Hi Tibbs,Some easy reading.Enjoy.Cheers...

Hi Tibbs,

Some easy reading.

Enjoy.

Cheers markco2
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With thanks from Marchello at another forum.

Far East Capital - Warwick Grigor

As I previously stated, I am still learning about UKL. I came across some historical papers on the Rio Puerco project. In addition to the initial note sent out to gold card clients on 5/3/07 on UKL I have expanded on this in the latest UKL update attached to this email.

I increasingly believe this is an outstanding situation. For the record I have purchased another 100,000 at 90¢, fully expecting that I should make 2-3x my money.

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Uranium King Ltd (“UKL”)

“Re-Rating to Potential Producer is Imminent”

The main resource extends to a vertical depth of about
40-50m. There is no pre-strip requirement and the
waste to ore ratio would be in the order of 3:1. The ore
zone is long and narrow with pit dimensions likely to
be about 600m x 200m.
If we assume that 2-3 year mine life is targeted, then
the annual production could be in the order of 300 tpa
U3O8; modest but worthwhile.
Heap Leaching Characteristics
The Apex resource consists of U+6 uranyl phosphate
minerals, which are easily soluble and thus amenable
to heap leaching. Tests in the 1970s by parties that
included the reputable organization, Hazen Research,
demonstrated that a dilute sulphuric acid (5% H2SO4 )
solution liberated 90% of the contained uranium in 30
minutes, at a temperature of 20oC, when ground to a
minus 20 mesh.
Tests on larger samples crushed to minus 3/8 inch
(+20 mesh), returned 95% recovery over five weeks
from a head grade of 750 ppm. This is what can be
expected on a commercial operation.
(As an aside, on a recent field trip to some Chinese
uranium mines I observed that heap leaching of
uranium in an altered granite returned 95% rates in 70
days for a vat sulphuric acid leach, and the same rate
in only 45 days for a vat bio-leach).
Payback Could be as Low as Four months
Even if we assume a high operating cost of US$30/lb
(about twice what Paladin is aiming for on a similar
grade), the cash operating margin on 660,000 lbs p.a.
at the spot price of US$85/lb could be US$36m p.a.
(A$45m or 53¢ a share).
Given the low capital cost nature of heap leaching,
and the ability to use contract mining, UKL might be
able to get away with a low capex of US$10m. At the
estimated cash flow, the payback for the mine could
be as short as four months (once the usual slower
ramp-up period for heap leach operations is over).
Rio Puerco Project – High Grade, More Tonnes
The Rio Puerco project in New Mexico is a larger
project with about 2,000 t of U3O8 and a better grade
of 1,200 ppm, with the potential to double. Back in
the 1970s, Kerr-McGee sank a 270m shaft to develop
the resource as a room-and-pillar underground mine,
spending US$17.5m in the process. A 10,000 ton bulk
sample was mined and treated off-site, but uranium
market economics did not warrant a move to full
commercialisation at that point. At present, the Rio
Puerto property includes the mine shaft and ancillary
surface facilities. The head frame has been removed.
UKL is a stock that we have been quite keen on since
its IPO in September 2006, raising $6.5m. Its spread
of projects looked interesting when we received our
first presentation with the shares having run up
sharply after the listing – but we did nothing other
than watch. The shares have run again, reaching the
80¢-$1.20 range. Has the horse already bolted? We
don’t think so.
Local Knowledge Essential in the USA
Many Australian companies have fallen foul when
venturing off to the USA for various reasons.
Nevertheless, there is a growing band of Aussie
juniors chasing uranium projects that are situated in
historical uranium mining areas such as Arizona, New
Mexico, Nevada and Wyoming. Reliability of past
data and favourable geology have been the draw cards
even where the size potential is viewed with modesty.
UKL has enlisted the support of long-term uranium
industry enthusiasts in its quest, with a level of
geological intimacy that is impressive.
Focus on Early Production – Apex Lowboy
UKL believes that it has a viable uranium mine in the
making at Apex-Lowboy in Nevada. The concept is
simple; mine and treat the low grade halo around an
historical mine that was the largest in Nevada,
previously mining ore grading 2,500 ppm. The ore is
shallow and soft and believed to be amenable to heap
leaching (which incidentally can work much better
with the right uranium ores than it does with gold).
The mineralisation is located on a contact zone
between sediments and intrusives, with sandstones
containing uraninite and coffinite. The uranium
minerals have been deposited as open space fillings
from uranium-bearing solutions in fractured
metasediments near grantic/metasedimentary contact.
A scoping study is being worked on at present with
results not expected to be available for another month
or more. However, there is no reason why we can’t
speculate as to the potential profitability based on the
information we have on the resources identified.
UKL has already released JORC compliant resources
of 680 tonnes of U3O8 at a grade of 700 ppm (the same
grade Langer Heinrich is shooting for). Drilling has
been on 10 and 15m centres so statistical confidence
should be high. The Company believes it will be able
to increase this by 30% to about 900 t. There is also
the possibility of greater resources if the theory on
fault displacement is validated, but that will take some
drilling effort.
This research report is provided in good faith from sources believed to be accurate and reliable. Far East Capital Ltd directors and
employees do not accept liability for the results of any action taken on the basis of the information provided or for any errors or omissions
contained therein. 1
On Presentation Far East Capital Ltd/OzEquities
Interestingly, even though it may be amenable to insitu
leaching (ISL), no assessment of this technique
was made by Kerr-McGee even though the ore is
located beneath the water table in permeable
sandstones, confined between impermeable mudstones
– all essential pre-conditions for ISL mining.
UKL is considering the ISL alternative but it requires
additional information on porosity, permeability, clay
content and the hydrological characteristics of the
aquifer containing the resource.
Typical primary ore at Rio Puerto consists of uraniumenriched
humic matter that coats sand grains and
impregnates the sandstone. Coffinite is the primary
uranium mineral. A direct correlation exists between
the uranium content and the organic-carbon content,
with carbonaceous material being the primary control
of uranium mineralisation.
Potentially Very Good Economics
Back in 1996, a study concluded that mining and
milling costs would have been US$40/ton but ISL
mining could costs were estimated at $10/ton. Based
on a recovery rate of 90%, which would yield about
one pound per ton, on today’s uranium price it would
give a profit margin of US$45/lb for conventional
underground mining and US$75/lb for ISL mining.
Even after adjusting for inflation we can see that there
is a significant profit potential. Assume ISL costs have
doubled. The resource of approximately 4 mill.
pounds could provide a cash margin of US$260m at
current uranium prices. Hence there is excellent
potential. (NB: there may be some confusion with
figures due to short tons and tonnes, so use this as a
ball park figure only.)
Nearby, the Lily-Sams project contains a large
radiometric anomaly that could provide extensions to
Rio Puerco. This may be drilled over the next few
weeks, adding to the news flow.
The Bottom Line – What Rating Does a Producer
Deserve?
We are continuing to learn about UKL, but each time
we sit down with the Company we have been more
impressed. With a market capitalisation in the order of
$70-$75m, UKL has significantly more substance, and
value, than many heavily promoted exploration
companies. We will be upgrading it to a potential
producer when we release our next uranium sector
study.
This research report is provided in good faith from sources believed to be accurate and reliable. Far East Capital Ltd directors and employees
do not accept liability for the results of any action taken on the basis of the information provided or for any errors or omissions contained
therein. 2
Junior Resource Company Comment
A rule of thumb might suggest that the shares should
be selling on a multiple that equates to the estimated
mine life e.g. with a cash flow estimate of 53¢ a share,
the share price should be about $1.50 on Apex alone.
However, this is too rational for this market. The
market is likely to give UKL a significant premium if
it can show that it will be a serious producer within 2-
3 years.
How Far Do You Chase Uranium Stocks?
It seems that only the lucky insiders get invitations to
subscribe to uranium IPOs, particularly if they have
any substance. It is normal that there shares perform
very well on the opening, but has also been apparent
that given a short space of time while the sellers are
digested, many of the uranium stocks move much
higher. There is no objective ceiling that we can place
on uranium stocks. Valuations that seem excessive
just seem to support even higher share price
movements as opposed to warning us that a share
price is expensive. From an analytical viewpoint all
we can do is watch and wait. No-one likes to be told a
stock is very expensive, then sell it, only to see it
double again.