SITE VISIT
Chibougamau, Que. — The Matoush uranium deposit is unlike any other.
It’s not an unconformity deposit, such as those in Saskatchewan’s Athabasca basin, nor is it related to a Colorado plateau-type uranium deposit. And it’s definitely not a pebble conglomerate deposit like you’d see in Elliot Lake, Ont.
Located on a 300-sq.-km property in the Otish basin of Quebec, about 260 km northeast of Chibougamau, the Matoush deposit is unique — and Strateco Re s o u r c e s (RSC-T, SRSIF-o) hopes to make it Quebec’s first uranium mine.
“It’s very special and I like to use the term Matoush-type,” says Jonathan Lafontaine, the chief geologist for Strateco. “We had a field trip here with representatives from all kinds of backgrounds — Queen’s Univer- sity, University of New Brunswick, the Geological Survey of Canada, Cameco — and I think there was a consensus that this doesn’t look like anything else.”
Although the geological knowledge of Matoush mineralization is limited, that hasn’t stopped Strateco from discovering and developing three mineralized zones on the property, which could see production as soon as 2012 if all goes smoothly.
“We’re blazing new trails as we’re going,” Lafontaine says.
As of August, indicated resources at Matoush stood at 3.73 million lbs. U3O8, evenly split between the AM15 and the MT34 lenses, within 250,000 tonnes of ore grading 0.68% U3O8.
Inferred resources total 13.07 million lbs. U3O8 contained in 1.3 million tonnes of ore grading 0.44% U3O8. The majority of inferred resources are evenly split between the MT22 and the MT34 lenses with 50,000 lbs. coming from the AM15 lens.
Strateco has been exploring the Matoush property non-stop, drilling more than 250 holes since 2006.
“We have about 104 kilometres of drill core sitting at the core shack right now,” Lafontaine says.
That work led to the completion of a scoping study in November suggesting the project could support a 2-million-lb.-per-year operation for about seven years.
Uranium mineralization was first discovered on the Matoush property in the 1980s, when Uranerz Exploration and Mining followed up on some anomalous boulders found by prospector Alfred Matoush.
Uranerz did a very narrow transect throughout the entire Otish basin, theorizing that if there are anomalies at the northern margin, they would be able to track those anomalies back up ice.
It wasn’t long before they found a boulder train that supported Matoush’s discovery, which the company traced back up ice, as planned. Uranerz opened up a few trenches, started putting down drill holes, and decided to stay put.
The company explored the property until 1984, defining the Matoush structure geophysically for 3,900 metres and testing more than 900 metres of strike with 17 drill holes.
One of those holes was AM15, which cut 16 metres grading 0.95% U3O8. But uranium was falling out of fashion and prices had dropped, so the project was abandoned for two decades.
The Otish basin was pretty quiet until 2002, when the Renard kimberlites were found 70 km north of Matoush, sparking a staking rush on the western portion of the basin. Ditem Explorations (DIT-V, DTEMF-o) explored the Matoush grounds for kimberlites but came up with nothing. In 2005, Ditem optioned the project to Strateco, and now holds a 2% net smelter return royalty.
Strateco got down to business in 2006 and a year later had a 3.48-million- lb. indicated resource on the AM15 lens, part of which turned out to be a section of the MT34 lens.
Lafontaine says it wasn’t long before they found out that the AM15 lens wasn’t alone; below it was the MT22 lens, which added significantly to the resource.
“And then with a lot of geological thinking, we discovered the MT34 lens, another high-grade mineralized pocket, and then we found one other Matoush-type fault on the project,” Lafontaine explains. “So we’ve gone a long way in a short period.”
Strateco also found the near-surface AM8 deposit, which wasn’t included in the resource estimate, as the company plans to build an underground mine.
So what is this mysterious Matoush- type deposit Strateco’s been working on?
Lafontaine describes it as “a very clean hydrothermal deposit with stratigraphic and structural control, as well as a nice chemical trap.”
“We know that it’s a generally rich sandstone basin and we know we are in the lower portion of the basin.”
The Otish basin is comparable to Saskatchewan’s Athabasca basin, one of the largest uranium-producing areas of the world. Both are around the same age, and at one point were around the same size. The difference is where they are located on the continent. The Otish basin is on the continental margin, which used to be the continental edge, whereas the Athabasca is considered a continental sag basin.
The Otish is one of a chain of intracratonic Proterozoic basins situated along the southern and southeastern margin of the Archean Superior Province. It’s a northeasterly trending trough at least 160 km long and about 30 km wide.
“Essentially (it’s) a big piece of sandstone lying on top of the Superior Province, which is late Archean gneisses and granites, (and) carbonate- rich layers with mafic sills and mafic layers above us, which have now eroded off,” Lafontaine says.
Otish stratigraphy consists of the Lower Indicator Formation, which underlies the whole basin and is made up of conglomerates and sandstones, varying in thickness from 330 to 760 metres. Overlying the Indicator Formation is the Peribonca Formation. It’s found in the centre and northeastern parts of the Otish basin, and composed of red sandstones, minor conglomerates and bedded dolomite. Visible thickness of the Peribonca Formation is a maximum of 380 metres, but the total thickness is unknown because the top of the formation is an erosion surface.
According to an August 2008 technical report by Scott Wilson RPA, the Matoush stratigraphy consists of two inter-layered sedimentary facies that have subtle but important differences. They were recognized in the drill core and termed Active Channel Facies (ACF) and Channel- Bar Facies (CBF).
The ACF consists of massive to slightly cross-bedded, gritty, coarse-grained sandstone to conglomerate. The sediments are poorly sorted with angular to subrounded grains and clasts. The clasts are pebble to cobble-size fragments of quartz, feldspar, granite and mudstone and there is a noticeable cyclic nature to the sedimentary deposition. The ACF, which is well cemented with silica, reaches a thickness of about 50 metres.
The finer CBF consists of medium to coarse-grained, well cross-bedded, sorted, subarkosic sandstone, with quartz and feldspar grains that are subangular to subrounded and well cemented with silica. The cyclic nature of the CBF isn’t as clearly defined as the ACF due to gradational contacts and numerous mini-cycles. The CBF is up to 150 metres thick.
At the Matoush property, there are about 800 metres of the Indicator Formation present, resting uncomfortably on a relatively unweathered, granite basement. So far, four ACF cycles have been identified, separated by CBF cycles. The stacking order and thickness is relatively constant throughout all drill holes. Most of the Matoush mineralization is hosted in ACF lithologies.
“That coarse grain layer is one of the key things about the deposit,” Lafontaine says. “Where we see this rotted, poorly consolidated, very brittle clayish rock, typically next to it is where we have mineralization.”
More of the Matoush mystery surrounds the structure. All that is known is that the stratigraphy is flat-lying and that it’s cut by a number of north and northeast-trending faults.
Resources so far are all associated with a north-trending fault structure occupied by a mafic dyke. According to the technical report, there is a lack of apparent vertical offset of sedimentary marker units across the Matoush fault strands, which suggests either minimal displacement or that it was a strike-slip fault, resulting in little vertical apparent offset.
AM15 mineralization occurs along the trace of the Matoush fault where the structure steps to the east. At this point, the northeasterly trend of the outline of mineralization/alteration differs from the more northerly trend of the fault and mafic dyke. The technical report says this pattern suggests the occurrence of mineralization in a dilational bend with the fault system, which would imply a component of right lateral displacement on the fault during mineralization. The report notes, though, that the MT22 and MT34 zones are, respectively, north and south of the dilational bend.
Matoush uranium mineralization is somewhat like the unconformity deposits in the Athabasca basin by way of its Proterozoic sedimentary environment, likely Proterozoic age, similar mineralization and alteration, and prominent structural control, but there are also considerable differences.
AM15, MT22 and MT34 occur 150-600 metres above the basement without any significant uranium mineralization at the unconformity. Sometimes in the Athabasca, perch mineralization occurs, or may have remobilized, in the controlling fault structures in the sandstone well above the unconformity. But Matoush mineralization cannot be considered a perch deposit because no mineralization has been found at the unconformity. Matoush mineralization is hosted in a basement-penetrating fault occupied by a mafic dyke at the intersections with apparent paleoaquifers. The stratigraphy may also be older than the Athabasca basin.
The challenges aren’t just below surface. The Matoush project has its challenges both above ground and on paper.
The camp, which currently houses 30-40 people at any one time, is relatively isolated. The company has fostered a good relationship with the nearest community, a Cree group in Mistissini, 220 km south. But community relations aside, the remoteness of the project means it can only be accessed by air in the spring, summer and fall, and by the Eastmain winter road when the weather’s coldest. The company has recently had surveyors out to find an ideal spot for an airstrip, which would make transport easier. Once the lake freezes, the company can’t use a float plane and everyone must travel by helicopter, which can be costly and limiting during bad weather.
Scoping study
On paper, the Matoush project has passed the first test with a scoping study. Highlights from the study released in November say that the project could produce 15.5 million lbs. U3O8 over seven years while achieving an internal rate of return of 37%. The full study is expected to be released by Dec. 24.
The project would generate an operating profit of $841.5 million over the mine life while the pre-tax net present value (NPV) ranges between $341.6 million using a 5% discount rate and $154.1 million using a 15% discount rate.
Capital costs were pegged at $297.3 million before startup, plus another $45.5 million in sustaining capital and closure costs.
Operating costs are estimated at $302.53 per tonne milled or about $32.5 per lb. U3O8 produced.
And a long-term uranium price between US$60 and US$90 per lb. was used with an evaluation price of US$75 per lb. and an exchange rate of US85¢.
Mine production would ramp up to 262,500 tonnes per year, grading between 0.27% and 0.63% U3O8over the mine life to produce more than 2 million lbs. U3O8 annually — until the final year, when only 1 million lbs. would be produced. The study predicts a recovery of 97.6% U3O8.
With the startup of a base metal and a gold mine already under his belt, Guy Hbert, Strateco’s president and CEO, says he was a bit surprised at some of the numbers.
“Costs were higher than I was expecting,” Hbert says. “But this was the reality last spring, and we don’t know what will happen in 2012.”
For example, the study used a sulphuric acid price of US$242 per tonne, but Hbert says the going price lately has been US$80 per tonne.
Capital costs were a surprise to him as well. For the shell of the mill building, the study used a price of $48 million with a 25% contingency.
“We have a quotation for $15 million, but the consultant wanted to put $48 million for the shell, so that’s it — even if we have a quotation for $15 million,” Hbert says.
Another example is the closure costs, estimated at $30 million. “We have quotations from two consultants; one at $10 million if we put half the tailings underground, the other at $30 million if we put no tailings underground,” Hbert explains.
But Hbert points out that the project is strong even with the high costs.
“Normally, a scoping study is built to kill your project,” Hbert says. “If you are marginal at your scoping, that can be a problem, so we went with maximum costs. . . We hope to beat it.”
Dundee Capital Markets began coverage of Strateco in November, after the scoping study highlights were released.
Analyst David Talbot agreed the cost projections in the study appeared “overly conservative.”
In his analysis, Talbot assumed lower costs all around, decreasing capital costs by 22% to US$187.7 million and operating costs by 8% to US$25.2 per lb., while increasing the pretax NPV by 22% to US$240 million using a 10% discount rate.
On the other hand, Talbot used a long-term uranium price that was US$15 lower than the scoping study at US$60 per lb.
Operating profit over seven years was significantly lower at US$521.5 million.
Next summer, Strateco plans to begin underground development — a $40-million project expected to take two years.
The company has about $23 million in cash, but is burning through it at about $1.2 million per month. The company’s last financing was for $8 million in October, just two days before the markets crashed.
The company has retained Macquarie Capital Market Canada as its financial adviser and Hbert says the company is open to finding a strategic partner to help fund the underground development.
“We don’t expect to sell shares at fifty cents (in these markets),” Hbert says.
Indeed, the company’s share price was at 50¢ at presstime. Strateco sunk to a 52-week low of 40¢ in October, from a 52-week high of $3.15 per share in January.
But a lot could change if the project makes it into production. Until recently, Strateco has continued drilling on its three main zones, and plans to further develop them from underground. MT22 and MT34 appear to be open in several directions and the company has also had some success to the south and north of the main deposits.
Talbot points out that several other Matoush-type faults have been identified on the property. Boulder surveys have provided radiometric anomalies and potential source directions. Some high-priority targets to keep an eye on are the Laurent-Martin zone, 5 km northeast of Matoush, and Matoush Nord, 15 km north. The company also depends on magnetic, VLF and EM surveys for prospecting and plans to explore for unconformity-type deposits.
Cameco’s (CCO-T, CCJ-n) Camie River project is on the southern border of the Matoush property, where unconformity-type uranium mineralization has been found within a greenstone belt. Strateco’s Eclat claims on the southern part of the Matoush project include part of that belt.
Strateco has brought the Matoush project a long way in just a few years and involving academia has been a part of that success. Professors and graduate students from Queen’s University, University of Quebec at Montreal and University of New Brunswick have all studied Matoush mineralization. Two graduate students spent 10 weeks at the camp last summer to help better define the little known geological system.
UNB student Lise Robichaud, is studying the structure, while Queen’s student John Burns is focusing on the mineralization.
“At the moment, it doesn’t seem to fit very well with the current models,” Burns says. “Nobody really understands what’s going on here. . . If we understand it as a new deposit type then you can predict where else you might see it, which can help us find more uranium. . . anywhere in the world.”
The Matoush mystery is slowly becoming less of an unknown and Lafontaine is optimistic about the project’s future.
“We know that it’s a large system and I really don’t think we’ve hit anywhere where we can say it’s closed off,” Lafontaine says. “You have to think specific to this deposit.”
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