The Sprott mantra on exploration and development is: stick to well funded companies operating in the most attractive terranes. Think Archean gold, Andean Cu-Au and Mexican Silver. As the ongoing under-supply of uranium flows into equity valuations, Sprott adds another to Sprott's list of most attractive districts: The Athabasca Basin.
The Athabasca’s infrastructure stands as a testament to the success of its 50-year uranium mining history: three mills in place, road and grid-power access, and a mature and codified permitting process that has seen mines successfully permitted, operated, decommissioned and rehabilitated. In addition, the prospectively of the district speaks for itself. Since 2011, in the teeth of a decade-long bear market, three world class discoveries have been made and advanced to DFS, and we believe more are on the way making the Athabasca ideal for uranium equity positions.
Size and Grade of New Discoveries Speak for Themselves
The rate and quality of new discovery for uranium in the Athabasca has been unprecedented and even more impressive in the context of a bear market. Since 2010, Arrow (348 million lbs at 2.0% U3O8), PLS (135 million lbs at 1.6%) and Gryphon (71 million lbs at 1.9%) have been discovered and advanced through PFS with average reserve conversion of 66%. These new discoveries equate (or are equivalent to) 9.0 million oz @ 21.7g/t at spot, converting to 5.9 million oz @ 26.4g/t of reserves.
Cycle Timing Couldn’t be Better for the Athabasca Developers/Explorers
The knocks on the Athabasca in the past have been high capex, as traditional unconformity-hosted deposits required sophisticated mining methods, and associated rigorous permitting. The new generation of basement-hosted discoveries avoid these hurdles by being amenable to convectional stoping. Further, the silver lining of the recent down cycle is that the two more advanced developers covered here (NexGen/Fission) are at DFS stage with advanced permitting and provide precedent for earlier-stage IsoEnergy and UEX. Belt wide, this is a common theme exemplified by Arrow, PLS, and Gryphon, while Denison’s new ISR-approach at Phoenix could lower hurdle rates for unconformity-hosted deposits. We believe these trends will align with a bull market to in a series of green lights for this world-class district.
NexGen Energy: Best Undeveloped Project with SCPe C$1.1bn FCF Per Year
We think NexGen’s Arrow project is the best combination of size and grade globally with a reserve of 204million lbs @ 3.1% U3O8 set to drive >80% cash margins. Arrow should be the next major project to be built in the sector, and is the furthest advanced on permitting of Athabasca peers. With no surprises expected in the imminent DFS, followed by permits as soon as next year, Sprott expects equity momentum to build, underpinning our positive view.
Fission Uranium: Good Value and a Natural Consolidation Play
Of the advanced Athabasca developers, Sprott concludes that the Fission offers best value, with its substantial 135 million lbs @ 1.8% putting the stock on just US$1.01/lb. Its location ~20 kilometers from NexGen’s proposed plant offers potential future synergies, whether that be M&A or shared infrastructure, offering the opportunity to significantly reduce capital intensity. Investors should thus focus on the quality of the geology as the shallowest Athabasca asset amendable to conventional stoping.
IsoEnergy: World Class Hurricane Discovery Brings NexGen DNA to Eastern Athabasca
Since its 2016 NexGen spin out, Iso has rapidly built an impressive 2,771 km2 land package in the eastern Athabasca, and made what Sprott concludes is a world-class discovery at Hurricane. With intercepts such as 7.5 meters @ 38.8% U3O8 and 9.0 meters @ 12.8% U3O8 over a strike of 575 meters, and with a large corridor of low-resistivity anomalies, we see all the ingredients for Hurricane to shape up as the next world class unconformity find in the eastern Athabasca.
UEX: Patient Explorer with the Largest Land Package in the District
UEX’s 2,942 km2 of Athabasca tenements represents the largest holding in the district, with exposure to the key belts in the basin. The existing attributable 99.5 million lbs across three projects provides leverage to exploration, allowing new discoveries to hit scale faster. Geologically, these discoveries also provide a good proof of concept of the endowment of the western basin holdings at the Rabbit Lake Camp and between Cigar Lake and McArthur River.
Managed & Built by I2M Consulting, LLC | © 2010-
