Hornby Bay perseveres despite market knocks (January 06, 2006)

By most of the usual measures, Toronto-based Hornby Bay Exploration (HBE-V, HRBYF-O) should be an investor favourite. The junior is exploring for one of the market’s hottest commodities on a generous tract of ground in a politically stable country. Surface indicators and sampling results to date suggest the company’s prospect in Nunavut could host a significant uranium deposit.

But instead of flying high in league with fellow explorers in Saskatchewan’s Athabasca basin, Hornby Bay hit a 52-week low of 24 just before Christmas and was still struggling to gain ground at presstime.

What happened? First, the company was hit by a stop-loss recommendation at 40 by popular newsletter writer Jim Dines. When the share price reached that magic number last fall, there was nowhere to go but down as skittish investors offloaded stock. End-of-year tax-loss selling exacerbated the decline.

Shareholders also grew impatient waiting for drill results from last summer’s 13-hole, 5,000-metre program at the Coppermine property. Core from the program is being processed at the Saskatchewan Research Council (SRC) laboratory, where assayers are facing a backlog of samples from their provinces’ own uranium boom.

Hornby Bay, which underwent a change of management in 2004 and is now run by former Noranda managers George Bell and David Bent, acquired a large land package overlying the Hornby Bay basin in Nunavut from two former BP Minerals geologists years ago.

The junior now has 2,210 sq. km of ground within and around Hornby Bay, a Proterozoic sandstone basin considered prospective for uranium. There are two properties within the package: Asiak, and the company’s main priority, Coppermine.

From 1976-1983, BP discovered several occurrences of high-grade uranium mineralization on the Coppermine claims, but then withdrew from mineral exploration to focus on petroleum. Hornby Bay inherited all of the data from BP’s extensive program there.

The Hornby Bay basin is similar in structure and geology to the Athabasca basin in Saskatchewan, which hosts some of the world’s richest uranium deposits. The main exploration target is a high-grade McArthur River-style deposit lying unconformably at the contact between sandstone and basement rocks at an estimated depth of 800 metres.

McArthur River, the world’s largest high-grade uranium deposit, is reported to contain 540 million lbs. U3O8 at a depth of about 500 metres.

The junior has intensified exploration efforts over the past couple of years to take advantage of an increasing uranium price and renewed investor interest in the sector. In 2004, Hornby Bay collected five high-grade (4.2-46.1% U3O8) and several anomalous rock samples from the Coppermine claims.

Last year, a $7-million program included a 6,500 line-km geophysical survey at a 200-250 metres spacing, 13 drill holes and 414 rock samples. The airborne MegaTEM survey identified seven new conductive zones, two of which are extensions of previously defined conductors.

Cameco (CCO-T, CCJ-N), part owner of McArthur River, has provided some technical guidance.

“We have a strong working relationship with Cameco,” says Bell, president of Hornby Bay. “We’ve been able to vet our ideas with them so that we don’t misdirect our limited capital.”

Geological interpretation of the sandstone and basement structures, including a three-dimensional model based on a compilation of all the historical and recent data has helped management pinpoint areas of interest and determine the depth of the basement rocks.

“We’re starting to get a really good handle on it and seeing the structures that you need for uranium deposition,” says Bent, Hornby Bay’s vice-president of exploration, who spent 27 years with Noranda and the past five years as a senior geologist for Newmont Mining in South America.

This year, the company is gearing up for another program between April and September, the only period when there is enough daylight and warmth to work on the remote northern properties. The program includes ground geophysics, diamond drilling of an estimated 18 targets, and follow-up on the airborne survey.

The drill targets are the intersections of main faults, areas of high lineament density and zones of structural disturbance such as faults and fold axes, which may prove favourable for uranium deposition.

To finance the 2006 program, Hornby Bay has raised $1.5 million through a non-brokered private placement of up to 4.3 million flow-through units at a price of 35 per unit. Each unit will consist of one flow-through share and one-half of a common share purchase warrant exercisable for one additional common share at 45 per share.

The company also has $2.2 million in cash and one million warrants coming due in March. One more equity financing during the year would top up the treasury to $6-7 million, Bell says.

The junior conducted a much smaller exploration program in 2005 at the Asiak claims, where the target is not McArthur River but the smaller Rabbit Lake-type uranium deposits in basement rocks, which lie much closer to surface at the edge of the Hornby Bay basin.

Mineralized veins carrying uranium outcrop sparsely amongst a thick cover of overburden at Asiak. In 2004, Hornby Bay intersected 0.86% U3O8 over 0.6 metre at 27 metres below surface and followed up the work with ground geophysics to identify further drill targets.

“I think there are a lot of hidden targets there,” Bent says.

As part of the Asiak program, the company also took hundreds of till samples that are being analyzed for their diamond potential since the area is also considered prospective for diamonds.

— The author is a freelance writer specializing in mining issues, and principal of Toronto- based GeoPen Communications (www.geopen.com).