We sat down with Ted O’Connor, Azincourt’s CEO, to get an update on the exploration plans in Canada, the Peruvian acquisition and a background of Azincourt Uranium.
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Introduction
As most people know, the chart of uranium looks pretty ugly. After reaching a high of almost $140/lbs in 2007, the price dropped to just $35.5/lbs right now. As most uranium producers need a uranium price of $60/lbs to be profitable, the vast majority is making losses right now. We are believers in a higher uranium price down the road, simply because the world continues to rely on nuclear power and the amount of reactors is expected to increase even further over the next few years. This has led us to believe that the current dip in the uranium price will be short-lived, as eventually the demand will increase which should cause an increase in the equilibrium price.
Fortunately there are also companies out there which would still be making money at the current uranium price should the uranium price dip continue for an extended time. We think Azincourt Uranium (AAZ.V) is one of those companies as its recently acquired Peruvian project looks like it could have an ultra-low cash cost as the characteristics of the deposit seem to be the same as the project owned by neighbor Macusani Yellowcake (YEL.V) which released a PEA showing a cash cost of just $20.57/lbs over the entire mine life.
We sat down with Ted O’Connor, Azincourt’s CEO, to get an update on the exploration plans in Canada, the Peruvian acquisition and a background of Azincourt Uranium.
Q&A
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- Can you elaborate a bit more on your joint venture with Fission 3.0? What are the exact terms of the joint venture agreement on the Patterson Lake North Property?
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- The earn-in Joint Venture (JV) with Fission 3.0 for PLN is a staged, 4 year deal where Azincourt can earn a 50% interest in Patterson Lake North through a combination of cash/share payments and exploration funding (see Table, below from Azincourt Uranium’s MD&A). The anniversary date is mid-April and Year 1 started in April 2013.
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- What kind of advantage do you have by teaming up with Fission 3.0?
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- We are partnering with the most successful technical team operating in the Athabasca Basin today. They have made two major, high-grade discoveries there in three years – the J-Zone at Waterbury Lake and of course Patterson Lake South (PLS). Fission’s Chief Geologist, Ross McElroy, has been instrumental in four of the last nine major discoveries in the Basin and was recently announced as the winner of PDAC’s Bill Dennis award for exploration success and The Northern Miner magazine’s ‘Mining Person of the Year 2013’. Fission was staking land in the western area of the Basin (including PLN) while most of the sector was focused on the eastern end and the same team responsible for discoveries is involved in the PLN JV. Fission 3.0 is the operator of the PLN project.
Fission Uranium, and our new partner, its spinout – Fission 3.0 share logistics, camp and contractors. This means, for example, the same drill contractor drilling at PLS is being used for our PLN JV, which results in higher productivity due to familiarity with the area as well as better drill rates per meter due through combined contracting.
Fission staked PLN in 2004 and spent $4.7 million between 2004-2008 on targeting geophysics and some limited diamond drilling. The project went into hiatus following Fission’s success at Waterbury Lake and then PLS, restarting in 2013 when our JV work commenced. Fission acquired this ground well before the PLS discovery and it is not a real ‘nearology’-play, it was acquired for the right technical reasons and has plenty of great targets.
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- What are this year’s exploration plans at Patterson Lake North and what’s your exploration budget for this year?
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For Year 1, Azincourt’s exploration funding commitment minimum is $1.5 million. By the end of March, Azincourt will have funded ~$1.6 million towards the JV at PLN.
Approximately $500,000 has already been spent on helicopter electromagnetic (EM) geophysical surveys, line-cutting, ground EM geophysical surveys, radon surveys of lake water and lake bottom sediments as well as prospecting and outcrop/soil sampling – all to generate drill targets and better understand the local geology.
Approximately $1.1 million will be spent on the diamond drill program that just started mid-January 2014. So far the plan is to drill 3,000 m in 8-10 drill holes on multiple structural/conductor targets in the central and southern PLN project areas. The newly discovered 8.5 km long conductor system in the far north of PLN will see additional ground geophysics to establish drill holes for future drill programs (Year 2 work and beyond).
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- It was very interesting to see you were able to acquire a 100% interest in Minergia SAC, holders of the Peruvian Macusani project, from Vena Resources and Cameco. What was your main reason to enter the Peruvian uranium market and why did you pick this specific asset?
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Macusani is an area where geology and economics come together. Low exploration costs, low acquisition and development costs and potential low-cost future uranium production. I have considerable experience with the Peruvian projects from my past work with Cameco. I was the first Cameco representative to evaluate the prospectivity of this region before any drilling occurred. I got Cameco into Peru with Vena, negotiated the agreements and then managed the partnership and strategic alliance between 2006-2013.
The work done by Minergia and others all point to tremendous uranium endowment in the region. Currently, there are ~100 million lbs of NI-43-101 compliant uranium resources identified by Minergia and others, with more to be found. The uranium deposits are relatively low grade if compared to the Athabasca Bain, but the Macusani Plateau is an emerging uranium district where the mineralization has been proven to leach extremely well – which points to very low processing costs. The shallow nature of these deposits (surface to 200 m depth) have resulted in rapid exploration and deposit delineation as well as anticipated low mining costs.Azincourt’s growth strategy is two-fold: to explore towards discovery and to acquire uranium resources (“pounds in the ground”) with real possibilities of being economic in the low to moderate uranium price environment we find ourselves in at present. We have covered both aspects with PLN and the Peru acquisition, respectively.
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- You were able to acquire the asset quite cheaply, as the total consideration was just C$2M. As ¾ of the acquisition price was paid in shares, can you tell us a bit more about the lock-up/escrow agreements for these shares?
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Cameco’s shares have a standard 4 month hold period from the closing date of January 14, 2014.
By virtue of Vena’s representative, Juan Vegarra’s seat on Azincourt’s Board Vena’s shares have a staggered hold period and additional considerations, as follows:
Shares issued to Vena will be subject to voluntary resale restrictions for a period of one year from the date of issuance (January 14, 2014), following which Vena’s Consideration Shares will become freely tradable as to 15% of the Consideration Shares on the 12 month anniversary of their issuance and an additional 15% on each of the 15th, 18th and 21st, 24th and 27th month anniversaries of their issuance with the remaining 25% on the 30th month anniversary of the issuance date.
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- What’s your point of view on the permitting possibilities for a uranium heap leach project in Peru?
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- Peru is a mining-friendly jurisdiction and for the past several years Peru has led Latin America in mining and exploration development investment. Peru has also stepped up to wave its flag by becoming the first inaugural “Mining Country Sponsor” for the Prospectors & Developers Association of Canada 2014 Annual Convention. This all points to Peru as a great destination for resource development.
Although there is no history of uranium production in Peru, there are large heap leach copper operations in the country. Ian Stalker (Azincourt’s chairman) and I recently met with the Peruvian Minister for Mines and Energy, Jorge Merino, while in Lima. He told us that uranium can form an important commodity for Peru, if mining and processing operations can be developed and operated safely with due care and attention to the environment and local affected communities. Apart from specific international standards and best practices in uranium exploration and development, uranium is treated as any other metallic mineral commodity.
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Corporate
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- What’s your current cash position and burn rate when you aren’t exploring?
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- Azincourt has pre-paid the PLN JV commitment for Year 1 of the earn-in and currently has ~$1.5 million in its treasury with a $50,000-70,000 monthly burn rate for Canadian and now Peruvian locations.
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- Can you tell us something more about the people involved with Azincourt Uranium and their backgrounds?
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Ted O’Connor is a geologist with over 22 years experience in the exploration industry, including 20 years working in uranium. Most recently he was a Director of Cameco’s Corporate Development group. In that role he was responsible for evaluating, directing and exploring for uranium deposits worldwide. He was also tasked with opportunity evaluation, acquisition and management of Cameco’s exploration partnerships aimed at growing and diversifying Cameco’s exploration portfolio in new jurisdictions and other uranium model types. Mr. O’Connor has successfully led new project generation from early exploration through to discovery on multiple unconformity uranium projects.
Ian Stalker has over 30 years experience in mining development and operations in Europe, Africa and Australia. He is the former CEO of UraMin Inc. (“UraMin”), a London and Toronto listed public uranium company until its acquisition by Areva in August 2007 for US$2.5 billion. Prior to joining UraMin, Mr. Stalker was a Vice President of Gold Fields Ltd., the fourth largest gold producer in the world at that time.
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- Will you be looking to pick up more uranium assets in either Canada, Peru or another country?
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- Ian and I joined Azincourt in May 2013 to grow the company beyond the great initial springboard PLN uranium project. We are constantly evaluating and monitoring uranium exploration and development projects and companies on a global basis. Azincourt will continue to look at growth within the Athabasca, Peru and globally wherever economics and uranium geology come together.
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We will shortly release a more in-depth report on Azincourt Uranium’s assets and its potential.
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Disclosure: Azincourt Uranium is a sponsoring company. We hold a long position. Please see our disclaimer for current positions.
