In a June 30 research note, Haywood Securities analyst Colin Healey reported that Azarga Uranium Corp.'s (AZZ:TSX; AZZUF:OTCQB) Gas Hills preliminary economic assessment (PEA) "suggests the project is quite robust and potentially attractive, even at current uranium prices."
After incorporating production from Gas Hills into its financial model of Azarga, Haywood increased its target price on the uranium company to CA$0.65 per share from CA$0.50. In comparison, Azarga is trading today at about CA$0.255 per share.
"The positive PEA derisks and increases Azarga's potential to evolve into a multi-source production center," Healey wrote.
The analyst reviewed the contents of the recently released PEA. It outlines a uranium mine producing 6,500,000 pounds (6.5 Mlb) of U3O8 throughout its seven-year life. This is based on the current Measured and Indicated resource of 10.7 Mlb of U3O8.
As for costs, capital expenses are calculated to be about US$26 million ($26M) and total pre-tax operating expenses to be US$28.20 per U3O8 ounce.
The forecasted project economics include an after-tax net present value of US$103M and an after-tax internal rate of return of 103%, calculated using a US$55 per pound uranium price.
"Gas Hills has the potential to be a very resilient project, capable of generating positive cash flow even at currently depressed term market prices," Healey commented.
He pointed out that the projected total production and costs for Gas Hills are similar to those of Azarga's other uranium project, Dewey Burdock. Its capex is US$31M. Also, the Gas Hills PEA "is dependent on future development" of Dewey Burdock.
"Together, these projects derisk and mature Azarga with visibility on additional production rate or duration from its U.S. portfolio," Healey wrote.
The addition of Gas Hills as a second development stage project makes Azarga, according to Healey, a "two trick pony" and should "reinvigorate interest" in its stock.
Haywood has a Buy recommendation on the uranium company.
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