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Hathor Exploration:5.5 Metres of 12.6% U3O8 and up to 68.1% U3O8

By James West
MidasLetter.com
Friday, May 8, 2009

Download the PDF version of this 12 page report.

Key Drivers:
• Hathor’s most recent drill results yielded an incredible 5.5 Metres of 12.6% U3O8 at the unconformity and intercepted up to 68.1% U3O8 in a new basement zone at Roughrider;
• Hathor’s continuing drill program on its Roughrider property in Saskatchewan’s uranium-rich Athabasca Basin continues to deliver double digit percentage grades of U3O8 mineralization.
• The company is a prime candidate for a takeover by major Uranium producers with mill capacity in the region that would benefit from Hathor’s inventory;
• Uranium prices have seen the bottom and numerous global indicators suggest that a shortage of uranium could plague the industry within several years if new resources are not developed;
• Considering the relatively tight capital structure relative to the advanced state of exploration on the project, Hathor shares will likely develop good beta response to uranium price fluctuation, meaning opportunities for shorter term profitable trades are likely;
• Canadian Investment Banks are almost uniformly following Hathor, with price targets ranging from $1.45 (GMP Securities) to $6.10 (Raymond James), with all but GMP recommending accumulation.
• Grades ranging from 12% up to 68% have been encountered in the recently intercepted New Basement Zone, demonstrating continuity and grade improvement continues throughout the Roughrider property.

Hathor released the latest batch of chemical assays from 24 holes of the winter drill program. Of the 24 drill holes, nine were un-mineralized and nine intersected relatively low grade mineralization; these results are to be expected in the context of a grid drilling program.

The remaining holes returned excellent results including 10.18% U3O8 over 12 metres (Hole 79A) and 3.43% U3O8 over 18.5 metres (Hole 80). Importantly, there are sandstone-hosted uranium mineralization (Holes 18, 30, 68, 72 and 87), which opens up the potential to add pounds above the unconformity and, ultimately, reduce the strip ratio. Holes 18, 30, 72 and 87 form an interesting cluster of sandstone-hosted mineralization that must be followed up.

Results from a total of 40 holes have now been released, of which 16 were un-mineralized. There are still results pending.

It is too early to know the orientation of the sandstone-hosted mineralization but the alteration package suggests a large system. In the post-release conference call, Hathor’s project geologist cited a 20 centimeter wide structure running 1000 counts per second (cps) fully 160 metres above the unconformity.

Analysts Bullish on Hathor
According to a report published on May 1st By BMO Capital Markets (U.K.):

“Historically, the market has reacted favourably to the discovery of high-grade mineralization in the Athabasca Basin. Below are two charts showing the share price performance of Hathor Exploration since it announced the discovery of high-grade mineralization in February 2008.

Hathor’s Midwest North-East project is located close to Denison’s 25% Midwest property and is closer to surface than the Wheeler River mineralization."

Raymond James analyst Bart Jaworski, himself a geologist has issued the most bullish of recommendations on Hathor.

“We are maintaining our STRONG BUY rating and CA$6.10 price target. Our target is based on a $5.04 NAVPS and a 1.2x P/NAV multiple. Our NAVPS assumes a target size of 30 million pounds of U3)8 at and average grade of 3% valued at CA$12 per pound”, he says.

“The picture emerging from the data thus far is a series of semi-continuous lenses generally along a fault plane striking NE, deepening to the NW and shallowing to the SE. The entire Roughrider zone is situated within a NE trending fault zone crosscut by NW secondary faults.”

Haywood Securities geologist/analyst Chris Thompson is also bullish, but does not issue any price target. According to Thompson:

“Strike extension potential still remains to the southwest and northeast, demonstrated by encouraging radiometric counts (Holes MWNE-09-88A, MWNE-09-96, MWNE-09-126, and MWNE-09-116). Hole MWNE-09-116 returned an encouraging off-scale 3.5 meter intercept. The release of additional chemical assays will confirm this potential. The realization of up/down dip extension to the Southeast/Northwest is becoming important as extension potential along strike to the Northeast and Southwest.

The coincident gravity and resistivity lows, currently defined by a 350 metre strike length, continues to support potential to expand the Roughrider zone to the northeast and southwest. However additional geological modeling is required to test their relevance and to incorporate the effects of potential faulting and additional mineralized zoned inferred through drill intercepts released to date.”

Canaccord Adams also recommends the company. Geologist/analyst Wendell Zerb had the following comments in his recommendation of April 16, 2009:

“We value Hathor and its 90%-owned Roughrider project on a cash flow basis discounted at 10%. The financial model examines a 200 t/d operation based on the advanced technical studies for the nearby Midwest deposit with a capital cost estimate of US$380 million. The hypothetical project would produce approximately 2.9 million pounds U3O8 per annum at a cost of approximately US$20 per pound beginning 2017.

We have applied the new resource estimate to our model assuming success over the next three years at expanding Roughrider to 34 million pounds at the same grade. We believe that this is a reasonable assumption given the demonstrable exploration potential remaining. We generate a project NAV of C$514 million, or C$5.98 per basic share. We apply a 0.6x target project P/NAV multiple to generate our C$3.75 per share price target. The 81% projected return continues to support a SPECULATIVE BUY rating.

Hathor’s share price, since peaking in mid-January at C$3.69, has been under pressure from a sliding spot uranium price, unmet expectations for home run unconformity-related mineralization and potential misinterpretations of data to-date. Hathor is currently trading at 0.3x project NAV and at 0.4x corporate NAV of C$4.95 per share.”

Uranium Shortage Looming?
Uranium is going to be in short supply in the not-so-distant future, according to a report issued recently by Toronto-based Salida Capital Corp. According to the report:

“It is conceivable that the uranium industry may need to expand annual mine production by more than 50% during the next decade in order to meet demand from new reactors. In the ten–year period to 1997 the industry was only able to grow annual production by 14%, despite a spike in prices and significant spending on exploration and development. Today, the industry faces financing challenges in addition to the regular geological, regulatory, and operational hurdles. Should the mining industry come up short, the incremental supply will have to come from larger draws on finite government inventories. Otherwise nuclear power projects will be cancelled for lack of fuel.

Meanwhile, today’s uranium price provides limited incentive to explore for and develop new mines, while existing operations and known deposits face a myriad of challenges. The marginal cash cost for the uranium industry is believed to be in the US$45–$50/lb range, higher than today’s spot price. Adding in a reasonable return on investment suggests a minimum US$60–$65/lb contract price to justify investment in a typical new project. Given that reactors are far more concerned with security of supply than the actual price of uranium, there would seem to be little resistance to higher prices should market conditions tighten.”

And Salida isn’t the only group predicting stronger demand for uranium in the near term. RBC Capital Markets issued research on April 29 that concurs with Salida’s stipulations.

“Based on our supply demand outlook, we think the uranium market will be facing substantial deficits and that utilities will have to pay higher and higher prices to secure both spot and long-term supplies. We also believe that the longer the spot price remains depressed (e.g. below US$70/lb), the more dramatic the price run-up will be.

We have revised our valuation for the uranium sector to reflect our view that we are at the early stages of a bull market, but we think the peak levels are still more than two years away. We think that equity pricing at the peak could be driven by NAV multiples that exceed 2.5 times for the more spot sensitive equities like Paladin and Uranium One.”

The RBC report builds a strong case for increased uranium prices by the end of this year.

“We believe we have just recently come off the bottom with respect to the spot price. Looking to the future, we are forecasting the uranium price will increase from its current spot price of $44 per pound to the mid-$50 per pound by the end of 2009. Longer term, we believe the uranium spot price will need to increase significantly to provide the proper stimulus to uranium companies to develop new mines. We think the price increase will happen one of two ways: (1) the spot market will tighten in advance of demand increases, providing sufficient time for new mine development; and (2), new, incremental demand drives the spot price higher, but given the inability for supply to react quickly (e.g. years, not months), the spot price could increase very dramatically, perhaps even mirroring the 2006-2007 bull market. Our forecasts are assuming the first option occurs resulting in higher prices, but with some moderation to price increases.”

The Athabasca Basin
The only Canadian uranium mills in operation today are in the Athabasca Basin. Investors in uranium equities should consider where exploration projects in other parts of North America plan to process the ore from their discoveries. Not all uranium pounds are created equal and because Hathor's Midwest NorthEast target is located only 11km from AREVA's Mclean Lake Mill and 25km from Cameco's Rabbit Lake Mill, the potential value our Roughrider Zone discovery is enhanced because of the and practical proximity to current production facilities.

Midwest Northeast (Roughrider)
The Midwest NE property is Hathor's most advanced project. The focus of the current exploration programs is the Roughrider Zone where significant drill results have been encountered.*

The property is 90% owned by Hathor and totals 502 hectares (1,240 acres). The property is located approximately 4 km to the northeast of the Midwest uranium orebody owned by AREVA, Denison Mines Inc. and OURD Canada Co. Ltd. The Midwest orebody contains 41.7 million pounds of uranium oxide at a grade of 5.47% U3O8 in addition to 4.37% nickel and 0.33% cobalt.

Hathor's Midwest NorthEast project is also located only 900 metres to the northeast of the Midwest property Mae Zone discovery which contains an additional 19.5 million pounds of U3O8 at a grade of 1.57% U3O8.

Drill Results
During the winter, Hathor completed 30,711 meters of diamond drilling in 89 drill holes from the ice of South McMahon Lake. Assay results have now been presented for 50 of these drill holes. Full U3O8 assay results, detailed drill collar information (for the entire winter's drilling), select pictures of altered and uranium-mineralized drill core and scintillometer (CPS values) are available on Hathor's website at www.hathor.ca.

On April 30th, Hathor release the results from eight of ten holes that intercepted uranium mineralization. High-grade highlights of U3O8 assayed core-length intervals* (using a 0.05% U3O8 cut-off grade) from four of these eight drill holes include:

Drill hole MWNE-09-91 (angled hole):
• 18 metres grading 2.19% U3O8 from 233.5 to 251.5 m core-length in the basement

Drill hole MWNE-09-94 (vertical hole):
• 5.5 metres grading 12.62% U3O8 from 205.0 to 210.5 m core-length at the unconformity, including:
• 3.0 metres grading 22.78% U3O8 from 206.5 to 209.5 m core-length
• 2.5 metres grading 26.40% U3O8 from 260.0 to 262.5 m core-length in the basement, including:
• 0.5 metres grading 68.10% U3O8 from 261.0 to 261.5 m core-length

Drill hole MWNE-09-97 (vertical hole):
• 7.0 metres grading 2.83% U3O8 from 209.5 to 216.5 m core-length at the unconformity, including:
• 2.0 metres grading 8.16% U3O8 from 210.5 to 212.5 m core-length

Drill hole MWNE-09-101 (vertical hole):
• 3.5 metres grading 3.82% U3O8 from 211.0 to 214.5 m core-length at the unconformity, including:
• 1.5 metres grading 7.83% U3O8 from 212.0 to 213.5 m core-length; and
• 3.5 metres grading 16.98% U3O8 from 217.5 to 221.0 m core-length in the basement

These holes are in addition to previously successful drill holes as follows:

Drill hole 08-12 12
• 11.9 m grading 5.29 % U3O8, including;
• 0.2 m at 40.20 % U3O8

Drill hole 08-20 20
• 15.0 m grading 10.02 % U3O8, including;
• 2.0 m at 43.85 % U3O8.

Drill hole 08-21 21
• 9.0 m grading 10.06 % U3O8 including;
• 3.0 m at 22.72 % U3O8

Drill hole 08-28 28
• 9.5 m grading 2.60 % U3O8, including
• 2.0 m at 10.39 % U , including
• 2.0 m at 10.39 % U3O8

Drill hole 08-30 30
• 69.0 m grading 2.33 % U3O8, including;
• 9.0 m at 10.54 % U3O8

Drill hole 08-32 32
• 6.5 m grading 20.41 % U3O8

Drill hole 08-33 33
• 46.0 m grading 3.25 % U3O8, including ;
• 7.0 m at 11.99 % U3O8

Drill hole 08-34 34
• 6.5 m grading 8.93 % U3O8

• Drill hole 08-37 37
• 18.0 m grading 4.15 % U3O8, including
• 9.0 m at 8.22 % U3O8

Drill hole 08-40 40
• 23.0 m grading 11.23 % U3O8, including;
• 7.0 m at 28.14 % U3O8

Drill hole 08-42
• 3.5 m grading 5.92 % U3O8

Other Uranium Projects
Hathor has been acquiring projects in other promising areas where the potential for both high grade and low grade uranium mineralization. These include:

Henday Property The Henday property consists of 7,204 hectares located along the same northeast trend of deposits that host over 60 million pounds of uranium at the AREVA/Denison Midwest Lake mine development project and the emerging Roughrider zone discovery currently being drilled by Hathor.

Hathor can earn up to a 60% interest in stages by spending $3.5 million in exploration over three years and making a payment of 150,000 shares. Hathor's first year commitment is to complete a $500,000 ground electromagnetic and gravity survey program. A further 10% interest in the property can be earned by completing a feasibility study.

Forum completed a drill program that was successful in identifying a strong illitic alteration halo with associated tectonization, quartz dissolution and anomalous uranium, boron, and base metal geochemistry at Mallen Lake. These features are indicative that uranium ore forming fluids have been at work on the Henday property. This area is located only 2 km north of AREVA's Mallen Lake showing where drill intercepts of 5.9% U3O8 over 0.3 m have been reported in basement rocks from previous drilling.

Russell Lake Project Hathor has a 40% interest in 15 claims totalling 45,742 hectares (113,031 acres). Northern Continental Resources is the joint-venture partner. Under the terms of the partnership the operatorship alternates each year.

The property is bordered to the west by Denison's Wheeler River property and to the east by Denison's Moore Lake property. McArthur River, the world's largest uranium mine in production to located to the north of the property. Depth to the unconformity ranges from 215 to 575 metres.

On May 1, 2009, Denison announced that it has agreed to take over Northern Continental Resources in an all-share transaction.

Russell South Project Hathor has a 90-100% interest in eight claims totalling 25,928 hectares (64, 069 acres). The property is located approximately 20 km northeast of the formally producing Key Lake mine and approximately 50 km southwest of the McArthur River Mine. To the east, the property adjoins the Denison's Moore Lake property.

Depth to the unconformity ranges from approximately 100 to 300 metres.

Hatchet Lake and North Hatchet Projects The 100%-owned Hatchet Lake and North Hatchet projects are located approximately 50 km to the north-northeast of Cameco's basement-hosted Eagle Point Mine; part of their Rabbit Lake operations, which is Saskatchewan's longest-running uranium producer since opening in 1975.

Hathor has completed a high-resolution airborne tri-axial gradiometric magnetometer survey in the area of its Hatchet Lake Property. Results obtained from this survey will help to identify and map favourable structural features (fault zones) and lithostratigraphic units that are key elements in the search for unconformity-related uranium deposits in the Athabasca Basin area of northern Saskatchewan.

In addition, an extensive lake-sediment sampling program has been performed on the Hatchet Lake property and samples have been analysed. Analytical results indicate that certain of the samples contain highly-anomalous uranium values

Vedette Lake Project Following initial reconnaissance exploration work, Hathor converted its 100% interest in one Exploration Permit to mineral claims located approximately 120 km southwest of AREVA and Cameco's Key Lake uranium processing facility and former-producing mine. Exploration work completed, or planned, includes high-resolution helicopter magnetic and electromagnetic surveys, ground geophysics, prospecting, geological mapping and geochemistry and lineament analysis including IKONOS satellite imagery analysis.

Milliken Creek Project Hathor's 100% owned Milliken Creek property is comprised of one claim totalling 3,995 hectares (9,872 acres) that is located approximately 26 km south-southeast from the richest uranium mine development project in the world, the Cigar Lake orebody where proven and probable ore reserves average 20.7% U3O8.

Depth to the Athabasca unconformity is estimated to be 80 to 125 metres. Exploration work completed or in progress includes lake sediment geochemistry, a high-resolution airborne tri-axial gradiometric magnetic survey, lineament analysis and a high-resolution 2D reflection seismic survey.

Exploration work planned includes ground gravity surveys, fixed and/or moving loop ground TEM surveys and resistivity surveys to help identify areas of sandstone alteration. Drill targets will be established when the aforementioned work is completed.

Old Fort Bay Project Hathor holds a 25% interest in a joint venture with Triex Minerals Corporation (the operator) on Permits covering 87,040 hectare (215,081 acres) of the Athabasca Basin in Alberta. This property is located approximately 35 kilometres from AREVA's formerly-producing Cluff Lake mine and about 50 kilometres northeast of AREVA's Maybelle River property where reported drill intercepts have been reported of up to 21% U3O8 over 5 metres with individual assays of up to 54.5% U3O8.

To date, exploration work completed by the joint venture includes a 2,924 line-kilometre MEGATEM survey (the most powerful airborne EM system in the world today), the re-examination of old drill core and compilation of historic data.

At Old Fort Bay, the depth to the Athabasca unconformity is estimated to be over 800 metres.

Carswell Project The Carswell Project is a joint venture with ESO Uranium Corp. ("ESO") on claims that border AREVA's past-producing Cluff Lake mine in the western Athabasca Basin. ESO has earned a 50% interest in the project by spending $1.1 million in exploration work which included airborne electromagnetic and magnetic surveys, ground horizontal loop electromagnetic surveys, radioactive boulder prospecting, radon surveys and diamond drilling of identified targets. Uranium mineralization was discovered during the drill program and ESO is reviewing the data.

Wollaston NorthEast Project Hathor has a 49% interest in the Wollaston NE property; a joint venture project with Triex Minerals Corporation (the operator). This property was originally comprised of six prospecting permits covering 184,475 hectares that were centered approximately 80 km to the northeast of Cameco's basement-hosted Eagle Point Mine.

Exploration work completed by the joint venture includes: 2,802 line kilometres of digital helicopter electromagnetic (DIGHEM V) survey conducted by Fugro Airborne Surveys; lake sediment geochemistry; detailed lineament analysis (including IKONOS satellite imagery); two ground-based resistivity surveys totaling about 30 line-kilometres and integrated structural studies with regard to mineral potential for basement-hosted, structurally controlled uranium deposits.

Following complete processing, integration, modeling and interpretation of all geological, geochemical and geophysical data sets into a comprehensive GIS project database and, according to Saskatchewan regulations, staking of five mineral claims within the permit holdings was completed and filed. The project area is now reduced to 15,173 hectares. Target delineation on the Wollaston NE property will continue with a planned surface program of mapping, prospecting and further geochemistry.

Haultain River Project Hathor and Forum Uranium Corp. each have a 50% interest in the Haultain River joint venture, with Forum as the operator. The project area is located approximately 90 km southwest of the Key Lake uranium mill complex of AREVA and Cameco. Saskatchewan Provincial Highway 914 provides year-around access to Key Lake and crosses the Haultain River property.

Hornby Bay (North West Territories) The Hornby Bay formation hosts the Eldorado Uranium Mine and the Mountain Lake uranium deposit. Host rocks in the area are mainly Proterozoic sediments of the Hornby Bay Basin.

Hathor Exploration has acquired several large land positions totaling nearly 19 million acres in the vicinity of Great Bear Lake in the North West Territories. These permits are located to the northeast and northwest of Great Bear Lake and were selected to take advantage of proximity to basal units in the Hornby Bay rocks which include some coarse clastic members. These units may be favourable for the localization of higher grade, chemical front type uranium deposits similar to those found at the base of the Athabasca Basin in Saskatchewan.

In addition, the Company has also been awarded a 100% interest in the uranium rights to sixteen prospecting permits covering approximately 600,000 acres in the same area of the Northwest Territories. Fifteen of these permits are contiguous. These permits, acquired as part of the Jaeger Joint Venture, flank the east side of the 50% interest permits Hathor had previously acquired. Several copper-uranium showings were located in this area during the period 1978 to 1981 but little follow up work was done.

A single permit of approximately 15,000 hectares in size was also acquired covering part of a graben-like structure that has preserved an outlier of similar Proterozoic (Hornby Bay) sediments on the south side of Great Bear Lake. The location is approximately 50 kms west of the old Terra Mine site. This land holding is also adjacent to recent permits acquired by Cameco. Several uranium showings have been reported within the permit area. The Company is conducting a review of historical data which will determine the significance of these showings.

The timely acquisition of these substantial land holdings in a recently recognized uranium bearing terrain place Hathor in an excellent position for new discoveries and joint venture possibilities.

Conclusion
Hathor is one of, if not the top exploration junior in uranium in the world. Its high grade assets in the Athabasca region of Saskatchewan virtually guarantees that the company will be purchased outright, or else a joint venture with a major company on the Roughrider project is inevitable.

With its collection of joint venture projects with other juniors in politically stable jurisdictions, there is plenty of blue sky potential for the future. The fact that the company has capitalized itself at premium prices throughout the financial crisis, and has avoided dilutive flow-through financings demonstrates an ability on the part of management to deliver pounds in the ground at a low average weighted cost of capital, which will translate into better performance of shares relative to 43-101 resources as the project advances through resource estimation phases.

The risk for Hathor investors would appear to be limited to the price risk for Uranium in the future, and increasingly, it appears that demand for Uranium will improve as nuclear reactors with advanced safety features gain acceptance worldwide as a source of clean green power.