Azarga Resources Provides Uranium Platform

Alex Molyneux, Chairman of Azarga Resources.

The following interview between me, (Peter Epstein), and Alex Molyneux was conducted over the past week over phone and email. Alex Molyneux’s Azarga Resources is proposing to merge with TSX main board listed Powertech Uranium [PWE.TO]. This merger would create a globally diversified, pure-play uranium platform from which to grow. Alex strongly believes that anyone bullish on Uranium needs to take a closer look at Powertech. Disclosure: Peter Epstein owns shares of Powertech Uranium.

Clearly, Azarga Resources is bullish on Uranium, having accumulated a 34% stake in Black Range Minerals, 15% in Anatolia Energy, 45% of Powertech Uranium and a 60% stake in the Centennial project in Colorado. Why are you so bullish?

Investing in uranium right now is a once in a decade wealth creation opportunity. We have not seen such a clear, ‘no- brainer’ since the gold sector in 2002 / 2003. Currently, there’s a very unnatural demand / supply dynamic caused by the Fukushima incident, but once the adjustment is done the industry will revert to an orderly market. In my view that’s a uranium price trading range of US$60-120/lb, double to triple where it is now. There seems no way around this, consider:

  • The world requires a 50% increase in mined supply by the end of the decade, yet 50% of current supply isn’t even cash flow positive at current levels. In my view, and many industry experts agree, any real growth in supply will require a price around US$80/lb.
  • Uranium demand is actually low risk, it’s generally being led by State sponsored build programs of nuclear power so it’s more likely to happen regardless of industrial production and GDP figures.
  • All 4 BRIC countries are increasing the % of electricity they generate from nuclear
  • Whilst Japan and Germany have stepped back from nuclear power, the U.S., UK and France are building new reactors and Japan is close to swinging back in. More importantly so many new countries are joining the nuclear club… Pakistan, UAE, Saudi Arabia, Turkey and Poland to name a few. Global new build plans are at a record high.

So, we know the uranium price is at least a double off this eight-year low and we could see junior and medium-sized uranium companies increase five or ten fold when that happens. We see no other minerals with this magnitude of upside at the moment… that’s why Azarga is here!

Explain the rationale for the proposed Azarga Resources / Powertech Uranium merger. Azarga already owns 45% of Powertech, why do you think that the combined company would be better off?

Azarga has been attracting the attention of a number of institutional investors. However, many of them need to invest through a liquid public listing according to their investment mandate. By merging the whole asset base into Powertech Uranium [PWE.TO] / [PWURF], a TSX main board listed company that we already control, we offer those institutions an opportunity to get on board. The upside for stakeholders is critical mass and a globally diversified uranium portfolio. We offer a reasonable, ‘one stop shop’ for institutions wanting to play uranium’s upside.

How would a combined Azarga/Powertech fund Dewey Burdock through first production?

Azarga is fully funded through Q1 2016 and we have good support from our strategic investors who funded Azarga privately and consistently added more funding to us. With equity from our partners at the appropriate time and project-level financing, I believe that Dewey Burdock is very doable.

Compared to In-Situ Recovery projects owned by Uranerz, UR-Energy and Uranium Energy Corp, Powertech’s Dewey Burdock project gets little respect. Why do you think that is?

Dewey Burdock has had two main issues:

First, its in a vehicle that fell off the radar, ignored by brokers and with no promotion. It’s hard for Dewey Burdock to get fairly valued if its not even in the dialogue.

Second, its in South Dakota, where less is known about permitting compared to Wyoming, so there’s a perception that we have significant permitting risk.

As Powertech and Azarga come together, we plan to reintroduce the company to new and existing investors, so that they can make valid comparisons to global uranium companies like Toro Energy and Peninsula as well as U.S. ISR peers Uranium Energy Corp, Uranerz and UR-Energy, not to mention conventional uranium miner Energy Fuels Inc. These companies have market caps ranging from C$110 million to C$220 million. Powertech’s market cap (before the proposed merger with Azarga) stands at just C$ 12 million. I’m not suggesting that Powertech should trade at a C$100 million valuation overnight, but as the company’s assets advance towards production, most notably Dewey Burdock, this massive valuation gap should shrink.

Regarding significant permitting risk in South Dakota, we think it’s a misconception. All the State hearings have been held and the State basically came back saying they would conclude their finding when the NRC is locked in, i.e., basically a conditional approval. Once we get final approval from the NRC, we will have the Environmental Impact Study finalized and the draft license issued. The Atomic Licensing Safety Board will meet to issue that license (again, per the finalized work of NRC) and then the State will issue the permits. We think we will be fully permitted by year-end.

What about the Centennial project in Colorado, owned 60% / 40% by Azarga Resources / Powertech?

Centennial is interesting, also ignored by the market as Powertech used its limited resources to focus almost exclusively on Dewey Burdock. However, Azarga retained SRK, a highly regarded independent technical / engineering firm, to revive that project late last year. SRK is working on a number of scenarios but we expect to reveal a new Feasibility Study and permitting plan for that project… it may be that the new study makes good use of Black Range’s Ablation technology.

Assuming that the merger is successful, what other Uranium assets might the new entity consider?

Firstly, we just want to see a reasonable valuation after the merger closes, only … Its only after that would M&A be considered. In that instance though, there is certainly more that we can do in the U.S. Africa is also of interest, in particular Niger, which in my view has by far the best assets for African uranium.

I noticed Azarga increased its holdings of Anatolia Energy to 15.1%. In looking at Anatolia’s website, that company’s main project boasts an IRR of greater than 100%. What can you tell us about that project?

That project is another interesting ISR project. It requires less than $50m of upfront cap-ex and is projected to have cash costs of just $22/lb, truly world class. Like Dewey Burdock in South Dakota, the project is being ignored because its in Turkey. It seems there’s one valuation for Wyoming assets and every other compelling ISR project is cheap. This won’t last, our projects will get mined. Anatolia got its mining license late last year. I see no good reason why Dewey Burdock and this Turkish project for its project should be so radically undervalued compared to the Wyoming plays.

Can you tell us about Black Range Minerals?

Black Range has the Hansen / Taylor Ranch deposit, 90.9 million lbs in Colorado with a published study for a mine plan that would do 2 million lbs per year at a cash cost of about US$30/lb and upfront capital of around US$80m. That’s fairly compelling compared to some of the U.S. ISR projects. So, that in itself is quite interesting and there’s a technology angle that’s very interesting as well. Black Range is sitting on a hidden asset in the form of a potentially game-changing uranium mining technology.

You mentioned a hidden asset at Black Range Minerals, a JV with a Uranium mining technology company?

Yes, Black Range has (with Azarga’s support) been funding a technology called Ablation. Black Range owns 50% of it in JV with the inventors. Put simply, Ablation is a technology that can significantly reduce costs at sandstone-hosted uranium deposits that are not amenable to ISR mining. It’s a physical pre-concentration technology that happens at the mine.

How does it work? The sandstone-hosted uranium ore goes into water to form a slurry. The slurry is streamed through opposing jets, causing the sand particles to collide. The uranium mineralization, which is a petina on on the outside of the grains, shatters and fragments into small particles that can be separated. The result is that we generally recover 90% of the uranium, with a 90% mass reduction. Therefore, just 10% of the mass (with 90% of the uranium) gets transported to the mill. This technology can, in many cases, reduce cash costs at amenable deposits by 20%-25%, making them comparable to ISR. The Ablation technology is finalizing commercialization. We have a five tonne-per-hour unit in Casper, Wyoming that has been processing ore. We also have an African uranium company, Goviex Uranium using it in their revised operations flow sheet. An Ablation unit is planned to be tested by Goviex in an upcoming pilot plant.

Most investors know that Kazakhstan is by far the largest producer of uranium, but are unfamiliar with the uranium picture in the Kyrgyz Republic… Please explain what Azarga has there.

Kyrgyzstan is just an extension of Kazakhstan, that ‘neighborhood’ is big for Uranium. China has a mine in Xinjiang right near Kazakhstan and we are right between that mine and the main Kazakh production base. We have the largest uranium deposit in Kyrgyzstan. It’s a known deposit that Soviet geologists discovered and drilled in 1950s-1970s. They estimated a 47m lb resource. We have been drilling it for the last two years and are correlating the Soviet data well. We will have an NI 43-101 resource this year. Its hugely strategic because it could be another good source of supply for China. Roughly 50% of China’s uranium is imported from Kazakhstan. Our material could be exported across the land border with China the same way as Kazakhstan’s.

I understand that Azarga also controls a significant deposit of heavy Rare Earth Elements. At what stage of development are the REE’s?

Well this is a bit of, ‘blue-sky’ for us. On our Kyrgyzstan licenses we saw some anomalies on the western side. Soviets had made hand written notes in the uranium drilling logs noting observations of unusual colors etc. We thought, you know, that could be rare earths! In 2013, we popped three holes in that area and did some trenching. We certainly hit something exciting, some samples of 15% total rare earths oxides, that can be considered among some of the highest grade observations in the world. But again, it’s early days because the data we have isn’t enough for a JORC or NI 43-101 resource yet. We will drill the deposit more in 2014 and hope to reveal a new heavy rare earths discovery.

Thank you Alex for your time. You gave us a lot to think about. Any parting thoughts for readers?

Yes, and thank you Peter, it’s a pleasure to speak with you as always. I agree that we covered a lot of ground here. I guess I just want to reiterate that a combined Powertech & Azarga will give investors a very great way to play the coming doubling or more of the uranium spot price. Smart investors can buy a company like Cameco (CCJ) to get exposed to the ongoing nuclear renaissance, but companies like Powertech, soon to be Azarga Uranium Corp, offer far more upside. Near-term catalysts include the de-risking of Powertech’s Dewey Burdock project in South Dakota. As investors come to realize how Dewey Burdock compares to its U.S. ISR peers, a re-rating of Powertech’s stock should follow.

Peter Epstein

Peter Epstein

Contributing Editor

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In 2011, Peter Epstein, CFA, left a $3 billion hedge fund where he was a senior analyst, to help increase awareness of a number of natural resource companies in which he's invested in.

Mr. Epstein formed MockingJay, Inc., a consultancy for companies in the natural resources space and informal (non-licensed) advisor to high net worth investors. Mr. Epstein's areas of expertise include uranium, coal, gold, potash, copper and graphite. He has published hundreds of articles / blogs on investment sites such as Seekingalpha, and the Motley Fool and some articles on and


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