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Azarga Metals, a Long-Forgotten Copper-Silver Junior—Worth a Fresh Look? YES
Contributed Opinion

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Peter Epstein Peter Epstein of Epstein Research sits down with Alex Molyneux, chairman of Azarga Metals, to discuss his company's exploration of the Unkur copper-silver project in Russia.

In looking at the 10-year chart of copper, all one can say is WOW! Overnight, the price hit US$4.22/lb., a 9.5-year high, up +113% from its COVID-19 (March 2020) low. Nearly across the board, copper juniors have been soaring.

There have been dozens of Preliminary Economic Assessments ("PEAs") and Feasibility studies completed over the past decade using long-term copper price assumptions of $2.50–$3.50/lb. and silver prices of $18–$21/oz. Needless to say, US$4.22/lb Cu AND $28/oz Ag is a game changer!

Azarga Metals Corp. (AZR:TSX.V) delivered a PEA in 2018 that was mildly criticized for using aggressive copper and silver price assumptions. Those prices are not too aggressive now, in fact, the company is working on an optimized, enhanced PEA update.

In what ways could a new PEA demonstrate better economics? To name a few—a longer mine life, increased throughput/year, improved understanding of the project's metallurgy, higher metal prices and a favorable move in exchange rates.

All of these metrics could improve in 2021 vs. 2018, but we need to see the results. There are trade-offs to consider. A press release containing a summary of the new PEA is expected in March or April.

I recently tracked down Alex Molyneux, non-executive chairman and co-founder of Azarga Metals. He's more excited about the prospects for copper and silver than ever, and equally excited about the future of Azarga.

Peter Epstein: Alex, news flow has slowed to a trickle at Azarga Metals. Can you please give readers the latest snapshot of the company?

Alex Molyneux: Yes, we're aware of the fact that news flow slowed somewhat in 2h 2020, but Azarga Metals (TSX-V: AZR) / OTCQB: EUUNF) actually had an active year. We've been advancing our Unkur Copper-Silver project in far eastern Russia, where we completed a 6,000 meter (15 hole) drill program last year alone—a program where every hole encountered significant copper and silver mineralization. We extended the known mineralized strike length to 4.5 km.

And, we completed PFS-level metallurgical testing, which confirmed recoveries of 83–89% for silver and copper in sulphide material and 96–97% recoveries in oxidized material. We also commenced a reconnaissance geochem program on the eastern side of the property, which had never seen modern prospecting methods.

We started 2021 by announcing successful results from that reconnaissance geochem program on the eastern side of Unkur. We also announced that we've retained Wardell Armstrong to prepare an updated PEA.

Peter Epstein: In what ways might Unkur's economics be able to be enhanced in a new PEA?

Alex Molyneux: The 2018 PEA was based on very preliminary metallurgical work, which combined oxidized and fresh material, whereas metallurgical testing done in 2020 was more nuanced and detailed, it separated oxidized from fresh material.

I suspect this will give engineers and metallurgists more scope to look at different process routes to optimize the operating flow sheet. In addition, drilling subsequent to the 2018 PEA delivered more near-surface mineralization, so there's potential to increase the scale of the previously envisaged open-pit.

Peter Epstein: Copper and silver have been identified on both the eastern and western limbs of the Unkur syncline. What are the implications of these findings?

Alex Molyneux: Great question. All 33 holes drilled in two main programs since acquiring Unkur in 2016 have been on the western side. Only 18 holes were used to establish our current mineral resource estimate of 62M tonnes @ 0.53% Cu + 38.6 g/t Ag. That's 724M pounds Cu + 76.8M troy ounces Ag. The remaining 15 holes, completed in 2020, extended the strike length by 60% to 4.5 km.

We always knew there was mineralization on the eastern side of Unkur, there's visible outcropping—but we largely left it alone because it's on the upper side of a 10 meter escarpment. It was easier to keep the drill rigs on the western side.

Late last year we did organized prospecting on the eastern side for the first time. Our crew took surface channel samples near three copper outcrops. The results established a significant new strike of anomalous copper (>25 ppm), with one of the anomalies extending 2 km, another 1.1 km and the last one 0.9 km.

These results generated a number of obvious drill targets. Over time, we believe there's the potential to transformationally increase the scale of Unkur's mineralization.

I should also point out that the western limb remains open to the north and southeast, and recent geochem results indicate additional outcropping copper material further west that could represent another zone of mineralization.

Peter Epstein: Last year investors thought we were weeks away from receiving an updated resource estimate. What happened to that resource update?

Alex Molyneux: Yes, around the middle of last year we were talking about commencing an updated mineral resource estimate. However, we wanted to also move forward with new metallurgical testing, so the resource definition/metallurgy work has been combined and will be rolled up into an updated PEA. The new PEA will incorporate the updated mineral resource estimate.

Peter Epstein: Have there been any positive developments at the giant nearby Udokan copper deposit that could help Unkur in coming years?

Alex Molyneux: Yes, Peter. Udokan is ~30 km from Unkur and is the world's largest copper project under construction. Mining has commenced at the first open-pit there (Zapadny pit) and construction of its processing plant was 40% complete as of the end of November. Importantly for Azarga, there's been a huge investment in infrastructure in the area.

Udokan's owner, Baikal Mining, is currently constructing a large siding and concentrate loading facility on the nearby Baikal-Amur Mainline railway (~7 km from or Unkur) and two 220kVa power lines have been completed.

Peter Epstein: As a Canadian-listed and domiciled junior miner, is management having any trouble advancing the Unkur project?

Alex Molyneux: An issue we face, one that many juniors face, is that some investors perceive Russia to be a tough jurisdiction to work in. This surprises us because our management team has had experience on all major continents, in "good" and "bad" countries, and we agree that Russia is actually a great place to operate.

Regional infrastructure is very good, we have access to improved roads, power, local services, etc. We find it inexpensive to drill, and we have access to geological and engineering horsepower….

It amazes us that investors think nothing of buying shares in companies exploring in places where a platoon of soldiers is needed to escort management around town! Readers are reminded that increasingly the world will have to turn to countries other than the U.S., Canada, Chile, Mexico and Australia for its metals.

Far east Russia is safe, we don't have water or environmental issues, we're not trying to mine at 4,000 meters elevation and we're not near any significant population centers. The fact that the world's largest copper project under construction is just 30 km away from us speaks volumes about the attractiveness of far eastern Russia for mining.

Peter Epstein: Azarga Metals has approximately $4.2 million in debt. How were those funds invested into the company?

Alex Molyneux: The debt is actually a convertible loan investment by Baker Steel Resources Trust. This loan is convertible into shares of the company and serves as a structured equity investment by Baker Steel.

It's a specialty natural resources investment fund that has more than a 10-year track record of investing in the space. They're also extremely experienced in Russia, having been an early-stage investor in Polar Silver Resources.

We believe Baker Steel sees parallels between Prognoz Silver (billed as the largest undeveloped primary silver deposit in Russia) and our Unkur Copper-Silver Project, leading them to take an interest in us in 2019. Baker Steel recognizes that Unkur has strategic appeal, particularly among Russian senior mining companies.

Funds received from Baker Steel were used to conduct the 2020 drill program, detailed metallurgical testing and to commence the updated PEA. Baker Steel is working alongside us to de-risk the project.

Peter Epstein: Why should readers consider buying shares of Azarga Metals?

Alex Molyneux: We're extremely lucky with our geological endowment and our metal exposure at Unkur. With BOTH silver (significantly outperforming gold) and copper up very substantially (at 9.5-year high, double its March-2020 low), our project is getting a lot of attention from strategic players.

We believe we can continue to add a great deal of value by taking Unkur through the next phase of development and engineering work. Better informed investors will put aside the geopolitical noise and recognize that Russia is actually a great place to advance a world-class project like Unkur. In fact, with its location in far eastern Russia it can apply for meaningful tax incentives available to companies in the area. And, Unkur is close to key markets in China and northeast Asia.

Copper and silver are two of the very best metals to be involved in. Both are important in critical high-tech/green-energy applications. Silver has the added benefit of being highly desirable for investment purposes, in jewelry, a store of value, and an inflation hedge.

With a market cap of just C$8M, Azarga Metals (TSX-V: AZR) / OTCQB: EUUNF) is trading as if it did not have a robust maiden resource or a PEA under its belt. We strongly believe that the company won't remain undervalued forever.

Peter Epstein: Thank you Alex, very insightful as always! With the fundamental outlooks for both copper and silver stronger than ever, readers are encouraged to take a closer look at Azarga Metals.

Peter Epstein is the founder of Epstein Research. His background is in company and financial analysis. He holds an MBA degree in financial analysis from New York University's Stern School of Business.


Disclosures / disclaimers: The content of this article is for information only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research [ER], (together, [ER]) about Azarga Metals, including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market making activities. [ER] is not directly employed by any company, group, organization, party or person. The shares of Azarga Metals are highly speculative, not suitable for all investors. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed or registered financial advisors before making any investment decisions.

At the time this article was posted, Peter Epstein owned stock in Azarga Metals and the Company was an advertiser on [ER].

While the author believes he's diligent in screening out companies that, for any reasons whatsoever, are unattractive investment opportunities, he cannot guarantee that his efforts will be (or have been) successful. [ER] is not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts and financial calculations, or for the completeness of this article or future content. [ER] is not expected or required to subsequently follow or cover any specific events or news, or write about any particular company or topic. [ER] is not an expert in any company, industry sector or investment topic.

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