In a June 30 research note, analyst Mitch Vanderydt reported that Eight Capital increased its target price on Azarga Uranium Corp. (AZZ:TSX; AZZUF:OTCQB) to CA$0.50 per share from CA$0.45 after including the results of the Gas Hills preliminary economic assessment (PEA) into its model on the company. Azarga's share price today is about CA$0.29.
Vanderydt discussed how the PEA links Azarga's Gas Hills and Dewey Burdock in situ recovery (ISR) projects, treating the former as a satellite of the latter, and why this matters.
First, the PEA has uranium ISR feed mined at Gas Hills in Wyoming being trucked to Dewey Burdock in South Dakota for processing there. Doing this would double annual U3O8 production at Dewey Burdock, taking it to 2,000,000 pounds, Vanderydt noted.
Second, the PEA's "combining" Gas Hills and Dewey Burdock versus keeping Gas Hills an independent secondary project benefits Azarga, Vanderydt highlighted. Instead of Gas Hills getting discounted by investors, which usually happens with secondary projects, it should boost Azarga's stock price given its strong economics. Those Gas Hills economics, according to the PEA, include an after-tax net present value at an 8% discount of US$102.6 million (US$102.6M), or US$55 per U3O8 pound. Forecasted capex is only US$26M.
To process Gas Hills' feed, Dewey Burdock's plant would need enlarging, to the tune of US$15–20M, Vanderydt indicated.
That being the case, Azarga's plan and timeline are this. It would build Dewey Burdock once it receives a mine permit from South Dakota, the last permit it needs. Azarga could have it in hand as early as the end of this year, Eight Capital purports.
Receipt of this permit could "rerate the stock and possibly lead to Azarga being taken out by the operators of the neighboring ISR plants, namely Cameco, Energy Fuels, Peninsula Energy, Uranium 1 or URE," Vanderydt wrote.
Once Dewey Burdock construction is completed, Azarga would bring the project online, around late 2022-early 2023. Then, roughly three years after the operation start, Eight Capital estimates, the uranium miner would pursue getting the necessary permits amended to allow for a plant expansion.
"This would free up additional plant capacity for Gas Hills to be developed," Vanderydt wrote.
Eight Capital has a Buy rating on Azarga Uranium.
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