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$0.29 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 6.5 million 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 and total pre-tax operating expenses to be US$28.20 per U3O8 ounce.
The forecast project economics include an after-tax net present value of US$103 million 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$31 million. 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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Disclosures from Haywood Securities, Azarga Uranium Corp., June 30, 2021
Analyst Certification: I, Colin Healey, hereby certify that the views expressed in this report (which includes the rating assigned to the issuer’s shares as well as the analytical substance and tone of the report) accurately reflect my/our personal views about the subject securities and the issuer. No part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations.
The following Important Disclosures apply for Azarga Uranium Corp.: ▪ The Analyst(s) preparing this report (or a member of the Analysts' households) have a financial interest in this company.
▪ At the end of the month immediately preceding this publication either Haywood Securities, Inc., one of its subsidiaries, its officers or directors beneficially owned 1% or more of this company.
▪ Haywood Securities Inc. or one of its subsidiaries has managed or co-managed or participated as selling group in a public offering of securities for this company in the past 12 months.
▪ Haywood Securities, Inc. or one of its subsidiaries has received compensation for investment banking services from this company in the past 24 months.
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