Uranium Spot Price Edges Higher as Restart Japanese Nuclear Plants Nears
Since our initial recommendation of Azarga Uranium Corp (TSXV:AZZ – $0.41 CAD & Frankfurt:P8AA – $0.29 EUR) the uranium spot price has gradually increased about 6% to $39.25/lb today (see image below).
The main reason for this rise is that Japan could restart some of its nuclear reactors as soon as May 2015. Remember that most of Japan’s 48 operational reactors have been idled since the 9.0-magnitude Tohoku earthquake and ensuing tsunami in March 2011.
That disaster caused the meltdown at the Fukushima Daiichi Nuclear Power Plant, which resulted in Japan suspending all its nuclear power generation. Because, at the time, the country utilized approximately 15% of global uranium demand – second most after the United States – this decision had a devastating impact on the atomic fuel’s price.
Now that Japan’s Nuclear Regulation Agency (NRA) approved the restart of two reactors located at Sendai, and applications for restart of 18 more reactors have been submitted, uranium prices are making a comeback.
Japan currently imports about 84% of its energy requirements, so it’s need to restart nuclear production is high.
Improved PEA for Dewey Burdock
Azarga’s 100% owned Dewey-Burdock Project is an advanced-stage uranium exploration project located in South Dakota and forms part of the northwestern extension of the Edgemont Uranium Mining District. The project is on track to be in production within two years.
A recently published upgraded resource and Preliminary Economic Assessment (PEA), confirms Dewey Burdock as the highest grade in situ recovery (“ISR”)* project among its North American peers, with an economic profile that should enable construction in the current uranium price environment.
* In situ recovery is one of the two primary extraction methods that are currently used to obtain uranium from underground. The fact that Dewey Burdock is an ISR project is important, because it’s less expensive and environmentally disruptive.
The new PEA is a significant improvement compared with the previous one produced in 2012, with lower initial capital expenditure and cash costs, more pounds in inventory and an estimated 37% increase in pre-tax NPV.
The highlights of the new PEA are as follows:
- Measured plus Indicated Resources increase 28% to 8.6 million pounds U3O8 at 0.25%
- Estimated pre-tax NPV of US$149.4 million and IRR of 67% (at US$65 per pound uranium sales price assumption)
- IRR of 41% at current term uranium contract price (using US$50 per pound as reported by TradeTech)
- 11-year project production life at approximately one million pounds per year once steady state production level is reached
- Initial capital expenditure estimated at US$27.0 million
- Annual operating costs estimated at US$18.86 per pound (excluding well-field and facility capital costs)
|Life of mine uranium production|| |
|Initial capital costs|| |
|Net pre-tax cash flow (at US$65/lb uranium)|| |
|NPV (at 8% discount rate)|| |
Comparison of key items from current PEA with prior 2012 PEA. Source: Company Press Release
According to the PEA, first production will occur in the first year after construction commences, with approximately 126,000 pounds of U3O8 produced. The ramp-up would then continue until reaching a production level of approximately 1,000,000 pounds two years later.
The overall mine life will be approximately 16 years from initiating construction to completing decommissioning. Annual operating costs are estimated to be US$18.86 per pound of uranium produced, excluding well field development capital and facility capital costs.
Black Range Takeover
Next to Dewey Burdock, Azarga also owns the Centennial Project in Colorado and Aladdin Deposit in Wyoming along with the largest known uranium deposit in Kyrgyzstan. Moreover, it owns 11% of the outstanding shares of Anatolia Energy (ASX: AEK) and 17.3% of Black Range Minerals (ASX: BLR), with projects in Turkey and Colorado respectively.
Black Range, which is listed on the Australian Stock Exchange under the ticker BLR, received a takeover proposal from Western Uranium Corporation in January of this year.
Based on the terms in Black Range’s press release, the takeover proposal would value Azarga’s shareholding in Black Range at approximately US$2.4 million. Azarga also has a loan extended to Black Range in the amount of approximately US$0.5 million. As part of the proposed takeover, Western Uranium is providing Black Range with a loan facility, a portion of which will be used on closing to pay back half of the Azarga Loan.
If the deal is closed, Azarga’s cash reserves would increase with more than $2.5 million. Knowing that the Company closed a financing in October 2014, in which it raised approximately $5.0 million, it’s in a good financial condition.
Growing Number of Reactors
Next to Japan restarting it nuclear facilities, more than forty other countries are making progress on their nuclear energy programs. According to the latest figures of the International Atomic Energy Agency (IAEA), there are currently 439 operating reactors across the world, while 69 reactors are under construction.
Apart from Japan and China, many other nations are focusing on the deployment of nuclear reactors to reduce the use of fossil fuels during the production of energy. Growing economies like Brazil, Russia and India are all racing into nuclear power. Industry reports project more than 700 operating reactors by 2030.
If all goes well, Azarga’s flagship Dewey Burdock Project could be in production late 2016.
The Nuclear Regulatory Commission license has been issued, the State of South Dakota large scale mine permit has been recommended for approval, and all major permits necessary for commencing construction are estimated to be approved by the fourth quarter of 2015.
The rising number of nuclear power plants inevitably will lead to growing demand for uranium and an expected uranium supply deficit as soon as 2017.
These events combined will have a significant impact on Azarga’s stock price.
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