{"id":89080,"date":"2016-05-03T14:18:00","date_gmt":"2016-05-03T18:18:00","guid":{"rendered":"http:\/\/countingpips.com\/?p=89080"},"modified":"2016-05-03T14:18:00","modified_gmt":"2016-05-03T18:18:00","slug":"nexgen-energys-arrow-deposit-just-the-beginning","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2016\/05\/nexgen-energys-arrow-deposit-just-the-beginning\/","title":{"rendered":"NexGen Energy\u2019s Arrow Deposit, Just the Beginning?"},"content":{"rendered":"
May 3, 2016<\/div>
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By Peter Epstein, CFA, MBA \u00a0epstein.peter4@gmail.com<\/a>\u00a0\u00a0http:\/\/EpsteinResearch.com<\/a>\u00a0<\/span><\/div>\n
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Funded Into q2 2017, Management\u2019s Plan? Go it Alone<\/p>\n

There\u2019s been talk about\u00a0NexGen Energy\u00a0[TSX-V: NXE] & [OTC: NXGEF]\u00a0selling a minority stake to a strategic investor, 9.9% being a figure I hear mentioned.\u00a0However, it\u2019s my understanding that the Company is not actively seeking out investors. Sitting on about $33 million, NexGen is in the enviable position of not needing additional capital. It has cash for this year\u2019s prolific drilling and funds for ongoing Pre-Feasibility Study, \u201cPFS\u201d level\u00a0<\/i>testing on the environmental, metallurgical, geotechnical & hydrogeological fronts.<\/p>\n

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I think most would agree that drilling flat out for the remainder of the year will, over time, deliver a very substantial increase in NexGen\u2019s NI 43-101 compliant resource estimate.\u00a0Including the recently announced spring drilling, the Company plans a total (some results already reported<\/em>) of up to\u00a0100 new\u00a0drill\u00a0holes. NexGen\u2019s prior 82 drill holes delivered 201.9 million Inferred pounds uranium.<\/p>\n

Management believes that the Company is funded into q2 2017, so there\u2019s no urgency to pursue the sale of a minority stake, unless under favorable terms. The Company needs neither the cash, nor the technical validation of the Arrow deposit.<\/p>\n

Importantly, management is not overly concerned with what its 2h 2016 resource estimate might show. That\u2019s because they\u2019re already looking beyond that static snapshot, occurring at an arbitrary date. In the meantime, the quality of\u00a0new drill targets continues to benefit from data obtained, each batch of assays informing subsequent drilling activity. The higher-grade areas continue to be better understood, allowing for more focus on them. The Company continues to report blockbuster intercepts from among the assays released this year.<\/p>\n

Next year\u2019s\u00a0drill targets & understanding of Arrow more important than a static # of pounds<\/p>

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I think that the NI 43-101 compliant resource could grow to 300 million pounds, not necessarily in the Company\u2019s 2h 2016, but \u2026.\u00a0after up to 100 new assays\u00a0are plugged into the model. Still, more important will be, 1) the proportion of pounds potentially upgraded into the NI 43-101 \u201cIndicated\u201d category, 2) new interpretations of NexGen\u2019s growing deposit and 3) the quality & location of\u00a0new\u00a0drill targets. There\u2019s no looking backwards for\u00a0a world-class deposit like Arrow. The following obligatory chart shows where we are on the popular EV(US$)\/lb. spectrum. Share values have been\u00a0discounted back 1 year at 12%.<\/p>\n

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For those who believe there\u2019s a lot of hype in the NexGen story, please focus on these facts.\u00a0Think about\u00a0what\u2019s changed\u00a0in just the past 4 months:<\/p>\n

FACT:\u00a0delivery of a NI 43-101 compliant\u00a0maiden resource estimate<\/a>, 201.9 mm Inferred lbs. @2.63% (0.25% cut-off<\/em>) incl. 128.5 mm lbs.\u00a0@ 5.0% cut-off\u00a0&\u00a0A2 high-grade domain of 120.5 mm Inferred pounds @ 13.26%.\u00a0The maiden resource estimate includes holes to October 2015, it does not include an additional 40 drill holes completed through April 18th.<\/p>\n

FACT:\u00a0Rook 1\u2019s Arrow deposit<\/a>\u00a0is partially\u00a0de-risked post maiden resource estimate and strong drill results since. Arrow is now the largest undeveloped uranium deposit in the basin, open in all directions and at depth. Also, there\u2019s\u00a04km of untested strike length to the NE & 3km of untested strike length to the SW.<\/p>\n

FACT:\u00a0intersection of off-scale mineralization in a\u00a01<\/a>80m step-out\u00a0<\/a>along strike\u00a0to the SW of Arrow\u2019s grade shell.\u00a0Hole\u00a0AR-16-77c2\u00a0represents a 25 m down-dip expansion of the current A2 high-grade domain,\u00a0extending Arrow along strike to 865 m and laterally by 40 m to 275 m. There\u2019s already been at least 11 holes drilled into the A2 Sub-Zone this year vs. 7 in 2015.<\/p>\n

Regarding recent drill results,\u00a0CEO Curyer commented,<\/p>\n

\u201c<\/i>This winter program at Arrow has been incredibly successful.\u00a0The objectives for the winter 2016 drilling program have been met on all fronts and there are many assays still pending.\u00a0The decision to continue drilling uninterrupted is in direct response to the high level of success we have had with the infill of the A2 High-Grade Domain and the newly discovered southwest extension at Arrow. Further, the initiative to construct the all weather road to the Project reflects our commitment to exceptionally high standards of operations incorporating safety as our priority as we progress Arrow along its development path.\u201d<\/em><\/p><\/blockquote>\n

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FACT:\u00a0AR-16-63c2<\/a>\u00a0intersected 42.0 m at 15.20% & an additional 46.5 m at 12.99%, in the higher-grade A2 sub-zone. Including 3.5 m of un-mineralized core separating the 2 intervals, AR-16-63c2 returned 92.0 m at 13.51%, for a grade x thickness (\u201cGT\u201d) of 1,243. Further, holes AR-16-63c2 &\u00a0AR-26-64c2\u00a0extend outside the defined high-grade domain grade shell, which, as mentioned, hosts 120.5 mm Inferred lbs. @ 13.26%. These 2 holes are among the most strongly mineralized at Arrow to date, and are not yet included in the resource estimate.<\/p>\n

FACT:\u00a0discovery of a\u00a0new high-grade zone<\/a>\u00a0in the\u00a0A1 Shear\u00a0with 8.35 m of off-scale radioactivity.\u00a0Drill hole\u00a0AR-16-84c1\u00a0represents the strongest uranium intercept in the A1 shear zone to date, in an area that\u2019s untested.<\/div>\n<\/div>\n
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FACT:\u00a0drill hole AR-16-78c4<\/a>\u00a0returned\u00a037.4 m of off-scale radioactivity, expanding the higher-grade A2 sub-zone. AR-16-78c4 also identified anomalous radioactivity 1.3 km NE of Arrow, in an area named\u00a0Cannon. Cannon\u00a0has very similar geophysical, lithological & alteration features to the Arrow deposit.\u00a0On a radioactivity basis, AR-16-78c4 ranks as one of the best holes ever drilled at Arrow. Importantly, the high-grade mineralization was predominately intersected outside the current boundary of the A2 high-grade domain.<\/p>\n

Should management sell the Company? Or, continue drilling as long as possible?<\/div>\n

There\u2019s a range of opinions regarding the possibility of a NexGen Energy takeout. Some think it\u2019s a foregone conclusion, possibly as soon as this year. Others believe potential suitors have no reason to move anytime soon, if at all. Given Arrow\u2019s early-stage, and a uranium price stubbornly below US$30\/lb., it\u2019s understandable that some feel this way. Evidence of a truly awful uranium market can be found in\u00a0Cameco\u2019s April 21st<\/a>\u00a0announcement that it\u2019s putting\u00a0Rabbit Lake\u00a0on care & maintenance. Rabbit Lake accounts for roughly 4% of annual production, and it will very likely be down for at least 2 years.<\/p>\n

Some think this action is a reason why\u00a0Cameco\u00a0will not be a suitor of NexGen, because it has plenty of standby capacity as is.\u00a0With Rabbit Lake going offline, horrible uranium market sentiment just sank even lower. The prospect of raising capital to explore \/ develop or initiate \/ increase production on reasonable terms, is bleak. NexGen needs no influx of cash, and its fundamental valuation marches higher as the size & quality\u00a0(Indicated vs. Inferred<\/em>) of its estimated resource increases, and associated exploration risk at Arrow decreases.<\/p>\n

Consider NexGen\u2019s roughly C$30 million capital budget. In a scenario where NexGen is valued by the market at US$3 [EV\/lb.], a hypothetical move from a 201.9 to a 300 million pound resource estimate, would add C$375 million (assuming\u00a0C$0.785 FX rate) in equity market value. That would be a whopping 12 times return on investment. Looked at another way, the same C$30 million, would generate a break-even market cap gain of C$30 million, if ~8 million\u00a0incremental pounds were booked. Just 8 million pounds, from upwards of 100 new drill holes. \u00a0<\/em><\/p><\/blockquote>\n

Many have succumbed to the lure of the single-tracked takeout narrative,\u00a0myself included.\u00a0I believe that the above mentioned facts alone make for a highly compelling story. All of the above information can easily be found by reviewing the Company\u2019s\u00a0corporate presentation<\/a>\u00a0and this year\u2019s\u00a0press releases<\/a>.<\/p>\n

Given that TradeTech, recently quoted the uranium spot price as low as $25.5\/lb., and ($27.5\/lb. on April 29th<\/em>) and the Rabbit Lake news, I\u2019m backing away from a takeout scenario being front and center. A takeout thesis seems to foster short-term thinking, to the detriment of a management team that has consistently said they intend to advance the Arrow deposit through to production.<\/p>\n

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Conclusion<\/p>\n

Driving shareholder value through aggressive drilling and optimization of engineering studies, for as long as possible, remains the game plan. Shareholders should be thrilled. The drill bit\u2019s leverage on NexGen\u2019s potential valuation and share price is outstanding. Time and time again, from day 1, drilling results from\u00a0NexGen\u2019s expert technical team have exceeded expectations. I wholeheartedly agree with the Company\u2019s strategy and am more than happy to hold my NXE shares until Curyer\u00a0sells his.<\/p>\n

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Disclosures<\/u>: Readers fully understand and agree that nothing contained in this article authored by Peter Epstein, from\u00a0<\/em>EpsteinResearch.com<\/a>[ER],\u00a0including but not limited to, analysis, commentary, opinions, views, assumptions, reported facts, calculations, etc. is to be considered in any way whatsoever, implicit or explicit investment advice or guidance. Further, nothing contained herein is a recommendation\u00a0or solicitation to buy, or sell any security.\u00a0\u00a0[ER]\u00a0has never been, and is not currently, a registered or licensed financial advisor or broker\/dealer and does not perform market making activities.\u00a0The shares of\u00a0<\/em>NexGen Energy\u00a0are highly speculative, not suitable for all investors.\u00a0Readers are urged to consult with their own financial advisors before making investment decisions.\u00a0<\/em><\/p>\n

At the time this article was posted, Peter Epstein owned shares of\u00a0<\/em>NexGen Energy\u00a0and the Company was a sponsor of<\/em>EpsteinResearch.com<\/a><\/p>\n

Any comparison between or among stocks is for illustrative purposes only, and should not be taken as fact or relied upon.\u00a0Readers understand and agree that they must conduct their own investment due diligence. While the author believes that he\u2019s diligent in screening out companies that, for any reasons whatsoever, are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful.\u00a0Mr. Epstein and\u00a0[ER]\u00a0is not responsible for any perceived, or actual, errors including, but not limited to,\u00a0analysis, commentary, opinions, views, assumptions, reported facts & financial calculations, or for investment actions taken by readers.\u00a0<\/em><\/p>\n<\/div>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By Peter Epstein, CFA, MBA \u00a0epstein.peter4@gmail.com\u00a0\u00a0http:\/\/EpsteinResearch.com\u00a0 Funded Into q2 2017, Management\u2019s Plan? Go it Alone There\u2019s been talk about\u00a0NexGen Energy\u00a0[TSX-V: NXE] & [OTC: NXGEF]\u00a0selling a minority stake to a strategic investor, 9.9% being a figure I hear mentioned.\u00a0However, it\u2019s my understanding that the Company is not actively seeking out investors. Sitting on about $33 million, […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-89080","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/89080","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=89080"}],"version-history":[{"count":1,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/89080\/revisions"}],"predecessor-version":[{"id":89081,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/89080\/revisions\/89081"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=89080"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=89080"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=89080"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}