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Spec Value Hunter Comment - July 20, 2012: Uravan drilling Big Anomaly at Halliday Lake
 Uravan Minerals Inc started drilling its Big Anomaly uranium target at Halliday Lake in the Athabasca Basin on July 17. Halliday Lake is one of the properties Uravan received from Cameco in exchange for transferring its 49% Boomerang stake in Nunavut's Thelon Basin in late 2010. In April 2012 Uravan agreed to option Halliday Lake as well as Stewardson Lake, also part of the Boomerang swap, back to Cameco in a deal which allows Cameco to earn 51% in both by spending $7 million over 4 years, which Uravan gets to operate, after which Cameco can boost its stake to 70% by spending an additional $15 million, with Cameco having the choice of becoming operator of the second round. This deal was formalized on July 17. It is very unusual for a major like Cameco to want something back it had discarded after doing its own exploration work to reduce the success potential, but during the last couple years Uravan has made significant progress demonstrating the plausibility of its radiogenic lead isotope "remote sensing" method for identifying uranium targets at the unconformity between the sediments and the basement in the Athabasca Basin. I describe this method in detail in my Spec Value Hunter Comment - February 3, 2012, but, in brief, Uravan uses the ratio of a pair of lead istopes that are the decay daughters of uranium to measure the proximity of a blind uranium deposit. Key to this approach is the theory that microbial activity liberates these lead isotopes from the deposit so that groundwater can carry them to the surface where they get absorbed by clay and vegetation. Uravan has developed a protocol for collecting the right soil and treecore samples, assaying them properly, and determining what ratios indicate a nearby uranium deposit as deep as 1,000 metres. The geological and structural setting for unconformity style uranium deposits is well known, but, because the deposits are blind, geophysics is the primary tool used to generate targets, followed by logging drill core to map the basin stratigraphy and structural architecture. The problem is that although the structural trap may be perfect, it usually did not trap a rich uranium deposit, which makes Athabasca Basin uranium exploration a very expensive, disappointment soaked process that worsens the deeper one follows the unconformity's descent into the basin. A geochemical method that can eliminate more than 90% of the targets as false is the Holy Grail of uranium explorers, one that Larry Lahusen's Uravan team has pursued for more than a decade. Cameco let Uravan use Cigar Lake as a case study, and the fact that it wants Halliday Lake back shows how impressed Cameco is by the results.
Halliday Lake is a classic unformity style uranium target consisting of a five km long east-west EM conductor within a magnetic low corridor which is interpreted as a steeply south dipping reverse fault cutting through a graphitic metasedimentary unit resting on the basement at an average depth of 765 metres. The only problem is that Cameco has drilled a series of widely spaced holes into this target that came up empty. However, the radiogenic lead istope sampling work done by Uravan has generated a very Big Geochemical Anomaly which suggests that the conductor does host a major uranium deposit and that Cameco simply missed it. Uravan is drilling 5 core holes at 75 degrees perpendicular to the conductor trend to a maximum length of 900 metres for a total of 4,500 m. Each hole is expected to take 10-12 days to complete, with the program finishing by mid September.
Unlike the Kaituma Big Anomaly play of Argus Metals Corp in Guyana where we are now awaiting long intersections grading 0.03%-0.05% U3O8 from the 2,300 m program consisting of 17 holes of 150 m each drilled on 5 fences straddling the radiometric anomaly to confirm a major bulk tonnage uranium discovery, at Halliday Lake we will be looking for short intersections of 2% plus U3O8 which will become the target for delineation drilling of what we dream is a McArthur River scale deposit but hope will be at least as big as the Millennium deposit which Cameco plans to mine at about 500 tpd (150,000-200,000 tonnes per year) with an average grade of 1.6% U3O8 over a 7 year mine life. The resource, located within the basement at the unconformity 650-700 metres deep, is listed as 507,800 tonnes of 4.55% U3O8 indicated and 297,800 tonnes of 2.54% U3O8 inferred representing 67 million lbs of U3O8 with an in situ value of $3.4 billion at current spot prices. Millennium is rather smaller than what we hope Uravan will discover at Halliday Lake, but its value is still significant. In June Cameco bought out Areva's 27.94% stake for $150 million, implying a project value of $537 million or $7.89 per lb U3O8. This valuation is not far from the $654 million Rio Tinto paid to buy out Hathor and its 58 million lb resource or about $11.28 per lb. Assuming 45.6 million Uravan shares fully diluted and a 30% net interest for Halliday Lake, a $600 million valuation would imply a $3.95 per share price target for Uravan. Of course, if the drilling at Halliday Lake does lead to a Millennium scale discovery, Cameco would never get Uravan for that price, because this would be the proof of concept Uravan needs to have companies begging Uravan to apply its radiogenic lead isotope based sampling method to their Athabasca Basin properties. Furthermore, the reason Uravan agreed to this farmout deal which could enable Cameco to confirm a Big Anomaly discovery for only $1,250,000 is that it will be busy this summer with reconnaissance scale radiogenic lead isotope sampling within the Athabasca Basin that will create an extraordinary map of Big Anomalies, and set Uravan up as the future king if Athabasca Basin uranium exploration. I continue to regard Uravan as a Good Relative Spec Value Buy at the current price; unlike Argus which I own as a "hail mary pass" discovery bet and have not made a formal Spec Value Hunter recommendation, I own Uravan because its story could lead to success tomorrow, but its failure will take many attempts to make definitive.
*JK owns shares in Uravan Minerals Inc and Argus Metals Corp
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