Canalaska Uranium Ltd was made part of my 2023 Favorites Collection based on its intersection of high grade uranium within basement rocks of its West McArthur project in Saskatchewan's Athabasca Basin. Hole 67 reported in August 2022 yielded 9.0 m of 2.4% U3O8 including 6.0 m of 3.5% U3O8. This hole was located about 6 km southwest of the 42 Zone Canalaska had discovered earlier. Canalaska immediately began to drill wedges off this discovery hole in an effort to define the geometry of this mineralization below 900 m depth and trace it back to the unconformity between the crystalline basement rock and the overlying basin sandstone.
The Athabasca Basin has the world's highest grade uranium deposits of which Cameco's Cigar Lake and McArthur are the world class champions. They are so high grade they are mined remotely with machines. Freezing technology is used to prevent water from pouring into the underground excavations. The Athabasca Basin is unusual in that it is traversed by a series of northeast oriented faults which over time accumulated graphite within the faults at the unconformity and also within the basement. These faults served as gateways for hydrothermal systems which circulated through the sandstone from which the fluids harvested uranium. When these pregnant fluids intersect the graphite the uranium drops out of solution. Constant repetition causes very high grade zones to develop at the unconformity along the fault like a string of pearls, but also within the underlying feeder structures. Because the graphite is conductive exploration companies use geophysical surveys to identify these fault structures, which in the case of Canalaska's West McArthur project is called the C10 South corridor.
Most of the unconformity associated deposits have been discovered along the eastern flank of the Athabasca Basin where the unconformity depth dips westward. During the past decade new substantial basement hosted deposits like NexGen's Arrow and Fission's PLS were discovered in the southern half of the Athabasca Basin where the overlying sandstone has been eroded away. Canalaska's exploration strategy has been to probe deeper into the basin on the eastern flank in search of McArthur scale deposits. The discovery in 2022 indicated that a powerful hydrothermal system had been active in the Pike area of the C10 South corridor, and the speculation was that it would only be a matter of time until Canalaska traced the zone back to the unconformity where richer and bigger zones could be expected to be present. I made Canalaska a 2023 KRO Favorite because uranium prices had emerged from their post-Fukushima slump and I was optimistic that by the end of 2023 Canalaska would be delineating a world class uranium discovery at the unconformity. While the uranium price has continuted to improve, Canalaska's followup drilling failed to encounter unconformity associated mineralization and the basement zone seemed to be a dancing squirrel twisting and turning away from the drill bit. So I did not continue Canalaska as a 2024 Favorite and instead made it part of my 2024 Bottom-Fish Collection.
On February 28, 2024 Canalaska surprised the market with news that it had intersected 16.8 m of 13.75% eU3O8 including 4.7 m of 40.3% eU3O8. The grades have an "e" attached to them because these are "radiometric equivalent" readings from an instrument that are very reliable if calibrated properly (something we can expect from the ex-Cameco people running Canalaska). If anything, when the grade gets this high, the eU3O8 understate what the geochemical assays will eventually deliver. The stock jumped $0.285 to close at $0.74 in response to the news and traded nearly 12 million shares. The stock has since cooled off, which gave me the opportunity to make Canalaska a 2024 Favorite on March 7 at $0.74 with a Good Spec Value rating. The reason was that the press release indicated hole WMA082-4 had intersected the high grade uranium at the unconformity, which confirmed that in this area a powerful system was at work of which the earlier intersections were a basement hosted manifestation, and, more importantly, revealed where exactly the unconformity was located. This allows the drill crew to spot followup holes with a much greater chance of delineating the geometry of the zone. The crew has become so accurate in targeting the wedge holes that delineation can now unfold much more systematically than in 2023 when they were trying to chase the structurally controlled basement zone. The market has paused because there is a chance that the first stepout may have guessed wrong about the direction of the unconformity, which would cause a modest price slump when word got out. But that does not worry me because the information gained will allow the next wedge hole to vector towards where the zone continues. The winter drilling will continue into April. The hope now is that by the end of April Canalaska will have a decent understanding of the geometry of the zone at the unconformity and will resume drilling after spring thaw to delineate a McArthur scale world class discovery. There has been some grumbling about the depth of the intersection at 796.6-813.4 m, but that depth does not really matter because the zones will be delineated laterally along the unconformity.
The Good Spec Value rating is the result of an updated outcome visualization I have done which reveals what a West McArthur clone discovery would be worth today. I first created an OV in 2016 when I was covering Canalaska based on cost numbers I dug up from Cameco's filings. I have boosted all CapEx and OpEx costs by 25% to reflect the inflation of the past few years and rerun the OV. As of March 12, 2024 with uranium at $89/lb U3O8 a McArthur River clone consisting of 1,062,200 tonnes of 16.46% U3O8 containing 380 million lbs would be worth just under CAD $8 billion when ready to be put into production. If there were no further equity dilution that would translate into a future $31 price target for Canalaska based on 212 million fully diluted and a 83.3% net interest (Cameco is not participating in 2024 so this net interest will increase further by the end of 2024). Now we are still a long way from delineating 1 million tonnes of 16% U3O8, and the certainty range of a project at the discovery delineation stage is 2.5%-5.0% of the expected outcome value under my rational speculation model, which means fair speculative value for a McArthur outcome is $0.78-$1.56. With the stock trading below this range its price qualifies as Good Speculative Value.
Keep in mind that if you reduce the potential outcome to a smaller, lower grade deposit the stock would probably represent poor speculative value. This is before we start thinking in terms of S-Curve market action which will not kick in until the market has confirmation that CEO Cory Belyk and exploration VP Nathan Bridge have indeed figured out the geometry at the unconformity. The S-Curve action would then kick in because the Pike Zone at West McArthur could turn out to be bigger and better than McArthur or Cigar Lake. This is the closest a resource junior can come to a sky is the limit AI startup style valuation. The important point IO wish to make is that Canalaska Uranium is a "pick and shovel" story which cannot go the moon due to the finite nature of any mineral deposit and the fact that it will be valued on the basis of cash flows discounted from the years in the life of the mine. An $8 billion outcome is about as good as it can get for a resource junior discovery, and it will not be delivered overnight. But that is another 4,000% from the current price, and 8,000% from the price level when Canalaska was part of the 2024 Bottom-Fish collection. For those who wish a refresher course on how to think critically about fundamental resource junior outcomes, I recommend the Mining Stock Education Interview I did with Bill Powers in late 2020. |
