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IsoEnergy (ISO) - High-Grade Athabasca Uranium aims to Replicate NexGen Energy

September 23 2020, 13:30 GMT+01:00

IsoEnergy (ISO)

  • TSX-V: ISO
  • Shares Outstanding: 76M
  • Share price C$0.59 (21.04.2020)
  • Market Cap: C$45.5M

It's the first time we have spoken to Parry since April, and this is a really interesting conversation.

IsoEnergy. This is a uranium explorer a well-funded uranium explorer with a fairly 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 explains. IsoEnergy's uranium projects are situated in the renowned, high-grade Athabasca Basin in Saskatchewan, Canada. Some super high-grades. However, we have recently heard there could be major permitting barriers from James Sykes, the CEO of Baselode Energy (TSX-V: FIND).

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 player, NexGen Energy Ltd (TSX: NXE; NYSE: NXE), IsoEnergy could be a uranium investment opportunity for uranium investors to seriously consider.

We Discuss:

  1. 1:39 - Company Overview
  2. 2:55 - Recent Raise of $10M: Convincing Story & Planned Allocation
  3. 6:35 - Replica of NexGen: Plans, Risk Mitigation, & Timing
  4. 13:46 - Funding it All: The Macro Fundamentals and Generalists
  5. 17:36 - Sticking to the Knitting: Making it Interesting Without Dilution
  6. 26:16 - Timing & Meeting the Cycle: Overambitious 5yr Plan?

Matthew Gordon: Give us that 1-minute overview of the business and I'll pick it up from there.

Craig Parry: We're a TSX venture-listed Uranium explorer, spun out of NexGen energy back 4.5 years ago. We've been exploring the eastern half of the Athabasca Basin, building up a land position which we've successfully done now. Of course, 2-years ago, back in 2018, we discovered the Hurricane deposit, which is the latest and fastest-growing high-grade Uranium deposit in the Athabasca Basin and indeed in the world. It is very well supported by NexGen energy. NexGen owns 53% of the company, contributing at every point along the financing path there, we just closed financing that was backed by Queens Road Capital and Warren Gilman, who ran Li Ka-shing’s CF fund, which invested heavily into NexGen, and Warren has now become a supportive shareholder. We're very well positioned as we head into what we think will be a bullish phase of the Uranium market, with a capital and a great exploration project and discovery on our hands.

Matthew Gordon:  You've just gone and taken USD$10M. Why?

Craig Parry: When someone like Warren comes along and offers you USD$10M, you've really got to sit up and take notice. Of course, he's a strategic long-term investor. He's backed by his network of investors, but crucially, 3 Aussie billionaires: Andrew Forrest, Gina Rinehart, and Jack Cowen. Those guys have the great firepower to support the development of a project and further investment along the path. You've got to sit up and take notice. We were offended well-funded through, towards the end of the year. And you can always take that risk to get in and start drilling and hope that you can raise capital, but to ensure the future of the company is strong and stable you've really got to look at it when those opportunities arise. We've seen some of our competitors struggle to find capital, even during this bullish phase of the market we've been going through. That set us up very well to do the work programs we've got ahead of us for the next year, year and a half.

Matthew Gordon: What was it that you said to Queens Road? We are the ones to back?

Craig Parry: It was more what Queens Road said to us. Warren was looking at the story very carefully. Warren is, of course, heavily involved in NexGen, he's on the board there. Earlier in the year, we put out some great drill results. In fact, one of those holes that we put out from our winter program is in the top 3-4 drill holes in any commodity drilled anywhere in the world in the last 24-months. Warren was watching this story very closely and approached me to see if we would be interested in investment from him. I've known Warren for a long time, whenever I'd go through Hong Kong going back 12- years ago, I'd call in on him and have lunch and try and convince him to invest in some of the other things I was doing at that time. I've actually been working on Warren for over 10-years for an investment, so I was ecstatic to get him across the line finally. He did all the heavy lifting. It was him that was driving the concept. He loves what we're doing. He loves Uranium. They take a very long-term view, he is based in Hong Kong, he has worked with Li Ku-shing for many years, they see exactly what's happening in China.

We saw, as late as yesterday, the announcement of more reactor builds coming in China very soon. They see that broader thematic, and how do you get set in that space if you like that thematic? A great exploration project and a new high-grade discovery is a great way to get positioned.

Matthew Gordon: Are you just going to repeat the NexGen plan? Is he making the same bet twice?

Craig Parry: That's probably not a bad way to look at it. We've talked about this before: when we look around the world for other opportunities, of course, when we set up ISO Energy, part of what we wanted to do was look to acquire existing resources projects we could build. As we cast the net out globally, we always came back to the Athabasca Basin, we were very fortunate to make that Hurricane discovery because it's in Saskatchewan – number 1 mining jurisdiction in the world. You can get projects permitted. It's the home of high-grade Uranium. Great deposits - those Tier-1 assets that Cameco, Orano and NexGen's Arrow, of course, which we found back in 2012, ‘13 that's a true Tier-1 mining asset. You don't see too many of those anymore. I think he's seen the potential where we are a little bit uniquely positioned out in the Eastern Athabasca, very close to the existing McClain mill and all of that wonderful mining infrastructure, so we're a bit of a unique story in that sense.

Matthew Gordon: Wouldn't it be more sensible to have a slightly different approach from NexGen?

Craig Parry: Let's test some of those assumptions: permitting - no-one in the past 10-years has tried to permit a Uranium mine in Canada. NexGen is the only company that's doing that assiduously at the moment. They're very, very serious about that. I'm still an advisor to NextGen. I stepped off the board, of course, to focus on ISO, and make way for Brad Wall to come on the board. But I still see a little of what's going on there, and I think people will be very much surprised at how quickly that project gets permitted. Crucially that project is vital for the economy of Saskatchewan, but also Canada. Saskatchewan - the Prairies, Alberta, Saskatchewan have been very adversely affected by lower Potash prices, lower oil and gas prices, unemployment's a real problem there. Arrow NexGen have got a chance of really helping with that. I think the project will actually generate USD$3Bn of taxes and Royalties for the country as well. It's a great project for Canada. I think people will be pleasantly surprised by how long it takes to permit a project like that.

Matthew Gordon: What are you saying with regards to being pleasantly surprised about how long it takes to permit their project?

Craig Parry: 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. We think that's not right. That's based on incorrect assumptions. There's probably a little more work to do because of the nuclear energy component of things, but not too much more than what it would take to permit a goldmine in this day and age. Watch this space on that one.

Matthew Gordon: Where are those conversations? It's not about replicating the NexGen model, Is there any news there?

Craig Parry: In terms of replicating the NexGen model, what we're doing there is just following the path that Li and the team have given us. The same processes, the same approach to business, to stakeholder engagement. I've got to say that the NexGen guys, their stakeholder community engagement model is like nothing else I've ever seen. I spent 8-years with Rio Tinto, and I can tell you, I've never seen Rio Tinto do anything like that. It's such an all-encompassing approach to developing a project and engaging with the community. Li and the team have done an extraordinary job on that front. We want to follow those sorts of processes and approaches because they are world's best practice, that's what will allow us to get through the development of these projects relatively more quickly than people think.

In terms of financing, I shouldn't speak too much to the Arrow project, but my personal view is that USD$1.2Bn, it will be the world's largest Uranium mine. It's a tier-1 mine. USD$1Bn is a fairly trivial amount of money for a project like that. It is free cashflow in the first year, over USD$1Bn, so you pay back CAPEX in less than 1 year. If you look at the product, if you put a USD$50 Uranium price, which I think Li 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. There's a bunch of things emerging there, but of course, we're now both backed by Queens Road Capital and those fantastic big billionaires in Australia that want to see these projects developed, so financing is not going to be an issue.

Matthew Gordon: Do you think those generalists are being held back? They're starting to understand the supply-demand dynamics, or is it still just a little bit more work to do on them?

Craig Parry: That little rally in price and equities we saw from March to June, just dangled the lawn out there for them a little. You started to see some real interest coming in. Of course, our share price since March has gone from, I think, USD$0.26c up to about USD$1.20 today. We've had a spectacular rally and some of that has been buying from particularly resource funds, but also a couple of generalist’s funds have started to come in. We're starting to see it happen. Of course, we've had this Gold, precious metals rally that's got in the way of everything and that's distracted, everyone. I was talking to a banker friend in New York yesterday. He was saying that there's a sense of FOMO amongst the generalists in wanting to get into the Gold space, that's taken the limelight off the Uranium space for a little while.

I think what happens next, though, and you talk to Brandon Munro regularly, Brandon's so much more eloquent and smarter than me on the macro picture. But I listen closely to what he says and what some of the other very good analysts in the space talk about. We're heading into that end of year period where contracting, everyone, the utilities and their purchasing managers come out of hibernation from August. In this week, we would be in London normally for the WNA, that's when all that contracting discussion kicks off and invariably, heat comes into the Uranium price then inequities typically take off in October off the back of that. We're heading into that period and I think that will draw a lot more eyeballs to space. If we see Uranium start to move up solidly again, we're going to see a lot of those guys coming back in.

I’m very pleased to report that we raised USD$12.5M in that financing. USD$9M came from Queens Road Capital. USD$3M from NexGen, and we put in USD$1M on a president's list ourselves. That type of financing left very little room for some of the resource funds, generalist funds to come in. The president's list, for example, by the time it was done, we 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. There's interest sitting there. I was very enthused by that. Unfortunately, we only ringfenced USD$1M for that component of the financing because we could have taken a lot more, but anyway, that gives us enough to do what we need to right now.

Matthew Gordon: Why don't you remind us of some of the grades at these intersects that you've had?

Craig Parry: Absolutely. We kicked off our drilling program 12 days ago. We put out our first news release this morning from the results we're getting there, Scintillometer counts, of course. Up until recently 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. I think someone has knocked us off the top of the table there, but we'll be trying to get back up there directly. And of course, today we reported one of our holes - 57, we 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. We drilled another hole that intercepted 4m at 30,000 counts per second. 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.

One of the things we did during our summer vacation was we took a very famous geologist in the Uranium space called Dave Thomas who was Cameco’s chief geologist for many years. He is a 35-year veteran in the Uranium space, most of that time spent in the Athabasca Basin. He tells us that one of those holes, our highest-grade hole, 34, it's the only hole he's seen outside of Cigar Lake that looks like that, so we're very enthused by that sort of commentary. I know that Dave Talbot put out a note on us last week, comparing this deposit to Cigar Lake and potentially McArthur River as well. It is turning out to be a truly great, high-grade deposit, a lot more drilling to do. That's what we're doing now. We've got two rigs turning, and the results we put out today, not only have expanded the high-grade footprint, we've 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. We're also expanding that lower grade halo out to the east. We drilled 7.5m at greater than 500 counts per second out in the Eastern part of the Basin. 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. We can see that part of the ore body expanding dramatically as well.

We're thrilled with these early results. Lots more work to do, we'll be drilling out there for the next 2 months and that will set us up neatly to work out where we go next; whether we report a maiden resource later this year. I suspect what will probably happen is that we need to do a considerable amount of resource delineation drilling. We also want to test a number of our targets out to the East, which looks very, very similar to what we've got at Hurricane. And then that campaign will have an expanded campaign over the winter before announcing a maiden resource sometime next year. That's the knitting and we are sticking to it.

Matthew Gordon: What's your plan to keep this interesting without diluting the existing shareholders?

Craig Parry: Having an increase in share price, we're the best performing Uranium stock in the past 12-months. That gets back to, I think in my very first interview with you, you said to me, ‘I don't get the value proposition. I don't know why you're doing this. Why would you explore?’ This is why. We are seriously delivering for shareholders.

In terms of the financing, we also have about USD$4-$5M worth of warrants that are priced at around the USD$0.60c mark. Assuming we're north of that USD$67 price this time next year, we'll have another USD$4M, USD$4.5M coming into the coffers then. In essence, we're looking at having about USD$20M in the bank today. We're very well-funded for the next 18-months or so.

Matthew Gordon: How do you position yourself for the future?

Craig Parry: Firstly, you've got to think about how long this cycle might be. Of course, we 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, it is only 40km away from Hurricane and Larocque East. We're probably uniquely positioned to provide product or ore to that mill and keep that mill going for Orano. There will be a lot of parties that are motivated to see us develop our project very, very quickly. Really, this cycle should be an extended one because of all of that production coming off and that supply gap beyond 2026. That's what we want to target and be production around that time.

We're doing a few things; the next 12-18 months will primarily be resource drill out, more exploration work along with that now proven very prospective Larocque East conductive trend. We will get out and explore that. Build out the resource base. But we're taking a few modest steps at the moment, like that geo-tech drilling work, metallurgical test work such that when we're ready when we've got a resource we can advance. We have been doing all of this environmental baseline survey type work that we need to do as well. We're very quick to roll into PEA -Prefeasibility Study, should the project warrant it, which, at the moment, we're very positive that it likely will.

Matthew Gordon: How does that map to what NexGen have done?

Craig Parry: Certainly. It’s a lot of work, but that's our job. We've got a team doing that. You will note in our announcement of the commencement of drilling, we have appointed Peter Longo as our VP of studies and projects. Peter was the head of projects and studies for Denisson and did all of that work to conceptualise and advance their ISR mining techniques. We're building the team up slowly, but surely. Pete is only part-time at the moment, but all going well, we'll bring him on board full time and continue to expand the team.  NexGen, Lee and the guys there, we're very fortunate that Cameco was starting to reduce their headcount and let a lot of good people go. We managed to snaffle a number of those guys, and we're part of that broader NexGen group so we've got access to a huge amount of talent and knowledge of Uranium mining. We're very well-positioned on that front.

Before we started ISO, I was the CEO of Tigers Realm Coal, we built a coal mine in far Eastern Russia, so we know what it takes to build a project in a challenging location. Athabasca is considerably straighter forward, particularly given we are out in the Eastern side, we're close to that operating McClain Lake mill, we're surrounded by all of that infrastructure. Of course, the Athabasca Basin in Saskatchewan is known for its mining people and technology so we're in really good shape on that front.

Matthew Gordon: As an investor what am I buying into it?

Craig Parry: You can see what's happening with Arrow. Li had the challenge there: the more they drilled that deposit, the more it grew. It was a very long process to find the edge of the ore body and define what became the greatest Uranium deposit ever discovered. It's certainly going to be the biggest Uranium mine ever built. Look how fast he's advanced that project towards development. We simply want to follow the same path there. Notwithstanding the fact that we'll be exploring along that conductive trend and drilling out the ore body as we go. There's a huge amount of positive news to come out of the company over the next couple of years as we do that. And then we move into PEA - that'll be very positive news for the market as well. It keeps coming. We've got no shortage of great news flow as we move the project forward. We are very excited to get out and test some of those other targets as well. The chances of discovery are very, very high now that we've proven, particularly that Le Rock East trend is highly prospective.

Matthew Gordon: How do management teams go about making decisions as to the right strategy for the time that they're in?

Craig Parry: To make it very clear, certainly the next 18 months are all about resource drill out, resource delineation, ore body knowledge type work to understand what we've got there. If Hurricane keeps expanding out to the East and we haven't defined the limits of the deposit, it is very hard to do a PEA on something we don't understand fully. We'll let the ore body, the deposit informs us as to how to advance the project. If it does keep growing, then we'll probably be drilling for at least another couple of years. Certainly, what we do now is that we've got probably another two serious and expanded draw campaigns to delineate the resource and understand the deposit better. Then we make some decisions around how quickly we advance the project. But I guess, ‘26, ‘27, we've still got 6-7 years, so there's a lot of time to advance the project materially through studies, but that's for later next year that we look seriously at that.

Matthew Gordon:  Craig, keep up the good work up. I know you're starting a summer drill program now, let us know those results as they come in.

Craig Parry: Sure, Matt. Thanks. Always a pleasure.

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

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Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

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