April 22, 2009

We are with Eric Zaunscherb, the analyst with Canaccord
Capital following one of the more intriguing stories of the day
that looks like it might be getting even a little bit more confusing and that’s Hathor Exploration.

David Pescod: Eric, the drilling results recently released,
what do they tell you?

Eric Zaunscherb: What they told me was that first of all that
our geological model for the project is working perfectly. In
other words, we can more or less predict where mineralization
is running and put results as they come out into a proper
context. I think most people at this point following the story
carefully are still using the “shoebox” approach. In other
words, the overall zone is “X” metres long by “Y” metres wide
and “Z” metres thick and therefore that’s how many pounds
you’ve got. That doesn’t really work anymore. Now that we
have more information, we know where the zones are running,
where structures are running, where they are mineralized
and we are very comfortable with how that is all playing
out. But one can see how people are making mistakes in that
shoebox approach.

D.P: One scary thing – a lot of people heard numbers being
tossed around a few months ago that they had 40, 50 million
pounds of uranium and you are writing that so far, you can
only feel comfortable saying that they’ve got about 19 million
pounds.

E.Z: Right. And that’s a classic thing that we see in transition
of a new exploration story. In this, where people use that
shoebox approach and they draw conclusions and they armwave
and I was equally guilty of doing that at the beginning
stages. What you do is again, you come up with X, Y and Z
dimensions and do some multiplication and presto – there is
your answer. As we get further information that changes the
way we approach these things. Is it still possible to get 50 to
100 million pounds? Absolutely. By no means is this deposit
cut off and it is erroneous to assume otherwise. If one does
assume that, it indicates that you don’t have a clear understanding
of the geology of the deposit. The reality is that we
are at this point, looking at something of the order of 19 million
pounds and we are very, very confident in that number
based on our geological model.
That doesn’t mean to say that there isn’t the potential to
double or even triple that, as further drilling is completed.

D.P: Where does this extra 20, 30 or 50 million pounds come
from? Which directions from the shoebox?

E.Z: It comes from within the shoebox really at this point in
time. We are looking at a number of mineralized structures
that are still open to depth and open along strike in either
direction. Much of the mineralization is hosted in these relatively
narrow, vertical northeast structures and as drilling
progresses, we can see expansion of those structures. We
identified within that, another structure which runs east-west
and dips to the north and wherever that north dipping structure
intersects those vertical north easterlies, we get a real
expansion and increase in grade. That is the area that really
carries the grade and that is also open to the east and to the
west and to depth.

D.P: Once again, back to the 19 million pounds. How much
do you add to it from just infill drilling and how much of it is
from these extensions for the future?

E.Z: In terms of the future, you can add considerably on the
extensions on strike and you can also add to depth. The
average thickness of those structures and the grade of
those things are also open at this point. We get some spectacular
intersections within that main zone – that main eastwest
structure and some of those things are running in excess
of 50% or 75% over short widths. It doesn’t take very
much to have the additional infill drilling (five or ten metres
away) to add a lot of pounds where you have these high
grade intersections. The other point we haven’t touched on
yet is the idea of sandstone-hosted mineralization.

D.P: Yes, what is that all about? Remember, you don’t have
to get too technical for our audience…

E.Z: People have described it as the “mushroom”. A lot of
the mineralization to date (almost all of it) has been in the
basement or the older rocks underneath the Athabasca Basin.
That is all hosted in these relatively narrow structures.
What we see in the Athabasca Basin is often a bloom if you
will, or a mushroom-shaped, sandstone-hosted uranium
mineralization at or above the unconformity – the break between
the older and the younger rocks. That is also marked
by a strong alteration. At this point we haven’t seen a big,
fat mushroom like I think perhaps some people were looking
for – the home run if you will. But what we have seen and
that has come out in the most recent news release that there
is mineralization in the sandstone and is it 120 million
pounds? At this point, no. We are looking at smaller things.
But it only takes a block (25 X 25 X 25 metres) at the grade
that we are seeing on an average basis so far, to give us 3.6
million pounds. So that’s a tiny geological target and there
is room for literally hundreds of blocks of that size.

D.P: Now what gives you confidence thinking it is there?

E.Z: Two things. One is that the geophysical anomalies
appear to indicate the potential for alteration. And also the
physical evidence of alteration.
Not just the indirect evidence from the geophysics, but the actual evidence that there is an alteration there that can host a significant unconformity-hosted deposit. Now, it is also interesting in the conference call that they held just right after the news release.
The project geologist referred to something he had seen. It was not in the news release, but basically I can quote you what the geologist said and that is that he had seen a 20 cm wide structure running 1000 counts per seconds; 160 m above the unconformity.
So let’s put that into context. That’s a tiny little structure – 1000 counts per second are pretty good but not a barn-burner. But
what’s exciting is that there’s uranium being deposited in the sandstone, 160 metres above the unconformity. That tells you two
things – one, that the system is strong and two, that the chemical conditions are there for uranium to be deposited that far away
from the unconformity. So that leaves us very, very optimistic that additional sandstone-hosted mineralization will be discovered.

D.P: One thing that sure stands out when you look at a map of the area is that they are drilling an awful lot of holes in a very, very small area. Is that meaning that once again, this play is that concentrated?

E.Z: It is very concentrated. As I mentioned earlier, these are very tiny deposits. To have gone in there as many in the markets
have suggested and just throw all their drill holes at the main geophysical target, would have been a very, very bad thing to do. It would have been scientifically unjustifiable. The chances of missing are high and as we can see, people are complaining that only six of 24 holes reported were any good. Well that’s a grid-based drilling program and implies that you are looking for the limits of mineralization on a systematic basis. By definition, you are going to get a lot of duds that way - as soon as you get out of the area of mineralization. This is the correct approach though. And consequently as they start filling in the drilling, there is a greater probability of hitting mineralization.

D.P: I think most people new to mining would expect every hole to hit, but in a good pattern, usually what, one in four or even one
in 10 would be considered good?

E.Z: I wouldn’t disagree with you on that David.

D.P: Now when an analyst is setting price targets (you have a $3.75 target) is that based on what they have now, what they have
now and what is wished for, or what?

E.Z: As you have already eluded, we’ve got this 19 million pound conceptual resource and what I have to emphasize is that’s it’s
not an NI-43-101 resource, but a concept. We are very confident in that. Now the next step is to start applying economics to that,
the financial model that we employ is the 35 million pounds of the same grade. And that’s reflecting the fact that we are very confident that additional mineralization will be discovered over the next six to 12 months. In answer to your question, we are looking at what we think is there and what we believe confidently that they will find.

D.P: Is there another question that should be asked here?

E.Z: I think one needs to keep in mind the politics and the strategy associated with a new discovery like this. Here we have a superior deposit, sitting there in the Athabasca Basin. The Athabasca Basin delivers one-quarter of the world’s mined uranium annually.
So here you’ve got this superior project sitting there, it’s closer to surface than almost any of the other projects in the camp – therefore it is largely expected to be open-pitable and therefore good economics. It has the potential to be scaled-up significantly as we said these targets are tiny and as you tighten up the drill spacing, there is a very good chance we’ll see a big lift in the numbers of pounds. We have great infrastructure. We have two processing mills within 15 km owned by senior companies and these are under-utilized. So we consider these companies to be natural buyers. But if I were a buyer, I would certainly be down-playing the story. I would get my friends to down-play this story. I would do all of the usual tricks that we see in this business. So I would view any of the negative stuff that one hears about this play with some suspicion.

D.P: We might as well end this our favorite way…if you could only buy two mining stocks today, what would they be?

E.Z: We have already been talking about it. Hathor Exploration would be my number one choice. Following along the uranium
theme, I would also be looking at Ur-Energy.

D.P: Thank you so much Eric!

Disclosure: Hathor Exploration and UR-Energy Inc: Canaccord Capital covers these stocks and has a Speculative Buy rating on them. (Speculative buy: Stocks bear significantly higher risk that typically cannot be valued by normal fundamental criteria. Investments in the stock may result in material loss.)

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