Azincourt Resource: A Management Team Built On Experience

One of the new companies working in the region is Azincourt Resources (TSXV:AAZ) whose strong management team provides a good foundation for uranium exploration. Uranium Investing News spoke with Azincourt’s CEO Ted O’Connor about the company’s joint venture earn-in project, Patterson Lake North, as well as what investors can expect from Azincourt in the future.

Uranium Investing News: My first question, I wanted to know Athabasca Basin, is a real go-to spot for uranium for this market. What’s been driving the attention to this region?

Ted O’Connor: I’ll tell you that it starts with geology — economic geology. The Athabasca Basin is home to a certain type of uranium deposit called “unconformity uranium deposit.” These are the highest grade, largest deposits known on the planet. So, that’s a big draw.

Northern Saskatchewan has well over 40 years of uranium production from these type of deposits and other ones in Uranium City. After Cigar Lake Mine gets up to full production, there’ll be over 40 million pounds being produced every year from this region. In spite of the long production history and exploration history, there ‘s still new discoveries being made in the Athabasca.

Saskatchewan itself is a real stable jurisdiction. All the provincial government is extremely supportive of mining and in particular uranium. There’s few known regulatory and royalty regimes and the provincial government also just changed and made the royalty situation even better for uranium. It’s got a combination of stable jurisdiction, excellent geology, and a real uranium production history with good infrastructure, existing mines and mills. That’s the story on Saskatchewan and the Athabasca.

UIN: Can you clarify on the changes made by the government?

TOC: At the beginning of the year, they basically made the royalty more clear. There was talk about changing it. They adjusted basically at the same rate but it’s better because prices are a bit lower now. They made it better for the actual production companies. It’s never been above about three and a half percent, I believe.

UIN: I see. That’s good. Definitely a plus.

We’ve been hearing a lot about this uranium market and how it’s gearing up to take off, however, prices were $40 per pound last week, and analysts have been cutting their long-term forecast. What’s making this market lose some steam, or seem to lose some steam, rather?

TOC: I think it’s a combination of factors and if you look at some of the websites like UxC, they have some decent graphs, but one of their most prominent things I came across recently is that summer, and I’ve know this for years, but summers are traditionally slow seasons for the stock market because there’s not a lot of discretionary buying by the utilities. In reality the spot market is only around 15 percent of demand annually. So, with a slow price some people still need cash flow and there are few sellers. The price gets depressed every summer between June and August.

That’s one thing. There’s also lots of inventory out there. Japanese utilities that are holding inventory and the U.S. Department of Energy has inventories of uranium that they sell periodically. They’re allowed to sell no more than about seven or 10 million pounds a year, but they do it whenever they feel like it. They don’t care so much about what the effect is on the market. So, nobody knows when, or how much they’re going to sell at a time, but in the market, the perception is it’s hanging out there as inventory.

Also, because of the lack of Japanese demand at the moment, because the reactors, most of them aren’t going, the companies who do uranium enrichment for most of the reactors around the world need enriched uranium; they have these big enrichment plants that you just don’t turn off. You just keep them going. So, they have excess capacity and they can play with the uranium that they’re getting in —the natural uranium — and actually re-enrich things to the point where they’re actually producing more uranium. So there’s a bit of a “under-feeding,” it’s called. So this excess enrichment capacity can become a bit of a uranium producer themselves, the enrichers. So, there’s those factors, but the most important thing is not the spot price, but the mid-term to long-term price and everybody thinks and believes it’s going to go up.

I’m sure you know about the supply-demand gap that’s out there and those factors. Well, you need certain prices for people, producers or people developing these uranium projects to make money. No one’s going to start a mine that’s going to lose money. You see lots of these companies like Cameco (TSX:CCO) and Areva (EPA:AREVA) putting projects on hold because they need higher prices to make money and those prices aren’t on the near term horizon.

We don’t know what’s going to fill that gap. The only thing that that can fill that gap is primary uranium production. We need higher prices. So, the price can’t help but go up.

UIN: With the Athabasca Basin, prices are a little less of a factor because the grade is so high. You can do about $40 to produce and that be a happy price, obviously. But overall a price of $80 seems to be the price where everybody can be happy. What are you thoughts? 

TOC: Yeah. The Athabasca Basin for sure the production coming out of there is among the lowest cost in the world, same with Kazakhstan and the same with Wyoming and Nebraska. You know producers appear to still be making money. They can make money. Nobody, none of the big producers like Cameco or Areva really sell on the spot market, they’re all longer term contracts. So, if you look at the Camecos and Paladins (TSX:PDN), they’re not selling their uranium for $40 right now. They’re somewhere north of $55 selling today because of their contracting strategy.

So, the fact that they might be able to make money at 40 isn’t terribly low, because they’re not really getting 40. They’re getting higher prices. That’s another thing, the big guys aren’t really even contracting at these low prices.

UIN: As far as your career history goes, you have a history of working with Cameco, I think. Nineteen years? What brought you over to the junior side?

TOC: I’ve known my colleagues in the management team at Azincourt for quite a few years, so when they talked to me it was a combination of the people, of course there’s the exciting play up in western Athabasca, and the project itself, and the opportunity to work with the Fission guys was exciting.

But from Azincourt’s perspective, they wanted to talk to me because for the last ten years of my career with Cameco, I’ve been focused on growth. Whether it was generating new projects, evaluating global opportunities or partnering and acquisitions, that’s basically what I did, and that’s a large part of what my role’s going to be with Azincourt.

Yes, we have this springboard project operated by Fission, but we want to grow our own exploration and resource portfolio. It was kind of a two-fold career-type move. The exciting play and project and the opportunity for growth, but then couple that with the team.

 UIN: A strong management team is what a lot of people are looking for. How about the other players on your team, what qualifications and experience do they have that will help Azincourt advance the project to the next phase.

TOC: Let’s start with Ian Stalker. He’s a mining engineer who has 30-plus years of experience in all different commodities. He’s built companies from exploration projects right through to putting them into production. He’s got a lot of experience. In the uranium side, he’s probably most famous for taking UraMin from, six or ten projects throughout the world, to primarily focused in Africa, and then building a company that had 400 million pounds of resources on the books in a few years. He sold that company to Areva for $2.5 billion.

So, he’s well known in uranium, he’s brought projects from breakthrough, discovery on, and so that’s his story. He’s also tapped in around the world for uranium opportunity.

Ian’s our chairman. Then we have on board from Fission, Dev Randhawa. His story is he’s built resource companies and he’s been in uranium since the late ’90s, well before any price went up. He was a believer well before the boom, and now flat uranium scene. Apart from the fact that he’s on the financial side of the business, he assembled a top-notch team. He built up companies and split off. He started with Strathmore and that company’s still going with uranium focus in the U.S. They spun out Fission Energy, which they sold half their ground to Denison (TSX:DML) and now we have Fission Uranium, and that’s our partner.

We also have another director named Paul Reynolds. He’s a Vancouver-based exploration and development geologist, so he has not a long history in uranium, but certainly well in excess of 30 years of technical knowledge and understanding. He’s one of our directors.

Ian Burns, who’s a highly experienced financial management-type person, he’s based in the UK. He’s our final director.

UIN: You’ve got a good team. It looks like you brought in enough people who’ve been in uranium and can definitely help advance the project through its stages.

Azincourt’s primary project and a joint venture earn-in with Fission Uranium is the Patterson Lake North. What drew the company to the project?

TOC: First of all, 2004 is when Fission staked it. It has had $4.7 million already spent on it. Great work, a few drill holes and lots of targets. In the center portion, there’s drill-ready targets right there. It’s straddles the unconformity on the western Athabasca side. So it goes from zero sandstone cover to perhaps 500-600 meters of sandstone cover. There’s potential to start shallow and go deep as your understanding of the project increases. It’s located in the western Athabasca, and really this area has been far less explored than the east where the existing production is right now.

Up until 2002, Areva had a uranium mine that was called Cluff Lake that was producing for 12 or 20 years. It probably produced about 63 million pounds or so out of that mine. There’s an excellent all-weather road that goes right through the center of Patterson Lake North, and just to the south of Cluff Lake, in between the former mine and the northern end of our project is an exciting project in itself.

UEX (TSX:UEX) and Areva have their Shea Creek project and they’ve got five deposits outlined, on the order of 100 million pounds of resources up there. You couple that with the Patterson Lake South discovery that Fission and Alpha have made with caused a real staking rush and people trying to scramble to get land in the area. It’s an exciting place to be.

UIN: Yes. Definitely. There are a lot of people looking in that region.

TOC: This project was worked fairly hard until 2008. What happened with Fission was they discovered the J-Zone on the east side. But beside the Roughrider discovery that Rio Tinto (LSE:RIO) now has, so all the focus in mining and energy went to that project and it kind of left the west alone until they started getting back in the Patterson Lake South area. Now it’s time to get back and work this project and work it up.

UIN: Fission Uranium, you are the operators of the project. What does that mean and what does that mean for the position that Azincourt holds?

TOC: Right now, it’s 100 percent Fission project. It’s an earn-in option agreement, to earn up to 50 percent by committing to exploration expenditures over the four-year time frame. Fission is the operator. What that means is that Fission’s team will be responsible for the actual exploration work at Patterson Lake North. Their existing team — that was co-responsible for the Patterson Lake South, but also for the J-zone discovery — are going to be working on the project and carrying out the work.

For us, we have a joint planning and technical oversight sort of team between the companies. So, periodically when the project’s active, we’ll be going out there and getting to the Fission guys and planning the next steps and approving the programs and budgets and adding our technical expertise to theirs.

UIN: That’s a good way to get into a project.

TOC: Yeah, exactly. Also, because there’s not the burden of operating for Azincourt, my time can be spent finding great new projects.

UIN: Patterson Lake South, we mentioned, has been getting a lot of attention, and returning really impressive results.  Are you finding any similarities on the Patterson Lake North property that compare to PLS? 

TOC: One main difference, I’ll point out the differences that we have zero to 500 meters of sandstone cover, expected on the project.

The edge of the Basin is essentially right at the edge of our project so we won’t be finding any basement uranium mineralized boulders, like on Patterson Lake South. The reason for that is because it’s covered by sandstone and the ice direction is from the northeast. So, the only boulders on the project pretty much are sandstone boulders. So, there’s not chance of finding boulders. But, the ingredients for these uncomforming uranium deposits, like they found at Patterson Lake South, are all there.

There’s good structure, conductive basement rocks, altered sandstone with good clay mineralogy and trace element geochemistry. There’s what we call “pathfinder” elements enriched in the sandstone around uranium deposits. Well, we have exactly that situation at PLN, in from some of the historical draw holes. Certainly there’s in all those uranium, vanadium, cobalt, nickel, lead, I’m probably forgetting one, but anyway, the criteria that we look for to targeting, to narrowing down that targets on these unconforming uranium deposits, are all there at PLN.

UIN: Okay, so what’s the next step for that project?

TOC: We’re going to kick off here in July, the year one program. It’s going to start with some better tuned airborne to physical surveys, electro-mag, EM and mag surveys. That will be done this summer, fall. Then we’ll be obviously reviewing that data, then targeting once the freeze-up happens probably in November, starting to do some ground targeting geophysics that will establish more drill-ready targets. We’re planning on drilling 2,500 meters, which should be somewhere between six and ten drill holes, at least, on the project in January of 2014.

UIN: Okay. Now, Azincourt, is fairly new as far as uranium exploration companies go. What’s next for the company as a whole? I believe you hinted at looking for new projects.

TOC: I’ve reviewed quite a few uranium projects already. People, I think whether they’re, I’ll say just landholders or other companies, they’re interested in talking to us because the team. I think we’re getting pretty decent quality projects. It’s just a matter of evaluating them, which takes some time.

There are a lot of good projects out in North and South America, as well as Africa and Australia. It’ll take some time, but the what next is, we’ll review projects, and we will be acting on them as soon as we can once we find ones that make sense and can do a deal.

UIN: That’s definitely something to look forward to. Now, I think just a little bit of information, general information which I believe will play into a little bit of your experience. What’s involved with uranium exploration? How is that different from other metals?

TOC: Well, in some ways it’s a bit easier because of the radioactivity associated with uranium deposits that aren’t usually associated with gold or whatever, so you can find even ones at surface quite easily. But, worldwide, there’s a probably (depending on who you’re talking to) 15-18 different deposit classes; different types of uranium deposits. Within each one of those there are subsets of them. For example, sandstone uranium deposits, there are three or four different types of sandstone uranium deposits. Some are better than others. Anyway, it’s an easy element to find in nature, it’s difficult to find economic concentrations of uranium. You have to pick your model type that you’re going to look for.

In the case of northern Saskatchewan, it’s the unconforming uranium deposits. When I was Cameco, we looked around a little bit trying to find basins that are similar to the Athabasca and nothing compares to the grades you find there, but there are other places in Australia, in northern Australia and western Australia, there’s two beaches there that host similar types of deposits, but much lower grade than Saskatchewan.

Up in Nunavut there’s the Thelon Basin. They have some similar type uranium deposits and in northern Quebec the Otish Basin is host to similar types of uranium deposits, but once you start looking elsewhere around the world, nothing stacks up to the Athabasca, but there are places for those types.

You look at the big sandstone uranium districts in Wyoming, Nebraska, in the Colorado plateau. Those have a history of production. Some deed in-situ recoverable ones are still in production in Wyoming, Nebraska. And there are similarities to what’s going on in Kazakhstan. You know, that in-situ recoverable uranium mining that’s going on there. There’s even a small basin in south Australia that also has in-situ recoverable uranium production.

Those are the two models that most people think are economic at this point in the market. Now, the next tiers of deposits are things that you find in Namibia or western Australia, these calcrete deposits the one that’s in production in Namibia is called is called Langer Heinrich that Paladin has. Those can be economic if there are the right conditions. So, once you’ve figured out your model types and their application, there are 15 different model types that have some classes. Not all of them are economic anymore, but you go and find the right geology.

UIN: So, it really does come down to geology at the end of the day?

TOC: Always. You know that once you find the deposits, that’s when the mining engineers and the processing side of it kicks in. You might have a great resource that you just can’t do anything with. So, that’s why I think the foundations of our team with me as geologist, one of our other directors is a geologist, and we’ve got some mining engineering expertise; people who have built mines and mills like Ian Stalker and then bringing in the finance side of it, I think for a small company, we have a pretty decent foundation for a great team. If we can find the right projects and have success.

UIN: I wish you all the luck. It sounds like you guys have put together a good team, so I don’t think there will be much of an issue. Thank you very much for speaking with me.

TOC: Thank you.

Securities Disclosure: I, Vivien Diniz, hold no investment interest in any of the companies mentioned. 

Editorial Disclosure: At the time of this interview, Azincourt Resources was not a client of the Investing News Network. This is not paid for content. 

Interviews conducted by the Investing News Network are edited for clarity. The Investing News Network does not guarantee the accuracy or thoroughness of the information reported. The opinions expressed in these interviews do not reflect the opinions of INN and do not constitute investment advice. All readers are encouraged to perform their own due diligence.