Strateco Resources: Most Advanced Uranium Exploration Project in Canada

By James West
MidasLetter.com
Thursday, June 18, 2009

There are a lot of Uranium explorers making discoveries in Canada that are of good grade, but until they’ve entered the Environmental Assessment (EA) process that is under the oversight of the Canadian Nuclear Safety Commission (CNSC), the timing until their deposits go into production remain unknowable.

That is what makes Strateco Resources Inc. (TSX:RSC) Matoush Uranium Project in the Otish Mountains of Quebec the most advanced exploration uranium project in Canada by a junior. Strateco began the EA process in 2008, and has since been interfacing with the agency in what is a very stringent evaluation and compliance process designed to protect the environment and the public from risks associated with uranium mining activities.

According to Guy Hébert, Strateco president and CEO, “We are one of only two companies under licensing process with the Canadian Nuclear Safety Commission. Now we are completing all the detailed engineering for the mine underground development, the water treatment plant, and next week, we are filling all the detailed engineering documentation relative to the ventilation system and underground and water pumping systems. Really it is the most advanced project in Canada in the licensing process,” he said.

The Matoush deposit, 265 km north of Chibougamau in north-central Quebec, has a National Instrument 43-101 compliant resource estimate stipulating indicated resources of 3.73 million pounds of U3O8 at 0.68% U3O8 and inferred resources of 13 million pounds at 0.44% U3O8. These resources are as of July 25, 2008. Since then, more than 30,000 metres were drilled and add to the resources.

A scoping study completed in November 2008 demonstrated strong economics in developing a mine that could produce upwards of 2 million pounds a year of yellowcake over a 7 year mine life with an average grade of around 0.50% U3O8 (or about 11 pounds per tonne).

"Even with significant inflation in operating costs in the mining industry, our Matoush project indicates very strong economics,” said Hébert. “However, with the recent dramatic correction in the commodity prices it is possible to see our economics improve as input prices decrease. We continue to evaluate different engineering alternatives to enhance the project economics. Results of this scoping study justify the underground exploration program as part of the feasibility study."

An analyst report issued by Laurentian Bank on June 11th, suggests Strateco could be worth $3.25 a share. According to that report:

“We believe Strateco is diligently advancing the Matoush uranium project. We highlight that the Matoush project is one of a very few advanced uranium projects in Canada and Strateco is one of the rare companies that is in the process of securing rights to apply for underground uranium development. We view the current share weakness as a buying opportunity. We maintain a Speculative Buy rating with a $3.25 target price.”

David Talbot of Dundee Securities initiated coverage of Strateco at BUY with a C$1.30 target price and recently updated Strateco as a BUY with a C$1.50 target price, and emulates the positive tone of the Laurentian report:

“The initial study appears overly conservative. We anticipate further studies could streamline capital and operating costs. In conjunction with adding resources through exploration, Strateco could likely provide for an expanded production rate or longer life operation.

RSC (Strateco) occupies two unique niches for investors. 1) It is the only junior uranium company that is permitting in Canada; and, 2) it is developing one of the world's highest grade deposits outside of the Athabasca. Its Project Description was filed in July 2008 and its underground exploration license application submitted earlier this month. Resource grades average 0.68% U3O8 for M&I, and 0.44% for inferred."

During Strateco’s annual general meeting on June 9th, 2009, company representatives noted “recent developments on the Matoush project and confirmed that one of three drill rigs on the project is currently in-fill drilling (3-4 holes) the MT-34 zone where a previous intersection gave 28m @ 1.32% U3O8” and “current drilling should provide confirmation of continuity and hence have major impact on the contained lbs of uranium in the MT-34 zone.

The two other drill rigs are drilling the southern extensions of the project where results are suggesting a new zone (MT-06) is being defined approximately 900m from the current resource. Management confirmed that the exploration potential along the southern extensions of the Matoush fault near Cameco’s Camie River project is wide open and a target for current drilling.”

In a telephone interview this week, Mr. Hébert said, “One of the unique qualities of the Matoush deposit is the grade. Outside Athabasca this project is the highest grade in the world (average grade) with a grade of about 11 pounds per tonne of uranium. We have also a scoping study which has been done last year showing that the project is very strong economically and justified to the next step which is the bankable feasibility study which we have already started. We’ve drilled over 140,000 metres since 2006, and spent about $45 million up to now.

It’s pretty unknown among retail investors because about 70% of our shareholders are institutional shareholders. We did a financing two years ago with Macquarie, so we have almost no retail following us now. We have the full support of both the local aboriginal Cree Nation people as well as the local residents of Chibougamau.

We also enjoy the advantage of getting a 50% rebate from the Quebec government for every exploration dollar spent. So we spend about $20 million a year and the government of Quebec gives us back about $10 million.

We are using a winter road, which is 140 km long, and the Quebec government just announced in the budget for 2009 $130 million to build a road to the Otish Mountains where we are located, so we have an incredible amount of support from the Quebec government. What other jurisdiction would spend that kind of money to extend the provincial highway to access a mining project? It makes Quebec one of the best places in the world for mine development.

This mine will be very similar to the Eagle Point Mine operated by Cameco in the Athabasca Basin both in terms of grade and same kind of geological setting. We’re looking at mining 2.3 million pounds a year on start-up, but we are also expanding our resources pretty fast.

Another uranium property located in Quebec is Apple. This project is pretty interesting because there are 10 million pounds there in a historical resource. We are currently conducting 43-101 upgrade drilling to verify resources which were determined by INCO in the 70’s. So we’re twinning the holes to confirm the results. But we expect to be able to put 30 to 40 million pounds into a resource eventually, but it is much lower grade than Matoush, but it is a perfectly sufficient grade for an open pit scenario.”

Strateco currently has 119.27 million shares outstanding and working capital of C$15.0 million. Follow the company’s progress at their website at www.stratecoinc.com.

SOURCE: http://www.midasletter.com/news/0906...