Spectacular Resource: Roughrider Adds 30 MM lbs @ 12% U3O8

Conclusion: We continue to recommend Hathor at BUY and increase our 12-month share target price to C$5.60. We believe Hathor is fast becoming a take-over target. Its 100% owned Midwest Northeast project should be attractive to just about anyone - whether they already have projects in the Athabasca Basin such as Cameco (CCO-T: C$25.92, Not Rated), AREVA, Denison (DML-T: C$1.95, Not Rated), or those that might be interested in getting into the Basin.

With the addition of another 30 MM lbs grading 11.58% U3O8 to Hathor's existing 27.8 MM lbs, the now 58 MM lb U3O8 Roughrider deposit located in the Athabasca Basin has become one of the world great uranium deposits (Figures 1 & 2). Excluding the low grade, its average ranks it fourth in the world after McArthur River, Cigar Lake and Phoenix. Roughrider also overtakes Phoenix in size. We expect further growth - the initial Roughrider Far East resource is expected in the fall.

Hathor's Roughrider deposits are now worth US$3.3 billion in situ using today's rebounding US$57.75/lb uranium spot price. The market cap of the company is only C$250 million….we believe that this is well undervalued and something has to give. We have increased our Roughrider assumption to 69.5 MM lbs from 53.2 MM lbs and value these pounds at US$7/lb U3O8…a 36% discount to Cameco's EV/lb and a 30% premium to the producer group average. We believe this premium is warranted due to the deposits high grade nature, favourable jurisdiction, proximity to infrastructure (road, power line, airport) and the world's only high grade uranium mill at McLean Lake just 17km to the east.

Roughrider now totals 58 MM lbs U3O8 - most of it high grade

·

118,000t grading 11.58% for 30.13 MM lbs U3O8. This new East resource is all high grade and very insensitive to cut-off grades. SRK Consulting used a 0.4% U3O8 cut-off as a base case. The resource remains unchanged at 30 MM lbs is one were to use a 1% U3O8 cut-off. Using a 3% cut-off the deposit still totals 29.2 MM lbs of U3O8.

·

Consistent lower zone makes the difference. The lower basal zone at Roughrider East is more consistent than first anticipated and has held up well from hole to hole. This zone was added to the two known upper zones to make up the core of Roughrider East. The East Zone also grades in line with the high grade core of the West Zone.

·

Hathor over-delivered. The East resource is better then we had expected. We were looking for 22-24 MM lbs U3O8 at ~6.75% U3O8 based on our back of the envelope mineral inventory for just a 40m x 40m x 40m core of high grade situated around Line 20 W. This deposit is 100m west of the Roughrider west resource and immediately east of Roughrider Far East. It measures 120m along strike, 40-50m wide on average, 80-100m thick, and is located at 250m depth or about 30-50m below the unconformity. We re-iterate that this deposit lies within basement rocks which are much preferred for rock quality and ground stability when dealing with unconformity style uranium deposits.

·

Focus on the high grade core. We identify ~54 MM lbs of high grade uranium from the 58 MM lb total resource and believe that this is a better way to look at the economic potential of the deposits. Hathor's breakdown of the Roughrider into inferred and indicated resources suggests only 40.7 MM lbs of high grade mineralization. We believe it is more suitable (although not NI-43-101 compliant) to consider the high grade core of Roughrider West in relation to its lower grade shell, and then to consider Roughrider East (Table 1a and 1b).

Table 1a shows the breakdown of total resources at the Roughrider Uranium deposit using 43-101 compliant categories. This suggests only 40.7 MM lbs of high grade mineralization. Table 1b shows the breakdown of total resources while identifying the high grade core of the West Zone and a total of 54.3 MM lbs of high grade.

Source: Company Reports, Dundee Capital Markets

Strengthening our valuation

· We increase our Roughrider assumption to 69.5 MM lbs U3O8. This is up from 53.2 MM lbs as reality has blown away our previous estimates. We value Roughrider using a pounds-in-the-ground valuation of US$7/lb - until we see some visibility as to timing of production, capital and operating cost assumptions. We had used US$8/lb. HAT is currently trading at an EV per lb of $4.04. This compares to $5.23/lb market value for the producers and C$2.37/lb for the developers. We believe that a take-over value of $7 to $8 per lb seems reasonable.