AMERICA’S NEXT URANIUM DEVELOPER Investor Presentation – December 2016 TSX: AZZ / FRA: P8AA / OTCMKTS: PWURF
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AMERICA’S NEXT URANIUM DEVELOPER Investor Presentation – December 2016
TSX: AZZ / FRA: P8AA / OTCMKTS: PWURF
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DISCLAIMER / SAFE HARBOR STATEMENT
Certain statements in this presentation are forward-looking statements. Forward-looking statements consist of statements that are not purely historical, including any statements regarding beliefs, plans, expectations or intentions regarding the future. Often, but not always, forward-looking statements can be identified by the use of words such as “plans”, “expects”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates”, or “believes” or variations (including negative and grammatical variations) of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “should”, “might” or “will” be taken, occur or be achieved. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause Azarga Uranium Corp.’s (“Azarga” or the "Company”) actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. No assurance can be given that any of the events anticipated by the forward-looking statements will occur or, if they do occur, what benefits the Company will obtain from them. These forward-looking statements reflect management's current views and are based on certain expectations, estimates and assumptions which may prove to be incorrect. Material expectations, estimates and assumptions pertaining to forward looking statements include, but are not limited to: the timing of draft and final permits and licenses necessary to project finance and develop the Company’s Dewey Burdock Project, the improvement of uranium markets and uranium pricing, the availability of additional capital to enable the Company to continue as a going concern and the Company’s mineral properties provide a pipeline for continued growth. A number of risks and uncertainties could cause its actual results to differ materially from those expressed or implied by the forward looking statements, including, but not limited to: global economic conditions; uranium price fluctuations; government regulation and policy risks; public involvement in the permitting process; Native American involvement in the permitting process; environmental regulatory requirements and risks; the market price of the Company’s shares; public acceptance of nuclear energy and competition from other energy sources; the Company will require significant amounts of additional capital in the future; competition for properties and experienced employees; uranium industry competition and international trade restrictions; exposure to emerging markets; possible loss of interests in exploration and development properties; mining and mineral exploration is inherently dangerous and subject to factors beyond the Company’s control; the Company’s mineral resources are estimates; the nature of exploration and development projects; political risk; currency fluctuations; the Company has no history of mining operations; property title rights; dependence on key personnel and qualified and experienced employees; delineation of mineral reserves and additional mineral resources; insurance coverage; dilution from further equity financing and outstanding stock options and share purchase warrants; the Company has never paid dividends and may not do so in the foreseeable future; litigation and other legal proceedings; technical innovation and obsolescence; disclosure and internal controls; and conflicts of interest. Undue reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors that are in many cases beyond the Company’s control. Forward-looking statements are not guarantees of future performance and the Company’s actual results of operations, financial condition and liquidity, and the development of the industry in which it operates, may differ materially from statements made or incorporated by reference in this presentation. The Company undertakes no obligation to update forward-looking statements if management’s beliefs, estimates and opinions or the Company’s circumstances as at the date hereof should change. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether, as a result of new information, future events or otherwise. Additional information about these and other assumptions, risks and uncertainties are set out in the "Risks and Uncertainties" section in the Company's MD&A filed with Canadian security regulators. Certain technical data in this presentation was taken from the technical report entitled “NI 43-101 Technical Report Preliminary Economic Assessment Dewey-Burdock Uranium ISR Project, South Dakota, USA” dated 29 January 2015, prepared by Douglass H. Graves of TREC Inc. and Steve E. Cutler of Roughstock Mining Services (the “Technical Report and PEA”) and is subject to the assumptions, qualifications and procedures described therein. The Technical Report and PEA is preliminary in nature and includes Inferred Mineral Resources that are considered too speculative geologically to have the economic considerations applied to them that would categorize them as Mineral Reserves. There is no certainty that the results of the Technical Report and PEA will be realized. Mineral Resources that are not mineral reserves do not have demonstrated economic viability. Mr. John Mays, P.E. is the Qualified Person who supervised the preparation of the exploration technical data in this presentation. This presentation shall not constitute an offer to sell or the solicitation of an offer to buy securities.
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ARE EXPERIENCED MINE DEVELOPERS BELIEVE IN URANIUM UPSIDE OWN THE HIGHEST GRADE UNDEVELOPED ISR URANIUM PROJECT, DEWEY BURDOCK, AMONG PEER GROUP1 HAVE A PIPELINE OF PROJECTS ARE TSX MAIN BOARD LISTED AND RESOURCED TO SUCCEED
WE…
Notes: 1. Various company announcements and research notes; refer to slide 14 for additional details.
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MINE DEVELOPERS
Richard Clement Chairman Professional Geologist with 35-years+ experience in uranium, 10-years with Azarga Uranium Corp.
John Mays Chief Operating Officer 20-years+ experience in design, construction and operation of ISR uranium mines and formerly Chief Engineer, UrAsia Energy
Blake Steele President and Chief Financial Officer Former SouthGobi Resources Finance Director and previously with Deloitte in Audit and Financial Advisory practices
Curtis Church Vice President and Director 18-years mining and exploration experience, 8-years based in Central Asia
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URANIUM UPSIDE Why Uranium?
§ Supplies reliable base load power, unlike wind or solar
§ Avoids carbon emissions, unlike coal, oil or natural gas
§ Provides price stability
§ Global demand forecasting strong growth2
§ 448 nuclear reactors operable in 30 countries world-wide
§ 58 nuclear reactors under construction
§ 512 nuclear reactors ordered, planned or proposed
Notes: 1. Nuclear Street – IEA Economist Varro Says Touts Nuclear Power to Control Climate Change. 2. World Nuclear Association – World Nuclear Power Reactors (1 November 2016).
Climate change initiatives require nuclear energy
Meeting carbon emissions goals to thwart climate change would be “very difficult to achieve without an increase in nuclear capacity.” 1
Laszlo Varro - Chief Economist of the International Energy Agency
Nuclear energy makes sense
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§ Global reactor pipeline consists of 1,0181 nuclear reactors compared to 9872 pre-Fukushima § 225 nuclear reactors under construction, ordered or planned1 representing 50% of current operating reactors
§ China accelerating nuclear growth plans
§ 58 GWe of installed capacity forecast by 2020-21, 150 GWe by 2030 (currently 32 GWe)3
§ 6-8 nuclear reactors forecast to be constructed per year, increasing to 10 per year after 20204 (35 reactors currently operable1)
§ India – 22 reactors currently operable, 5 under construction, 64 ordered, planned or proposed1
§ Japanese restarts moving forward – 3 reactors restarted, 5 approved for restart and 24 have applied3
§ U.S. continues to strongly rely on nuclear, generates 63% of carbon-free electricity5
§ In 2016, first new U.S. nuclear reactor started in 20+ years, 4 more under construction1
URANIUM UPSIDE Strong demand growth forecast when supply has been cut back
Notes: 1. World Nuclear Association – World Nuclear Power Reactors (1 November 2016). 2. Haywood Securities Inc. – Target & Commodity Price Revisions (31 May 2016). 3. UBS Global I/O: Miner’s Price Review (1 December 2016). 4. World Nuclear Association – Nuclear Power in China (30 November 2016) . 5. World Nuclear Association – Nuclear Power in the USA (November 2016) 6. Cantor Fitzgerald – Quarterly Commodity Outlook (27 October 2016). 7. Company announcements.
URANIUM DEMAND IS GROWING
SUPPLY HAS BEEN CUT BACK § U3O8 supply has decreased by 11% from 2013 to 20156
§ Mined supply reduced in price downturn – Rabbit Lake, Kayelekera and Honeymoon operations suspended7
§ Cameco: production halts at McArthur River and Cigar Lake planned for 2017
§ Kazatomprom: production increases not justified given current market conditions
§ US-Russian HEU Agreement ended 2013
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URANIUM UPSIDE Supply deficit on the horizon1
-70 -50 -30 -10 10 30 50
Mill
ions
of l
bs U
3O8
URANIUM SURPLUS/DEFICIT – Assumes projects with estimated break-even costs of US$70/lb or higher come into production
URANIUM SURPLUS/DEFICIT – Assumes US$40/lb uranium prices and production shutdowns based on the estimated expiration of long-term contracts
-70 -50 -30 -10 10 30 50
Mill
ions
of l
bs U
3O8
Notes: 1. Cantor Fitzgerald –Quarterly Commodity Outlook (27 October 2016).
15
25
35
45
55
65
75
85
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URANIUM UPSIDE Analysts’ forecast a recovery in Uranium price
US$/lb
Source: TradeTech for historical spot. Analysts’ forecast is based on average of 8 analyst forecasts (analysts include: BMO, Cantor Fitzgerald, Dundee, Haywood, Royal Bank of Canada, TD Bank, Scotiabank and UBS).
Analysts’ forecast
31
39
48
Fukushima incident
52
65
0
20
40
60
80
100
Spot Long-term contract
Long-term equilibrium
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URANIUM UPSIDE New production requires higher prices
HIGHER PRICES ARE NEEDED1
FUEL CYCLE IS LONG SO MARKETS REACT EARLY
§ Cantor Fitzgerald analysis estimates long-term all-in sustaining costs of US$80/lb2
US$/lb
Mining / milling UF6 conversion U-235 enrichment Fuel fabrication Fuel loading
12-18 months Note 1: TradeTech for Spot and Long-term contract price. 2. Cantor Fitzgerald –Quarterly Commodity Outlook (27 October 2016).
18 34
80
10
DEWEY BURDOCK SOUTH DAKOTA, USA
HIGHEST GRADE UNDEVELOPED ISR PROJECT
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HIGHEST GRADE UNDEVELOPED ISR PROJECT What is in-situ recovery (ISR) mining?
Source: United States Nuclear Regulatory Commission (www.nrc.gov).
§ Produces >48% of global uranium1 § Injection wells add oxygen and carbon
dioxide to groundwater creating a lixiviant solution in the layer of earth containing the uranium ore
§ Uranium dissolves into the solution § Recovery wells pump the solution back
to the surface to a processing facility and then returned to injection wells after removal of uranium
§ Monitoring wells are checked regularly to ensure uranium and lixiviant is not escaping the uranium deposit
Note 1: World Nuclear Association – World Mining Uranium Production (July 2016).
0
10
20
30
0
10
20
ISR VS CONVENTIONAL – GRADE AND CASH COST COMPARISON USING CAMECO AS A GUIDE
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§ Environmental impact manageable – no waste rock tailings, minimal dust
§ Operate at approximately two-thirds the cost of conventional mines1
§ Average capital expenditure of constructing ISR mine less than 15% of conventional mine1
§ Only sandstone hosted deposits with the right hydrological and geological conditions amenable to ISR
§ Provide greater operational flexibility and ability to adapt to changes in uranium price
McArthur River &
Key Lake
Cigar Lake Inkai
Nebraska &
Wyoming
Conventional ISR
Reserves grade (% U3O8)
Cash cost (US$/lb)
Ave = 0.1%
Ave = 13.8%
Ave = US$21/lb Ave = US$19/lb
Grades of Athabasca assets average 150x more than ISR… BUT ISR has 10% lower cash cost!
Notes: Data sourced from Dundee’s Cameco research note of 1 June 2016. Cash cost numbers are 2017’F to take into account when assets are in steady state production and based on weighted average of production.
HIGHEST GRADE UNDEVELOPED ISR PROJECT Why we like ISR so much?... It’s cheaper and more reliable
Note 1: Tradetech – The Nuclear Review (October 2016).
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§ Edgemont uranium district in south west South Dakota, approximately 60 miles from Cameco’s Crow Butte mine in Nebraska
§ Mineral rights and surface rights covering approximately 17,420 acres and 13,160 acres, respectively
§ Well served for infrastructure
Source: Technical Report and PEA.
Dewey Burdock: Location and infrastructure
Sixteen miles from Edgemont, serviced by two lane, all weather gravel road Residential / light use power already at site will supply first two years, then 15 miles of 69kV line to be built to substation to provide upgraded power for central processing plant in third year Two 3,000 foot wells to be drilled on site to pump water from the Madison Formation
HIGHEST GRADE UNDEVELOPED ISR PROJECT
10 miles
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0 5 10 15 20 25 30
§ Measured & Indicated: 8,582,000 lbs at average grade of 0.25%
§ Inferred: 3,528,000 lbs at average grade of 0.05%
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Source: Technical Report and PEA. Only includes ISR amendable resources. Mineral Resources that are not mineral reserves do not have demonstrated economic viability. Effective date of resource estimate – 29 January 2015.
Dewey Burdock: Highest grade among peers
NI 43-101 COMPLIANT RESOURCE
DEWEY BURDOCK2
HIGHEST GRADE AMONG PEERS1
Life of mine project size (lbs)
Gra
de (U
3O8%
) CENTENNIAL3
Notes: 1. Peers include: Uranium Energy Corp.’s Goliad, Energy Fuels’ Nichols Ranch, UR-Energy’s Lost Creek and Shirley Basin, and Peninsula Energy’s Lance. Peer grade data is sourced from latest NI 43-101 for Measured plus Indicated Resources for all except Lance, where data is published according to the Australian JORC Code for Measured plus Indicated Resources. Life of Mine project size data comes from the latest published stated life of mine production from each project, with the exception of Uranium Energy Corp.’s Goliad project, which comes from latest NI 43-101 for Measured plus Indicated Resources. 2. Source: Technical Report and PEA; includes some Inferred Resources in production. 3. Source: NI 43-101 Preliminary Assessment Powertech Uranium Corp. Centennial Uranium Project Weld County, Colorado, SRK, 2 June 2010; includes some Inferred Resources in production.
HIGHEST GRADE UNDEVELOPED ISR PROJECT
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1.0m lbs Annual U3O8 production
11 years Mine life (incl. two year ramp-up)
9.7m lbs Total LOM production
US$27.0m or US$2.80/lb Initial capital expenditure
US$12.53/lb US$8.50/lb US$1.25/lb US$2.78/lb
Cash operating costs - Plant and well field operating - Restoration / de-commissioning - Site management / overhead
US$284.2m / US$220.9m Free cash flow pre-tax / post-tax
US$149.4m / US$113.8m NPV (8% disc) pre-tax / post-tax
67% / 57% IRR pre-tax / post tax Notes: 1. Source: Technical Report and PEA, which is preliminary in nature and includes Inferred Mineral Resources that are considered too speculative geologically to have the economic considerations applied to them that would categorize them as Mineral Reserves. There is no certainty that the results of the Technical Report and PEA will be realized. Mineral Resources that are not mineral reserves do not have demonstrated economic viability.
§ Initial capital expenditure of US$27m is ‘sector leading’ for a project of this size
§ Lowest quartile life of mine uranium C1 cash costs § US$12.53/lb
§ Pre-tax IRR of 67% at US$65/lb long-term uranium price (note: post-Federal tax IRR of 57%)
§ Vanadium has not been incorporated; however, assays and historical data indicate significant vanadium is present
Dewey Burdock: 2015 PEA demonstrating robust economics
ROBUST PROJECT ECONOMICS1
HIGHEST GRADE UNDEVELOPED ISR PROJECT
US$14.00/lb
Sustaining capital costs
US$6.33/lb
Local taxes and royalties
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Final Source and Byproduct Materials License
§ Issued April 2014 § ASLB partially dismissed contentions on NRC license
on 30 April 2015 § Remaining contentions concerning protection of
historic and cultural resources have path to completion
UIC Class III
UIC Class V
§ Anticipate receiving draft permits in near-term § Subsequent to draft permits being issued, public
comment period in advance of final permits being issued
Ground Water Disposal Plan
Water Rights
Permit
Large Scale Mine Plan Permit
§ Applications complete and recommended for approval by South Dakota DENR staff
§ South Dakota permit hearings for final approval commenced in late-2013, continuance ordered until completion of federal regulatory approvals (NRC and EPA)
Dewey Burdock: Status of key permits HIGHEST GRADE UNDEVELOPED ISR PROJECT
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PIPELINE OF PROJECTS Summary of projects
USA ASIA Kyzyl Ompul (Kyrgyz)
Dewey Burdock
(SD)
Centennial (CO)
Dewey Terrace
(WY)
Aladdin (WY)
Savageton (WY)
Development projects with NI 43-101 Resources and PEAs
Exploration projects with NI 43-101 Resources
Green fields exploration
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0.7m lbs Annual U3O8 production
9.5m lbs Total LOM production
US$71.1m or US$7.5/lb Initial capital expenditure
US$34.95/lb Cash operating costs2
US$51.8m Pre-tax NPV (8% discount)3
Notes: 1. Source: NI 43-101 Preliminary Assessment Powertech Uranium Corp. Centennial Uranium Project Weld County, Colorado, SRK, 2 June 2010, which is preliminary in nature and includes Inferred Mineral Resources that are considered too speculative geologically to have the economic considerations applied to them that would categorize them as Mineral Reserves. There is no certainty that these results will be realized. Mineral Resources that are not mineral reserves do not have demonstrated economic viability. 2.Includes US$10.63/lb of satellite/well-field development costs and $5.59 of local taxes and royalties. 3. At US$65/lb uranium price and including a 20% contingency on costs and capital expenditure.
PIPELINE OF PROJECTS Centennial: Second project for development
NI 43-101 COMPLIANT RESOURCE § Indicated: 10,371,571 lbs at average
grade of 0.09% § Inferred: 2,325,514 lbs at average grade
of 0.09% Source: NI 43-101 Preliminary Assessment Powertech Uranium Corp. Centennial Uranium Project Weld County, Colorado, SRK, 2 June 2010
PROJECT ECONOMICS1
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US$1.7m Cash and listed securities1
Notes: 1. As at 30 September 2016. 2. As at 9 December 2016. 3. Based on 1 CAD = 0.76 USD exchange rate.
RESOURCED TO SUCCEED Financial resources and capital structure
FINANCIAL RESOURCES
Note: 1. As at 30 September 2016 (last quarterly filing). Includes cash of US$1.6m.
74.0m Shares outstanding1
CAPITAL STRUCTURE
C$0.26/share Share price (TSX: AZZ)2
C$19.2m Market cap (CAD)
US$14.6m Market cap (USD)3
SHARE PERFORMANCE C$/share
Source: TMX Money.
0.10
0.15
0.20
0.25
0.30
0.35
0.40
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RESOURCED TO SUCCEED Investment summary
§ Highest grade undeveloped ISR uranium project among peer group2 § Robust economics at low uranium prices; lowest quartile C1 cash costs
DEVELOPMENT ASSETS WITH COMBINED PRE-TAX NPV >US$200m1
CLASS LEADING ‘FLAGSHIP’ DEWEY BURDOCK
§ Two economically assessed development projects, two exploration projects with established NI 43-101 resources and two green fields exploration projects
PORTFOLIO OF PROJECTS AT VARIOUS DEVELOPMENT STAGES
§ Progression of Dewey Burdock permitting § Off-take or sales agreements over future uranium production § Results of geological work on exploration assets § Dewey Burdock moving to the construction phase
VARIETY OF POTENTIAL UPCOMING CATALYSTS
Notes: 1. Sum of pre-tax NPV’s for Dewey Burdock and Centennial. 2. Various company announcements and research notes; refer to slide 14 for additional details.
Corporate office Suite #140, 5575 DTC Parkway Greenwood Village, Colorado USA 80111 International operations Level 5-1, Suite 9, Sun’s Group Centre 200 Gloucester Road Wanchai Hong Kong SAR Email: [email protected] Web: www.azargauranium.com Twitter: @AzargaUranium
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