As Azincourt Uranium’s (AAZ.V) transaction with Macusani Yellowcake (YEL.V) has now been approved by the TSX Venture Exchange, we are revisiting Azincourt Uranium to update you on the steps taken by the company to create shareholder value.
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Introduction
As Azincourt Uranium’s (AAZ.V) transaction with Macusani Yellowcake (YEL.V) has now been approved by the TSX Venture Exchange, we are revisiting Azincourt Uranium to update you on the steps taken by the company to create shareholder value.
The Macusani Yellowcake transaction
As we explained before, Azincourt Uranium decided earlier this year to divest its subsidiary Minergia to Macusani Yellowcake in return for 68.35M shares of Macusani. We thought this was an excellent deal as Minergia was acquired just a few months earlier at just a fraction of the pro forma price paid by Azincourt ($2M in cash and shares). Those 68.35M shares represent a position of 29% in Macusani Yellowcake and instead of risking to become a ‘value trap’ whereby the company would not get full credit for its position in Macusani. After deducting a fee of 3.3M shares for Haywood securities, the balance of 65M shares will be distributed amongst the shareholders of Azincourt.
This has some positive and negative features. On the positive side, a shareholder of Azincourt Uranium will receive a ‘tangible’ return on its investment in Azincourt. Based on the current amount of 49.5M outstanding shares of Azincourt, each AAZ-share will receive 1.31 shares of Macusani Yellowcake (and this will be rounded to the nearest number). This means that the current share price of Azincourt is trading at 1.4 times the planned distribution value, after its share price increased by 55% in just three days. This means the biggest
short-term opportunity is gone, and it shows this transaction is accretive for the Azincourt shareholders.
On the negative side, if some shareholders would like to sell their shares of Macusani on the open market, the price could plummet quite rapidly as it isn’t the most liquid stock on the Venture Exchange. We plan to hold our distributed shares in Macusani Yellowcake and will very likely increase our position should the share price drop as we are convinced the combination of both Peruvian properties will have a value-accretive effect. Keep in mind that Macusani Yellowcake’s property had extremely low cash costs, and based on our conversations with the Azincourt management team, permitting shouldn’t be an issue. There is a 4 month hold period on the distributed shares which expires in the first week of January, and we hope the Macusani Yellowcake management team will show in those four months that it’s able to advance the project even further and prove to the new shareholders that there’s no reason to dump the Macusani shares.
Additionally, we are happy that Ted O’Connor is taking on the role as CEO of Macusani Yellowcake. As O’Connor has been known to be ‘Mister No’ because he doesn’t like a lot of uranium projects, the fact that he’s willing to take on both the exploration program at Patterson Lake North and Macusani Yellowcake is a good indication one of the most demanding people in the uranium sector sees two very valuable targets.
Moving ahead with Patterson Lake North
As you know, Azincourt Uranium signed an earn-in agreement with Fission 3.0 (FUU.V) in April of last year which allows Azincourt to earn a 50% stake in the PLN project by making $4.75M in cash payments and spending $12M on the property. The Patterson Lake North project was very enticing as it was bordering the Patterson Lake South project owned by Fission which yielded extremely impressive drill and exploration results over a strike length of in excess of 2.2 kilometers. Also keep in mind Fission had already spent $4.7M on the ground at PLN before it entered into the agreement with Azincourt Uranium, and Fission remains the operator.
Azincourt Uranium has completed its spring and summer exploration program which was budgeted at $1.5M and will be counted towards the minimum exploration expenditure of $3M which has to be incurred in the second year of the option agreement. This means that Azincourt still has to spend $1.5M in exploration and make a cash payment of $750,000 within the next nine months.
This year’s summer program has been relatively encouraging, as prospective basement lithologies, structure, alteration have been detected, as well as anomalous radioactivity. The Azincourt team is now preparing for a follow-up program this winter after the first uranium mineralization was found in the spring/summer drill program. CEO O’Connor stated ‘we continue to see the right geology, structure and alteration with excellent geochemistry’ and this is obviously very encouraging.
The preliminary plan is to drill approximately 3,000 meter to follow up on some anomalous uranium values which were found along the A1 conductor and to test the two other conductive systems as well. This exploration program is expected to cost $1.5M and this should cover the remaining amount which has to be spent to keep the earn-in agreement in good standing.
Corporate Update
As Azincourt Uranium didn’t sell a block of Macusani Yellowcake shares before distributing the remaining part to its shareholders, we expect the company to go back to the market for another financing before the end of the year for a mix of hard dollars and flow-through financing.
It will be interesting to see the share price after the Macusani Yellowcake shares will have been distributed and at what price the next financing round for the Patterson Lake North project might happen.
Conclusion
We consider the sale of the Peruvian assets to Macusani Yellowcake to be an excellent and accretive move for the Azincourt Uranium shareholders. By distributing the shares, investors will receive a tangible return on their investment, and it was ridiculous to see Azincourt trading at a value lower than the value of the planned distribution, but fortunately this situation has changed now.
Additionally, as Ted O’Connor will head Macusani, we are convinced there’s a lot of value in that company as well, and we have no intention to sell the Macusani-shares we will receive.
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Disclosure: Azincourt Uranium is a sponsoring company. We hold a long position. Please see our disclaimer for current positions.
