TD action notes on Nexgen Mar 8th Substantial Increase in Resource Size and Confidence at Arrow
We have updated our valuation assumptions to reflect the company's updated
resource estimate for the Arrow deposit.
Impact: POSITIVE
The largest undeveloped resource in the Athabasca Basin — Yesterday's
updated resource estimate included 1.18Mt of indicated resources grading 6.88%
U3O8 containing an estimated 179.5mmlb and 4.25Mt of inferred resources
grading 1.30% U3O8 containing an estimated 122.1mmlb. The total resource
update of 301.6mmlb (indicated and inferred) represents a substantive increase,
in our view, from its maiden inferred resource estimate of 3.48Mt grading 2.63%
U3O8 containing an estimated 201.9mmlb released in March 2016.
Expansion of the high-grade zone adds to the potential project economics —
In our view, the A2 high-grade domain (164.9mmlb U3O8 in the indicated category)
and the newly identified A3 high-grade domain could potentially result in positive
economic implications for the project. Given the configuration of the Arrow deposit,
we believe that the expansion of the A2 high-grade and the identification of the
A3 high-grade zone should allow for a mine plan which targets low-tonnage highgrade
ore in the early mine-life, which could potentially increase the IRR and lower
the payback period.
NexGen is currently reviewing the potential to release a preliminary
economic assessment (PEA) in Q3/17, followed by a pre-feasibility study
(PFS) in late-2017 or early-2018. On the conference call, management also
briefly discussed the potential of developing an exploration shaft to drill from
underground. We believe that the company can complete its PFS by late-2017 or
early-2018 independent of its decision to permit and develop an exploration shaft.
TD Investment Conclusion
We are maintaining our SPECULATIVE BUY rating and increasing our target
price to $4.50 (from $4.00). Our higher target price reflects the incorporation of the
better-than-expected resource update, along with a higher target price multiple to
reflect the substantial increase in confidence of the overall resource estimate. We
continue to view NexGen as one of the top long-term uranium investment plays due
to the tier-1 potential of its Rook I property.