Topic: Penny Stocks

Penny stocks: Uranium explorer NexGen Energy has high-grade discovery—and high risk as well

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We look at a penny stock that’s exploring for uranium. NexGen Energy has made a high-grade discovery at its Rook 1 property in Saskatchewan’s Athabasca Basin, which contains some of the highest-grade uranium mines in the world. Rook 1 is an early stage property, so NexGen has a long way to go before it can assess whether it can become a profitable mine. However, drilling has returned some extremely high-grade results. The company also recently discovered new mineralization a few kilometres away. NexGen had $20.7 million in cash at the end of September and is raising another $23 million to continue its extensive drilling program. Public sentiment toward nuclear power increases the risk for NexGen. Since the disaster at the Fukushima nuclear power plant in Japan in 2011, demand for uranium has fallen as plans to build new nuclear plants have been delayed or cancelled. In the long term, higher support for nuclear power would spur uranium demand and increase the value of NexGen’s deposit. We view NexGen as a penny stock to hold, but only for very aggressive investors with a high tolerance for risk.

NEXGEN ENERGY (symbol NXE on Toronto; continues to drill at its 100%-owned Rook I uranium property in Saskatchewan’s Athabasca Basin.

The company has reported positive results at the property’s Arrow zone, which it discovered in February 2014. In March 2015, NexGen discovered a new mineralized area, called Bow, 3.7 kilometres northeast of Arrow.

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Recent drilling at the Arrow zone included hole AR-15-57c3, which returned 5.0 metres of a very high 49.60% uranium oxide.

On September 30, 2015, NexGen held cash of $20.7 million, and it’s now selling 35.9 million shares at $0.64 each to raise a further $23.0 million. That gives it the funds it needs to continue its extensive drilling program.

Penny stocks: Uranium demand weaker since Fukushima disaster

It’s a long way from positive uranium showings in early-stage drilling, to defining a uranium resource large enough to support a mine. In addition, anti-nuclear sentiment remains high following the March 2011 earthquake and tsunami that led to a release of radiation at the nuclear plant in Fukushima Japan.

This sentiment has curtailed plans for some new nuclear plants. U.S. regulators are moving toward a less stringent limit on radiation risk, which could eventually revive nuclear plant construction and uranium demand. But this nuclear revival, if it comes at all, will be a slow process.

NexGen’s shares have some speculative appeal, but only for highly aggressive investors.

TSI Network recommendation: HOLD.

For our advice on how to invest in penny stocks, read: Three big warning signs to watch for when picking penny stocks.


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