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Market:	TSX
Sector:	General Mining
Epic:	TSX-ABA
News:	Latest news
Web Site:	Abbastar Uranium
Other Articles:	15-04-200812-02-200803-02-2008

Abbastar Uranium : Exploring for near-surface, bulk-tonnage low-cost uranium

by Jackie Steinitz

Abbastar Uranium is exploring for near surface, bulk tonnage uranium in Canada which can be developed at relatively low cost. In February 2007 it signed an option with Entourage Mining Ltd where by spending $5m on exploration it can earn up to 70% interest in the Doran uranium property in Quebec.

Uranium exploration in Quebec is a fast growing sector.  Expenditure in the province has accelerated from nought to sixty in a very short time.  To be precise it has risen from just a few thousand of dollars in 2000, to C$1M in 2004, and C$67M by 2007, and there are a number of good reasons for this.

First and foremost uranium is enjoying a comeback after a 25 year bear market in which the price ultimately slumped below $7/lb.  In recent years, as concerns have increased about global warming, security of energy supplies and rising fossil fuel prices, nuclear power has come to look increasingly attractive.  This is particularly so now that the technology is acknowledged to be safer, and the operating costs are now highly favourable relative to fossil fuels.  Demand is therefore rising and set to rise further.
 
Supply, by contrast, is already constrained by the 25 year period of underinvestment.  Although an increase is projected, forecasts are regularly being revised downwards because of a series of supply shocks.  These include, for example, the rock burst and flooding at Cigar Lake, which has delayed the start date for production by at least three years, equipment and technical delays at Uranium One’s mines, and the power crisis in South Africa.  Prices have increased ten-fold since 2000 to the current level of $73/lb, and although they overshot last year there are sound reasons to believe that uranium prices will remain high.

A second reason underlying the growth of uranium exploration in Quebec is that Canada has long been established as the world’s largest producer of uranium.  It accounted for 25% of world production in 2006, according to figures published by the World Nuclear Association.  Canada is currently home to three of the largest dozen uranium mines in the world, and is a centre of expertise in the metal.

Thirdly Quebec is an attractive place for mining and exploration companies.  Indeed it was rated the best place in the world for mining investment according to the 2007/8 Survey of Mining Companies by the Fraser Institute (an independent research organisation). Reasons cited included the favourable geology, and a supportive policy environment which provides stability, certainty and an advantageous tax system.  Mining companies in Quebec can also benefit from a well-trained workforce, training facilities, specialist research centres and a provincial geo-scientific database.

Of course with all these advantages it is perhaps no surprise that 78 companies have jumped on the uranium exploration bandwagon in Quebec, according to the list on the World Information Service about Energy website. So which to choose?

An oft-quoted joke in the real estate sector is that the three things that really matter are “location, location and location”.  While location is perhaps not the only thing that matters in uranium exploration it is certainly one of the most important criteria, and Abbastar, with its Doran property which extends 10 km inland from the North Shore of the Gulf of St Lawrence benefits from an auspicious location.

Of course of fundamental importance is that the 2500 hectare property is known to host uranium!  The rock is pegmatite with disseminated uranium mineralisation.  While the extent and grade have yet to be defined in compliance with modern standards there has been periodic exploration on the site since the 1950s. An airborne study and drilling programme were conducted in the 1970s, and the southern part of the property was estimated by the Ministry of Natural Resources in Quebec to have a resource of 10.89 million tons at a grade of 0.5 lb/tonne.  At the time the Ministry rated the site as the number one uranium area in the province.  Since 2005 Entourage and latterly Abbastar have conducted an exploration programme including 6,000 metres of drilling in 63 holes. This has consistently yielded encouraging results indicative of a bulk tonnage, low grade but near surface deposit which is geologically similar to the Rossing deposit in Namibia (Rossing was the third largest uranium mine worldwide in 2006 producing 7.8% of global supply at an average grade of 0.66lb/tonne). The fact that uranium is near the surface has advantages both of cost, and ease and reliability of development as underground properties are more liable to rock bursts and flooding; Cigar Lake in Saskatchewan is a prime example of this.  The fact that it is low grade is more of a mixed blessing – but at least it means that there are no requirements for special protection from radiation from the orebody.

A second significant advantage of the location is that the property has excellent infrastructure.  A main provincial highway (the 1400km Route 138 from Montreal) runs right beside it.  With road-building costing anything up to a million dollars per kilometre this is a huge advantage. Moreover power lines run above the property and water is on site.  Since uranium processing requires large quantities of both, these are significant advantages.

A third benefit is that the location has a Goldilocks “not too far but not too close” quality about it.  While it is connected to civilisation it is not right on the doorstep.  Aguanish, with a population of few hundred people is some 18km to the east, Harve St Pierre (population 3,300) with its airport and deep sea port is 109km to the west.  The terrain is rocky and barren with relatively few trees, no fishing streams and almost no wildlife, so environmental issues are unlikely to prove a problem.  

Although neighbours are relatively few and far between, exploration company Uracan Resources Ltd has drilled 100 holes totalling 7,500 metres in a similar property adjacent to Abbastar’s property. Uracan, like Abbastar, are looking to define a near-surface low grade bulk tonnage resource, and they are hoping to do so by June 2008.  If Uracan and Abbastar are both successful in defining economic resources there could be synergistic opportunities to share processing and other facilities.

Abbastar’s immediate priorities at Doran are to drill a further 30 to 40 holes in order to define an N43-101 compliant resource which Abbastar hopes will match the previous non-compliant historical resource estimate of 5 million lbs of uranium prepared by the Quebec government.  If successful Abbastar eventually will look to develop the property through a JV with one the uranium majors.  The company has also been seeking to diversify, and is actively pursuing a number of gold exploration claims in Mexico.  It hopes to release more information about this in due course.

To date the market’s response to Abbastar has been up and down.  The stock price almost quintupled in the first six months of 2007 rising from around 25 cents to $1.20 on the back of the option agreement with Entourage and the uranium bubble ( prices of the metal soared from $75/lb in January 2007 to $135/lb by June).  It then crashed back to 25 cents again as the uranium bubble burst, the credit crunch took hold, and investor interest switched to gold and precious metals.

However there is the possibility of good news in the short to medium term, and share price drivers this year are likely to include news about the acquisition of gold properties in Mexico, further results on grades and tonnages from Doran, the price of uranium and general market conditions. If the historical resource estimate is confirmed by a N43-101, Abbastar’s uranium deposit could have an in-situ value of $50 million at the current uranium prices.

Looking longer term investment in all exploration companies is inherently risky, and Abbastar will need to raise finance which could be difficult in the current conditions.  Moreover the climate at the location, which is snow-covered in the winter, will slow exploration progress, so the earliest possible production date is at least 5 years away.  Abbastar, like all uranium companies, will have to compete for the small number of uranium specialists in the world after the 25 year period of underinvestment.

All that said however the market capitalisation of Abbastar, at $3.2m is currently extremely low yet the prospects at the project could be excellent. It is situated in the best place in the world for mining investment. Prospects for uranium are good, and the potential gains could indeed be huge if the company succeeds in achieving its objective of defining and developing a near surface, large tonnage low grade Rossing-style open pit uranium mine.

 

Vital Statistics   

Epic    ABA.V
Shares issued    12.8 million
Share price    C$0.25
Market cap    C$3.2m
1 year range    C$0.21 – 1.20
Website    www.abbastaruranium.com

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