As a geologist who has worked in the junior mining trenches, David Sadowski knows that nothing is ever certain wnen it comes to mineral exploration.
But the Raymond James mining analyst is reasonably sure that Fission Uranium Corp. (TSX: V.FCU, Stock Forum) will soon be swallowed up by one of the giants of the uranium industry.
“I would be very very surprised if this company was still around in two years from now,’’ said Sadowski during an interview with Stockhouse.
This optimistic view is based on results from Fission’s Patterson Lake project, an early stage exploration property which is located on the western side of Saskatchewan’s fabled Athabasca Basin, home to the operations of uranium mining giant Cameco Corp. (TSX: T.CCO, Stock Forum).
Patterson Lake South is really the result of a grassroots exploration effort that was led by Fission President Ross McElroy, an award-winning geologist who has previously worked in the Saskatchewan uranium sector with Cameco and the French giant Areva.
Airborne radiometric surveys conducted in 2009 led to the discovery of anomalies that eventually resulted in a discovery hole that was reported in November 2012, putting Fission in the exploration spotlight.
He said the latest drilling results – including some of the best assays results ever reported in the region – suggest that Fission will be able to outline a shallow uranium deposit that is amenable to low-cost open pit mining methods.
That should make the company a potential target for any number of companies with an interest in this type of project.
“There are a huge number of potential bidders,’’ said Sadowski, who has set a $2 target for the stock. “The obvious one is Cameco Corp., with Cameco being one of the largest producers in the world and the dominant land holder in the Athabasca Basin.’’
He said Fission may also be of interest to Areva, and even Rio Tinto Plc (NYSE: RIO, Stock Forum), which made its first venture into the Saskatchewan uranium sector via its US$642 million acquisition of Hathor Exploration Ltd. in January 2012.
Outside the uranium mining sector, Sadowski sees potential interest from nuclear utilities – particularly those from Asia – as well as other miners, who may not be exposed to uranium today, but are lured by the outstanding potential economics and low technical mining risk that an open pit operation at Patterson Lake South might offer.
Trading at $1.31 on Monday, Fission has a market cap of $414.6 million, based on 316.5 million. The stock trades in a range of $1.48 and 52 cents.
The stock gained 11% last week after the company announced results from a single drill hole (Hole 129) that returned 116.5 metres, grading an average of 8.52% U308 (uranium oxide).
“Given [that] this interval starts at only 56 metres core depth, it is well within open pit range and thus, in our view, represents the most significant hole ever drilled in the Athabasca Basin,” Sadowski said in his report.
While exploration has not progressed to the point where Fission can announce a resource estimate for the Patterson Lake South project, the Raymond James analyst said the junior should be able to delineate a resource of 80 million pounds within the next six to 12 months.
That’s well above the 46 million pounds that the market is currently ascribing to the project, based on Fission’s enterprise value and a multiple of US$8 per pound, he said.
However Sadowski is confident that exploration will outline well in excess of 80 million pounds. “We believe continued testing of the main trend and on exploration targets will eventually show contained metal in the multi-hundred million pound range.
That material would be hosted within seven zones located within a strike length of 1.78 kilometres.
Fission exploration crews are currently drilling on a frozen lake. It is expected that the company will spend about $20 million on exploration this year.
Aside from the focus on Fission, the analyst is also watching developments at other nearby projects.
They include NexGen Energy Ltd.’s (TSX: V.NXE, Stock Forum) new Arrow discovery, which is located about 7 kilometres to the northeast of the Patterson Lake South (PLS) project and on the same conductive trend that has given rise to PLS.
He is also keeping an eye on Forum Uranium Corp. (TSX: V.FDC, Stock Forum), which has embarked on a 3,000-metre drill program on its 100%-owned Clearwater project, which is located immediately to the west of Patterson Lake South.
Forum has said it plans to spend $1 million on exploration this year on the Northwest Athabasca project, which is owned jointly by Forum and NeGen, with a combined 64% stake. The balance is held by Cameco and Areva, which own 23.5% and 12.5% respectively.
But as with any early stage exploration project, all of these companies face potential challenges, including the lack of available infrastructure in the Southwest Athabasca region, as well as the regulatory issues that will eventually come with permitting a uranium mine and associated processing facilities.
However, if Sadowski’s analysis is correct, permitting will be someone else’s problem, if as expected, Fission is swallowed up.
Disclosure: Fission Uranium is a Stockhouse client.