-in-class asset, NexGen has become a takeover target, and opportunistic investors might try hostile approaches to wrest the asset from NexGen. However, the company has a contractual voting alignment in place with CEF Holdings which holds about 18% interest in NexGen, forcing them to vote in support of the board on any opportunities that might arise.