In an Aug. 24 research note, analyst Sid Rajeev reported that Fundamental Research Corp. increased its fair target price on Azarga Uranium Corp. (AZZ:TSX; AZZUF:OTCQB) to CA$1.11 per share from CA$1.03 after the uranium firm released a "robust" preliminary economic assessment (PEA) for its Gas Hills project in Wyoming.
"The PEA confirmed our assumption that Gas Hills can be a satellite project of the company's flagship Dewey Burdock project in South Dakota," Rajeev wrote.
The analyst reviewed the PEA. It outlined a satellite-model operation producing 1 million pounds of uranium per year over a seven-year mine life. Processing will take place at a facility on the Dewey Burdock property.
As for Gas Hills costs, initial capex required is an estimated US$26 million ($26M), a low amount according to Rajeev. Cash operating costs are forecasted to be US$11.52 per pound and sustaining costs, US$9.07 per pound. All PEA figures are based on a $55 per pound U3O8 price.
The PEA reflects a US$102.6M after-tax net present value discounted at 8% and a 101% after-tax internal rate of return.
Now, Rajeev noted, Azarga will start the process of obtaining the necessary permits to proceed at Gas Hills while continuing to expand its overall uranium resources.
Rajeev also commented on uranium prices, noting they are up since the start of 2020, as much as 62% year over year, according to the Global X Uranium Exchange-Traded Fund, which tracks the share prices of uranium and nuclear-related companies. Rajeev did point out that uranium prices must be at least US$50 per pound over the long term for existing and new uranium projects to be economically viable.
Fundamental Research's outlook on uranium prices is positive for the long term, Rajeev affirmed, because of several factors. Among them are a projected supply deficit over time, the current global push toward clean energy, and the inclusion of initiatives to revive U.S. uranium production in President Joe Biden's US$2-trillion plan.
As for Azarga's market valuation, Rajeev wrote, it is lower than it should be. The after-tax NPV8% of Dewey Burdock and Gas Hills combined is US$250M, implying that Azarga's stock is trading at 26% of that amount. Compared to Fundamental's CA$1.11 fair share price on Azarga, its actual share price is about one-third of that, at CA$0.35.
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Disclosures for Fundamental Research Corp., Azarga Uranium Corp., August 24, 2021
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