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Cormark Securities Inc: Fission Uranium & Alpha Minerals (July 2013)
 

Cormark Securities Inc: Fission Uranium & Alpha Minerals (July 2013)

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Mike Kozak of Cormark Securities Inc. report on the exciting new high-grade discovery in the Athabasca Basin - The Patterson Lake South. The Patterson Lake South (“PLS”) project is a 50/50 JV ...

Mike Kozak of Cormark Securities Inc. report on the exciting new high-grade discovery in the Athabasca Basin - The Patterson Lake South. The Patterson Lake South (“PLS”) project is a 50/50 JV between
Alpha Minerals Inc. (AMW-TSXV) and Fission Uranium Corp. (FCUTSXV)
located in the southwest Athabasca Basin in Northern
Saskatchewan. The assay results on discovery holes, PLS12-022,
and PLS12-024 were released in December last year, with
intersections of 8.5m @ 1.07% U3O8 and 18.0m @ 1.78% U3O8
respectively, both within very close proximity to surface. These
were then followed up by step-out results earlier this year including
34m @ 4.92% U3O8 (PLS13-038) and 49.5m @ 6.26% U3O8
(PLS13-053).

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    Cormark Securities Inc: Fission Uranium & Alpha Minerals (July 2013) Cormark Securities Inc: Fission Uranium & Alpha Minerals (July 2013) Document Transcript

    • Mike Kozak (416) 943-6749 mkozak@cormark.com URANIUM July 3, 2013 Patterson Lake South Exciting New High-Grade Discovery In The Athabasca Basin  Alpha Minerals Inc. Recommendation: Buy (S) Target Price: C$6.50 Company Statistics: Stock Symbol: AMW - TSXV Price: C$3.83 Shares Outstanding: Basic: 25.3 MM Diluted: 31.4 MM Management: 0.6 MM Market Cap: C$96.9 MM Market Float: C$94.6 MM Cash: C$17.5 Debt: Nil Avg. Daily Trading Volume: 261,066 High – Low (52-Week): C$5.10 – C$0.20 Fission Uranium Corp. Recommendation: Buy (S) Target Price: C$1.25 Company Statistics: Stock Symbol: FCU - TSXV Price: C$0.65 Shares Outstanding: Basic: 149.4 MM Diluted: 162.4 MM Management: 6.1 MM Market Cap: C$97.1 Market Float: C$93.1 Cash: C$17.0 Debt: Nil Avg. Daily Trading Volume: 917,832 High – Low (52-Week): C$0.84 – C$0.52 Disclosure statements located on pages 20-23 of this report Unless otherwise denoted, all figures shown in US$ We are using a US$0.95 conversion rate The Patterson Lake South (“PLS”) project is a 50/50 JV between Alpha Minerals Inc. (AMW-TSXV) and Fission Uranium Corp. (FCU- TSXV) located in the southwest Athabasca Basin in Northern Saskatchewan. The assay results on discovery holes, PLS12-022, and PLS12-024 were released in December last year, with intersections of 8.5m @ 1.07% U3O8 and 18.0m @ 1.78% U3O8 respectively, both within very close proximity to surface. These were then followed up by step-out results earlier this year including 34m @ 4.92% U3O8 (PLS13-038) and 49.5m @ 6.26% U3O8 (PLS13-053). Given its extremely high grade nature, in our view, the project is the most exciting new discovery since Denison’s (Buy – C$2.25 target) Wheeler River project and has many similarities to Hathor’s Roughrider project, which was acquired by Rio Tinto for C$654 MM in a 2011 bidding war with Cameco (Buy – C$31.00 target). At present, mineralization at PLS occurs within three discrete zones (R00E, R390E, R780E) which each remaining open, across a strike length of +800m (open). Uranium mineralization is hosted within the basement (+55m depth) and, locally, often occurs as visible massive pitchblende, the ideal mineral for adding pounds quickly due to its high specific gravity. We believe the PLS-JV will be able to “prove-up” a 25 MMlb high- grade 43-101 uranium resource within 12-months (R00E + R390E), while being able to demonstrate potential for a +50 MMlb resource across all three zones at that time as well. This is a moving target and will be adjusted as more drill data becomes available. Our target prices on Alpha and Fission are based on their proportionate 50% stake in a 50 MMlb high-grade resource, at an ascribed value of $7.50/lb in situ (a 25% discount to recent high-quality takeouts in the U space Hathor and Mantra). We rate both Alpha and Fission a Buy (S) and initiate coverage with price targets of C$6.50 and C$1.25, respectively. During the past twenty-four months, Cormark Securities Inc., either on its own or as a syndicate member, participated in the underwriting of securities for Alpha Minerals Inc. and Denison Mines Corp.
    • JULY 3, 2013 MIKE KOZAK 416·943·6749 2 Patterson Lake South To Heat Up In 2013 Report Outline While both Alpha Minerals and Fission Uranium have a portfolio of other early stage projects, the main focus for both companies over the next year at least will be on their 50/50 JV PLS project. For the purpose of this report, we ascribe a value of zero to all Alpha and Fission projects with the sole exception of the PLS project. As a result, our NAVPS estimate for both AMW and FCU is effectively the year-end cash balance for both companies and the attributable (50%) value we place to each on the PLS project. In this report, we will first outline and discuss the geology, history, and longer-term upside of PLS, before going into the valuation methodology for our projected 50 MMlb resource model. To be clear, we do not expect the initial 43-101 report (Q1/14) to showcase a 50 MMlb resource, as the drill program outlined this year will likely only be on a tight-enough spacing to encompass the first two zones R00E and R390E (which we expect to come in at ~25 MMlb). However, as R780E and additional radon anomalies (new targets) will see drilling this year, we expect the AMW-FIS JV to be able to reasonably demonstrate a total mineral inventory of approximately 50 MMlb, and therefore base our valuation on this figure. After discussing the geology and valuation, the report will touch on both Alpha and Fission as individual companies, providing backgrounds, an overview of other properties, financial positions, and management team bios. Based on a targeted 50 MMlb high-grade resource at PLS at an ascribed valuation of $7.50/lb in situ (rationale discussed later in report) we are launching coverage on Alpha Minerals and Fission Uranium with Buy (S) ratings and price targets of C$6.50 and C$1.25, respectively. Figure 1 Location Of The PLS Project Source: Fission Uranium
    • JULY 3, 2013 MIKE KOZAK 416·943·6749 3 Background The Patterson Lake South property comprises 17 contiguous blocks totaling 31,039 km2 and is located approximately 550km NW of Price Albert, Saskatchewan, just outside of the southwestern area of the Proterozoic Athabasca Basin in Northern Saskatchewan. While not necessarily on the “ideal” side of the Basin due to the location of the various mineral processing plants in Northern Saskatchewan, access to the PLS site is excellent year-round without dependence on an ice road due to Provincial Highway 955 that bisects the concession. The past-producing Cluff Lake mine site (64.2 MMlb mined @ 0.92% U3O8) is located approximately 80km north of PLS, and the Shea Creek deposit (UEX- TSX, not covered) is approximately 50km north. The 50/50 JV agreement between AMW and FCU at PLS was established in January 2008. At present, Fission acts as operator, and will until April 1, 2014. At that point, operatorship will revert to Alpha Minerals for a period of two years and alternate thereafter, every two years, between both companies. There are no outstanding royalties or back-in rights on the property. The majority of discovery zone R00E is located under land, but zones R390E and R780E are covered by a shallow 4-8m deep portion of the Patterson Lake (see Figure 8). Figure 2 Athabasca Unconformity Geologic Model Source: U3O8 Corp. Simple Overview Of Unconformity-Related Uranium Deposits Unconformity-related uranium deposits, such as those in the Athabasca Basin, are among the richest in the world (of any ore type), and account for approximately ~20% of global uranium production. Simply put, these types of deposits consist of a bottom layer of rock referred to as the “basement” (Canadian Shield in the case of the Athabasca, Archean, +2.5 BB years old) overlain by a younger layer (Athabasca Sandstone, Proterozoic/Phanerozoic, 0.6 BB – 2.5 BB years old), the intersection of which is referred to as the “unconformity.” Over time, as water flowed through the porous upper Proterozoic/Phanerozoic sandstone layer and along the “unconformity” intersection, it would dissolve (oxidize) the uranium minerals contained in the lower “basement” Archean layer. This would continue for millions/billions of years, until the uranium and oxygen-rich hydrothermal-fluids in the sandstone layer met what is referred to as a “reducing front”. In the case of the Athabasca, “reducing fronts” take the form of
    • JULY 3, 2013 MIKE KOZAK 416·943·6749 4 graphitic faults, as graphite is prevalent in the Archean Canadian Shield and is an excellent reductant (redox reaction). Upon meeting the graphitic reducing front, the soluble uranium within the hydrothermal fluid is precipitated out along and in the area around the “unconformity” as a highly concentrated mass of uranium mineral (uraninite, pitchblende, etc.) As such, in these types of systems, uranium mineralization typically exists at the unconformity, but can also leak into the upper (sandstones) layers to a degree. In the case of basement-hosted deposits in the Athabasca (McArthur River and PLS as two examples), hydrothermal fluid flow can be either from the upper sandstone layer to the basement (ingress) or vice versa (egress), though the presence of a graphite source is still required for precipitation. With unconformity-related uranium deposits in the Athabasca almost always associated with a nearby graphitic fault or graphite source, it is also the reason why airborne electromagnetic surveys tend to work well, as graphite has strong electrical conductivity. This is why the graphite source associated with Athabasca unconformity-related uranium deposits is referred to as a “conductor”. The circulation of the hydrothermal fluids as the uranium is precipitated out will also cause alteration of both the basement and sandstone host rocks in the form of a halo. Various alteration types within the halo include illite, kaolinite, dravite, chlorite, etc. These alteration halos can be detected within drill core, and provide another way of “zeroing in” on the uranium deposit itself. Past Work At PLS And How The Discovery Was Made Patterson Lake South was effectively discovered via a high resolution airborne radiometric survey that identified strong anomalies, which when followed up on surface, was determined to be one of the largest surface uranium boulder trains in the Athabasca Basin (glacially transported basement rocks assaying up to 40.0% U3O8). Covering an area of approximately 7.4 km by up to 1.0 km, glacial studies determined that the likely bedrock source of the uranium boulders was 3-5 km to the northeast (up-ice from most recent glaciation) of the boulders. Detailed geophysical surveys consisting of airborne VTEM and ground SMLTEM (electromagnetic surveys), and DC resistivity developed highly prospective drill targets in the proposed bedrock source area, and the initial drill discovery (R00E zone) was made on November 3, 2012, while testing these targets. What follows is a brief history leading up to discovery hole PLS12-022: • 2007: Airborne electromagnetic and magnetic surveys of the northern portion of PLS were completed by ESO Uranium (Alpha Mineral’s former name) and Fission Energy (Fission Uranium’s former name). Results were of low resolution. • 2008: Radon in soil gas surveys were done in the northern portion of PLS. Values were generally low. Following an intensive historical assessment report and data review for PLS and nearby areas, additional land was staked to the south of the original mineral claims to include a 1.2 x 1.6 km radon in soil anomaly and historical electromagnetic conductors (the Patterson Lake conductor corridor). • 2009: A high resolution airborne magnetic and radiometric geophysical survey was completed across all PLS concessions. The survey successfully delineated different basement lithologies. A structural interpretation was then completed identifying surface and basement faults, shear zones and structurally complex areas. The radiometric spectrometer survey results outlined a strong uraniferous anomaly that covered an area of 3.9 x 1.4 km. • 2010: Staked additional ground to include the southwestern portion of the airborne uraniferous radiometric anomaly. • 2011: The 3.9 x 1.4 km radiometric anomaly identified in 2009 was surveyed, leading to the discovery of a radioactive boulder field containing several uraniferous “hotspots.” A total of 18 trenches were excavated within and
    • JULY 3, 2013 MIKE KOZAK 416·943·6749 5 northeast (up-ice) of the uranium boulder field, and 50 uraniferous boulders were recovered. The area itself was found to be coincident with historical electromagnetic conductors close to the west shore of the Patterson Lake. The boulders were found to be basement-hosted, rounded to sub-angular, soft/crumbly, and densely situated in some areas. This suggested the possibility of a nearby bedrock source. Boulders assayed as high as 39.6% U3O8. A 7-hole diamond drill program was completed in November and December which did not locate the bedrock source, but did indicate favourable geology and alteration patterns. • 2012: The 16-hole diamond drill program from February to April encountered favourable geology and alteration, but only weak to moderate uranium mineralization over thin widths. The Fall 2012 program started off with a small boulder prospecting program that recovered an additional 40 uraniferous boulders that assayed as high as 40.0% U3O8. The 9-hole diamond drill program from October to November yielded discovery hole PLS12-022: 8.5m @ 1.07% U3O8 including 2.5m @ 2.63% U3O8. The following three drill holes encountered uranium mineralization, and were highlighted by drill hole PLS12- 024 which returned 18.0m @ 1.78% U3O8 including 3.5m @ 4.33% U3O8. PLS Geological Overview Approximately 70-110m of Quaternary glacial sediments (sand, gravel, boulder, and clay lodgement till overburden) overlie Cretaceous units (Manville and Colorado), that comprise primarily mudstone, sandstone and coal. The eastern limit of this unit is irregular, but in general terminates just west of Patterson Lake. Beneath Patterson Lake 45-55m of Quaternary sediments overlie the Archean basement; however, a thin veneer (0.2-5.0m) of Devonian aged sandstone is present along the electromagnetic conductor that hosts the R00E and R390E zones. The property-wide basement regolith comprises disaggregated quartz grains within a matrix of fine-grained chlorite, clay, hematite and sericite. The basement comprises three important lithologies: pelitic gneiss (+/- graphite and pyrite), semi-pelitic gneiss, and quartz-feldspar gneiss. The North-South Clearwater intrusive domain is thought to be one of the sources of the original uraninferous fluids. Locally, clay, chlorite and hematite alteration are pervasive throughout drill core, and mineralization mainly occurs as flecks, blebs, clots, veins, and semi-massive and massive pitchblende (UO2) hosted within pelitic gneiss (with graphite consumed), and occasionally crosses lithological boundaries into the semi-pelitic and quartz-feldspar gneisses. AMW/FCU get excellent geophysical resolution and radon results due to the shallow nature of the basement bedrock in the area. Drill holes are typically targeted based on kinked electromagnetic conductors (indicating possible dilation zones), resistivity lows (indicating possible clay alteration haloes), and radon anomalies (indicating a uranium source at depth). The discovery of the R390E and R780E zones is largely associated with drill testing radon in water anomalies from the bottom of Patterson Lake. We note that some of the largest radon anomalies have yet to see any drilling (see Figure 6). This will be addressed as part of the 2013 drill program. On a regional scale, there appears to be a trough in the elevation of the basement on the PLS concession, which is thought to have concentrated uranium mineralization (see Figure 4).
    • JULY 3, 2013 MIKE KOZAK 416·943·6749 6 Figure 3 PLS Plan View Source: Alpha Minerals The Mineralized Zones At PLS To date, drilling at PLS has centered on three areas/zones - R00E, R390E and R780E. The majority of the R00E zone is located on land, and was identified via discovery hole PLS12-022 (discussed earlier in report). Zones R390E and R780E are within Patterson Lake at depths of 4-8m, and were identified via drilling along the southernmost conductor (PL-3B) in areas with anomalous radon in lake water and sediments on the lake bottom. R00E has been delineated over a strike length of ~120m, a lateral extent of ~50m, and a vertical extent of ~30m (begins 50m below surface). R00E is the only zone thus far that has some uranium mineralization occurring within the thin veneer of Devonian Sandstone. The vast majority of uranium mineralization in R00E and the other zones occurs in the basement. The R00E zone is open in every direction, and will require barren drill holes around its perimeter before a resource calculation may be completed. Zone R390E is located 390m east-northeast from the centre of R00E and is open laterally, and in both directions along strike. This is the zone we are most excited about, as it has yielded the highest grade and widest intersections at the PLS Project thus far (outlined later in the report). At present, it has been proven contiguous over a strike length of 60m, lateral extent of ~25m, and vertical extent of ~50m. Only a handful of holes have been drilled into the R780E zone, so its strike length, lateral and vertical extents are unknown at this point. That said, the best result at R780E (PLS13-060: 7m @ 1.3% U3O8,
    • JULY 3, 2013 MIKE KOZAK 416·943·6749 7 including 2.5m @ 3.00% U3O8) was the southernmost completed hole, and so follow-up drilling this summer will begin immediately south of PLS13-060. The overall mineralized system plunges very shallowly at ~10 degrees to the east-northeast along the PL-3B conductor trend, with the R00E zone flat lying and almost “pancake like” in shape, and the R390E zone sub-vertical in orientation following the steeply dipping meta-sediments at 70-85 degrees to the south. We view it as highly unlikely that the three zones will prove to be continuous, but see a strong potential for additional zones between the existing mineralized zones (R00E, R390E, and R780E), further along strike and down plunge from R780E, and west of R00E. Moreover, there are a number of other promising looking conductors on the PLS concessions that line up well with in-soil radon anomalies. We also note that some of the largest radon anomalies along the PL-3B conductor have still yet to be drilled. Several of these will be tested before year-end. Figure 4 Basement Elevation Source: Fission Uranium Figure 5 East-West Long-Section At PLS Source: Fission Uranium
    • JULY 3, 2013 MIKE KOZAK 416·943·6749 8 Drill Hole Intersections Reported The drilling “hit rate” at PLS (above 0.05% U3O8) is sitting at 91.3%, a very impressive stat given the relatively “tiny” size of unconformity-related uranium deposits in general. To date, 71 diamond drill holes have been completed at the PLS project. Below are some of the key drill intersections reported by zone, as part of the 2012 and 2013 exploration programs: R00E Zone • PLS13-022: 8.5m @ 1.07% U3O8 from 70.5m (December 5, 2012) • PLS13-024: 12.5m @ 2.49% U3O8 from 65.5m (December 5, 2012) • PLS13-027: 37.5m @ 1.17% U3O8 from 61.0m (April 10, 2013) • PLS13-037: 7.5m @ 2.25% U3O8 from 71.0m (April 10, 2013) • PLS13-043: 22.0m @ 4.80% U3O8 from 67.5m (May 16, 2013) • PLS13-052: 18.0m @ 3.56% U3O8 from 75.5m (May 16, 2013) • PLS13-059: 20.5m @ 8.57% U3O8 from 65.6m (May 27, 2013) • PLS13-067: 6.0m @ 4.63% U3O8 from 61.5m (June 5, 2013) R390E Zone • PLS13-038: 34.0m @ 4.92% U3O8 from 87.0m (March 24, 2013) • PLS13-051: 53.0m @ 6.57% U3O8 from 95.0m (April 22, 2013) • PLS13-053: 49.5m @ 6.26% U3O8 from 66.0m (April 24, 2013) • PLS13-061: 23.5m @ 1.39% U3O8 from 110.0m (June 5, 2013) • PLS13-066: 63.5m @ 1.15% U3O8 from 82.0m (June 5, 2013) R780E Zone • PLS13-060: 7.0m @ 1.22% U3O8 from 144.0m (June 5, 2013) Figure 6 Radon In Water Values (pCi/L) Source: Fission Uranium
    • JULY 3, 2013 MIKE KOZAK 416·943·6749 9 Cormark’s Preliminary Resource Estimate We believe AMW/FCU have already drilled off a ~15 MMlb resource grading +3.0% U3O8 at PLS (zones R00E and R390E) but both zones remain wide open, and some of the best intersections have seen little to no follow-up drilling. This resource estimate is preliminary in nature, and is a moving target that will change as more drilling is completed. It is based on the following parameters: R00E Zone: 125m strike length, 50m horizontal extent, 9.0m average thickness, 2.8% U3O8 grade, 2.6 specific gravity. R390E Zone: 60m strike length, 25m horizontal extent, 14.5m average thickness, 4.7% U3O8 grade, 2.6 specific gravity. Grades and average mineralized thicknesses are an approximate blended weighted average of drilling at both zones to date. Strike and horizontal extent are approximated via drilling plan maps. Specific gravity is our estimation based on the ratio of uranium mineralization occurring as pitchblende. Alpha and Fission intend to release an initial 43-101 resource in mid-2014. To date, we believe the PLS project has demonstrated ~15 MMlb in resource, but with the system far from closed off, we believe the initial 43-101 resource will likely “prove up” ~25 MMlb. In our view, the initial 43-101 will likely only have sufficient drill density in zones R00E and R390E, and we believe R390E will likely look larger, and higher grade than R00E. While we expect the initial 43-101 to come in at ~25 MMlb, our target price on both Alpha and Fission is based on a total resource (100% basis) of 50 MMlb at PLS, which we believe the JV will be able to reasonably demonstrate by mid-2014, though this will not be 43-101 compliant. This target will be revised up or down as more drilling is completed on the project. Figure 7 Massive Pitchblende In Holes R00E PLS13-059 And R390E PLS13-053 Source: Cormark Securities Photos
    • JULY 3, 2013 MIKE KOZAK 416·943·6749 10 Plan In 2013, Catalysts Going Forward Alpha and Fission will be spending a combined $6.95 MM on exploration this year with a focus on continuing to delineate the R00E, R390E and R780E zones. Initially two barge diamond drill rigs will start on R390E and R780E with a third land diamond drill rig arriving several weeks later and delineating the western extent of R00E (where it remains open). Later in the year, the JV will drill two never-before-tested radon anomalies, the first being ~170m ENE of R780E and the second being between R390E and R780E. An additional radon anomaly exists ~390m WSW of R00E though it is unclear if the JV will get to drill testing it this year. The 11,000m summer drill program will get underway by early July, with initial scintillometer results like by mid- to late-July, followed by assay results in early August. Between scintillometer and chemical assays, results should be continuous (every 1-2 weeks) through the summer and winter programs (next 9 months). With $17.5 MM (AMW) and $17.0 MM (FCU) in cash, both companies are sitting pretty for at least another 12-15 months. Figure 8 R00E Discovery Zone Looking Toward R390E Zone (Underwater) Source: Cormark Securities Photos
    • JULY 3, 2013 MIKE KOZAK 416·943·6749 11 Valuing “High Quality” Pounds In The U Space Scarcity Value Of High Grade U Deposits Should Have Both Companies Trade At A Premium The Athabasca Basin has yielded the highest grade orebodies of any metal, anywhere in the world. To put AMW/FCU’s best hole at PLS into context (PLS13-051: 53.0m @ 6.57% U3O8), in terms of value, it would be equivalent to drilling 100m @ 3,630g/T Au from near surface, in what will most likely be an open-pitable deposit. Valuing truly world-class discoveries is challenging, particularly due to the fact that there are so few of them in the hands of junior companies, and the “scarcity value” is therefore significant. Should exploration demonstrate the degree of success we ultimately expect at PLS (50 MMlb of high grade U3O8), we believe it is highly likely that both companies will be consolidated in some way, likely via a merger of equals between AMW-FCU, followed by potential acquisition by a major in the region (Cameco, Areva, Rio Tinto, etc.) In the meantime, investors need to ascribe a value to Alpha and Fission and we believe the two best recent comparables are Hathor (acquired by Rio Tinto) and Mantra (acquired by ARMZ/UUU). While both vary significantly in terms of grades, size, location, permitting, etc., both companies are among the very few to have defined, in the last several years, what we regard as top-tier uranium assets, a class that we believe PLS belongs to. Figure 9 below provides a valuation snapshot of both companies. Figure 9 Valuation Comparison To Hathor, Mantra Mantra Resources Hathor Exploration Project Mkuju River Roughrider Country Tanzania Canada Type Sandstone hosted, open-pit Unconformity-related, underground Development Stage Pre-feasibility Pre-feasibility Ownership 100% 100% M&I Resource (Kt) 67,700.0 394.2 M&I Grade (%) 0.04% 2.0% M&I Contained (MMlb) 65.6 17.2 Total Resource (Kt) 108,900.0 555.8 Average Grade (%) 0.04% 4.7% Total Contained (MMlb) 101.4 57.9 Date of Acquisition Announcement December 16, 2010 August 26, 2011 U Price On Date Of Acquistion $61.00 $49.00 Acquired By Uranium One / ARMZ Rio Tinto (bidding war with Cameco) Final Acquisition Price (MM$) $1,020 $636 EV When Acquired (MM$) $953 $610 EV / M&I Resource ($/lb) $14.53 $35.42 EV / Total Resource ($/lb) $9.40 $10.53 Source: Company filings Applying $7.50/lb In Situ For Our Valuation On PLS As the resource at PLS is proved up, we will ultimately move to a DCF-based NAVPS for our valuation of both Alpha and Fission, but this +12 months away. In the interim, we are ascribing a value of $7.50/lb U3O8 on a total resource of 50 MMlb at PLS (100% basis). The 25% discount vs. the takeout value of Hathor and Mantra (~$10.00/lb M&I+Inferred on average) is meant to reflect the earlier stage of PLS, the preliminary nature of our conservative initial resource estimate, as well as potential equity dilution down the road, as money continues to be spent on drilling. As the project is derisked, and we get more comfortable with the size and grade of the resource, we will likely boost our valuation multiple ($/lb in situ) higher.
    • JULY 3, 2013 MIKE KOZAK 416·943·6749 12 Alpha Minerals, Company Description Alpha Minerals Company Background ESO Uranium was incorporated on July 19, 2000, and on November 2, 2012, changed its name from ESO Uranium to Alpha Minerals. The company is headquartered in Vancouver, and is almost entirely focused on advancing the PLS (50% JV). In addition to PLS, Alpha also holds the Cluff and Hook concessions (in the area of PLS) as well as the Mikwam gold property in North Eastern Ontario and the Donna gold property in South Central British Columbia. We ascribe no value to these other assets as AMW is spending little to no time on them in light of the recent PLS discovery. The company has C$17.5 MM in cash, having closed a C$12.28 MM flow-through and common share private placement on April 25, 2013 at C$4.40/FT share and C$4.00 per common share. Prior to this, on January 28, 2013 Alpha raised C$3.15 MM in a flow-through private placement at C$2.10 per share. Relative to most junior exploration companies (of any commodity) we would characterize Alpha’s management team, geologists, and Board of Directors as above average, and highly experienced both at the technical/geological level and at the corporate level. The team has a track record of exploration success and creating significant shareholder value in its previous ventures, namely, Hathor Exploration which was sold to Rio Tinto for C$654 MM in a bidding war with Cameco. Figure 10 NAVPS Estimate/Capital Structure For Alpha Minerals Cash (Current - C$ MM) C$17.50 Cash (Year-end - C$ MM) C$12.50 Shares Out (Current - 000s) 25,329.71 Strike Expiry Warrants (000s): 1,288.67 C$1.80 Dec 2013 69.80 C$1.60 Dec 2013 910.00 C$1.50 Feb 2014 521.65 C$1.20 Feb 2014 22.50 C$2.10 Jan 2015 875.00 C$5.00 Apr 2015 88.50 C$4.40 Apr 2015 105.15 C$1.00 May 2015 Options (000s): 255.00 C$1.00 Oct 2015 247.50 C$1.20 Dec 2016 257.50 C$1.20 Mar 2017 365.00 C$1.50 Dec 2017 100.00 C$1.69 Dec 2017 50.00 C$1.77 Jan 2018 685.00 C$4.00 Apr 2018 200 C$3.88 May 2018 Total Diluted Shares Outstanding (000s) 31,370.98 Fully Diluted (Treasury) 000s 29,208.33 Patterson Lake South Resource (MMlb) - 100% 50 Value ($/lb) $7.50 NPV ($/lb) - 100% - MM$ $375 NAVPS, Fully Diluted C$/share Cash (year-end) C$0.43 PLS, 50% (@$7.50/lb, 50 MMlb) C$6.42 Total, Per Share, Diluted C$6.85 Source: Company filings, Cormark
    • JULY 3, 2013 MIKE KOZAK 416·943·6749 13 Benjamin Ainsworth, P.Eng President, CEO & Director Mr. Ainsworth is a professional geologist with 40+ years of experience in the industry. In his 20 years with Placer Dome, he was a part of the discovery of Howards Pass (now being developed by Selwyn Resources). Later, he formed a mineral exploration consultancy company, and was involved in the development of the Huckleberry Mine in BC, and the property selected for Cascadia Metals, ultimately leading to the Sharingol gold project in Mongolio (Cameco-Centerra). Most recently, Mr. Ainsworth was the VP Exploration for Hathor during the discovery of the Roughrider deposit. Dr. Michael Gunning, MSc, PhD Chairman, Director, Lead Technical Advisor Early in his career, Dr. Gunning worked with the British Columbia Geological Survey doing mineral deposit research and geological mapping. Later, he worked with Teck Resources as an exploration geologist in the Americas, and the Saskatchewan Geological Survey. Most recently, Dr. Gunning was the President & CEO of Hathor Exploration where he saw the project through resource definition, and a PEA, and the eventual sale of the company to Rio Tinto. Garrett Ainsworth, P.Geo VP Exploration Mr. Ainsworth is a professional geologist and the Vice President Exploration for Alpha Minerals Inc. He has a Diploma of Technology in Mining and Bachelor of Technology in Environmental Engineering from BCIT, as well as a Bachelor of Science with honours from Birkbeck, University of London. Mr. Ainsworth has been instrumental in the successful progress of the PLS project, where he was the Project Manager (PM) since its inception in 2008. During his tenure as PM of PLS, he oversaw the staking of new claims, the discovery of the boulder field, the initial high-grade uranium drill hole discovery (R00E zone), and the discovery of the high-grade, near-surface, uranium zones R390E and R780E during the winter 2013 drill program. Apart from being involved with numerous uranium projects in the Athabasca, Saskatchewan, he also obtained experience as a field geologist on gold projects in British Columbia, Nevada, and Mexico, and a diamond project in West Africa. Charles Roy, P.Eng, P.Geo Advisory Board On May 29, 2013, Alpha Minerals established an Advisory Board which will be headed up by Mr. Roy. He worked with Cameco for over 30 years in various exploration roles including Director of Exploration Agreements, Regional Director for the Americas, and Director of Advanced Exploration. Alan Graham Advisory Board Mr. Graham is also a recent hire and will work with Mr. Roy on the newly formed Advisory Board. He was a member of the former Atomic Energy Control Board and served as commissioner of the Canadian Nuclear Safety Commission (CNSC) for 12 years (1999 to 2011). Mr. Graham has been involved in the permitting of virtually of the operating uranium mines in the Athabasca Basin and has extensive experience in various areas of the nuclear fuel cycle and permitting/regulatory matters. Warren Stanyer Director Mr. Stanyer has served as a consultant, corporate secretary, officer, director and President & CEO of several publically traded exploration companies including Pioneer Metals, UEX Corporation, and Northern Continental Resources in his 15+ years of experience in the industry. James Yates Director Mr. Yates was the founder, President and director of Hycroft Resources, which brought the Crofoot heap leach mine into production. He has over 20 years of experience in the exploration industry and has served on the Board of several mining companies.
    • JULY 3, 2013 MIKE KOZAK 416·943·6749 14 Kurt Bordian, CGA CFO, Company Secretary Mr. Bordian is a director of several other public companies and has worked primarily in the mining, exploration, and oil and gas business. He is a designated Certified General Accountant in Canada. Target & Recommendation Based on a targeted 50 MMlb high-grade resource at PLS at an ascribed valuation of $7.50/lb in-situ we are launching coverage on Alpha Minerals with a Buy (S) rating and a target of C$6.50,
    • JULY 3, 2013 MIKE KOZAK 416·943·6749 15 Fission Uranium, Company Description Fission Uranium Company Background Fission Energy, now Fission Uranium Corp., was originally spun-out of Strathmore Minerals (STM-TSX) on July 17, 2007, with its primary asset being the 60%-owned (40% KEPCO) Waterbury Lake project, immediately adjacent to Hathor’s Roughrider Discovery. On a 100%-basis, the J Zone at Waterbury Lake contained Indicated resources of 10.284 MMlb @ 1.52% U3O8 and Inferred resources of 2.747 MMlb @ 0.90% U3O8. Figure 11 NAVPS Estimate/Capital Structure For Fission Uranium Cash (Current - C$ MM) C$17.00 Cash (Year-end - C$ MM) C$12.00 Shares Outstanding (Current - 000s) 149,400.00 Strike Expiry Warrants (000s): 623.70 C$0.85 Nov 2013 600.06 C$0.60 Dec 2014 Options (000s): 21.45 C$1.07 Jun 2013 158.73 C$2.00 Jul 2013 178.04 C$0.70 Jul 2013 72.93 C$1.07 Jul 2013 3.22 C$1.96 Jul 2013 169.46 C$1.86 Jul 2013 21.45 C$1.40 Jul 2013 2.15 C$1.07 Nov 2013 430.00 C$0.20 Nov 2013 1,775.00 C$0.30 Jan 2014 85.00 C$0.80 Apr 2014 100.00 C$0.31 Aug 2014 82.50 C$0.80 Aug 2014 2.15 C$1.86 Nov 2015 82.50 C$0.80 Jan 2015 1,055.25 C$0.55 Feb 2015 150.00 C$0.80 Mar 2015 6.44 C$1.59 Apr 2015 12.87 C$2.00 Dec 2015 3,060.00 C$0.80 Dec 2015 450.00 C$1.00 Jan 2016 11.80 C$0.70 Nov 2016 1,100.00 C$0.80 Jan 2017 2,750.00 C$0.55 Dec 2017 Total Diluted Shares Outstanding (000s) 162,404.67 Fully Diluted (Treasury) 000s 158,309.35 Patterson Lake South Resource (MMlb) - 100% 50 Value ($/lb) $7.50 NPV ($/lb) - 100% - MM$ $375 NAVPS, Fully Diluted C$/share Cash (Year-end) C$0.08 PLS, 50% (@$7.50/lb, 50 MMlb) C$1.18 Total, Per Share, Diluted C$1.26 Source: Company filings, Cormark
    • JULY 3, 2013 MIKE KOZAK 416·943·6749 16 Fission Uranium Company Background (Continued) The discovery of the J Zone was made by Fission Energy in January 2010 with hole WAT10-63A returning 10.5m @ 1.91% U3O8 including 1.0m @ 13.87% U3O8 at the unconformity approximately 230m downhole, directly adjacent to, and continuous with the original Roughrider zone (HAT-TSX). The resource was calculated on 142 drill holes totaling 43,900m on a drill spacing of 10-50m. While the J-Zone was an excellent project in and of itself, after the discovery of PLS in late-2012, Fission Energy effectively “streamlined itself” by selling the company to Denison Mines for ~$70 MM, and spinning out its 50%-stake in PLS and $18 MM in cash to existing FIS shareholders. The all-share deal (0.355 Denison shares per Fission share plus one share in the SpinCo) has resulted in previous FIS shareholders owning ~11% of DML and their pro forma interest in the SpinCo, named Fission Uranium Corp (FCU-V). The transaction was effectively a “clean-up trade” in the Athabasca Basin and one that we regard as mutually beneficial for Dension and Fission. In addition to PLS, Fission also holds the Patterson Lake North, Clearwater West, Beaver River, Manitou Falls, Thompson Lake and North Shore uranium properties in the Athabasca Basin as well as the Macusani uranium property in southeastern Peru. We ascribe no value to these other assets as they are extremely early stage, though we note that Azincourt Resources (AAZ-TSXV, not covered) has commitments to spend $16.75 MM at Patterson Lake North to earn into 50% of the property (the remaining 50% being Fission). At present, Fission acts as operator at PLS, and will continue until April 1, 2014. At that point, operatorship will revert to Alpha Minerals for a period of two years and alternate thereafter, every two years, between both companies. Fission currently has C$17.0 MM in cash, sufficient to complete 12-18 months worth of exploration at PLS. Dev Randhawa, MBA Chairman & CEO Mr. Randhawa founded Strathmore Minerals in 1996, and spun out Fission Energy in 2007. He was also formerly the founder, President and CEO of Pacific Energy Asia until it was sold to Green Dragon Gas in 2008 for $35.2 MM. Mr.Randhawa holds an MBA from the University of British Columbia. Ross McElroy, P.Geo President, COO & Director Mr. McElroy is a professional geologist with 30 years of experience in the mining industry related to projects at all stages of exploration and development. He was an exploration geologist at Cameco working with the team that discovered the MacArthur River project, and has also held positions with BHP and Areva. Mr. McElroy served as President & COO of Fission Energy and is largely credited with making the Waterbury Lake/J Zone discovery. Raymond Ashley VP Exploration Mr. Ashley has over 25 years of experience in the mining industry, largely with BHP. He was a key member of the discovery team at Ekati (Canada’s first diamond mine) and later held the position of Exploration Manager, Canada Diamonds. Subsequently, he founded a diamond exploration company, Trigon Exploration, and served as VP Exploration for Diamondex Resources. Mr. Ashley was a key member of the Fission Energy team during the Waterbury Lake/J Zone discovery. Frank Estergaard, CA Director Mr. Estergaard was with KPMG for 38 years and retired as a Partner in 2001. Afterward, he has served as a Director for QHR Technologies, the CFO of Metalex Ventures and the CFO and/or Director of several private companies. Jeremy Ross, Director Mr. Ross has over 15 years of experience in corporate development and the marketing of junior mining and resource companies. Most recently, he was the Corporate Development Consultant for Fission Energy.
    • JULY 3, 2013 MIKE KOZAK 416·943·6749 17 William Marsh, Director Mr. Marsh worked on several drilling programs with Chevron for 15 years in Canada and Internationally. He is a former director of Pacific Asia China Energy when it was sold to Green Dragon Gas. Mr. Marsh is also a former director of Predator Capital and Wolf Capital. He currently is on the Board of Ballyliffin Capital and consults with several exploration and production companies in the natural resource industry. Target & Recommendation Based on a targeted 50 MMlb high grade resource at PLS at an ascribed valuation of $7.50/lb in situ we are launching coverage on Fission Uranium with a Buy (S) rating and a price target of C$1.25.
    • JULY 3, 2013 MIKE KOZAK 416·943·6749 18 Appendix A: Risks To Target Geopolitical Risk This risk deals with policies such as permitting and tax laws that are managed by governments and the perceived stability and investment environment. These policies can greatly affect mining companies, and in some cases prevent mining from occurring. Generally, developing countries are seen as being more risky because of the potential of a quick change in power to drastically change policies. Developed countries have their own geopolitical risk issues, and jurisdictions with powerful environmental lobbies can also make mining or exploration difficult. Financing Risk Mining and exploration companies may require external capital, particularly when building new mines. In order to finance these endeavors, equity or project dilution may be taken to fund the equity portion of the capital costs if the project is to be developed. Shareholders may also be subordinated by lenders in order to finance a mining project. Commodity Price Risk Our short- and long-term commodity price assumptions are based on detailed research, and viewed to be reasonable based on current information. However, the timing and magnitude of commodity price fluctuations are always a significant risk that, in most cases, strongly affects the value of mining and mineral exploration/development companies focused on a specific commodity. Currently, the primary metal exposure for Alpha and Fission is uranium. Technical Risk Mining operations are subject to unforeseen risks such as labour strikes, rock bursts, geological interruptions, and equipment failure, which may negatively affect a company’s performance. Ore reserve and resource risk is another technical risk that is derived from the subjective nature of geological interpretation. Competent, qualified personnel calculate ore reserves and resources, and in most cases have a high accuracy, but any significant variation on reserves could drastically impact a company’s operations and the value of its shares. Exploration Risk In some cases, the market may build in expectations for exploration success before the actual exploration work has taken place. In the event that results do not meet with the market’s expectation, the company’s shares may be negatively affected. Cost Risk Both capital and operating costs may be affected by changes in input prices (fuel, steel, chemicals, etc.) and by relative currency changes. The company may be at risk of unexpected cost escalation as a result of these potential threats.
    • JULY 3, 2013 MIKE KOZAK 416·943·6749 19 Recommendation Terminology Cormark’s recommendation terminology is as follows: Top Pick our best investment ideas, the greatest potential value appreciation Buy expected to outperform its peer group Market Perform expected to perform with its peer group Reduce expected to underperform its peer group Our ratings may be followed by "(S)" which denotes that the investment is speculative and has a higher degree of risk associated with it. Additionally, our target prices are based on a 12-month investment horizon. Disclosure Statements and Dissemination Policies A full list of our disclosure statements as well as our research dissemination policies and procedures can be found on our web-site at: www.cormark.com Analyst Certification I, Mike Kozak hereby certify that the views expressed in this research report accurately reflect my personal views about the subject company(ies) and its (their) securities. I also certify that I have not been, and will not be receiving direct or indirect compensation in exchange for expressing the specific recommendation(s) in this report.
    • JULY 3, 2013 MIKE KOZAK 416·943·6749 20 Figure 12 Alpha Minerals Inc. - Disclosure Chart Source: Cormark Securities Inc.
    • JULY 3, 2013 MIKE KOZAK 416·943·6749 21 Figure 13 Fission Uranium Corp. - Disclosure Chart Source: Cormark Securities Inc.
    • JULY 3, 2013 MIKE KOZAK 416·943·6749 22 Figure 14 Cameco Corp. - Disclosure Chart Source: Cormark Securities Inc.
    • JULY 3, 2013 MIKE KOZAK 416·943·6749 23 Figure 15 Denison Mines Corp. - Disclosure Chart Source: Cormark Securities Inc.
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