Azarga Uranium (TSXV: AZZ; US-OTC: AZZUF) is closer to mining at its Dewey Burdock in-situ recovery uranium project in South Dakota, after the U.S. Environmental Protection Agency (EPA) granted the company the second of three key permits needed. The company has already secured approval from the U.S. Nuclear Regulatory Commission.
The EPA’s approval comes “at a time when the uranium market remains in a structural deficit and the United States government has shown historic bipartisan support for the uranium sector,” Blake Steele, Azarga’s CEO, stated in a press release.
Steele said the company will now move to finalize the state permitting process. The third and remaining major regulatory agency approval is required by the South Dakota Department of Environment and Natural Resources, whose staff have already recommended the approval of the key state permits.
Colin Healey, who covers the company for Haywood Securities, noted the EPA permit is a milestone.
“With full Federal-level permitting complete Azarga significantly de-risks its position as the next potential U.S. uranium producer and increases its attractiveness as an M&A tuck-in candidate as it puts major impediments and milestones behind it,” the mining analyst commented in a research note to clients. “With its low up-front project capex hurdle of sub US$32 million and low-cost production profile, a ‘fully permitted’ Azarga would make a great acquisition target for any of the domestic ISR producers, looking to expand their near-term production pipeline as Azarga shifts its focus to final State permits.”
The Dewey Burdock project is forecast to produce 14.3 million pounds of U3O8 over its 16 years of production. Initial capital expenditures are estimated at US$31.7 million and projected cash flows of the project are expected to be positive in the second year of production, two years after the commencement of construction.
Those estimates were based on a US$55 per pound sales price, but the uranium spot price is sitting below US$30 per pound and analysts at RBC Capital Markets recently lowered their long-term expected price from US$65 per pound to US$50 per pound.
Uranium production in the U.S. has been on a steady decline since the early 1980s as its nuclear power plant operators replaced domestic supply with less expensive imports.
About 90% of the uranium fuel used today in U.S. reactors is imported, official figures show. Last year, the country produced around 174,000 pounds of uranium, the lowest annual total in more than 70 years.
On Nov. 20, the Senate released drafts of 2021 funding that allocate US$150 million for the U.S. Uranium Reserve. If passed, the measure would enable the Department of Energy to invest in the sector and so stimulate domestic industry growth.
In addition to Dewey Burdock, Azarga also has uranium projects in Wyoming, Colorado and Utah.
Haywood’s Healey noted that Azarga remains one of his top picks in the space and said he views the current share price of 19¢ a share “as a great entry point in a rising uranium price environment.”
“Azarga shares have rebounded significantly (+171%) from the late March lows that spared almost no one,” he wrote in his research note to clients. “We still see significant upside from the current level as short term uranium price indicators continue to move positively on a multi-week basis.”
Healey pointed out that the uranium market “was already in primary supply deficit before Covid and the major production cuts which have taken place in response will accelerate the absorption of excess inventory accumulated through years of oversupply.”
“The longer major production centres remain off-line, the more the fundamental supply/demand picture improves,” he continued. “In addition, the positive statements within the US Nuclear Fuel Working Group report regarding recommendations that would support a robust domestic uranium mining industry in the U.S., could further lubricate Azarga’s path to production.”