Azarga Uranium

America’s Next Uranium Developer

This profile is part of a paid investor education campaign.*

Overview

Azarga Uranium Corp. (TSX:AZZ,OTCQB:AZZUF) is an integrated uranium exploration and development company that controls 10 uranium projects and prospects in the United States (South Dakota, Wyoming, Utah and Colorado), with a primary focus of developing in-situ recovery uranium projects. The Dewey Burdock in-situ recovery uranium project in South Dakota, which is the Company’s initial development priority, has received its US Nuclear Regulatory Commission License and draft Class III and Class V Underground Injection Control permits from the Environmental Protection Agency (EPA) and continues to advance towards construction.

Azarga Uranium’s flagship Dewey Burdock project has a preliminary economic assessment (PEA) that outlines a 16 year mine life, and the project is forecast to produce 14.3 million pounds of U3O8. The base case economic assessment results in a pre-income tax internal rate of return (IRR) of 55 percent and a pre-income tax net present value (NPV) of US$171.3 million when applying an 8 percent discount rate. Using the same discount rate, the post-income tax IRR is 50 percent and the post-income tax NPV is US$147.5 million. The projected cash flows for the Dewey Burdock project PEA are positive in the second year of production, two years after the commencement of construction.

Azarga Uranium President and CEO Blake Steele commented, “What’s really interesting about our Dewey Burdock project is the economics. The PEA demonstrates robust economics and cements the Dewey Burdock project as one of the preeminent undeveloped in-situ recovery (ISR) projects in the United States. The PEA results further validate our company’s strategy and we continue to progress the project towards construction as the global uranium market strengthens by virtue of supplier discipline and higher demand. The estimated cost profile and modest initial capital expenditures leave Dewey Burdock and the company well positioned to capitalize on the anticipated recovery in the uranium price.”

An initial capital investment of US$31.7 million for the Dewey Burdock project is sector leading for a project of its size and forecast C1 cash costs of US$10.46/lb per pound of production are first quartile on the cost curve.

In addition to its flagship Dewey Burdock project, the company has a strong pipeline of uranium projects in the US with 41 million pounds of measured and indicated plus 6 million pounds of inferred U3O8 resources.

Company Highlights

  • The company’s flagship Dewey Burdock project is one of the preeminent undeveloped uranium projects in the United States, possessing a unique combination of grade and scale.
  • Initial capital investment of US$31.7 million for the Dewey Burdock project is sector leading for a project of its size.
  • The Dewey Burdock project has robust economics at low uranium prices.
  • ISR is favorable over conventional mining due to environmental and low-cost advantages.
  • Strong demand growth of uranium is forecast at a time when supply has been cut back.
  • Management is made up of experienced mine developers.
  • The company has a strong pipeline of projects in the US, including its Gas Hills Project in Wyoming, which has the potential to transform into a significant satellite deposit for the Dewey Burdock project.

Uranium Market

The uranium supply and demand dynamics have been improving steadily over recent years due to strong demand growth, dwindling stockpiles and recent cuts in production. Uranium is a vital part of nuclear power, as power plants use nuclear fission, a process in which neutrons collide with uranium atoms and release large amounts of heat and radiation energy as they split, which then releases more neurons.

Roughly 10 percent of global electricity production comes from nuclear energy, so if the world wants to move to greener alternatives and reduce carbon emissions while maintaining the same level of power, nuclear production will have to increase. Nuclear power is also essential to the US economy, accounting for approximately 20 percent of electricity generation. Demand growth in the sector will continue to be driven by industries move towards renewable and more environmentally sustainable carbon-free sources of energy as well as countries continuing to adopt policies to reduce their carbon footprint.

According to the World Nuclear Association, there were 441 nuclear reactors in operation in August 2020 and 54 additional reactors under construction. The US alone hosts 95 nuclear reactors.

azarga surplus and deficit map

azarga surplus and deficit map

azarga uranium price chart

In addition to the US’ commitment to using nuclear power, the US Department of the Interior has listed uranium as a critical mineral. Further, in February 2020, US President Donald Trump’s fiscal 2021 budget proposal requested an annual allocation of US$150 million over a 10 year period, for a total of US$1.5 billion, to establish a United States uranium reserve.

Subsequently, in April 2020, the United States Nuclear Fuel Working Group (NFWG) released its report detailing its Strategy to Restore American Nuclear Energy Leadership. This strategy is designed to restore America’s competitive nuclear advantages and proposes, among other items, that the US government “take immediate and bold action to revive and strengthen the uranium mining industry.” The strategic objectives will “restore the viability of the entire front-end of the nuclear fuel cycle.” A summary of the other most relevant points included in the NFWG report pertaining to the US uranium mining industry include:

  • The US government would complete purchases of 17-19 million pounds of uranium, through a competitive procurement process from domestic producers.
  • The Department of Energy would end the uranium bartering program and reevaluate the Department of Energy’s excess uranium inventory management policy.
  • There would be streamlined regulatory reform and land access for uranium extraction.
  • Department of Commerce efforts would be supported to extend the Russian Suspension Agreement to protect against future uranium dumping in the US market.

Dewey Burdock Uranium Project

The Dewey Burdock project is located in the Edgemont uranium district in southwest South Dakota, less than 100 miles from Cameco’s Crow Butte ISR uranium project in Nebraska. Azarga Uranium’s 100 percent owned advanced stage Dewey Burdock project is one of the preeminent undeveloped uranium projects in the United States, possessing a unique combination of grade and scale. ISR is a mining process that involves drilling holes into ore deposits to recover minerals; it accounts for approximately 50 percent of uranium production globally. “In uranium, mining methodology is the key. ISR deposits, which require the right hydrological and geological conditions, have lower cash costs and lower capital expenditure requirements on average than conventional mines,” said Steele.

Through property purchase agreements, mining leases and claims, the project is comprised of approximately 12,613 surface acres and 16,962 net mineral acres. The Dewey Burdock mineralization occurs in the Fall River and Lakota formations of the lower Cretaceous age, consisting of permeable sandstones deposited in a major sand channel system. Uranium occurs in the sandstones as classic roll front deposits favorable to ISR mining methods. Uranium was first discovered at surface in the Edgemont district in 1952, while later drilling projects revealed deeper uranium deposits.

map of south dakota showing project location

2020 Resource Estimate

In January 2020, Azarga Uranium released an updated NI 43-101 compliant independent resource estimate for the Dewey Burdock Project. The resource estimate outlined a measured ISR resource of 14.3 million pounds U3O8 at a grade of 0.132 percent, a measured and indicated resource of 17.1 million pounds U3O8 at a grade of 0.116 percent and an inferred resource of 0.7 million pounds U3O8 at a grade of 0.055 percent.

PEA

The Dewey Burdock PEA resulted in a pre-income tax IRR of 55 percent and a pre-income tax NPV of US$171.3 million when applying an 8 percent discount rate. Using the same discount rate, the post-income tax IRR is 50 percent and the post-income tax NPV is US$147.5 million.

 
Annual U3O8 Production 1.0 Mlbs/yr
Mine Life (incl. two year ramp-up) 11 years
Total LOM Production 9.7 Mlbs
Initial Capital Costs US$27.0M (US$2.80/lb)
Cash operating costs
-Plant and well field operating
-Restoration / de-commissioning
-Site management / overhead
US$12.53/lb
US$8.50/lb
US$1.25/lb
US$2.78/lb
Local Taxes & Royalties US$6.33/lb
Sustaining Capital Costs US$14.00/lb
Pre / Post Tax NPV8% US$149.4M / US$113.8M
Pre / Post Tax IRR 67% / 57%

 

Status of Key Permits

The company’s immediate objective is to obtain the necessary permits and licenses to move the Dewey Burdock project into construction. The company has received its US Nuclear Regulatory Commission License and draft Class III and Class V UIC permits from the EPA. The EPA is expected to issue the final Class III and Class V UIC permits in the near-term. Applications with the State of South Dakota for the groundwater disposal plan, water rights permit and large-scale mine plan permit have been completed and recommended for conditional approval by the South Dakota Department of Environment and Natural Resources staff. The state is expected to resume the permitting process following federal regulatory approvals.

Pipeline of Projects

azarga project pipeline

Gas Hills

The company’s 100 percent owned Gas Hills project is located in the historic Gas Hills uranium district situated 45 miles east of Riverton, Wyoming. The Gas Hills project consists of approximately 1,280 surface acres and 12,960 net mineral acres within a brownfield site that has experienced extensive development, including mine and mill site production.

Between 1953 and 1988, previous operators explored, developed and produced uranium in the district, which fed multiple uranium mills in the area. Cumulative production has exceeded 100 million pounds of uranium in the Gas Hills district, primarily from open-pit and underground mining operations.

In June 2017, a NI 43-101 compliant independent resource estimate was prepared for the company’s Gas Hills project. It estimated that the project contains indicated uranium resources of 4.7 million pounds U3O8 (2.4 million tons at an average grade of 0.098 percent U3O8) and inferred uranium resources of 2.5 million pounds U3O8 (2.3 million tons at an average grade of 0.054 percent U3O8) at a 0.10 grade-thickness cut-off.

azarga gas hills resource chart

Subsequent to issuing the Gas Hills technical report, the company commenced detailed ISR studies on the project. These studies focused on piezometric surface conditions and permeability of the Wind River formation confined aquifer, the primary host of uranium mineralization at the company’s Gas Hills project. The studies concluded that both permeability and piezometric surface conditions, two important hydrologic parameters when evaluating ISR uranium mining, are suitable for ISR uranium mining at three of the primary deposits at the project, those being Day Loma, George-Ver and Loco-Lee.

Further, as announced on April 6, 2020, and June 8, 2020, the company has identified additional uranium mineralization at the Gas Hills project. The company identified this additional uranium mineralization through the analysis of historical data procured by the company (the “Gas Hills Data Set”). As announced April 6, 2020, the analysis of the Gas Hills Data Set identified 147 mineralized drill holes with 173 intercepts equal to or exceeding a 0.2 grade-thickness cutoff using a 0.02 percent grade cutoff with an average U308 grade of 0.137 percent and an average thickness of 5.3 feet. Subsequently, as announced on June 8, 2020, the analysis of the Gas Hills Data Set identified 82 additional mineralized drill holes equal to or exceeding a 0.2 grade-thickness cutoff using a 0.02 percent grade cutoff with an average U308 grade of 0.205 percent and an average thickness of 4.0 feet. This analysis expands the envelope of uranium mineralization indicating the potential to supplement the existing Gas Hills project resource estimate. The analysis also confirms that the uranium mineralization occurs in sandstone-hosted roll fronts located below the water table, indicating the potential for ISR amenability. The company is currently working on an updated resource estimate at the Gas Hills project, which has the potential to become a significant satellite project to the Dewey Burdock Project.

Dewey Terrace

The company’s 100 percent owned Dewey Terrace project is located in the Weston and Niobrara Counties of Wyoming, directly adjacent to the company’s US Nuclear Regulatory Commission licensed Dewey Burdock project. Through mining leases and mining claims, the Dewey Terrace Project comprises approximately 1,874 acres of surface rights and approximately 7,514 acres of net mineral rights.

The company has identified uranium mineralization at the Dewey Terrace project through the review and analysis of historical data owned by the company (the “Dewey Terrace Data Set”). The Dewey Terrace Data Set identified 259 mineralized drill holes indicating significant potential for a new resource area at the Dewey Terrace project. Further, deposition is consistent with sand channel systems categorized within the Dewey Burdock project and conditions that indicate possible ISR amenability.

As announced by the company, the Dewey Terrace Data Set analysis identified 91 mineralized drill holes with 129 intercepts equal to or exceeding a 0.2 grade-thickness cutoff using a 0.02 percent grade cutoff with an average U3O8 grade of 0.062 percent and an average thickness of 7.4 feet.

Moving forward, Azarga Uranium will continue to review the property’s historical data with the goal of quantifying the uranium mineralization to supplement the existing resources at company’s flagship Dewey Burdock project. The Dewey Terrace project has the potential to become a satellite project to the Dewey Burdock Project.

Centennial Uranium Project

The company’s 100 percent owned Centennial project is located in the western part of Weld County in North-eastern Colorado. Through property purchase and lease agreements, the Centennial project comprises approximately 1,365 acres of surface rights and 6,238 acres of net mineral rights.

In August 2010, a NI 43-101 compliant independent preliminary economic assessment was prepared for the Centennial uranium project. The Centennial PEA resulted in a pre-tax NPV of US$51.8 million at a discount rate of 8 percent and an IRR of 18 percent. The Centennial PEA assumed uranium prices of US$65/lb U3O8, cash operating costs of US$34.95/lb U3O8 and capital costs of US$71.1 million. The Centennial PEA includes indicated uranium resources of 10.4 million pounds at 0.09 percent U3O8, inferred uranium resources of 2.3 million pounds at 0.09 percent U3O8 and annual production of 700,000 pounds per annum. This results in a 14 year mine life.

The majority of the major mine permit applications for the Centennial uranium project have not been prepared or submitted to date.

Juniper Ridge

The company’s 100 percent owned Juniper Ridge project is located in the southwest portion of Wyoming, approximately 10 miles west of the town of Baggs. The Juniper Ridge project consists of approximately 640 surface acres and 3,240 net mineral acres within a brownfield site that has experienced extensive exploration, development and mine production.

Between 1954 and 1966, the Juniper Ridge area saw intermittent commercial mining operations and seven companies are responsible for producing over 0.5 million pounds of uranium in open-pit and shallow underground mines.

In June 2017, a NI 43-101 compliant independent resource estimate was prepared for the Juniper Ridge project. The project contains indicated uranium resources of 6.0 million pounds U3O8 (5.1 million tons at an average grade of 0.058 percent U3O8) and inferred uranium resources of 0.2 million pounds U3O8 (0.1 million tons at an average grade of 0.085 percent U3O8) at a 0.10 grade-thickness cut-off.

The Juniper Ridge PEA resulted in a pre-tax NPV of $27.3 million at a discount rate of 8 percent and an IRR of 26 percent compared to a post-tax NPV of $19.9 million at a discount rate of 8 percent and an IRR of 22 percent based on open pit mining and heap leach extraction of uranium. The Juniper Ridge PEA assumed uranium prices of $65/lb U3O8, total direct operating costs of $39.77/lb U3O8 and capital expenditures of $36.7 million.

 

Management

Blake Steele – President and CEO

Blake Steele began his career with Deloitte & Touche, where he worked in both the audit and financial advisory practices. Before joining Azarga Resources, which merged with Powertech Uranium to form Azarga Uranium, Mr. Steele worked at SouthGobi Resources (Ivanhoe Mines Group) as Director of Finance; he had previously held the position of Manager, Corporate Development. He holds a Bachelor of Commerce degree from the University of British Columbia and is a Chartered Accountant and Chartered Business Valuator in Canada.

John Mays – COO

John Mays brings more than 20 years of engineering experience in the uranium industry, focusing on ISR mining in both the US and internationally. He has experience in all facets of ISR mining spanning from design to construction to operation of ISR uranium mines. From 2006 until joining Powertech Uranium, Mays served as the Chief In-situ Mining Engineer at UrAsia’s three ISR projects in Kazakhstan, and later at Uranium One. Prior to joining UrAsia, he held the position of Senior Mining Engineer with Searles Valley Minerals of Trona, California. Mays also held the position of Superintendent of Well Field Construction for Power Resources Inc. on both their Smith Ranch and Highland Uranium Project in Douglas, Wyoming. He holds a Bachelor of Science Degree in Chemical Engineering and Petroleum Refinement from the Colorado School of Mines and is a licensed professional engineer in South Dakota and Colorado.

Doris Meyer – Corporate Secretary

Doris Meyer is highly regarded as a financial accountant and gained her early experience in the mining industry as Vice President of Finance of Queenstake Resources Ltd. from 1985 to 2003 and Corporate Secretary until 2004. She was the Chief Financial Officer and Corporate Secretary of AuEx from 2004 to 2010, and she played an integral role in the discussions and dealings between AuEx and Fronteer that ultimately led to the acquisition of AuEx by Fronteer.  Since 1996, Doris has owned and served as President of Golden Oak Corporate Services Ltd. Golden Oak provides publicly traded mineral exploration companies with administrative, accounting and corporate and regulatory compliance services. Doris serves as an officer and/or director of several mining companies that trade on the exchanges in Canada, London and the US.

Dan O’Brien – CFO

Dan O’Brien is a Canadian Chartered Professional Accountant with many years of experience working with junior resource companies. He works for Golden Oak and serves as Chief Financial Officer for a number of publicly listed exploration companies trading on the TSX and TSX Venture exchanges. He was previously a senior manager at a leading Canadian accounting firm, at which he specialized in the audit of public companies in the mining and resource sector.

Glen Catchpole – Non-Executive Chairman

Glen Catchpole was a member of the Board of Directors and the Chief Executive Officer of Uranerz Energy Corporation when the company was sold to Energy Fuels Inc. for more than $150 million, creating the largest integrated uranium producer in the US. Mr. Catchpole is a licensed engineer who holds an M.S. in civil engineering from Colorado State University. He has been active in the uranium solution mining industry since 1978, holding various positions including wellfield engineer, project manager, general manager and managing director of several uranium solution mining operations.

In 1988 Mr. Catchpole joined Uranerz USA, Inc. and Uranerz Exploration and Mining and became Director of Regulatory Affairs, Environmental Engineering and Solution Mining. Mr. Catchpole’s responsibilities included the monitoring and oversight of the environmental and regulatory aspects of two large uranium mines in Canada and the operational aspects of one uranium solution mine in the United States. In 1996, Mr. Catchpole was appointed General Manager and Managing Director of the Inkai uranium solution mining project located in Kazakhstan (Central Asia). In 1998, Cameco Corporation acquired Uranerz USA Inc. and Mr. Catchpole continued his post at the Inkai Project for Cameco. Mr. Catchpole spent six years taking the Inkai project from acquisition through feasibility study, joint venture formulation, government licensing, environmental permitting, design, construction and the first phase start-up.


 

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