Kivalliq

I spent some time a while ago looking at the drillresults from Kivalliq.  At first glance I was a little disappointed inthe numbers that they returned from their first 14 holes last fall.  The gradeswere good (1% to 2% in most cases) but the widths were very narrow,ranging from at most 4m to less then 1m in some cases.

But Ithink that the widths are somewhat misleading.  After researching thecross section and aerial schematics of the results that are availableon Kivalliq's website, I can see how large the deposit is. 

Kivalliqdrilled the deposit along its length.  So while the widths are narrow,the deposit is extremely long (1km) and goes quite deep (100-200m).  Balancing that are the negatives.  I'm guessing the resource would have to be mined underground.  The project is quite far north (Nunavut).  Those two things mean its not going to be cheap to get something started.  On the other hand, the grade is high (+1%), and there is a reasonable chance the deposit gets bigger as they step out.

This is a typical cross section from the drilling.



Maybe most importantly,when you compare the historical drilling results to the recent drilling,the comparison was favorable. The historical drilling, upon which thenon-compliant resource was developed, are similar in widths and arealso along the same depth and strike distance as are the recent holes.

Based on this, I can understand the companies comments as tohow they are pleased with the results of the drilling.  The historicaldrilling was enough for the company to estimate between 11Mlbs and20Mlbs of uranium.  There shouldn't be anything in these new drillresults that would reject this thesis.  The new drill results are justfilling in the holes of the historical drilling, and it looks to melike those holes are being filled with similar results.

Finally,I was able to gain some insight into other potential at the project.In addition to the original deposit, the historical drilling drilledtwo holes outside of that strike distance.  The one hole intersected0.7m of 1.9% Uranium at 70m depth (YU52) to the south, while anotherhole intersected 1.4m of 1.38% Uranium about 70m deep (YU2).

Thewhole area has a lot of uranium.  If there are 20Mlbs in the main zone,there could easily be another 20Mlbs in the surrounding area. 

I'm not the only one that sees something of value here. Ross Beaty got into their recent private placement.  Kivalliq will be shortly begin drilling with Beaty's money.

Why is Beaty so interested?  If youcompare Kivalliq to some other companies, you can get a feel for the value.   When the resource is confirmed, I suspect the valuation of the company will goup significantly to better reflect what the market is paying for a pound of Uranium in the ground.  Here are a few other companies for comparison:
  • Hathor - Hathor reported 116,000 tonnes indicated grading 2.57% U3O8 and 83,000 tonnes inferred grading 3.00% U3O8 for 12.0 million pounds U3O8 on a global basis.  Hathor has about 91M shares outstanding and thus a market capitalization of $150M
  • UR-energy - Known Lost Creek mineralization is hosted over a 4.8 kilometre strike length and in four main sandstone horizons between 96 metres and 213 metres in depth. An NI 43-101 compliant resource estimate based on historical drilling was published in June 2006 amounting to 9.8 million pounds indicated at 0.058% U3O8 1.1 million pounds inferred at 0.076% U3O8. Most of these resources are hosted in the HJ horizon with a small amount in the underlying KM horizon.  Ur-energy has 92M shares outstanding and is trading at 0.92 cents for a market capitalization of about $85M.  They expect to have their mine permitted and producing by the end of 2010.
  • Uracan Resources - 40.7 million lbs. U3O8 (NI 43-101) discovered at North Shore project.  The grade is 0.012%.  They have 91M shares for a market capitalization of $28.3M.
  • Strateco Resources - NI 43-101 resource estimate completed at the beginning of August 2008 showed a 300% increase of the Mineral Resources in 10 months. Indicated mineral resources are estimated to total 250,000 tonnes grading 0.68% U3O8 containing 3.73 million pounds U3O8. Inferred mineral resources are estimated to total 1.3 million tonnes grading 0.44% U3O8 containing 13.07 million pounds U3O8.  Strateco has 119M shares for a market capitalization of $100M.
Its always dangerous to try to simplify a valuation into a $/lbs number, and so any attempt to should be taken with further investigation.  Nevertheless, its a quick way of getting a ballpark valuation, so I am going to do that here.  It looks like a reasonable number for a trading metric from the above examples might be a value of $5M/lb of U3O8. 

So how does Kivalliq compare?  Below is a look a the Kivalliq share structure:

Shares Outstanding
Fully Diluted Shares Outstanding
Working Capital
Fully Diluted Working Capital

51,712,744
76,709,194
$2,800,000
$11,689,525

Warrants Outstanding

11,258,250 @
.20 to
.60, May 2010 to Aug 2011
10,000,000 @
.35, Feb 2012

Options Outstanding

3,738,200 at a weighted average of
.18


Fully diluted right now and this is about a $40M stock.  Not as cheap as it was when I bought it (at 20-25cents), but still fairly cheap based on the comparables. At $5M/lb, based on comparative companies, one might expect KIV to be a $1.30 stock with a 20Mlbs resource.