NexGen boosts cash flow estimate by 64% in Arrow PFS

NexGen Energy (TSX: NXE; NYSE: NXE) is planning a 125,000-metre high density drill program—the largest in the company’s history—at its Arrow uranium project in Saskatchewan after completing a positive prefeasibility study that estimated an after-tax net present value of $3.66 billion and internal rate of return of 56.8%.

The study was based on a uranium price of US$50 per lb., and a 43% increase in indicated resources to 256.6 million pounds of U308 contained in 2.89 million tonnes grading 4.03% U308.

The prefeasibility study did not include inferred resources of 91.70 million lb. U308 contained in 4.84 million tonnes grading 0.86% U308. As a result, the initial mine life dropped to nine years from the fifteen years outlined in a preliminary economic assessment completed in July 2017.

The mine would produce an average of 25.4 million lb. U308 each year for the life of mine, up from 18.5 million lb. outlined in the PEA, due to higher head grades, which rose to 3.09% U308 from the PEA’s 1.73%.

Initial capex of $1.25 billion represented a 5% increase over the $1.19 billion estimated in the earlier study, but the higher sum was due to the introduction of a provincial sales tax on capital projects. If the PST was excluded, initial capex would come in at about $1.18 billion, or 0.5% below the estimate in the PEA.

The reduction in capex before PST is due to a reduced mine footprint, higher head grades and the reallocation of underground tailings to operating costs.

Despite categorizing the tailings as operating expenses instead of sustaining capital as defined in the PEA, average annual opex fell 31% to $5.81 per lb. U308 from $8.37 per lb. in the earlier estimate.

The study forecast Arrow’s average annual after-tax net cash flow over the life of mine would reach $909 million, up 64% from the PEA’s $553 million.

Payback, after-tax, is forecast to take 1.2 years, up from the PEA’s 1.1 years.

The prefeasibility study also envisioned eliminating ammonia from the metallurgical process and storing waste from the process plant underground.

The mine plan was based on conventional long-hole stoping.

At the end of September, NexGen had $133 million in its treasury.

The company says its new diamond drill program commencing in December will involve two stages and ten drill rigs.

At presstime in Toronto NexGen’s shares were trading at $3.14 within a 52-week range of $2.12 and $3.58 per share.

Brian McArthur, a mining analyst at Raymond James, increased his price target on the stock to $5.50 from $5.00 per share.

Colin Healey of Haywood Securities maintained his target price on the stock at $6.00 per share.