Patterson Lake Update
50/50 JV partners Alpha Minerals (ESOFD.PK or AMW on the TSX Venture) and Fission Energy (FSSIF.PK or FIS on the TSX Venture) released an update on Monday (March 11th) regarding step-out drilling progress on the Patterson Lake South property. The results extended the "east zone" 15 meters to the east (now called Zone 390E) and the zone remains open to expansion. The reported PLS13-051 hole showed the longest continuous off-scale interval encountered to date on the property. These are the first step out holes drilled in the area surrounding hole PLS13-038, which previously hit 57.5 meters of high grade mineralization, including 10.65 meters of off-scale mineralization.
The highlight hole (PLS13-051) was a 15m step-out which extends this recently discovered zone to the northeast. PLS13-051 showed a 53 meter interval of continuous radioactivity, including 13.9 meters of "off-scale," the most seen to date in any drill hole on the property. Within that 13.9 meters, was an 11.5 meter interval of continuous off-scale mineralization, which is again the thickest such interval seen to date in any drill hole on the property. Two other holes were reported around PLS13-038; one to the south (PLS13-046) which was outside of the mineralized zone and one to the north (PLS13-044) which appears to have hit the edge of the zone. Both holes were drilled to help determine the orientation of the zone, which then led to the drilling of the highly mineralized PLS13-051 step-out hole. Compared to hole PLS13-038, the PLS13-051 step out shows remarkable consistency and is highly correlative. This bodes well as it shows a "consistent and mineralized" zone, which may mean it will be traceable over additional strike.
Figure 1: Gamma Logs of PLS13-038 (left) and PLS13-051 (right)
In what can only be described as perplexing market action, both Fission and Alpha are actually trading down on this news as I write this. Trying to understand why shareholders would sell on the back of news that is confirming the very exploration model that they were invested in the first place is a mindbender. It could perhaps be that investors were hoping to see a "wider" zone than what is currently indicated based on the limited available drill data. If that is the case, it can only mean that those investors have little understanding of the nature of fracture/fault hosted uranium deposits.
For those looking for deeper context on such a deposit, there are numerous resources available on the web, one of which is a presentation on the history of the Key Lake and McClean Lake areas linked here. An example of a fault controlled basement deposit is shown below (clipped from the linked presentation). The mineralization concentrates along fault zones, which are typically narrow and often high grade.
Figure 2: A Cross Section Through the Deilmann Deposit at Key Lake as an Illustration of a Fault Controlled Uranium Deposit
(source: modified from S. Harvey, 2004 and from Areva/Cogema SGS Open House Presentation, 2005)
As an example, Denison's (DNN) Wheeler River deposit, from the figures in their presentation materials, has a high grade core that appears to be in the 10-20m width range in plan view (see my prior article here), which is comparable to what has been seen in the early holes around PLS-13-038. Furthermore, Cameco's (CCJ) giant McArthur River deposit is on average 12.7 meters thick (see the McArthur River 43-101 report here). I reference Wheeler River and McArthur River simply to illustrate what a fracture and fault controlled uranium deposit looks like in terms of shape, width, and variability (the deposit types may be quite different in other respects). Without appreciating the geometry and nature of other uranium deposits, investors are handicapping themselves in terms of interpreting Patterson Lake data going forwards. To put it bluntly, in any rational evaluation of the results released today (and based on any rational expectations) today's news is at worst confirmatory in nature, which simply may not be good enough in a junior mining market that can only be described as brutal.
Two additional holes were also reported from regional reconnaissance drilling on two target areas approximately 2 kilometers to the northeast. Both holes encountered significant clay alteration, but no mineralization. Hitting mineralization on a step out that far away on the first hole would be akin to hitting a hole in one from the tee on a par 4, if not a par 5. The clay alteration should not be discounted. Clay alteration is commonly seen in regions of hydrothermal activity and may suggest proximity to a mineralizing system. There is also a lack of sandstone cap rock in that area, which is one of the prerequisites for the yet-to-be-found boulder source area. Numerous targets remain to be tested in that region and the company has stated that future drilling is planned in the area. I find it hard to believe that these reconnaissance drill holes could have anything to do with the trading action after the news either.
As long as drilling continues to prove up mineralization "pounds are being added" and the geological and exploration model is being validated. Over-analyzing market reactions on a day-to-day basis is typically a navel-gazing exercise, but I believe my point is clear. The news released today is unquestionably positive and at worst confirmatory in nature and with two rigs drilling and assay results getting closer by the day, information is coming in quickly. A deposit that combines high grade and shallow depth with a low strip ratio is an ideal scenario in the mining sector and each data point adds to the story developing at Patterson Lake. To be sure, Patterson Lake can only be characterized as speculative by its nature, but both partners are well-funded and the uranium macro winds appear to be set to lift the sector beginning sometime in H2 2013.
The data continues to impress. I simply can't recall an exploration story with results like these at depths like these in the uranium sector in recent memory. As always, price and information are correlated over the medium and long term in the mining sector. The more information that is available, the more efficiently priced an asset becomes. Assay data should start coming in soon, but most informed investors have likely already formed opinions on potential grade based on core descriptions given so far in the 2013 program.
Perhaps investors are simply wanting to see more than Alpha and Fission can deliver, after all, there is a physical limit to how fast these companies can drill. I hate to invoke the words of a value investor in something as speculative as mining exploration, but as Ben Graham once said, "In the short term, the market behaves like a voting machine, but in the long term, the market acts more like a weighing machine." So far it looks like Patterson Lake has some weight to it, but only time will tell.
In the meantime, the drills continue to turn, and with results like these, investors can take comfort in the fact that the exploration model is holding up better than anyone would have expected at this early stage. To think that the market can "yawn" at a second hole showing 50+ meters of uranium mineralization just 100 meters from surface should be enough to catch the attention of even the most hardened mining investor.
Disclosure: I am long ESOFD.PK.