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Spec Value Hunter Comment - October 9, 2009: Quest Uranium announces up to $10 million financing for Strange Lake rare earth project
 Quest Uranium Corp announced on October 8, 2009 that Pope & Company Ltd and MGI Securities Inc will co-lead a private placement financing of 3,043,500 units at $2.30 representing $7 million, with a greenshoe option to raise an additional $3 million, bringing the financing potential to $10 million in the form of 4,347,827 units. Each unit includes a half warrant exercisable at $4.25 for 18 months, an unusual premium above the private placement price. Quebec based Desjardin Securities Inc will also form part of the financing syndicate. Although the financing price is considerably lower than the $3.00-$4.14 range achieved during the past couple weeks after Quest released initial assays for the BZone, I issued a Good Relative Spec Value Buy at $3.14, and Jim Dines issued a coded recommendation of Quest through the Jim Dines Letter, getting up to $10 million into the treasury ahead of winter and potential trouble in the senior equity markets will be an important milestone for Quest. (Because Dines' subscribers like to disobey his instructions not to forward his newsletter, which is issued in a very forwardable pdf format, he sometimes disguises his recommendations by referring to them as watch stock number X from recommendation series Y so that only subscribers who have all his issues in their inbox can figure out what stock he is talking about. Needless to say, this device deployed by the master of psychology enlists his readers in what amounts to a treasure hunt in which they believe they have an edge over the masses who have only fragments of Da Dines Code.) The street, however, is much more tuned into practical issues such as the fact that two very cheap private placements come free trading during the second half of October or in early November, namely 6,818,180 units at $0.22 (in which John Kaiser participated) and 1,714,285 flow-through shares at $0.35, and Quest's need to complete a serious financing if it wants its Strange Lake project to be taken seriously. During the past couple weeks there has been an increase in bashing on the Quest Stockhouse Bullboard by posters describing Rare Earth Mania as nothing more than a bubble which will pop much faster than the uranium bubble in which Jim Dines played a prominent role. These bashers are either old-fashioned shorts or parties trying to talk the stock down so that they can scoop a cheap financing. In any case, the Quest financing was supposedly fully subscribed within 24 hours, much as was Avalon's $17 million special warrant at $2.30 when it was announced on August 31. Unlike Avalon's financing, which was a bought deal, as is the A $450 million Lynas Corp financing underwritten by JP Morgan, the Quest financing will be done when it is done, and so we may not know until the projected closing on October 28. Conveniently the October 8, 2009 issue of the Economist has an article on The Hunt for Rare Earths which acknowledges the security of supply problem facing non-Chinese manufacturers while pointing out that rare earths are the latest commodity bubble to attract speculators. The article refers to our Rare Earth Index and marvels about one unnamed index member that is up 4,000% so far this year. It is too soon to tell if the Economist article will fuel or deflate the "bubble", but we are not particularly worried about Quest Uranium Corp whose BZone at Strange Lake in northern Quebec is shaping up as a world class rare earth discovery.
If the entire financing is completed Quest will have 50.4 million shares fully diluted, which with a 100% net interest and a $2.69 stock price implies a project value of only $136 million. To put things into perspective, when Dia Met discovered Ekati in 1991, the stock reached an implied project value of $2 billion within 2 years for what ultimately was a diamond resource with an in situ value of only $6 billion based on the final feasibility study in 1997 which proposed putting 5 pipes into production representing 65,900,000 tonnes with an average rock value of US $92 per tonne (1996-97 Dia Met annual report). Keep in mind the core concept that if all gem diamonds mysteriously flash evaporated into carbon dioxide, the fate of the world would be unchanged, whereas if all the rare earth elements embedded in technologies mysteriously decayed into a lesser element, the human world would literally grind to a halt. During the next six weeks Quest will continue to release drill results from its BZone which I expect will flesh out the third dimension of the large surface sampling footprint, providing geological support for a world class dream target comparable in scale to Ekati. We confirm our Good Relative Spec Value Buy for Quest Uranium Corp.
*JK owns shares in Quest Uranium Corp
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