Azarga Uranium to merge with URZ Energy

An American flag atop a drill rig at Azarga Uranium’s flagship Dewey Burdock uranium project in South Dakota. Credit: Azarga Uranium.An American flag atop a drill rig at Azarga Uranium’s flagship Dewey Burdock uranium project in South Dakota. Credit: Azarga Uranium.

The merger of Azarga Uranium (TSX: AZZ; US-OTC: PWURF) and URZ Energy (TSXV: URZ; US-OTC: URZZF) will create a new uranium development company focused on in-situ recovery (ISR) uranium deposits in the United States.

Azarga controls six uranium assets in the U.S., and its flagship project, Dewey Burdock in South Dakota, has received key permits from the Environmental Protection Agency. URZ Energy owns the Gas Hills, Juniper Ridge and Shirley Basin properties in Wyoming, and also has properties in Utah and Colorado.

“It’s time to put good assets and good people and financial structures together to take advantage of opportunities when the uranium commodity market turns,” URZ Energy’s executive chairman Todd Hilditch says.

URZ Energy’s CEO, Glenn Catchpole, who has spent the last 40 years in the uranium sector, says the business combination will create the pre-eminent ISR uranium developer in America, and that the two companies have been talking about a deal for a few months.

“But Azarga’s Dewey Burdock project has been on my mind for a lot longer than that,” he says, noting that the project was on his radar screen when he was working at a previous company called Uranerz Energy.

“We looked at it then and did a due diligence on it, and liked it even more, and we put in an offer, which was not successful,” he recalls in an interview. “I was hoping that someday it might come around again, and it has. It’s a real company builder. We’ve only been going for about two years as a company … and this is a big leap for us, and I can tell you, I’m very excited about it.”

Catchpole was the CEO of Uranerz Energy before its US$175-million acquisition in 2015 by Energy Fuels (TSX: EFR; NYSE-AM: UUUU). While at Uranerz, Catchpole explored, permitted, built and operated the company’s Nichols Ranch ISR uranium project in Wyoming.

An engineer by training, Catchpole also worked on Cameco’s (TSX: CCO; NYSE: CCJ) Inkai ISR mine in Kazakhstan, which is held in a joint venture with the Kazakhstan government through Kazatomprom. (Catchpole lived in Kazakhstan for six years while general manager of the operation.) Last year Inkai produced 5.5 million lb. uranium oxide (U3O8) in 2017. This year it could produce 6.9 million lb. U3O8.

Among the things Catchpole likes about Dewey Burdock are its grade — which averages 0.25% — and relatively shallow, 129.5-metre depth.

“The depths weren’t excessive,” he says. “Sometimes with these ISR projects they look good and they have grade, and so on, but the depth is such that it increases your operating costs with the drilling. The deeper the well, the more cost. The last project I was on, it was more like [182 metres].”

The project’s average grade of 0.25%, he adds, is “really good in the industry.”

An antelope near a drill site at Azarga Uranium's Dewey Burdock uranium project in South Dakota. Credit: Azarga Uranium.

An antelope near a drill site at Azarga Uranium’s Dewey Burdock uranium project in South Dakota. Credit: Azarga Uranium.

“I’ve never had the fortune of being on a project with that kind of grade — I’m used to more of the 0.1% average — so to me, it’s got all the elements of a good project.”

The transaction with Azarga Uranium “is timely,” he continues, “with the worldwide growth in nuclear reactor construction and confidence returning to the uranium sector.”

Under the agreement announced May 7, Azarga will acquire all of the issued and outstanding shares of URZ Energy. Shareholders of URZ Energy will receive two shares of Azarga for each share they own in URZ Energy.

If the transaction is approved, the combined company would have a stronger platform to evaluate and consolidate more ISR uranium projects in the U.S., the two companies note in a joint press release.

The new board will have three appointees from each company, with Catchpole becoming chairman. Azarga’s current president and CEO, Blake Steele, will continue his role in the merged company.

A US$825,000 break-fee will apply.

The new company’s combined measured and indicated resources would total 30.7 million lb. U3O8, with another 8.7 million lb. in the inferred category.

Of the 30.7 million measured and indicated lb. U3O8, Azarga’s Dewey Burdock project alone would make up 8.6 million lb. at an average grade of 0.25% U3O8.

A preliminary economic assessment of the project in April 2015 outlined a 16-year mine life producing 9.7 million lb. U3O8 at US$27-million initial capex.

The preliminary economic assessment assumed a US$65 per lb. uranium price and cash operating costs of US$18.66 per lb. U3O8, which included US$6.33 per lb. U3O8 of local taxes and royalties.

Spot uranium at press time is US$21 per lb., according to Trade Tech and the Ux Consulting Agency.

Uranium does not trade on the open market, and many of the private sales contracts are not publically disclosed. Monthly long-term industry average uranium prices, based on the month-end prices, are published by Ux Consulting and Trade Tech. At press time, both companies posted a US$21 per lb. uranium price.

In terms of the assets URZ Energy brings to the table, the company’s Gas Hills project is likely the priority. The company recently reinterpreted Gas Hills’ potential to be mined with ISR. The project has indicated resources of 2.41 million tons (2.19 million tonnes) grading 0.098% U3O8 for 4.73 million lb. U3O8, and another 2.3 million tons (2.09 million tonnes) of inferred resources grading 0.054% U3O8 for 2.5 million lb. U3O8.

Strathmore Minerals drilled Gas Hills from 2007 to June 2013. In August 2013, Strathmore was acquired by Energy Fuels, which sold the property to URZ in October 2016.

The project is 72 km east of Riverton, Wyo., lying along the southern edge of the Wind River basin and near the northern edge of the Granite Mountains.

The Gas Hills uranium district was one of the major uranium mining and production regions in the U.S., according to a technical report on the Gas Hills project completed in June 2017.

Three uranium mills operated in the district, and two others nearby were also fed by ore mined from Gas Hills, the technical report stated. Cumulative production from the Gas Hills district is in excess of 100 million lb. uranium, mainly from open-pit mining, but also from underground mining and in-situ recovery.

Wyoming mines have produced over 200 million lb. uranium from both conventional and ISR mine and mill operations, and according to Catchpole, permitting there is less onerous than in other states in the United States. He is familiar with the permitting regime there, as he explored, permitted, built and operated the Nichols Ranch ISR uranium project in the state when he worked at Uranerz.

As for permitting Dewey Burdock in Utah, the project has received its Nuclear Regulatory Commission licence and draft Class III and Class V underground injection control (UIC) permits from the Environmental Protection Agency. But it needs final Class III and Class V UIC permits.

Catchpole says that in regards to the permitting requirements, “the main unknown is how fast the state moves. But we’re hopeful that it’s about a year.”

News of the proposed transaction sent the shares of URZ Energy up 4.5¢ (11%) to 44.5¢. Azarga’s shares were unchanged at 27¢ apiece.


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