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TABLE OF CONTENTS Aug 15 - 21, 2011 Volume 97 Number 26 - 0 comments

What's not to like about Hathor?

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By: Trish Saywell
Points North Landing, Saskatchewan 2011-08-15

Mike Gunning likes  the fact that he can get from his desk in downtown Vancouver to within just a few kilometres of Hathor Exploration's (HAT-T) flagship Roughrider uranium deposit in northern Saskatchewan by booking a commercial flight online.

"You can drive your Prius here too - and fill it up with gas," Hathor's president and chief executive told a group of fifteen analysts and investors on a recent tour of the deposit in the eastern Athabasca Basin, about a 10-hour drive from Saskatoon. 

Most people prefer to make the journey by air - an hour and twenty minute flight from Saskatoon, followed by a 10-minute helicopter ride from Points North.

Roughrider is 8.5 km north of Points North Landing, a commercial airport and service community for northern Saskatchewan. Points North lies on Saskatchewan Provincial Highways 102 and 905, gravel roads beginning 426 km to the south in La Ronge and continuing north to the community of Stony Rapids. Hathor's Roughrider deposit is accessed from Highway 905 by a 6-km winter road.

Either way you get there, it's worth the trip. The Athabasca Basin has been producing between 20% and 30% of the world's uranium since the early 1980s, and since the first discovery at Rabbit Lake in 1969, continues to produce exciting new discoveries like Roughrider.

"Geologically speaking, we don't know any natural limit to the total endowment of uranium in this district," the chief executive told his group of visitors on a tour of the property in late June. "The Athabasca Basin continues to be the preeminent high-grade uranium district in the world, and the key message on this trip is to appreciate that Roughrider is becoming above average in the district, and that is what I call 'special within special.' "

In June, Hathor initiated a preliminary economic assessment (PEA) that will be completed early in the fourth quarter, and expects to follow that up with a full feasibility study to be completed by the end of 2012. "The day after we complete the PEA we'll start to work on moving directly to a full feasibility study, given that our drill hole spacing is typically between 75 to 15 metres apart, and you can't do much better than that."

Hathor discovered the West zone of the Roughrider deposit in 2008 under a shallow arm of McMahon Lake, and in 2009 discovered the East zone on land east of the lake. The Far East zone was discovered six months ago about 50 metres east of the East Zone.

The Vancouver-based junior, which joined the Toronto Stock Exchange on April 5, owns 90% of the project and is working to obtain the remaining 10% through an acquisition of Terra Ventures (TAS-V). It has about $24 million in working capital, and no debt.

Resource estimates for the West and East zones were released in late 2010 and early 2011, respectively. The West zone has an indicated resource of 394,200 tonnes grading 1.98% U308 for 17.21 million lbs. uranium oxide, and an inferred resource of 43,600 tonnes at 11.03% U308 for 10.60 million lbs. uranium oxide. The East zone has an inferred resource of 118,000 tonnes at 11.58% U308 for 30.13 million lbs. uranium oxide. 

The current resource estimate doesn't include the Far East zone, which is the focus of this summer's drill program. In the last week of July, Hathor reported a 52-metre intersect of 2.40% U308, including 10 metres at 5.61% U308 from drill hole 11-700, and announced it was extending its drill program from the planned 7,500 metres to 10,000 metres. Earlier assay results include 43 metres at 3.26% U308 in hole 11-698, and 51 metres at 1.69% U308 in hole 11-695. The Far East zone remains open to the east, and a resource estimate is expected before the end of the year. 

"It's big, it's high-grade, it's still open - there's exploration upside," says David Sadowski, a mining analyst at Raymond James in Vancouver, who has a buy on the company's stock with a six-to-twelve-month target price of $3.70 per share. (At presstime, Hathor was trading at $2.99.) 

"There are a handful of other juniors that have world-class assets, but they're much different than what Hathor has, because Roughrider is really unique in terms of grade, depth and location," Sadowski explains. 

"You see other deposits that are a lot larger in terms of their footprint, but they're a lot lower grade and are in places like Australia, or in Africa such as Niger and Namibia . . . Roughrider is in one of the best jurisdictions in the world in terms of infrastructure and in terms of geopolitical risk. Permitting is a little tricky in Canada, but I think that risk is more than offset by being close to the McClean Lake mill and other infrastructure in the area." 

Roughrider is 11 km west of the operating McLean Lake mill complex and less than 5 km along strike of the Midwest uranium project, both owned by Denison Mines (DML-T, DNN-X), Areva and OURD Canada, a subsidiary of Japan's Overseas Uranium Resources Development Company. 

The Waterbury property, jointly owned by Fission Energy (FIS-V) and Korea Electric Power Corporation, shares a border with Roughrider on the west, while Cameco's (CCO-T, CCJ-N) Tamarack deposit and its Rabbit Lake operation are 10 km and 20 km, respectively, to the east. Rabbit Lake is the first and longest standing uranium mill in the Athabasca, and Cameco plans to truck its portion of the uranium output from the Cigar Lake mine to the Rabbit Lake operation once the first phase of milling is complete at McLean Lake.

Roughrider is the first discovery in the Athabasca that from an overall resource grade can compete with Cigar and McArthur, Gunning notes, emphasizing that Roughrider's 12% core grades are significantly higher than the 1-4% grades typical of most operations in the basin.

"And now that resources have been established for both the East and West zones, Roughrider has reached the size threshold of stand-alone previous producers such as McLean Lake and Cluff Lake," he adds. "The production potential of Roughrider is becoming apparent because of its grade, obviously, but also size. Roughrider stacks up favourably in comparison to development projects such as Millenium and Tamarack of Cameco - whether its size, grade, depth or location, Roughrider competes and competes well."

As for the metallurgy, leach tests demonstrated recovery levels of 98.9% and confirm that on a deposit scale, Roughrider contains low levels of deleterious elements such as arsenic, selenium and base metals.

Connecting the Dots

It doesn't take a genius to figure out that Roughrider is already on the radar screens of large uranium miners and utility companies looking to improve their pipelines. Three executives from a large nuclear operator and Asian utility company joined the group of analysts and investors on the trip to the site in June. 

"Kepco is a major player in the area, and China Guangdong Nuclear Power Company is definitely poking around," Sadowski of Raymond James says. "China has a massive nuclear development program - much, much bigger than the Koreans do - so they're going to have ramping uranium demand." 

As for Kepco, it already owns 40% of the adjoining Waterbury property and holds a stake in Denison as well, so it's not hard to imagine that the Korean utility company might be interested in expanding its reach in the neighbourhood.

Then there are the producers within Canada that might be looking to bolster their pipeline. Cameco is talking about doubling its uranium production to 40 million lbs. by 2020, but could do that through its existing assets and organic growth. Its Cigar Lake project, the world's largest undeveloped high-grade uranium deposit, is likely to come on stream in 2014, and the company is increasing capacity at its McArthur River mine. It also has the Millennium and Tamarack development projects.  

When asked about the likelihood of a take-out, Gunning says Hathor "has been and will continue to keep its head down and execute, with an expanding team capable of advancing Roughrider on all fronts," but admits there is heightened interest in the project. 

"Japanese and Korean utilities are active now and have a long history of involvement in projects in the Athabasca Basin, and recent announcements from companies with large but low-grade uranium projects in Namibia confirm that large companies in China are following suit, and are starting to take a more active role in securing yellowcake supply at the early stage of exploration and mining," he says.

Gunning also points out that Rio Tinto (RTP-N, RIO-L) has recently confirmed that there continue to be problems at two of the world's largest uranium mines, with Ranger in Australia continuing to miss production expectations and Rossing in Namibia, which is currently losing money.

As for Cameco, its new chief executive "has made it very clear in numerous recent interviews that Cameco continually looks for and evaluates the best exploration and development projects around the world in order to bolster and improve its own internal pipeline for projects," Gunning adds. "Cameco's focus is on projects with the potential for low-cost production and production within the next ten years."

Hathor believes it is looking at a 10-year timeline to production - about the same it took Cameco to get the McArthur River mine up and running. Cameco discovered McArthur River in 1989, and reaming of the first ore took place on Dec. 6, 1999. McArthur River is the largest annual producer in the world, with ore grades of 15% U308 and higher, which are about 100 times the world average.

"The ten-year timeline from discovery to production at McArthur is our goal for Roughrider," Gunning says. "We have completed significantly more exploration and delineation drilling on Roughrider than Cameco did at McArthur, for example, and the robust nature of the drill data base gives us a detailed knowledge of the mineral zones, and that will be an advantage moving forward, in combination with its location within the hub of an active mining district."

Roughrider is also near surface, which enables Hathor to evaluate open-pit and underground methods. An underground decline model, as has been proposed by Cameco for its nearby Tamarack deposit, has its advantages because it would avoid surface disturbance of McMahon Lake, Gunning says. One model will evaluate an underground decline starting on land east of the lake, and east of the Far East zone.

"The lake is a bit of a pond - it's twelve feet deep," Alistair McCready, Hathor's vice-president of exploration, explained to analysts and investors over dinner in Saskatoon on the eve of the site visit. "You could put a drill in it and stand on top of it."

On a walk-through of the West zone the next day, Gunning picked up juicy - and extremely heavy - bits of core, exclaiming how every time he comes to the property he sees something that reminds him of just how unique Athabasca's 1.6-billion-year-old uranium hydrothermal systems really are.

"I tell the young geologists how lucky they are to work on a hydrothermal system that we call 'best in breed,'" Gunning says. "Most geologists simply never get the opportunity during an entire career to work on mineral deposits that represent the very best hydrothermal systems."

At Roughrider, he adds, "you had everything working right. The right basement rocks, the right unconformity. It really is amazing . . . And in the end, these young geologists are also getting the chance to work on something at the exploration stage that has a genuine shot at coming out of the ground, and again, that is something that most geologists are never fortunate enough to experience in their careers."

As for the downstream side of the industry, the fundamentals are compelling, too, Gunning says, with the industry facing a fragile mine supply, and global mine production 20% below annual demand from utilities around the world operating 440 nuclear reactors, not to mention 61 new plants that are under

And despite the backlash against nuclear power following the Fukushima disaster in Japan earlier this year, Gunning says, the term price for uranium has remained virtually unchanged at just under US$70 per lb. 

"The relatively firm term price tells you that the industry, unlike the market, remains focused on the challenge of the supply and demand gap with respect to primary mine production of uranium," he says. "The term price is based on the long-term contracts made between users, utilities and the major uranium miners like Cameco and Rio Tinto, and these contracts account for by far the majority of global annual uranium production. In order to ensure that they meet their contract obligations, the major miners are continually looking to improve their internal project pipelines."

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Hathor Exploration president and CEO Mike Gunning at the Roughrider uranium project in Saskatchewan's Athabasca Basin. Photo by Trish Saywell
Hathor Exploration president and CEO Mike Gunning at th...
Drill rigs at Hathor Exploration's Roughrider uranium project in Saskatchewan. Photo by Trish Saywell
Drill rigs at Hathor Exploration's Roughrider uranium p...

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