Categories: Energy
Topics: General Energy

Hathor Exploration - Analyst Update

TER: And what about Hathor Exploration Ltd. (TSX.V:HAT)? Many people are talking about Hathor, and the Athabasca region has a lot of fans. Is it group-think or do we really have a play there?

MF: It’s group-think, and it scares me because it is group-think. By nature, I’m a contrarian; but all my buddies and all the analysts in the business—we’re all onto this, and we’re all into this play. So, although it makes me a little bit uncomfortable to be in a crowd, Hathor is a very good play, an interesting play.

I recently crunched some numbers on Hathor and will run you through my simple scenario: There are 95 million shares fully diluted—86 million outstanding, but we’ll use the fully diluted because the warrants were in the money until recently. I haven’t calculated numbers on the resource because I don’t think there’s enough drilling to put good numbers on it, but lots of analysts have played around with it and have come out with about 35-40 million pounds U3O8. Using current peer valuations for, let’s say Forsys Metals Corp. (TSX:FSY), which operates in Namibia and is being taken over by a Belgian company or the Uranium One (TSX:UUU) sale of half of Honeymoon in South Australia, we’re looking at $7–$9.50 per pound in the ground. Based on that comparison, you have somewhere between a $245 to $380 million market cap for a resource of 35-40 million pounds.

That adds up to a fair market value somewhere between $2.60 and $4.00 a share. With recent weakness in the uranium sector and Hathor’s first results from this winter’s drilling, which for some reason that I don’t understand were negatively received by the market, it is currently trading at about $1.90. I would say it’s undervalued at that price. The thing about Hathor is that it trades a lot of shares. And it’s cyclical, too, so people play both the liquid nature and the cyclical nature. I know players in Hathor who have a core position they don’t trade, and then a portion of their Hathor ownings that they trade between $2.50 and $3.50. You can see a cyclical pattern to Hathor’s price over the past three months, ranging somewhere from $2.50 to $3.50 per share. It’s now broken thru on the downside of that trading range.

With current guess-timates of pounds in the ground—say that 35 million or 40 million pounds—and in a previous trading range of $2.50 to $3.50, it was not undervalued. The play, and why analysts are so bullish, is premised on growing this resource.

TER: And what’s the basis for that expectation?

MF: Analysts think that the resource is going to be much bigger than it is currently. There are good geologic reasons to think that, because they have yet to hit mineralization where the structure hits the unconformity. I know this is geology speak, but let me try to explain.

These deposits are fed by basement faults, the basement being the underlying rocks. A series of flat-lying sedimentary rocks lies atop that basement at the so-called unconformity. Where the basement faults, i.e., the feeder zones hit the unconformity, is where bonanza-grade uranium ore bodies occur. Hathor has yet to announce results from current drilling that test that unconformity.

So the deposit could grow much bigger; there is also good geophysical evidence that it could grow bigger. Everybody has analyzed and recommended Hathor based on the theory that it’s going to get much bigger than it is. That’s really a crapshoot; all drilling is a crapshoot, so we’ll see.

TER: But as a geologist, you see nothing arguing against high potential for a much larger find?

MF: The geological evidence says it has a chance of growing bigger, and I think that’s what the market is expecting. If it grows to 100 million pounds—which is pure speculation—do the numbers; you’re looking at a legitimate market cap of somewhere between $700 million and perhaps $ 1 billion. That would translate more or less into a stock price of $7 to $10; but that’s solely based on speculation and exploration risk and that makes me nervous.

TER: When should we expect drill results that will prove or disprove a much larger find?

MF: They will trickle in over the next two or three months. Four rigs are currently drilling around the clock up there. The first round of results didn’t really tell us anything about the ultimate potential since they are grid drilling the Rough Rider Zone, so we can expect lots of misses in with a few really good hits. Last winter and summer seasons, they drilled 28 holes in Rough Rider, and hit on 21. That’s a 75% success rate, which is phenomenal. I do not expect that sort of success rate to continue. It can’t happen, because investors should realize that lots of misses are required in a grid-drilling scenario. Not only are you defining the mineralized body, you are also testing its limits and that demands deliberately stepping out until you miss.

But as long as they get a few big hits again, and once this drill program is done, Hathor geologists will have a very good understanding of the geology and can start putting real numbers on this. We would expect a 43-101-qualified resource estimate by the end of Q2

In the interest of full disclosure, I should say that I am a shareholder of Hathor Exploration, Fission Energy, and Strathmore Minerals and on occasion, a paid consultant to the latter two companies.

A confirmed contrarian who invests solely in stocks he expects to at least double in value and considers himself a classically trained economic geologist, Michael S. "Mickey" Fulp is a Certified Professional Geologist who earned his bachelor’s degree in Earth Sciences at the University of Tulsa and his master’s in Geology from the University of New Mexico. Specializing in geological mapping and property evaluation, he brings more than 30 years of experience as an exploration geologist searching for economic deposits of base and precious metals, industrial minerals, coal, uranium, and water to his popular Mercenary Musings and other venues. Mickey launched MercenaryGeologist.com almost a year ago. You may contact him at Mickey@MercenaryGeologist.com .

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