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NexGen Energy announced on Thursday that it had discovered a potential new zone of high-grade uranium mineralization at its Rook 1 property in Saskatchewan’s Athabasca Basin.
NexGen Energy (TSXV:NXE) announced on Thursday that it had discovered a potential new zone of high-grade uranium mineralization at its Rook 1 property in Saskatchewan’s Athabasca Basin.
The news is based on preliminary results from a single hole in an untested area of the property, but NexGen stated that the hole “represents the strongest uranium intercept in the A1 shear zone to date,” and analysts are already pegging the news as another game changer for the company.
Results from hole AR-16-84c1 included an intercept of 8.35 meters of off-scale mineralization within the A1 shear. NexGen also reported substantial intersections of off-scale radioactivity within the A2 high-grade domain, including 39.5 meters of total composite mineralization.
“The importance of this discovery of high grade mineralization within the A1 shear is clearly evident. Drill hole AR-16-84c1 has encountered the strongest and widest mineralization in the A1 shear to date,” said Garrett Ainsworth, vice president of exploration and development at NexGen, in a statement.
“The high grade intercept in hole -84c1 is within a large untested area of the A1 shear that now has potential to host another high grade sub-zone,” he explained. “Hole -84c1 has also infilled and confirmed the high grade, continuous and sub-vertical nature of the A2 high grade domain.”
Rob Chang of Cantor Fitzgerald agreed that the results were significant. “Today’s new release from NexGen announces the discovery of a high grade intercept that could lead to the identification of a second high grade zone similar to the one at A2,” he said in an emailed statement. “If this turns out to be the case, Arrow will move that much closer to being at the same level as McArthur River and Cigar Lake.”
David Sadowski of Raymond James also sees further potential for the A1 shear zone to host A2-like high-grade mineralization, stating that the hole was “yet another game-changer for the company.”
“We believe this raises the target for total contained metal possibilities,” he added.
Analysts see further upside for NexGen
Certainly, uranium investors might be wondering whether now is the time to get into NexGen. Shares of the company have already gained an impressive 276 percent since the start of 2016 and are up 401 percent over the past year. However, both Chang and Sadowski believe the stock has further upside potential.
“We believe momentum is likely to continue on the stock as Arrow increasingly appears to be a one-in-a-cycle discovery,” Sadowski said, giving NexGen a ‘strong buy’ rating and a C$3.50 target price (NexGen is currently trading at C$2.71).
While admitted that it’s easy to be cautious on NexGen’s share price from a technical perspective given the price jump this year, he noted that NexGen is still sitting at roughly 25 percent of Hathor Exploration’s 2012 takeout value. Hathor, which discovered the Roughrider uranium deposit in Saskatchewan, was acquired by Rio Tinto (NYSE:RIO,LSE:RIO) in 2012 for US$642 million.
Furthermore, Raymond James’s analysis suggests that someone could acquire NexGen at a 265 percent premium to the company’s current share price, build the Arrow project, and still make for an accretive deal at a US$70 uranium price. At $44 per pound for uranium, the firm still believes a 44 percent premium is justified.
In another note released earlier this month, Sadowski made the case for NexGen as a possible acquisition target for Cameco (TSX:CCO,NYSE:CCJ) in order for the producer to reduce the technical risk of its production pipeline.
Rob Chang stated that NexGen remains Cantor’s top pick with a ‘buy’ rating and a C$4.30 target price.
What’s next?
Of course, NexGen still has plenty of work to do in terms of further exploring this new potential zone. The company will continue drilling northwest azimuth scissor holes into the A2 and A1 zone as part of its 7,500 meter spring break-up drilling program, and investors will no doubt be watching closely for further results.
Beyond that, NexGen also stated that it remains on track to release an updated resource estimate for the Arrow deposit in the second half of this year.
As mentioned, NexGen is currently trading at C$2.71. Shares of the company gained just under 12 percent on Thursday’s news.
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Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.
