AJ from the Jan/Feb Report:
Pioneer Metals Corp (PSM-T)
Of all my bottom-fish Pioneer Metals has produced the most subscriber requests for updates. Obviously this stock is widely held by my readership. I have been a big fan of Pioneer because of its Riou Lake uranium exploration project in Saskatchewan's Athabasca Basin. For the past two years Pioneer has been busy assembling evidence for the existence of an unconformity associated style uranium deposit in the Riou Lake area. These are the richest uranium deposits in the world, and they exist mainly on the eastern flank of the Athabasca Basin. World class deposits like Cigar Lake and MacArthur River are associated with northeast-southwest structures, which on the northern flank of the basin disappear quickly under rapidly deepening sandstone. The deposits lie at the contact between the sandstone and the basement, so the farther you move into the basin, the deeper will be the deposits. All the major discoveries have been made along the eastern flank because here companies could explore a reasonably shallow 30 km by 150 km band of the sandstone/basement unconformity. On the northern flank there were only several km of strike before the contact was beyond the reach of the geophysical tools employed during past exploration waves. Since the last exploration wave on the northern flank during the early eighties geophysics technology has improved substantially. Pioneer was at Riou Lake in 1997 looking for nickel-copper targets when it stumbled onto the uranium potential. With the help of geophysics it was able to prove that the northern flank was a whole new ballgame. Pioneer has potential to make a world class discovery that could take the stock to $20.
The recent deal with Cameco is a shrewd one that lets Pioneer have its cake and eat it too. Of the $6.5 million exploration commitment to earn 60%, Cameco must spend $1,350,000 over the next two years. The deal covers just under a third of Pioneer's Riou Lake land package and grants no rights of refusal to Cameco on the remainder. Pioneer is operating the first phase of the program. It started a drill program early February that includes three holes on the Cameco option and three on the 100% owned ground. Cameco is the expert on Athabasca Basin deposits. Let their expertise and money find the first high grade uranium pod at Riou Lake. Pioneer will continue to do grassroots work on the adjacent ground. If a high grade lens is found at Riou Lake, it opens up the entire northern flank of the Athabasca Basin. Pioneer can then finance exploration of its retained ground, or farm it out to Kennecott. If the discovery is good enough, Rio Tinto might buy out Pioneer immediately to become Cameco's 40% partner and 100% owner of the nearby ground. Obviously this situation would give Cameco reason to make a pre-emptive bid for Pioneer in order to prevent a new competitor from geting a production foothold in the Athabaska Basin. And, of course, if the Riou Lake area turns out to be bust, Pioneer still has over $3 million working capital and a sleeper gold deposit in Manitoba. That Cameco would do a deal like this that gives the junior so much strategic leverage tells me that Cameco has a high opinion about the project's potential. It is worth noting that Pioneer turned down a deal from Kennecott that was monetarily richer, but strategically weaker. I am not counting on this year's drill program to produce a discovery hole, but I will be looking for geological evidence that further support's Pioneer's model. If we get this evidence the stock will develop an uptrend, and if it turns out that Cameco can conduct followup drilling on dry land, we will get a speculation cycle this summer. (Key Sector: Uranium)
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