An Exercise in Caution: Not All Deposits in the Athabasca Basin are Economic

- March 10th, 2015

William Kerr of Exploits Exploration discusses why investors should be wary of jumping at every high grade-drill result from the Athabasca Basin.

An Exercise in Caution: Not All Deposits in the Athabasca Basin are EconomicSince Fission Uranium (TSX:FCU) made the Patterson Lake South discovery, exploration companies have renewed their efforts to uncover the next great uranium deposit in Athabasca Basin. 

The locale is host to plenty of high-grade, massive deposits like Cameco’s (TSX:CCO,NYSE:CCJ) McArthur River, Rabbit Lake and Cigar Lake. But while investors and companies alike are keen to pool their investment dollars into the Athabasca Basin, it might be worth exercising a little caution, at least in the early stages.

That’s the idea that was put forward at this year’s PDAC convention by William Kerr, mining consultant with Exploits Exploration in Toronto. At the event, he delved into some of the reasons why investors should be wary of jumping at every high-grade drill result released from the basin.

Specifically, Kerr noted that since the discovery of Rabbit Lake in 1968, 80 uranium discoveries have been made in the area; however, despite high grades and huge mineral resources, only four mines have been put into production, and just three mining camps have been developed. All that is to say that the vast majority of the deposits in the Athabasca Basin are not economic.

What’s economic anyway?

Kerr defined economic deposits as those that are in production, or as those with an application sent off to the Canadian Nuclear Safety Commission — the first step to becoming a development.

“No unconformity-hosted project in the pipeline is economic or has any realistic chance of becoming a development,” Kerr told investors, adding, “there have been no economic unconformity-hosted greenfield discoveries since the last unconformity was discovered over 26 years ago.”

Unconformity-hosted deposits are formed  close to major unconformities between quartz-rich sandstones and deformed metamorphic basement rocks. These deposits make up the majority of the uranium deposits in the Athabasca Basin and include some of the largest and richest deposits to be found.

That said, Kerr insisted that the Athabasca Basin still has superb exploration potential. And he maintained that it is not for lack of exploration dollars that discoveries are coming up short on the economic scale.

With only three producing mines, and over 45 years of production history, Kerr believes that the current search for unconformity-hosted, super high-grade deposits is unwise. Instead, deposits found at any depth that are lower grade and amenable to underground or open-pit mining are more economic — for example, the basement-hosted Eagle Point, Beaverlodge or Cluff Lake. Likewise, the giant, incredibly high-grade unconformity deposits like Cigar Lake and McArthur River also check out on the economic scale.

“Smaller, non-giant, high-grade, unconformity-hosted deposits are physically and economically stranded,” Kerr said, noting that “basement-hosted deposits have much lower opex and capex and can be mined and milled conventionally, hence cheaply — 75 percent of basement-hosted deposits have gone through a mill compared to 26 percent of unconformity-hosted deposits.”

Kerr pointed out that at depths less than 200 meters, these giant unconformity-hosted deposits are able to sustain huge, capital-intensive mills, tailings management systems and open-pit mine costs. Meanwhile, if an unconformity-hosted deposit is less than 150 meters in depth, it can only manage a smaller open pit if a permitted mill is close by, unless of course the deposit is a behemoth like Cigar Lake or McArthur River.

Where’s the problem?

As market watchers know, the Athabasca Basin does not lack for exploration and discovery. Unfortunately, discovery success has not necessarily meant new mines. And that is because companies are relying on an outdated exploration model to get them going.

Kerr explained that due to an overreliance on getting that high-grade intersection, and ignoring the fundamental “how big can it get” question at an early stage means that definition drilling deposits have little hope.

With that in mind, Kerr suggested that explorers in the basin needs to rethink their methods. Specifically, they need to “change focus rapidly to larger targets, or we are going to have another 26 years of no economic unconformity discoveries.” Furthermore, he noted that exploration in the region has been focused on the wrong grade — high-grade unconformity — and the wrong size of deposit — small — using the wrong techniques.

The upshot is that for investors it is smart to exercise a little bit of caution. After all, the Athabasca Basin can come with a hefty price tag, and high grade is not everything when it only comes in select intersections.

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