Nexgen Energy Ltd T.NXE

Dundee Capital Markets comments on NexGen Energy Limited

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According to Dundee Capital Markets:
 
https://personal.crocodoc.com/Z1eidxn
 
NexGen Energy Ltd.
 
(NXE-V: C$0.33)
 
January 20, 2015
 
BUY, Venture Risk
 
Dundee target: N/A
 
Large New Radon Anomaly Suggests Potential Uranium Discovery
 
We continue to recommend NexGen Energy with a BUY and No Target Price. NexGen announced initial results from a radon in lake water survey at its 100% owned Rook 1 project. A multi-point 480m long by 20-150m wide radon anomaly has been discovered ~400m NE along strike of Arrow with radon values up to 10.4pCi/L (same range as PLS). While targets don't necessarily mean a uranium discovery, there has been a high success rate between radon anomalies and uranium mineralization next door at Fission's (FCU-T, Buy, C$2.40 Target) Triple R deposit. An obvious 480m long zone that measures 20m to 150m wide, while partially dependent on underlying geology for its shape and size, does suggest the possibility of overlying mineralization, just from the strength and concentration of radon. Its sheer size and strength could suggest that 1) Uranium may be present, 2) Uranium may be close to surface, 3) It may be deeper but the radon formed over a longer period, 4) The basement rocks were quite conducive in allowing the escape of gas, 5) Winter testing under ice would suggest less diffusion and water movement and result in a more obvious target.
 
In short - the stars are lining up for a potential uranium discovery just 400m NE of the Arrow zone. NexGen is early into its 2015 $8 MM Winter exploration program and tends to move on positive exploration results. While the ultra-high grade material already found at Rook 1 has been an incredible success, the company must now show its resilience, and ability to continue growing potential uranium resources on a consistent basis. Investors in NXE are typically looking for momentum and capital gains driven by the discovery of high grade uranium, following in the footsteps of the more mature Phoenix and PLS discoveries.
 
Arrow is still the focus. NexGen's initial Arrow zone discovery at its Rook 1 project, measuring about 515m long and up to 215m wide, has been a good start. Just its close proximity to the anomaly is strongly encouraging. Hole -30 from 2014 Summer drilling reported multiple high grade intercepts including: 0.49% over 92m; 2.45% over 45m; 15.47% over 4.5m; 10.17% over 20m; 7.54% over 63.5m, with uranium starting around 100m depth and continuing down below 700m. The narrow and vertical nature of this deposit suggests it may be challenging to drill in a systematic fashion - many projects require 15m spacing in order to bring mineralization into the indicated category. When working in the vertical dimension, the difficulty and exploration cost typically goes up. However, this anomaly suggests mineralization below the lake. Its sheer size infers that either the rocks were ideal in spreading radon over a large area, or that mineralization might not be that deep. Herein lies the importance of finding new zones near Arrow - any uranium that may be found closer to surface, particularly if high grade, would have a better chance of being systematically tested. This would provide better opportunity for NexGen to potentially drill multiple zones.
 
Anomaly occurs along strike. This potential new zone, as outlined by a strong radon anomaly, occurs along strike of Arrow uranium mineralization, whose structure is defined by electromagnetic surveys, with near potential cross-cutting structures being identified by VTEM surveys, and is associated with magnetic and gravity surveys. Even in its early stages Arrow is developing as a series of narrow stacked and en echelon, vertically extensive, high grade, basement hosted zones. It occurs quite similar to mineralization currently mined at Cameco's (CCO-T, Buy, C$24.00 Target) Eagle Point Mine at Rabbit Lake. While this deposit isn't as massive (with the relatively small amount of drilling) as some deposits in the Basin such as Roughrider or Triple R, it is still basement hosted, occurring in the preferred rocks. The trend is obvious - 74% of all past uranium mining in the basin occurred in basement rocks - and that is why exploration companies continue to target them for potential mineralization. The competency and quality of the rock lends itself to mining, unlike the alteration and friability of sandstone or unconformity deposits in the Basin that come with a plethora of challenges.
 
Basement deposits occur in clusters. Occurring 400m to the NE from Arrow zone would be typical for basement hosted Athabasca Basin uranium deposits that tend to occur in clusters but aligned along structures. Fission's PLS project demonstrated a similar, wide spacing of radon anomalies, and ultimately were able to join up the zones with true mineralization. What was required was patience from investors while the targets were drilled over a two year period. A total of five large radon anomalies along strike of R00E all turned into uranium zones.
 
Winter 2015 program: NexGen commenced drilling at Arrow on 5-Jan-15. Winter drilling will utilize three rigs for 18,000m or an $8 MM program (~$15 MM cash currently). Two rigs will be dedicated to land based targets at Arrow and a third targeting NE and SW of Arrow along the Patterson conductor corridor (7km in length). Drill fence sections, scissors and vertical drill holes will be completed at Arrow in order to further understand geometries and controls on the high-grade uranium mineralization.