Athabasca Minerals (ABM.V) produced two pieces of very good news this week, and yet the stock is lower. Why? We’ll get to that soon enough but first the good news:

1) The company’s long-awaited NI-43101 report on the Duvernay frac sand was published and shows an excellent resource. The overall size is 35 million tonnes, and most of it is in the 40/70 or 100 mesh sizes, which is the most sought after by drillers. Crush strength scored in the range of the premium Wisconsin sands, as did all metrics in fact. In short, this sand can compete with Wisconsin sand, while it can sell for a lot less given the much closer proximity to drilling activity. This is exactly what we hoped for (maybe even more) and goes a long way to validate the thesis that Athabasca can disrupt the market for sand in the Western Canadian Sedimentary Basin.

2) The company announced the addition of Terrance Kutryk to the board. He has a very impressive resumé, and you don’t attract that kind of talent to a tiny company unless it’s reputable and promising. You can read about his career here.

So why is the stock down? Because some investors are worried about an equity financing, now that it’s clear the deposit is viable. They worry that it will come at a discount, or they are selling some shares in the hopes of buying them back in financing with a warrant attached.

We don’t think there will be a dilutive equity issuance. We believe, based on numerous conversations with the company, that they will finance the development of the deposit at the asset level. White Rabbit, as the Duvernay deposit is called, is owned in part by ABM and in part by the parties that discovered it, in a separate, private corporation. The idea would be that this private company would do a joint venture rather than ABM raising equity. Management has been steadfast in saying this and they’ve alluded to being in advanced negotiations with a couple of parties on that front.

Here is a little clue that this is what will happen. The company has said it will proceed to development and construction without a preliminary economic assessment (PEA) or a feasibility study. This is quite unusual. Typically, a junior company will commission a PEA in order to attract financing from say a bank. The fact that the company has said it won’t do so strongly suggests that it is in talks with a potential partner that doesn’t need a PEA to give it the confidence to proceed. This in turn strongly suggests that the partner is in the frac sand industry and that they’re close to a deal.

That doesn’t mean a deal will happen with 100% certainty of course, but reading between the lines would make one a buyer, not a seller.

We’re told that an announcement on a development plan could come soon, and of course, the court date for potentially settling the Syncrude suit is in three weeks. Positive news could attract a lot of new buying.

The last time the stock traded at 49 cents was May 7. By June 26 it was at 70 cents.​


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