Source: Streetwise Reports 12/23/2019
After receiving a favorable ruling on the NRC license, its focus shifts to project economics.
Azarga Uranium Corp. (AZZ:TSX; AZZUF:OTCQB; P8AA:FSE) recently announced that the Atomic Safety and Licensing Board (ASLB) issued its Final Initial Decision, resolving the final remaining contention for the Nuclear Regulatory Commission (NRC) license for the Dewey Burdock In-Situ Recovery Uranium Project in South Dakota in favor of the company.
This decision was lauded by industry analysts. Haywood analyst Colin Healey wrote on December 13, “The positive decision from the ASLB is a huge boost for Azarga and significantly de-risks the Dewey Burdock Project, opening the way for aggressive advancement including pursuing other required permits for future construction and production. . .With a Final Decision rendered, the outlook significantly improves as Azarga can push forward with additional permitting at Dewey Burdock unencumbered.”
Haywood has a Buy rating and a target price of CA$0.50 for Azarga. The stock is currently trading at around CA$0.21.
Eight Capital analyst David A. Talbot wrote on December 13, “In a positive move, the Atomic Safety and Licensing Board issued its final decision, resolving the final contention against 100%-owned Dewey Burdock (DB) project’s NRC License in favour of Azarga and NRC staff. This means its NRC Source & Byproduct Materials License is in good standing, free and clear of any further contentions.”
Eight Capital is maintaining its Buy recommendation for Azarga and a 12-month target price of CA$0.45.
Gerardo Del Real wrote in Junior Mining Trader on December 13 that the decision “is a major milestone for the company. . .The announcement paves the way for the Environmental Protection Agency (“EPA”) to issue the final Class III and Class V underground injection control permits which in turn paves the way for Azarga to become a prime takeout target.”
“The favorable resolution, announced this morning, of the final issue and the pending Nuclear Fuel Working Group recommendations (which are overdue), which should provide a very favorable tailwind to U.S. based uranium companies with high-margin assets like Azarga’s Dewey Burdock project, make Azarga a screaming buy,” Del Real added.
Blake Steele, president and CEO of Azarga, stated, “Resolution of the last remaining contention comes more than four years after the ASLB issued its Partial Initial Decision for the Dewey Burdock Project and marks a monumental achievement for the Company. The ASLB proceeding is now terminated and the Dewey Burdock Project NRC License is contention free for the first time since this proceeding commenced. This decision represents a key risk reduction event and a significant step towards realizing the full value of the Dewey Burdock Project.”
With the conclusion of the license decision, the analysts’ attention turned to Azarga’s Preliminary Economic Assessment (PEA), which the company updated on December 4. The company released highlights of the PEA:
- Post-income tax IRR of 50% and NPV of US$147.5 million (at US$55 per pound uranium sales price and 8% discount rate)
- 14.3 million pounds of U3O8 production over 16 years; steady state production of approximately 1 million pounds per year achieved in year 3
- Low initial capital expenditures estimated at US$31.7 million
- Direct cash operating costs estimated at US$10.46 per pound of production
Colin Healey of Haywood wrote that the recent PEA impact was “muted based on the overhang of this event; robust economics now in focus. . .With all-in pre-tax cost of production of US$29/lb, Dewey Burdock should be a very resilient project capable of generating positive cash-flow even at currently depressed term market prices.”
David Talbot of Eight Capital noted, “The new PEA does help differentiate this project, in our opinion one of the best ISR projects in the USA, from others so that when the market potentially improves within the next 12-18 months, the seriousness of off-take discussions may heighten.”
Talbot stated that the updated PEA “was an improvement over previous studies given its longer 16-year LOM [life of mine]. The PEA was completed within confines of the 1 MM lb U3O8 pa limitation of the NRC license. DB economics appear highly sensitive to production rate (and timing), and potential production expansion from 1 MM to 1.5 MM lbs pa would be beneficial. Even within the current market, DB remains economic. That said, management has no desire to waste the asset, so we don’t believe construction to be pending until prices reach the $40-$45-$50/lb range.”
CEO Steele stated, “the results of the Preliminary Economic Assessment (“PEA”) for the Dewey Burdock Project cemented it as one of the preeminent undeveloped in-situ recovery uranium projects in the United States. The estimated cost profile and modest initial capital expenditures leave the Dewey Burdock Project well positioned to capitalize on the anticipated recovery in the uranium price. The robust PEA economics along with the ASLB decision continue to pave the way towards construction and further de-risk the Dewey Burdock Project.”
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Additional Disclosures
Disclosures from Haywood, Azarga Uranium Corp., December 13, 2019
Analyst Certification: I, Colin Healey, hereby certify that the views expressed in this report (which includes the rating assigned to the issuer’s shares as well as the analytical substance and tone of the report) accurately reflect my/our personal views about the subject securities and the issuer. No part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations.
Important Disclosures
The following Important Disclosures apply:
▪ Haywood Securities, Inc. has reviewed lead projects of Uranium Energy Corp. (UEC-US) and a portion of the expenses for this travel may have been reimbursed by the issuer.
▪ Haywood Securities, Inc. or one of its subsidiaries has managed or co-managed or participated as selling group in a public offering of securities for Uranium Participation Corp. in the past 12 months.
Other material conflict of interest of the research analyst of which the research analyst or Haywood Securities Inc. knows or has reason to know at the time of publication or at the time of public appearance: n/a.
Disclosures from Eight Capital, Azarga Uranium Corp., Comment, December 13, 2019
Conflicts of Interest: Eight Capital has written procedures designed to identify and manage potential conflicts of interest that arise in connection with its research and other businesses. The compensation of each Research Analyst/Associate involved in the preparation of this research report is based competitively upon several criteria, including performance assessment criteria, the quality of research and the value of the services they provide to clients of Eight Capital. The Research Analyst compensation pool includes revenues from several sources, including sales, trading and investment banking. Research analysts and associates do not receive compensation based upon revenues from specific investment banking transactions.
Eight Capital generally restricts any research analyst/associate and any member of his or her household from executing trades in the securities of a company that such research analyst covers, with limited exception.
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( Companies Mentioned: AZZ:TSX; AZZUF:OTCQB,
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