Why Now’s the Time to Add Some Uranium to Your Portfolio

In March of 2011, a meltdown occurred at the Fukushima Daiichi Nuclear Power Plant in Japan, following an earthquake and tsunami. The result was the immediate suspension of all of Japan’s 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. The share price of most uranium related equities, such as producers, developers and explorers, followed the drop.

To make matters worse, the reduction of Japanese demand for nuclear fuel was combined with uncertainty from many other influential governments and regulators. Some additional countries suspended their nuclear power programs and Germany and Switzerland even announced their phased exit from nuclear power.

During the second half of 2014 however, the first positive signs emerged for the nuclear power industry as Japan made progress towards restarting the first two of its 48 idled but operational reactors. The country’s Nuclear Regulation Agency (NRA) recently approved the restart of two reactors located at Sendai, and applications for re-start of 18 more reactors have been submitted. According to U.S. consultant TradeTech, the Sendai reactors are expected to return to commercial service in the first half of 2015.

Since the Sendai reactors received approval from the NRA late July, the uranium spot price has shown a strong comeback. It’s up 5% from year ago levels and even bounced off as much as 35% from its nine-year low, hit in May of 2014.

The long winter of depressed uranium related stocks may soon be over.

Nuclear Energy Market

Next to Japan restarting it nuclear facilities, more than forty other countries are making progress on their nuclear energy programs. Across the world there are currently 435 operating reactors in 30 different countries, while 72 reactors are under construction and more than 100 are in early planning stages.

China, for example, now has 21 nuclear reactors in operation with another 28 under construction. The country is even expanding that number to meet its population’s appetite for more electricity, and to rapidly lower the number of deaths associated with particulate pollution. China still generates up to 80% of its electricity from coal, which creates huge pollution issues and health concerns.

China has connected three new reactors to the grid this year and aims to bring six new nuclear plants online every year from 2015 to 2020.

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. And even countries that never had nuclear power so far, such as Belarus, Lithuania, Saudi Arabia, Turkey, Vietnam, and Poland now have plants under construction or committed. Industry reports project more than 700 operating reactors by 2030.

The rising number of nuclear power plants inevitably leads to growing demand for uranium. The chart above clearly indicates a uranium supply deficit as soon as 2017.

America’s Next Uranium Miner

Armed with this knowledge, we started our quest to find an attractive, uranium related small cap company. We set forth a few requirements, which the company had to meet. Its main asset had to be located in a stable jurisdiction and it had to be able to move the project into production within three years. In addition, we preferred it to be an in-situ recovery (ISR) uranium project.

Our search lead to a couple of companies that fitted the bill. After digging some more, we found Azarga Uranium (AZZ – $0.41) to be an ideal match. The Company is the result of a merger between Azarga Resources Limited and Powertech Uranium Corp., completed in October 2014. Concurrently with the closing of the transaction, the Company closed a financing in which it raised approximately $5.0 million.

Azarga’s Dewey Burdock Project in South Dakota received its Nuclear Regulatory Commission license in April 2014 and is on track to be developed for first production within two years. The Company 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 19% of Black Range Minerals (ASX: BLR), with projects in Turkey and Colorado respectively. These investments are worth almost $4 million at today’s stock prices.

The Dewey Burdock project, an in‐situ recovery uranium project, is located in the so-called Edgemont Uranium district. It’s comprised of 51 leases and 370 federal mineral claims covering approximately 17,800 acres of mineral rights.

An NI 43-101 Technical Report identified 6,684,285 pounds of Indicated Resources and 4,525,500 pounds of Inferred Resources contained in 2,820,998 tons averaging 0.198% U3O8, using a 0.50 GT cut-off. Uranium resources are contained in two deposits located at depths ranging between 200 and 800 feet below surface.

An April 2012 Preliminary Economic Assessment (PEA) estimated the Phase I capital cost to take the project into production at $54.3 million, with a 9 year Life of Mine and an IRR of 48%. These results will soon be updated with a revised PEA.

Upon completion of all necessary requirements, the Nuclear Regulatory Commission (NRC) granted an operating license to Azarga for the project on April 8, 2014. In order to commence actual operations, other permits from the EPA and the South Dakota Department of Environment and Natural Resources (“DENR”) must be obtained. When these permits are received, full mining operations are allowed to commence at Dewey Burdock. These permits are expected to be approved early 2015.

Conclusion

Dewey Burdock is a new ISR uranium district and has all the earmarks of becoming a new large production center around which many other uranium deposits will be developed. In addition, it’s located in a safe jurisdiction, so the chance of the government closing down, or simply confiscating, a project is non-existent.

Azarga’s immediate objective is to obtain the necessary permits for the project and advance it to the construction phase. With uranium spot prices expected to appreciate significantly during the coming quarters, we foresee several financing options.

If all goes well, Azarga’s main project Dewey Burdock will be in production late 2016, which would be perfect timing as uranium shortages are expected to start occurring around that time.

Of all the smaller uranium related companies that we researched, Azarga clearly is one of the most attractive ones. Its share price should appreciate as uranium prices further increase and as Dewey Burdock moves closer towards production. Buy recommendation.

Azarga has close to 60 million shares outstanding and its stocks 52-week range is $0.30 to $1.20.

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