Nextsource Materials Inc (NSRCF)

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Form 10-Q for URANIUM STAR CORP.

10-Nov-2009

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Certain statements included in this Form 10-Q, including, without limitation, statements related to anticipated cash flow sources and uses, and words including but not limited to "anticipates", "believes", "plans", "expects", "future" and similar statements or expressions, identify forward looking statements. Examples of forward-looking statements include, but are not limited to: (a) projections of our revenues, capital expenditures, growth, prospects, dividends, capital structure and other financial matters; (b) statements of our plans and objectives; (c) statements of our future economic performance; (d) statements of assumptions underlying other statements and statements about us and our business relating to the future; and (e) any statements using the words "believes," "budget," "target," "goal," "anticipate," "expect," "plan," "outlook," "objective," "may," "project," "intend," "estimate," or similar expressions. Any forward-looking statements herein are subject to certain risks and uncertainties in the business of Uranium Star Corp. including but not limited to, reliance on key customers and competition in its markets, market demand, product performance, technological developments, maintenance of relationships with key suppliers, difficulties of hiring or retaining key personnel and any changes in current accounting rules, all of which may be beyond the control of our company. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth therein.

Management's Discussion and Analysis of Results of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the financial statements included herein. Further, this quarterly report on Form 10-Q should be read in conjunction with the our Financial Statements and Notes to Financial Statements included in its 2009 Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 21, 2009.

Our financial statements have been prepared in accordance with United States generally accepted accounting principles. We urge you to read this report in conjunction with the risk factors described herein.

BACKGROUND

Company Overview

Uranium Star Corp. was incorporated in the State of Nevada on March 1, 2004 and reincorporated in the State of Minnesota on May 14, 2008. Our fiscal year-end is June 30. We are an exploration stage company engaged in the search for uranium, gold and other minerals. We have an interest in properties located in Canada (Province of Qu�bec) and Madagascar. None of the properties in which we hold an interest has known mineral reserves of any kind at this time. As such, the work programs planned by us are exploratory in nature.

We have not had any bankruptcy, receivership or similar proceeding since incorporation. There have been no material reclassifications, mergers, consolidations or purchases or sales of any significant amount of assets not in the ordinary course of business since the date of incorporation.

Business Development

UNTIL WE CAN VALIDATE OTHERWISE, THE PROPERTIES OUTLINED BELOW HAVE NO KNOWN MINERAL RESERVES OF ANY KIND AND WE ARE PLANNING PROGRAMS THAT ARE EXPLORATORY IN NATURE. Further details regarding our properties, although not incorporated by reference, including the comprehensive geological report prepared in compliance with Canada's National Instrument 43-101 on our Sagar property in Northern Quebec can be found on our website: www.uraniumstar.com. The comprehensive geological report prepared in compliance with Canada's National Instrument 43-101 on our Three Horses Property located in Madagascar has been submitted to the SEC and TSX for approval.

Competitive Conditions

The mineral exploration and mining industry is competitive in all phases of exploration, development and production. We compete with a number of other entities and individuals in the search for, and acquisition of, attractive mineral properties. As a result of this competition, the majority of which is with companies with greater financial resources than us, we may not in the future be able to acquire attractive properties on terms it considers acceptable. Furthermore, we compete with other resource companies, many of whom have greater financial resources and/or more advanced properties that are better able to attract equity investments and other capital. Factors beyond our control may affect the marketability of minerals mined or discovered by us.

Sagar Property: Romanet Horst, Labrador Trough, Qu�bec, Canada

Property Description and Location

The Sagar Property comprises 219 blocks of claims in the Territory of Nunavik, Province of Qu�bec, Canada. The approximate center of exploration activity is circa 56�22' N latitude and circa 68� 00' W longitude. Details on the individual claims are available on-line at the Government of Qu�bec's Minist�re des Resources Naturelles et de la Faune GESTIM website at https://gestim.mines.gouv.qc.ca.

The area comprising these claims is approximately 6,580 hectares. In this part of the Province of Qu�bec, claim outlines are predetermined by "map staking." Previously staked claims are superimposed upon by the map-staking grid, producing some of the small parcels. There are no carried environmental liabilities on the property. All surface work requires provincial government permits, including camp construction permits. These have been acquired.

Agreement

On May 4, 2006, Virginia Mines Inc. ("Virginia") and our company entered into a binding agreement whereby we were granted an option to acquire an undivided 75% participating interest in 200 claims constituting the Sagar Property located in the Labrador Trough in Northern Qu�bec. Under the terms of this agreement, we had the option to earn a 75% interest in the Sagar Property by issuing to Virginia 2,000,000 of our common shares and 2,000,000 of our common share purchase warrants, each warrant entitling Virginia to acquire one of our common shares at a price of US$1.00 for a period of three years from the date of issue thereof, and by incurring total exploration expenditures of $2,000,000 on the Sagar Property by August 2008. Furthermore,

Virginia had the option, at any time, to sell its remaining 25% participating interest in the Sagar Property in consideration for the issue to it of 1,000,000 of our common shares and 1,000,000 our of common share purchase warrants. The common share purchase warrants shall be exercisable at a price equal to the 20-trading day weighted average closing price preceding the selling date, and shall be valid for a period of two years from the date of issuance. Upon our earning a 100% interest in the Sagar Property, Virginia shall retain a 1.5% royalty (NSR). In the event of a gold discovery on the Sagar Property with an NI 43-101 indicated resource of no less than 500,000 ounces, Virginia shall be entitled to exercise a back-in right to re-acquire a 51% interest in the Sagar Property by making a cash payment or issuing common shares equivalent to an amount equal to 250% of the expenditures incurred by us on the Sagar Property at such time. Upon the exercise of such back-in right, Virginia would become the operator of the Sagar Property.

On February 19, 2007, Virginia exercised its option to sell its 25% remaining interest in the Sagar Property to us and in connection therewith, we issued to Virginia 1,000,000 of our common shares and 1,000,000 of our common share purchase warrants, with each such warrant being exercisable at a price of $1.24 for a period of two years from the date of issuance. As a result of this exercise, we now holds a 100% interest in the Sagar Property, subject to a royalty equal to 1% of net smelter returns on certain claims 0.5% on net smelter returns on other claims owned by Pierre Poisson and Joanne Jones (the "P&J Royalty") (see below), and a royalty in favour of Virginia equal to 1.5% of net smelter returns. Under the agreement with Virginia, we must incur aggregate exploration expenditures of at least $2,000,000 on the Sagar Property on or before August 31, 2008.

The agreement with Virginia is subject to a royalty agreement dated May 27, 1992 (as amended by agreements dated May 10, 1993 and November 3, 1993, collectively, the "Virginia Royalty Agreement") between Virginia Gold Mines Inc. (predecessor to Virginia) and Pierre Poisson and Joanne Jones. Pursuant to the Virginia Royalty Agreement, Virginia acquired a 100% interest in the Sagar Property, subject to the P&J Royalties. Pursuant to the Virginia Royalty Agreement, Virginia had the right to buy back half of the 1% net smelter return royalty (0.5%) for $200,000, and half of the 0.5% net smelter return royalty (0.25%) for $100,000, such P&J Royalty repurchase are now held by us.

As at September 30, 2009, we incurred an aggregate of $6,789,765 of exploration expenditures on the Sagar Property.

We are currently up to date with all obligations required to maintain the property in good standing.

FERDERBER CLAIMS

Property Description and Location

Uranium Star has acquired a 100% undivided right, title and interest in and to 19 mining claims (0036315, 0036316, 0036317, 0036318, 0036319, 0036320, 0036321, 0036322, 0036323, 0036324, 0036325, 0036326, 0036327, 0030649, 0030650, 0030640, 0030638, 0030612, 0030613) held by Mr. Peter Ferderber, covering an area of approximately 64 hectares located in the Central Labrador Trough Region of Qu�bec, 13 of which are contiguous to our Sagar Property.

In consideration of our receiving a 100% interest in these claims (free and clear of all encumbrances), subject to any net smelter return royalties, we paid Cdn$6,000, and issued 150,000 shares of our common stock and a warrant exercisable for 75,000 of our common shares, exercisable at $1.00 for a three year period from date of issuance.

Underlying Royalty (NSR)

Mr. Ferderber retains a 1% net smelter return royalty on this property and agreed that we shall have a first right of refusal to purchase the 1% net smelter return royalty should Mr. Ferderber, at his sole discretion, elect to sell the royalty.

Sagar Property and Ferderber Claims Highlights

The following are key features of the Sagar Property:

The geological setting of the property is the northwest trending Romanet Horst within the Labrador Trough. The significant mineral potential of this geological setting is well demonstrated by the abundance and diversity of uranium-gold showings, which range from veins to breccia's to shear zones. There is also locally significant sedimentary-hosted copper mineralization. The most spectacular mineralization found to date is the 500 x 200 meter Mistamisk boulder field which contains 150 boulders that range up to 640 g/t gold and 4.11% uranium, with 70 tested boulders averaging 64.9g/t gold and 1.3% uranium. The boulders discovered within the Mistamisk boulder field range in length from 0.30 to 2.0 metres. Previous work has not determined the bedrock source of this boulder field.

Copper mineralization has been defined in a number of locations, the most significant being the Dehli-Pacific showing, which has reported 4.2% copper over 7.6 meters within a drill hole that intersected a shear zone along a sediment-gabbro contact.

We are currently up to date with all obligations required to maintain our option in good standing.

MADAGASCAR PROPERTY

Property Description and Location

The Madagascar properties are comprised of mineral permits consisting of 36 "squares", each square representing approximately 6.25 sq. kilometers. The properties are located in the District of Toliara and are referenced as TN 12,306,P(R); TN 12,814, P(R); TN 12,887 P(R); TN 12,888 P(R); TN 13,020 P(R); TN 13,021 P(R) as issued by the Bureau de Cadastre Minier de Madagascar ("BCMM") pursuant to the Mining Code 1999 (as amended) and its implementing decrees.

[[Image Removed: [uranium10q110909001.jpg]]]

Three Horses Property Boundary

(blue lines are creeks, red lines are property boundary, black lines are seasonal tracks)

Agreement

On August 22, 2007, we entered into a joint venture agreement with Madagascar Minerals and Resources sarl, a company incorporated under the laws of Madagascar. The joint venture, to be known as the "Three Horses Joint Venture", will be operated through a Madagascar limited liability company in which we will own a 75% undivided interest and Madagascar Minerals will own the remaining 25% interest. The consideration paid to Madagascar Minerals to acquire the 75% stake in the joint venture consisted of:

(i)

a signing fee of $15,000 within 15 days of the properties vesting in the joint venture;

(ii)

a payment of $750,000 within 15 days of the properties vesting in the joint venture and

(iii)

the issuance of 1,250,000 of our common shares and 500,000 of our share purchase warrants within 30 days of the properties vesting in the company created for the joint venture under Madagascar law. Each share purchase warrant is exercisable at $1.00 per share for a period of 2 years from the date of issuance.

In the event that a joint venture party's interest in the joint venture is diluted below 10%, then that interest will be exchanged with the majority shareholder for a 2% net smelter return. Furthermore, that royalty may be acquired by the remaining joint venture party as follows:

(i)

the 1st 1% at US$1,000,000 in cash or our common shares; and

(ii)

the 2nd 1% at US$ 1,500,000 in cash or our common shares;

both at the option of the remaining shareholder.

On July 9, 2009 our company entered into a definitive agreement to acquire the remaining 25% interest of the "Three Horses Joint Venture" for cash consideration of $100,000. On acquisition of the remaining 25% the joint venture with MMR was terminated. MMR retains a 2% net smelter return ("NSR"). The NSR on this 25% interest portion may be acquired by us at a price of $500,000 in cash or shares of our common stock for the first 1% and at a price of $1,000,000 in cash or shares of our common stock for the second 1% at our option.

Exploration Program.

The Three Horses Property, consisting of 31 squares, covering an area of approximately 194 square kilometres, displays extensive gossan outcroppings at surface. An examination of part of the Three Horse Property revealed several large areas covered with gossanous boulders which are believed to overlie massive sulphide mineralization. We conducted a first phase of exploration from September to November 2007 for the Three Horses Joint Venture which included:
road maintenance, camp construction, data acquisition, an airborne geophysical survey, geological mapping, stream sediment sampling, prospecting and mechanical trenching.

All phases of the exploration project are managed by Taiga Consultants of Calgary.

In the latter part of March 2008 to June 2008 a full field exploration program following up on the airborne geophysical survey and results of the 2007 exploration program was implemented. This included geological mapping, prospecting, ground geophysical surveys and geochemical sampling.

Diamond drilling of 31 holes was carried out from October - November 24th, 2008. Extensive mechanical trenching was carried out in the first half of 2009.

Plan of Operation

Our plan of operations for the period until December 31, 2009 is to complete the
following objectives within the time periods specified, subject to our obtaining
the necessary funding and/or permits for continued exploration of the mineral
properties. The following table, although subject to revision, summarizes the
anticipated exploration expenditures on our current properties for the period
until December 31, 2010.

2009 2010
Sagar Project (incl. Ferderber Claims) $20,000 $20,000
Madagascar $2,600,000 $10,000,000
Other $20,000 $20,000
Totals $2,640,000 $10,040,000


Madagascar Properties

Prior to the exploration work completed by Uranium Star in 2007 and 2008 there is no record of any previous mining or significant exploration activity within the Three Horses Property area. There is evidence locally of minor artisanal working and small exploratory pits for gems and gold by the local population.

Taiga Consultants Ltd. was retained by Uranium Star to manage exploration activities on the Three Horses Property in the summer and fall of 2007 and throughout 2008.

In 2007 Taiga began a grass roots exploration program with the goal of determining the potential of finding economic VMS and/or gold mineralization on the property. The program consisted of the following on the property:

a)

Stream Sediment sampling over the majority of the property area (182 samples)

b)

Reconnaissance geological mapping over the entire property and detailed geological mapping over selected stratigraphic horizons

c)

Prospecting over selected target areas (126 grab samples and 100 whole rock grab samples)

d)

Soil sampling over selected target areas (1684 samples)

e)

Limited trenching over selected targets (11 trenches over 525.5 metres)

f)

Construction of a cinder block base camp at Fotadrevo

g)

Construction of a one kilometre long gravel surfaced airstrip at Fotadrevo

h)

Repair and surfacing of the access road from base camp to the airstrip

i)

Remote Sensing interpretation using DEM, Landsat, Aster data

j)

Airborne DIGHEM V multi frequency EM and magnetometer survey over the entire property (7856 km) at 100 meter line spacing

In 2008 ground exploration continued with additional geological mapping, prospecting, rock soil and stream sediment geochemical sampling, trenching and ground geophysics, as well as diamond drilling. Again the primary target was VMS mineralization. While no significant intersections of sulphides were encountered, it became apparent through the use of a portable XRF (X-Ray Fluorescence analysis) instrument that there was potential for significant vanadium mineralization to be defined.

Thirty one (31) diamond drill holes, TH-08-01 to TH-08-31, comprising 4073.3 meters (13,364 feet) of diamond drilling were completed from October 7 to November 20, 2008 on the Three Horses Property. The objective of the drill program was to investigate several geochemical, geophysical, and/or geological targets defined during the course of exploration programs completed on the property.

[[Image Removed: [uranium10q110909002.jpg]]]

2008 Diamond Drill Hole Locations

Composited Vanadium Mineralization in 2008 Drill Holes


Hole Depth in Metres V2O5
From To Interval %
TH-08-01 103.6 115.8 12.2 0.39
TH-08-02 42.7 109.7 36.6 0.27
incl. 100.6 109.7 9.1 0.36
TH-08-07 27.4 54.9 27.4 0.23
TH-08-11 33.5 39.6 6.1 0.41
TH-08-11 57.9 76.2 18.3 0.37
TH-08-12 30.6 114.3 83.7 0.37


incl. 45.7 61.0 15.2 0.40
incl. 86.9 109.7 22.9 0.47
TH-08-13 38.5 141.7 103.2 0.32
incl. 76.2 141.7 65.5 0.36
incl. 112.8 141.7 27.4 0.45
TH-08-14 12.2 109.7 97.5 0.35

incl. 76.2 91.4 15.2 0.66
TH-08-24 4.6 82.3 77.7 0.67
incl. 12.2 61.0 45.7 0.91
TH-08-25 18.3 48.8 30.5 0.32
TH-08-25 100.6 103.6 3.0 0.47
TH-08-26 9.1 36.6 27.4 0.41
incl. 18.3 27.4 9.0 0.76
TH-08-26 67.1 73.2 6.1 0.53
TH-08-27 9.1 97.5 88.4 0.30
incl. 18.3 29.0 10.7 0.88
TH-08-27 146.3 153.9 6.0 0.50
TH-08-31 15.2 51.8 36.6 0.38
incl. 36.6 48.8 12.2 0.56


In the spring of 2009 a detailed hand-held XRF survey of soils and follow up trenching was undertaken. The goal was to define areas of interest with the XRF instrumentation. These areas of interest would then be trenched and channel samples collected and submitted to a recognized laboratory for conventional analyses.

In early 2009 it was felt that the vanadiferous trends were not sufficiently well understood in terms of their areal extent and also because of the lack of sampling in the weathered zone by the 2008 drilling, little was known about the distribution of vanadium near surface. It was felt that additional information was needed to trace the trends to allow for efficient and economical testing in future diamond drilling programs. The most favorable survey was considered to be shallow machine trenching, however, given the fact that in the weathered zone the vanadium mineralization is difficult to identify by eye and the exact location and width of the trends were not known a means was required to

identify in the field the location and tenor of the vanadium mineralization to minimize the cost and disturbance resulting from trenching. Given the previous encouraging experience with X-Ray Fluorescence analysis of vanadium used on the drill core in 2008 this technique was chosen to allow for in field grade control. It is cautioned that the XRF analysis method is not a substitute for actual rock sampling and proper laboratory analysis and so the reader is advised that XRF data should only be taken as a rough indication of the elemental content of the rock being analyzed and not as a precise measurement of the amount of vanadium in the rock. The trenches were also channel sampled and those samples are being sent to a reputable laboratory in Australia for final analysis.

In the first half of 2009 a total of 56 trenches with a combined length of 8,168m have been completed. Trenches were completed in the Jaky, Mainty, Manga and Fondrana Zones. The layout of the trenches in the Mainty and Jaky Zones was designed to test for extensions of the surface extent of vanadium mineralization found in the 2008 drill holes into these areas. Trenches in the Manga Zone were located to test the regional structure, which joins the Mainty and Jaky Zones.

[[Image Removed: [uranium10q110909004.gif]]]

2009 Trench Location Map

Trenching was completed by a 28 ton Komatsu backhoe, a 22-ton backhoe and a small wheeled backhoe was utilized for backfilling and trenching.

The XRF method of analysis appears to serve best as a tool for locating and prioritizing target areas for detailed follow up exploration and so is considered by our management as an excellent tool to allow vectoring over mineralized areas.

In the case of the Jaky Zone the anomalous vanadium values, which define the zone, extend for over 1.1 km and for the Mainty Zone for at least one kilometre. The width of the zone defined by the XRF readings is also in excess of that seen in the sub-surface. Portions of the Jaky Zone are over 200 wide and for the Mainty Zone over 100m wide. It is felt that the XRF data is sufficient to map the areal extent of the mineralized zones. The exact tenor of the mineralization is confirmed by the assay results of the channel sampling completed in the trenches.

Trench # From To Length % V2O5

TR-09-001 0 116 116 0.48
incl. 28 52 24 0.72
incl. 70 90 20 0.77
TR-09-002 54 136 190 0.56
incl 104 136 32 0.96
incl. 154 208 54 0.67
TR-09-003 58 134 192 0.47
incl. 86 152 66 0.8
TR-09-004 84 200 116 0.5
incl. 112 164 52 0.75
TR-09-005 26 62 36 0.23
TR-09-006 28 74 46 0.36
TR-09-007 8 100 92 0.27
TR-09-008 40 106 66 0.40
Incl. 44 70 26 0.55
TR-09-009 24 84 60 0.25
TR-09-010 106 152 46 0.31
Tr-09-011 0 30 30 0.36
TR-09-012 4 34 30 0.41
TR-09-013 84 140 56 0.25
TR-09-014 -14 32 46 0.38
incl. -8 4 12 0.68
TR-09-015 52 92 40 0.26
TR-09-016 44 88 44 0.27
incl. 44 50 6 0.58
TR-09-017 134 152 18 0.38
TR-09-018 22 30 8 0.49
and 86 122 36 0.51
TR-09-19 138 204 66 0.46
incl. 158 180 22 0.59
TR-09-020 24 104 80 0.31


TR-09-021 32 57 25 0.36
TR-09-022 26 100 74 0.38
TR-09-023 24 72 48 0.34
TR-09-024 NSV
TR-09-025 66 74 8 0.27
TR-09-026 2 138 136 0.21
TR-09-027 6 58 52 0.23
TR-09-028 40 54 14 0.33
and 78 100 22 0.53
TR-09-029 56 94 38 0.36
TR-09-030 74 92 18 0.68
TR-09-031 20 36 16 0.52
TR-09-032 54 100 46 0.46
TR-09-033 18 62 44 0.44
incl. 18 28 10 0.59
TR-09-034 40 86 46 0.44
incl. 54 64 10 0.74
TR-09-035 20 64 44 0.43
TR-09-036 8 52 44 0.47
incl. 26 36 10 0.60
TR-09-037 6 62 56 0.49
incl. 8 28 20 0.70
TR-09-038 64 212 148 0.57
incl. 68 82 14 0.65
incl. 104 118 14 0.99
incl. 148 208 60 0.71
TR-09-039 38 242 204 0.51
incl. 146 190 44 0.98
TR-09-40 8 104 96 0.44
incl. 8 70 62 0.57


TR-09-041 32 162 130 0.56
incl. 68 132 64 0.71
TR-09-042 62 162 100 0.47
incl. 122 160 38 0.61
TR-09-043 98 150 52 0.44
incl. 98 120 22 0.58
TR-09-044 36 84 48 0.48
incl. 62 84 22 0.66
TR-09-045 -50 -22 28 0.40

and 4 50 46 0.31
TR-09-046 NSV
TR-09-047 NSV
TR-09-048 NSV


TR-09-049 28 62 34 0.47
incl. 50 62 12 0.66
TR-09-050 16 78 62 0.48
incl. 60 78 18 0.76
TR-09-051 -28 32 60 0.40
TR-09-052 -4 48 52 0.45

incl. 22 34 12 0.65
TR-09-053 12 54 42 0.35
. . .

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