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Spec Value Hunter Comment - March 19, 2010: Quest's Strange Lake resource estimate expected by end of March
 Quest Uranium Corp announced its 2010 exploration plans for Strange Lake on March 17, 2010 and indicated that a 43-101 resource estimate for the BZone rare earth deposit will be delivered by Wardrop Engineering by the end of March or early April. Peter Cashin's best guess for the timing is the week of March 29. This will be a watershed event for Quest because it will give the market the hard numbers it needs to crunch the economic potential of this new discovery made in 2009 northwest of the Main Zone discovered and delineated by Iron Ore Company during the eighties. The resource estimate will include tonnages and grades at a variety of cutoff grades. In Tracker 2009-11 published on December 15, 2009 I offered some rough tonnage estimates for the BZone to give us a feeling for what to expect. While I am fairly confident about my larger tonnage footprint estimates I am eager to see what numbers Wardrop comes up with for the higher grade pegmatite horizons which would be the initial target for open pit mining. I had eyeballed a pegmatitic slab of 800 m by 350 m by 30 m grading 1.27% TREO with a rock value of US $275 per tonne using the 4 year price average Wardrop used as a benchmark for its Nechalacho resource estimate in early 2009. If the formal results from Wardrop are anywhere near this number, which translates into a US $6.6 billion in situ value, the current $126 million value implied for Quest's Strange Lake project will look very cheap. The larger tonnage footprint would have an in situ value in the $10-$20 billion range, making comparable to Avalon's Nechalacho deposit without the throughput constraints of an underground mining scenario. Note that parity pricing with Avalon would put Quest at about $5. Quest plans to produce a scoping study by mid June 2010 which will include at least two main transportation scenarios: a road to Schefferville 175 km to the southwest of Strange Lake which is entirely in Quebec, and a road 125 km eastwards through Labrador to Nain, site of the Voisey's Bay nickel-copper mine operated by Vale. This will quantify the costs of solving a key concern about the economic viability of Strange Lake, namely its remote location. The key concern, of course, is the nature and cost of the recovery process for the BZone ore. Hazen Research has already completed mineralogical and liberation studies, and is currently conducting rare earth separation experiements on BZone material, the result of which is expected by early May.
Quest plans to resume work at Strange Lake in June with a 15,000 m drill program involving four rigs. Of this 13,000 m are earmarked for the BZone whose upcoming inferred resource is based on 150 m centres. Two rigs with deeper capacity than last year's rig will focus on drilling holes on 50 m or 75 m centres in order to upgrade the resource to measured and indicated, as well as test the depth extent of the BZone (all of the 2009 holes were stopped in mineralization). A third drill will be used to probe the eastern extension of the BZone while a fourth rig will test other targets identifed last year through prospecting such as B East. Although you would never guess it by watching Quest's stock price action, the Strange Lake story has ended up on quite a few radar screens. One of the more important ones is that of the Quebec provincial government. High level officials have latched onto two themes of potential economic significance to Quebec. One is opening up Quebec's northern mineral potential through the development of transportation infrastructure in which regard the Renard diamond project has already shown the way and now Strange Lake is doing it in terms of a world class rare earth resource. The other is the possibility that establishing a port city like Montreal as a major rare earth processing centre would have huge downstream job implications that could easily encompass materials science R&D and would readily mesh with the clean energy technology sector Quebec is already cultivating. A formal resource estimate for the BZone could be the tipping point for a dramatic intensification of interest in Quebec's rare earth potential.
 Another radar screen we should not ignore are the Freewest shareholders who ended up with 0.02016 shares of Cliffs Natural Resources Inc (CLF-N: $64) for each Freewest share when Cliffs' takeover bid closed on January 28, 2010. At the time Cliffs stock was trading at $40 which translated into a $0.89 Freewest stock price and a $217 million overall value for the takover of Freewest and its Black Thor chromite project in northern Ontario. Since then Cliffs has resumed an uptrend and now trades at $64, giving the paper issued to Freewest shareholders a value of $314 million. Cliffs has not been in a hurry to sell the 3.7 million Quest shares it inherited from the Freewest takeover, and it is doubtful that former Freewest shareholders have been in a hurry to sell their Cliffs stock which provided capital gains deferral and is marginable. Given that Quest's rare earth story belongs to the same specialty metals class as Freewest's chromite story, and will also soon be demonstrated to involve multi-billion dollar value potential, one has to wonder how long it will be before the beneficiaries of the Freewest windfall seek out Quest as the next big story. I have had an open Good Relative Spec Value Buy recommendation since September 23, 2009 when the stock was at $3.14. Since then we have seen Quest's fundamentals firm up and the rare earth space heat up. In a couple weeks I expect Quest's fundamentals to become solid. At the same time the US congressional hearings currently exploring America's vulnerability to China's domination of rare earth supply are bound to turn up the heat on this topic. Based on a conversation I had with a Molycorp representative I expect Molycorp to make key SEC filings in May that could set the stage for a major rare earth based IPO as early as June 2010. By then Quest Uranium Corp will be in a completely different league, well beyond that of Kaiser Bottom-Fish Online and perhaps even testing the limits of The Dines Letter. Quest Uranium Corp is a Good Relative Spec Value Buy at $2.59 up to the $3.14 limit prior to the resource estimate. If the resource estimate is in line with expectations, and the stock is still below $3.14, the recommendation would switch to a Good Absolute Spec Value Buy.
*JK owns shares in Quest Uranium Corp
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