IsoEnergy (ISO) – High-Grade Athabasca Uranium Replicating NexGen Energy

IsoEnergy is a uranium explorer with an impressive portfolio of uranium assets. Throughout this bear market, the uranium macro story appears to have remained impenetrable, and uranium price discovery seems inevitable. Parry gives his take on how exactly the next cycle will shape up.

Can IsoEnergy time its entry into this cycle correctly, or will shareholders have to wait? Parry asks. IsoEnergy’s uranium projects are situated in the renowned, high-grade Athabasca Basin in Saskatchewan, Canada and some are super high-grades. However, we have recently heard there could be major permitting barriers and sandstone water table issues from James Sykes, the CEO of Baselode Energy (TSX-V: FIND). So is this a case of building pounds in the ground or building a business capable of being mined? Let's find out.

In 2018, IsoEnergy announced the discovery of its flagship, high-grade pitchblende uranium deposit, the Hurricane Deposit, located on the company’s Larocque East tenement. With the backing of a seasoned, experienced management team and the help of major shareholder and significant uranium developer, NexGen Energy (TSX: NXE; NYSE: NXE), IsoEnergy could be a uranium investment opportunity for uranium investors to seriously consider.

What we discuss and when:

1:39 – Company Overview

2:55 – Recent Raise of $10M: Convincing Story & Planned Allocation

6:35 – Replica of NexGen: Plans, Risk Mitigation, & Timing

13:46 – Funding it All: The Macro Fundamentals and Generalists

17:36 – Sticking to the Knitting: Making it Interesting Without Dilution

26:16 – Timing & Meeting the Cycle: Overambitious 5yr Plan?

Company Overview

Craig Parry starts off the interview with a company overview. He tells us that IsoEnergy are a TSX venture-listed Uranium explorer, spun out of NexGen energy 4.5-years ago. They’ve been exploring the Eastern half of the Athabasca Basin, building up a land position which they’ve successfully done now. They discovered the Hurricane deposit in 2018 which is the latest and fastest-growing high-grade Uranium deposit in the Athabasca Basin and indeed in the world he adds. It is very well supported by NexGen Energy. NexGen owns 53% of the company, contributing at every point along the financing path. Parry thinks the company is very well positioned as we head into what will be a bullish phase of the Uranium market, with capital and a great exploration project and potentially further discovery on their hands.

Recent investment

Warren Gilman of who ran Li Ka-shing’s CF fund, which invested heavily into NexGen has invested USD$10M in the company and he’s a strategic long-term investor says Parry. He’s backed by his network of investors, but crucially, 3 Aussie billionaires: Andrew Forrest, Gina Rinehart, and Jack Cowen. Those guys have the firepower to support the development of a project and further investment along the path Parry states. He says that to ensure the future of the company is strong and stable you’ve really got to look at those investments when those opportunities arise. Parry adds that he has seen some competitors struggle to find capital, even during this bullish phase of the market we’ve been going through.

Parry states that one of the drill holes that IsoEnergy put out from their winter program is in the top 3-4 drill holes in any commodity drilled anywhere in the world in the last 24-months and that Warren was watching the story very closely and approached Parry to see if we would be interested in his investment. Parry says that he has known Warren for a long time so was ecstatic to get him across the line finally.

IsoEnergy Project Overview in the Eastern Athabasca Basin - IsoEnergy presentation October 2020

Hurricane Deposit - Permits

Parry argues that the Hurricane deposit project is not only vital for the economy of Saskatchewan, but also for Canada, so they are extremely hopeful of getting the project permitted. Saskatchewan has been very adversely affected by lower Potash prices, lower oil & gas prices and unemployment is problematic. Parry states that the project could generate USD$3Bn of taxes and Royalties for the country as well.

He tells us that there’s been a lot of talk by people out there suggesting that a timeline for permitting a Uranium project in Saskatchewan today is probably 10-years but we think that’s incorrect. He agrees that there is probably a little more work to do because of the nuclear energy component, but not too much more than what it would take to permit a goldmine.

Larocque East property map. Eastern Athabasca Basin - IsoEnergy presentation October 2020

Parry talks about the project and says that what they’re doing is following the path that Leigh Curyer, NexGen CEO, and his team have set them with the same processes, the same approach to business and to stakeholder engagement. He explains that it’s such an all-encompassing approach to developing a project and engaging with the community and adds that Curyer and the team have done an extraordinary job on that front and they are the world’s best practise.

Hurricane Discovery, Athabasca Basin - IsoEnergy presentation October 2020

Hurricane Deposit - Financing

In terms of financing, Parry’s personal view is that at USD$1.2Bn, it will be the world’s largest Uranium mine. It’s a tier-1 mine and its free cashflow in the first year of over USD$1Bn, you'd pay back CAPEX in less than 1-year. That makes a huge assumption about the ability to produce at those rates immediately and to have the necessary large term-contracts in place day one. So perhaps this statement by Parry is more illustrative of the size of the deposit than working production numbers. The same can be said of the numbers that NexGen use to illustrate their revenues. Parry explains that if you look at the product, if you put a USD$50/lbs Uranium price, which he thinks Curyer and the team will get at the very least for that project, you can forward-sell 1-year of production to finance your capital costs.

Parry reports that IsoEnergy raised USD$12.5M in that last financing. USD$9M came from Queens Road Capital. USD$3M from NexGen, and they put in USD$1M on a president’s list themselves. That type of financing left very little room for some of the resource funds, generalist funds to come in he says. The president’s list, for example, Parry says they had USD$6M worth of orders in the president’s list, a lot of that was from generalist funds out of Australia, the US and UK – so there’s money out there. Parry adds that they only ring-fenced USD$1M for that component of the financing but that gives them enough to do what they need to right now.

Uranium Market

IsoEnergy have started to see some real interest coming in and that their share price since March has gone from USD$0.26c up to about USD$1.20 today. Parry remarks that we’re starting to see it happen in Uranium and of course, we’ve had this precious metals rally which has distracted everyone and they all want to get involved in Gold and that’s taken the limelight off the Uranium space for a little while.

We’re heading into that end of year period where contracting, the utilities and their purchasing managers come out of hibernation and that’s when all that contracting discussion kicks off and invariably, heat comes into the Uranium.

Drilling programme

The drilling program started 12-days ago and IsoEnergy put out their first news release this morning from the results. In the winter campaign, one of the holes was 33% U3O8 over 8m, which until recently was the very best hole drilled in any commodity globally in the last 52-weeks. He says that today, they reported that one of their holes was drilled 10m at greater than 500 counts per second, that included 2.5m and 40,000 counts per second.

Previous explorers typically report greater than 10,000 counts per second as being off scale so there’s a lot of off scaling in that intercept. Another hole was drilled that intercepted 4m at 30,000 counts per second he says. You can expect that those holes will deliver some high-grade and, of course, the holes around them there were a couple of very big holes – 8.5m at 20% Uranium. Truly spectacular high-grade results by any measure.

This deposit has been compared to Cigar Lake and potentially McArthur River as well and it is turning out to be a truly great, high-grade deposit with a lot more drilling to do adds Parry. They have two rigs turning, and the results have expanded the high-grade footprint and have also done a little bit of geo-tech drilling in there to test the centre of the system and get some samples for geo-tech and metallurgical testing that’s happening Parry explains. He adds that IsoEnergy are also expanding that lower grade halo out to the East and drilled 7.5m at greater than 500 counts per second out in the Eastern part of the Basin. Parry says that when we say lower grade, by low in these types of deposits, we mean 1%-2% which is considerably higher than the average mine grade around the world and IsoEnergy can see that part of the ore body expanding dramatically as well.

Drilling in the Athabasca Basin - IsoEnergy presentation October 2020

IsoEnergy are thrilled with these early results but have a lot more work to do. They will be drilling out there for the next 2 months and then will decide where we go next and whether to report a maiden resource later this year. Parry thinks that they will probably need to do a considerable amount of resource delineation drilling and test a number of targets out to the East, which look very similar to Hurricane.

Share Price

IsoEnergy are planning to increase their share price as Parry tells us that they are the best performing Uranium stock in the past 12-months and are seriously delivering for shareholders. They also have about USD$4-$5M worth of warrants that are priced at around the USD$0.60c mark and assuming they’re north of that USD$67 price this time next year, they’ll have another USD$4M, USD$4.5M coming into the coffers then says Parry.

Future for IsoEnergy

Parry explains that firstly, you’ve got to think about how long this cycle might be and that they don’t see enough production coming on beyond 2026, 2027. Cigar Lake will shut down at some point, McLean Lake mill, which is fed by that, is only 40km away from Hurricane and Larocque East. This project is uniquely positioned to provide product or ore to that mill and keep that mill going for Orano he adds. This cycle should be an extended one because of all of that production coming off and that supply gap beyond 2026 which is why IsoEnergy want to target and be production around that time.

The next 12-18 months will primarily be resource drill out with more exploration work along with that now proven very prospective Larocque East conductive trend which we need to explore advises Parry. He says that they also need to do the geo-tech drilling work and the metallurgical test work and have been doing all the environmental baseline survey type work too.

Athabasca Basin - IsoEnergy presentation October 2020

Management Strategy

Parry outlines that the next 18 months are all about resource drill out, resource delineation, ore body knowledge type work to understand what they’ve got there. If Hurricane keeps expanding out to the East and they haven’t defined the limits of the deposit, it is very hard to do a PEA on something that isn’t fully understood. The ore body, the deposit will inform them as to how to advance the project and if it does keep growing, then they’ll probably be drilling for at least another couple of years he adds. Now, they probably have another two serious and expanded draw campaigns to delineate and understand the deposit fully and then they can make some decisions around how quickly to advance says Parry. He suggests that they still have 6-7 years, which is a lot of time to advance the project materially through studies, and they look seriously at that next year.

Company Website: https://www.isoenergy.ca/