Mickey Fulp, "Mercenary Geologist": Hanging His Hat on a Uranium Explorer


"Mercenary Geologist" Mickey Fulp has 29 years of field experience as an economic geologist evaluating exploration and mining projects throughout the Americas and China. He's a proponent of the “Boot Leather and Drilling” style of exploration. In this Energy Report interview he gives us his take on the prospects for the uranium sector and insights into his favorite junior.

"Mercenary Geologist" Michael S. (Mickey) Fulp has 29 years of field experience as an economic geologist evaluating exploration and mining projects throughout the Americas and China. He's a proponent of the “Boot Leather and Drilling” style of exploration. In this Energy Report interview he gives us his take on the prospects for the uranium sector and insights into his favorite junior.

The Energy Report: Mickey, what’s your global economic viewpoint of energy and where it's going?

Mickey Fulp: We see all sorts of predictions right now. I saw one yesterday from Merrill Lynch—if anybody at Merrill Lynch still has credibility—of $25 oil. Then you have guys up in Alberta that are talking $80 or $90 within the next year. It’s really hard to predict. It just depends on the global economy.

Gas prices where I live in Albuquerque, New Mexico, are at $1.60 now. What were they—approaching $4 two or three months ago? I don’t have a good feel for it as oil is not my area of expertise. However, I do like some things on the energy side; specifically I’m pretty bullish on uranium. I think uranium was the canary in the coal mine for the commodities collapse. The uranium spot price bubble spiked at $138 on the spot market in early July 2007, then cratered, and it’s been as low as $45; but now it’s made some recovery from those spot price lows and long term contracts are $70-80 a pound. We have current supply that will dry up. The Russians are just about finished with their conversion of weapons into fuel. I think that ends for the U.S. in 2011. Cigar Lake may never produce with their continuing flooding problems. The U.S. uses around 55 million pounds of uranium a year, and produces something on the order of 4 million pounds a year. I particularly like a couple of uranium companies. My favorite is Hathor Exploration Ltd. (TSX.V:HAT).

TER: I think you just recently wrote a Musing about Hathor.

MF: I did; it’s called Hangin’ My Hat on the HAT because the symbol is HAT.V. Hathor has an exciting new discovery in the world’s premier uranium district—the Athabasca Basin. It’s very close to infrastructure, very high grade (as these things tend to be), and it’s been drilled enough to pique everybody’s interest. They’ll soon be drilling again, in four to five weeks; they’re making ice up there right now. The new drill program will make or break the deposit this winter.

Various analysts have tried to calculate what size of deposit is in sight right now. They’re coming up with 30 to 45 million pounds, and Hathor hasn’t even drilled its best target yet. But 30 to 45 million pounds at somewhere around 3% U3O8 is a very robust uranium deposit. The configuration will allow it to be open pittable. It’s 11 kilometers from a uranium mill that has underutilized capacity and is looking for mill feed for the next 10 years. I’m very bullish on this company.

Looking at a company like Hathor, it wants to get taken out in 2009. I think it’ll have many, many suitors—you know the usual suspects in the Athabasca Basin: Cameco, AREVA and Denison. But also look at other big mining companies. For instance, Rio Tinto has been in the area. It’s a major uranium producer and probably would like to get involved in the world’s premier uranium district. I know that Rio Doce Vale, the Brazilian mega-miner, has been snooping around in the Athabasca. You’ve also got Asian power companies and Sovereign Wealth Funds, some of whom already have joint venture positions in the Athabasca. For example, the adjoining property is held by Fission Energy and it has a JV with Kepco (a Korean power company).

In this case, you’re looking at a bidding war, which leads me to something else I wanted to talk about—it’s a mine field for investing in junior resource stocks right now. One of the things that everybody’s looking at is takeover candidates, but you’ve got to be very careful.

TER: Let’s go back to Hathor because you indicated that it is in the premier uranium area of Canada and has other large uranium miners around it. If oil goes down to $25 a barrel— and it’s currently $43—will the world stop producing nuclear reactors with oil at that price?

MF: The price of oil will reflect the general worldwide economy. I think the risk for uranium producers is minimal in that the price of uranium is a very small part of the cost of producing electricity from a nuclear power plant. The real cost on these things lies in the billions and billions of dollars required for capital expenditures and the extremely long lead times to permit, construct, and produce electricity. In my opinion, the price of uranium is not in any way controlled by the price of oil.

TER: Doesn’t the price of oil increase or decrease the appetite of using capital expenditures to build nuclear facilities?

MF: I’m not sure if it does or not because the short- to mid-term prices of oil are a blip on the radar screen. It takes years and years to develop a nuclear power plant. Korea is developing another six in the next 10 to 15 years. Aren’t there roughly 40 new nuclear power plants either in construction or in the permitting or planning stages right now in China? That new demand for uranium has to come from some place.

Uranium got really beat up in the 1980s from the Three-Mile Island fiasco, and then a real disaster at Chernobyl. It was looked on as a dangerous technology.

Recently, nuclear power has become “green” due to fears about global warming; and whether you buy into a mankind-caused global warming scenario or not (and I don’t), there’s a lot of pollution from coal-fired power plants. Specific countries of the world have made the decision that nuclear power is in their best interest for the future. In France, for example, over 75% of electrical power is produced by nuclear plants. You can’t run a nuke in your car but you can certainly replace coal-fired and natural gas-fired power plants with nuclear, and it’s much cleaner for the environment.

TER: Mickey, you said earlier that the winter drilling for Hathor will make or break it. As an investor, what am I looking for Hathor to come out and announce that would trigger that potential bidding war between Cameco, AREVA, Denison, Rio Tinto, or others?

MF: A resource estimate and a positive metallurgical report would certainly be catalysts. Those are expected at the beginning of Q3 2009. But I think Hathor just needs to continue with the success it’s had previously. During the wintertime drill program earlier this year, if memory serves, they drilled 16 holes in the deposit and hit on 12. This summer’s program required drilling from land with long distances and at awkward directions and angles; the successful ratio was 9 of 12 holes. Hathor’s success rate for drilling high-grade uranium mineralization has been extraordinary.

TER: As a geologist, is that exceedingly high?

MF: Yes, 21 of 28 is 75%. That is a high success rate for a newly discovered deposit.

Over this winter, Hathor is going to set up on the ice and drill much shorter holes right into the deposit; I think we want to see a continued high success rate for this drilling. Assays are probably not going to start coming out until somewhere near the middle of Q1 2009, so there is speculative exploration risk.

In the Mercenary Musing I wrote on the HAT a couple of weeks ago, I list several risks for it and exploration risk is one. Then there is a metallurgical process risk because it’s a polymetallic deposit. It could have significant amounts and possibly significant credits of nickel and cobalt and, perhaps, copper in the deposit. But those may come with deleterious and toxic elements. So, until some definitive metallurgical work is done—and they’re doing preliminary testing right now—metallurgy could be a fatal flaw. One of the other risks, which I alluded to before, is that if these planned nuclear facility constructions and expansions are shelved because of the depressed world economy, it would put a damper on the uranium price. But as long as lights are burning, there will be a demand for uranium. This is potentially a world-class deposit in the foremost and premier uranium district that currently produces 23% of the world’s mined supply on a yearly basis. If uranium mines are producing anywhere in the world, it will be in the Athabasca Basin.

TER: Can they tell the concentration or do we have to wait for assays of that?

MF: The geologist can certainly spot the high grade uranium mineralization and take semi-quantitative scintillometer readings. But the geometry of the zone is not very well understood yet and that, basically, is because they’ve had to drill from so far away at such awkward angles during the summer. They were essentially drilling the shallowest holes they could, 45 to 50 degrees, and from a very long way away, 200 meters horizontal. So at these angles, they were drilling some 300 meters just to encounter the deposit.

Athabasca-style uranium deposits are incredibly small, but incredibly high grade. They are the proverbial needles in a haystack and often have irregular amoeboid shapes. This winter, Hathor will be able to sit right on top of the zone and drill either vertical or steeply inclined holes into it.

I’m very bullish on the Roughrider Zone—not just very hopeful. I think you would be hard pressed right now to find an analyst who is not bullish on this project.

TER: Do you know who else is following Hathor?

MF: Among my cohorts, the independent analysts who are geologists David Coffin (Hard Rock Advisory Journal) and Brent Cook (Exploration Insights). Many brokerage firms and investment fund analysts have written research reports. David Pescod, the Canaccord guy in Calgary, follows it in his daily newsletter.

TER: Right now, Hathor is just a victim of the general, overall market with its low share price.

MF: I think that’s the case. Since I’ve followed the story with the discovery announcement during the PDAC in March, it’s been as high as $4.40 and as low as $1.03. Recently, on November 14th in Chicago, I had an opportunity to sit down with Dale Wallster, the geologist who staked the claims, vended the property to Hathor, and is responsible for the discovery. He’s a consultant to, and a large shareholder of, Hathor. We had an hour and a half discussion, which led to my Mercenary Musing a week later.

I happened to hit a low spot in the market for Hathor; but, obviously, my piece on it was very well received. It was $1.85 when my report went out, and it traded as high as $2.93 yesterday. At the time of this interview, it’s trading at $2.90.

In the interest of full disclosure, note that I’m a shareholder of Hathor Exploration so I am biased.

Michael S. “Mickey” Fulp, who launched MercenaryGeologist.com in late April 2008, brings more than 29 years of experience to his role as an exploration geologist. Specializing in geological mapping and property evaluation, Mickey has worked as a consulting economic geologist and analyst for junior explorers, major mining companies, private companies and investors. Check out his website for free access to the Mercenary Musings newsletter, as well as technical reports. Future offerings will include a premium paid subscription service that provides early and special access to subscribers. You may contact him at [email protected] .

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