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Quest Uranium Corp. is in a “Rare” Position Indeed

As its name indicates, Quest Uranium started out in the uranium exploration business and still holds properties with excellent potential for that resource, but in the past two years its focus has turned mainly to the development of what could turn out to be a hugely profitable rare earth element (NYSEMKT:REE) project in Quebec. The current price of Quest’s stock certainly reflects the market’s belief that this is a company with a bright future in the production of metals for which there is a rapidly growing demand in numerous high tech applications. We spoke with Peter Cashin, Quest’s President & CEO, who clearly made a strong case for why his company was the best performing stock on the TSX-V Exchange in 2009, growing by over 5.530% during the year.

Resource Intelligence: Can you give us a brief rundown on how Quest got to be where it is at this point in time?
Peter Cashin: Well, Quest started as a spinoff from Freewest Resources and we had some 30 properties from the roll-in when I joined the company in 2007. That was way too many for a company our size to try to both hold and manage properly so we distilled that number down to six properties that we thought were worth concentrating our efforts on. Initially these were all uranium properties.

RI: How did you become a rare earth elements (REE) headliner?
PC: We were monitoring the status of claims around our Strange Lake holdings in the George River area of northeast Quebec and in the fall of 2007 we discovered that some claims adjoining ours on the Quebec side of the Labrador border were about to fall open and we immediately went in and restaked them for about $1,250 in staking costs. So we added about 600 hectares to our holdings of some 98,000 hectares in the area but those 600 may turn out to be some of the most valuable, at least at this point in time.

RI:  And what do you have on this huge land package?
PC: On what we call the “A” Zone on the Strange Lake Property, we hold the Québec portion of the Strange Lake REE-Zr-Y-Nb-Beryllium (Be) deposit which was discovered by the Iron Ore Company of Canada in the late 1970’s. A historical resource estimate, pre-NI 43-101 published by Venkatswaran in 1983 shows 52 million tonnes @ 3.25% ZrO2, 0.56% Nb2O5, 0.66% Y2O3, 0.12% BeO and 1.30% Total Rare Earth Oxides (TREO). On April 30, 2009, John Kaiser of Kaiser Bottom-Fishing Report put the in-ground gross value of the “A” Zone mineralization we currently control at about $4-billion. So, that was a great way to start out in the REE exploration space.

Then about 3 km NW of that we have a new discovery we call the “B” Zone which has a footprint about four times the size of the “A” Zone. We drilled that down to 150 m last fall and every single hole stopped in mineralization, so we don’t yet know how big it could be but the potential appears to be huge. The drill results confirmed strong REE mineralization over 1.1 km of strike, over widths of at least 500 m and over vertical thicknesses of up to 135.2 m. Quest now has 100% control of all of the favourable REE geology in and adjacent to our Strange Lake deposit. Our surface sampling returned spectacular grades of up to 14.43% Total Rare Earth Oxides (TREO), with Heavy Rare Earth Elements (HREE) representing between 7% and 67% of the total TREO component. We later confirmed the importance of the surface grades with diamond drilling, returning multiple, high-grade vertical intersections of between 1.03% and 3.74% TREO over widths of 3.0 and 38.5 m, within a larger, 135.85 m-thick, mineralized envelope grading between 0.9%-1.0% TREO.

RI: For those readers who aren’t familiar with them, what exactly are rare earth elements?
PC: The REEs are a series of 15 metals critical to the automotive, aerospace, high-tech, and nanotechnology industries. What are called the “light” REEs with atomic numbers 57 through 62 are: La=lanthanum Ce=cerium Pr = praseodymium, Nd = neodymium, Pr=promethium, Sm = samarium. The “heavy” REEs with numbers from 63 through 71 are: Eu=europium, Gd=gadolinium, Tb=terbium, Dy=dysprosium, Ho=holmium, Er=erbium, Tm=thulium, Yb=ytterbium Lu=lutetium. Currently, over 97% of the world’s rare earth metals are produced in China. With their abundant resources and low production costs they have a virtual monopoly as a source for these metals. China has placed strict controls on REE mining, production and export in order to maximise its own use of the resources.

RI: So how did China end up in that position?
PC: Well, during the 1990s and early 2000s, significant production surpluses and the resulting low REE prices led most non-Chinese rare earth producers to cease their operations and users to rely almost exclusively on Chinese supplies. With a curbing of exports from China and continued growth demand elsewhere, the supply demand deficit is causing great concern to major REE consuming countries like Japan, Korea, Taiwan, United States, which are now anxious to identify new sources of rare earths. With excellent prospects for growth in the hybrid auto battery manufacturing, aerospace and electronics industries, there’s a projected demand growth in REE of 8-11% per year and a very pressing need for new non-Chinese production capacity in the next three to five years.
If China sticks to its announced production and export limits, there’s a real prospect that, within five to ten years, they will only produce enough material to satisfy their domestic consumption. So, to meet the estimated global demand of 180-190,000t rare earth oxides (REO) in 2010, around 60,000t of new capacity will be needed to meet the unfulfilled demand from outside China. On top of that, it’s estimated that world demand could reach to 230,000 tonnes of REE per year by 2013, up from 135,000 tonnes in 2008. So it certainly appears that primary production is unlikely to keep up with the increasing demand.

RI:  Tell us a little about the metallurgy and structure of the Strange Lake Property.
PC: We have Hazen Research in Denver doing metallurgy testing on a one-tonne bulk sample of ore and it appears that we will be able to get good recoveries using conventional methods. Work done by IOC when they had the basic property indicated recoveries in the 70%-80+% range and we appear to be getting similar results. From a mining aspect, there appears to be virtually no overburden on the mineralization so we should be able to mine by open pit methods using conventional milling and flotation and have an expected total cost in the range of $110 and $125/t. At four-year average metals prices, it appears that the higher-grade surface mineralization should run, according to John Kaiser, between $325 and $425/t in gross value, so there should be a very nice margin in there.

RI: Strange Lake isn’t your only property with great potential. You recently announced some exciting news on your Misery Lake Property. Tell us about that.
PC: We are very excited about our Misery Lake property which lies approximately 120 km south of our Strange Lake project area. The rare earth potential of the Misery Lake area was first recognized by Quest exploration crews in August 2007 when they did reconnaissance bedrock sampling over a concentric magnetic feature which produced grab sample results of up to 27% Fe2O3, 1.2% P2O5, 1.5% TiO2 and 2.25% TREO including Yttrium. A total of 145 claims were staked to cover the anomalous feature in September 2007. The ring complex shows up as a 6-km diameter airborne magnetic anomaly and translates into a target feature that has a potential strike length continuation of approximately 20 km. We obtained grab samples from the “ring” which returned values of up to 8.56% Total Rare Earth Oxides, 42.3 % iron oxide, 7.12 % phosphate, 4.85 % titanium oxide, 3.05 % zirconium oxide, and 2.72 % niobium oxide. The geology is similar to the Lovozero Peralkaline Complex in Russia, which is their primary producing area for rare earths, niobium, tantalum, phosphate and zirconium. We recently identified new, high-priority REE targets to the south of the Misery Lake discovery which has led to the staking of 1,500 more mining claims covering approximately 60,000 hectares. So now the property consists of 1,776 claims, covering 794 km2 in Quebec and Labrador.

RI: It’s probably premature to speculate at this point, but when do you think it would be possible to expect to see some production from your Strange Lake properties and what do you think it would cost to get into production?
PC: We’ll definitely have a better idea when we have a feasibility study in hand but I personally think we could be breaking our first rock in about five years after a project Capex running in the order of $500 to $600 million.

RI: In closing, what points would you like investors to focus on in considering Quest as an attractive investment at this time?
PC: We believe that we have what it will take to make it all happen for our  shareholders: the high-value REE resources in the ground, the potential for developing much  more of them in the future, the financing we need at this time, and the experienced people to bring it all together.


    * 43-101 resource estimate for the Main and B zones by early April 
    * A metallurgical study complete by Q2, 2010, followed by a Scoping Level Study
    * $5.5 million exploration program in 2010
    * Move tonnage from inferred into the indicated category for use in a Feasibility Study in 2011 
    * Production by 2015

Disclosure: No Positions