Maiden Economics Indicate Arrow Uranium Mine’s Cost Profile Rivals Kazakhstan’s
The preliminary economics for the Arrow deposit owned by NexGen Energy (TSX:NXE, NYSE:NXE) are so good they defy credulity.
Released on July 31, Arrow’s preliminary economic assessment (PEA) dazzled, with Cantor Fitzgerald’s Rob Chang calling it “the best uranium PEA we have ever seen.”
Eight Capital’s Dave Talbot said that with the “incredibly robust PEA, NXE appears ready to start development of the world’s largest and lowest cost uranium mine.”
Arrow would be profitable even at $25 per pound U3O8, with conventional mining operating costs second only to Kazatomprom’s in-situ recovery (ISR) production. It could also eventually produce almost as much as Kazakhstan.
Assuming a term price of $50 per pound, the maiden PEA completed by Roscoe Postle Associates estimates an NPV (8%) of C$3.49 billion ($2.78 billion), an IRR of 56.7% and an after-tax cash payback of 1.1 years.
It forecasts average annual production of 27.6 million pounds in years one to five, and 18.5 million pounds per year over the 14.4 year life of mine, for total output of 266.4 million pounds.
Given the straightforward geology of the deposit, which sits in Saskatchewan’s Athabasca Basin, Eight Capital’s prediction is plausible. The PEA contemplates conventional long-hole stope mining averaging 1,448 tonnes per day, at an average head grade of 1.73% U3O8 over the life of mine.
Talbot observed that Arrow’s zones “are perfect” for the long-hole method, which allows mining of compact and near vertical uranium mineralization in competent basement rocks. Natural pillars occur in between the zones that are hosted within the deposit’s four shears.
Production would then be fed into a conventional uranium processing mill where uranium recovery is projected to be 96.0% over the life of mine. The mill would use crushing and grinding and acid leaching (eight-hour leach cycle), followed by liquid-solid separation and solvent extraction.
Cemented paste fill tailings would be used, where tailings are constituted into a paste, mixed with approximately 5% cement and delivered back underground. The cemented paste fill tailings would be used to backfill stopes and the excess will be placed in an underground tailings storage facility.
Average unit operating costs are projected at C$5.53 ($4.42) per pound for years one to five, increasing to C$8.37 ($6.70) per pound over the LOM.
Cash costs with royalties are estimated at C$13.21 ($10.57) per pound. All-in-sustaining costs are estimated at C$14.72 ($11.77) per pound.
As with all conventional operations, the biggest expense will be the mill and Arrow is no different.
Of the C$1.19 billion ($950 million) in the PEA’s estimated initial capex, the mill comes in at C$627 million ($500 million), with the mine at C$324 million ($256 million) and contingency at C$237 million ($189 million).
NXE management said in the PEA that that opex was derived using first principles by looking at other remote mining operations around the world.
The conservative approach taken in the PEA has Arrow sitting as the sixth most expensive operation on a per tonne basis.
Despite the high per tonne cost of Arrow, the deposit’s characteristics—high grade, vertical orientation and competent bedrock—have led to industry-leading costs.
For the first five years of production, only ISR production from Kazakhstan is expected to have a lower cost profile than that of Arrow. The per pound cost is seen as the lowest of any conventional mine globally.
Also of note is that the PEA was reviewed for radiological safety. The mine plan uses transverse long-hole stoping so that development drifts are cut perpendicular to strike, which decreases exposure.
Management estimates that only 1% of development material will have a grade above 4% U3O8, which is the threshold that would require additional safety precautions.
It was noted that remote mucking and extra ventilation will be used in areas that require it.
‘Numbers Exceeded My Expectations’
NXE President Leigh Curyer acknowledged that the market may be reluctant to accept the Arrow PEA at face value.
“The numbers exceeded my expectations as well,” Curyer said in an early August interview. “When presented with something far superior to what’s been seen before, there’s a natural element of skepticism.”
He continued, “The PEA estimates are based on very conservative principles compared to other operating mines around the world. The numbers are the numbers and they should be read for what they are.”
What makes Arrow different is its geology. Unlike operating mines and other properties under investigation in Saskatchewan, the deposit has “very clean metallurgy. There’s no running surface water, underground water requiring freezing or deleterious minerals.
“It’s not hosted in sandstone. Arrow is a very simple mine. It won’t need to customized,” Curyer explained, adding that the project “is an opportunity to set an elite standard in environmental mine management.”
PFS in Mid-2018
Following the recent financing with CEF Holdings, the company has nearly C$200 million in the bank and is well funded through next year.
That will underwrite NXE’s focus to develop a maiden pre-feasibility study for Arrow by mid-2018.
The firm will complete summer drilling, then follow up with advanced site characterization, baseline monitoring and geotechnical, hydrogeological and metallurgical studies.
Developing a potential exploration shaft may run in parallel to permitting as it may help to confirm resources and feed into final permits.
NexGen also expects to update the resource model and continue with the engineering and environmental baseline studies.
Roughly 66,000 meters of drilling in 2017 producing several high grade assay results has been conducted at Arrow, detecting the new Arrow South discovery. None of this data has been included in the PEA. Arrow South is approximately 400m south of the Arrow deposit.
Discovery hole AR-17-151c1 intersected 7.0 m of total composite mineralization, including 0.45m of off-scale radioactivity (>10,000 to >61,000 cps).
Follow-up hole AR-17-151c2 which targeted mineralization 25m down-dip from the discovery hole, intersected 7.0m of total composite mineralization including 0.2m of off-scale radioactivity (>10,000 cps to 20,000 cps).
NXE said South Arrow was targeted as a follow up to the mineralization and extensive hydrothermal alteration intersected in holes AR-17-150 and -150w1.
, Forbes Contributor
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