Alexander Molyneux, Executive Chairman of Azarga Uranium, in Kyrgyz Republic

The following interview with Alex Molyneux, Chairman of Toronto main-board listed Azarga Uranium (AZZ.to) / (PWURF) was conducted in the final week of December, 2014. Alex is a leading uranium expert and has been featured in videos online such as on Bloomberg News as well as in numerous online articles. Importantly, with today's big news of Energy Fuels (UUUU) merging with Uranerz, (URZ), M&A in the uranium sector could become a much larger focus in 2015. Azarga Uranium has a balance sheet and market cap that's big enough to make tuck-in acquisitions of smaller uranium producers or be taken out itself by much larger market cap companies such as Uranium Energy Corp (UEC) or UR-Energy (URG). In fact, in reading the press release regarding the Energy Fuels and Uranerz deal, it stated that further acquisition by the combined company are likely. [This statement was in bold-faced font in the press release].

We saw a dramatic move higher in the spot uranium price to $44/lb, up from $28/lb, however the price has retraced to about $36/lb. Do you have a view on the spot price next year?

The real trade is still ending the year on a much stronger footing than how it started 2014. The discussions with nuclear fuel buyers at utilities are much more focused around purchasing at this time. I think what's happening is that financial investors are selling in a rather quiet December spot market because they’re seeing oil fall out of bed. The reality though is that nothing has changed for uranium and it doesn’t really have any meaningful substitution with oil in the energy mix. Almost regardless of where oil gets too, nuclear is still cheaper and its certainly radically cleaner and more reliable. Azarga’s forecast is for uranium to trade in the US$45-55/lb range through most of 2015.

Some analysts are forecasting $35-$40/lb prices for 2015. Do you think these analysts could be wrong?

Analysts are naturally very cautious so they almost never predict large near-term re-ratings in commodity markets even though we know that these markets can swing in large amounts on a proportional basis. Most of those forecasts for 2015 were done earlier in the year when the spot was down around the US$30/lb mark. I expect analysts will revise their predictions upwards in the first quarter of 2015 when they get more visibility on utility buying. There are a couple of things analysts miss though… Number one is that I almost never see an analyst add ‘first core’ demand to their demand / supply models… this is terribly important as a nuclear plant uses approximately three times the amount of fuel in its first year of operation. With all the new plants coming on line in the next few years, it's a significant amount of demand that they don’t model in.

The key here is the deficit will actually be sooner than most predict… Number two is that analysts don’t take into account the much longer 'work in progress’ cycle for uranium compared to other commodities. After being mined, uranium goes through the cycle of conversion, enrichment and then fuel fabrication. Utilities tend to need the uranium around 18-months before its utilized as nuclear fuel… The impact of number two is that utilities act in the market well ahead of potential supply deficit periods… so these analysts that are predicting US$35-40/lb for 2015 are the same generally predicting US$65-75/lb by 2018… In fact what I think will happen is the price move up will happen in a more compressed time frame. I believe we will be at that US$65-75/lb level in 2016.

Can you comment on the nuclear build out in China over the next 10-20 years? There are differing views on this.

Most western analysts use figures that were published by the Chinese government as part of their 12th five year plan. These numbers are getting a bit out of date when you talk to people based in China. Azarga is based in Asia and have good dialogue with Chinese nuclear players so we know more about what's going on. A key difference is coming up as soon as 2020. That 12th five year plan shows a target of 58 GW of nuclear power for 2020. However, in our discussions with various leaders of the Chinese nuclear industry and policy makers, we believe the number to be around 70 GW. Here is an example for you… we sent a representative to Huaneng Power’s recent analyst briefing in Beijing. This is one of China’s top five utilities and its business focus to date has been almost entirely on coal. Yet in their briefing last week they focused on nuclear power. Furthermore, Huaneng discussed its intention to gain a nuclear operating license.

How much additional uranium will China need? What's the incentive price to get new mines into production? 

We do a model internally to keep track of China’s needs. We look at their growth in consumption and then we look at material they already have sourced through their own production both domestically and overseas. We also add in major long term contracts they have like the 25% of Paladin’s Langer Heinrich production and contract with Navoi in Uzbekistan… anyway, the upshot is that Azarga believes China is short a cumulative 250 million pounds by 2020. That's a lot of uranium that has to be purchased in the market. It could end up being 20-30% of transacted uranium in the next five years. China plus the growth elsewhere is what drives a requirement for new mined production.The price has to be in the US$75-85/lb range to get such new production happening because there is only a handful of meaningful projects that could come on with an economic return below that level and they’re not enough to generate the extra supply required…

Some analysts believe that there will not be a shortfall in uranium supply before 2019-2020, if true what does that mean for emerging producers like your company Azarga Uranium?

In our model, the market is in deficit in 2018 and then beyond for a few years. For us it's good news because we have a pipeline of projects to move into production. Ours are at the best end of the spectrum economically and have low country risk. That doesn't mean that utilities will be sit on their hands until 2017-18, meaningful long-term contracts should be announced as soon as 2015, but certainly in 2016 because the uranium market is mostly contracted through long-term contracts.

You've mentioned that Azarga's flagship project at this stage is South Dakota's Dewey Burdock on the south eastern border with Wyoming. Please describe this project.

This is a project for 1 million pounds of uranium production per year for nine years, with first production available as early as 2016. The uranium will be mined by in-situ recovery method, which is a very low cost method of production. Dewey Burdock is actually the highest grade in-situ recovery project of the peer group so it has incredible economics. It's in that ‘handful’ of projects I talked about that can be brought into production with a profit at lower uranium price levels. That will be described in a lot more detail in an economic assessment to be published in January. In terms of permitting, we are at the final end of that as well. We have the Nuclear Regulatory Commission license and we expect the EPA permit very soon. I cannot wait to share with the world the new economic assessment for Dewey Burdock. It's going to be quite the talking point.

How about Azarga Uranium's Centennial project in Colorado, is that on the back burner or can you develop both projects at the same time?

Centennial is NOT on the back burner… I know people have said such but we quietly revived the project in 2014. We have prepared a couple of different mine plans for it and will be revealing our plan for it probably in Q2 2015.

You've already stated what the incentive price is to get new projects off the ground, what prices do Dewey Burdock and Centennial need to move ahead? 

Dewey Burdock makes plenty of return to allow for project financing debt and a big return to shareholders at uranium price levels that equate to current term contract levels of US$45-50/lb… we are talking to utilities about contracts that are exposed to spot but have floor prices around US$45-50/lb. That will enable us to close a project debt financing and get moving into construction but still keep the upside for our shareholders. The new economic assessment will have sensitivities to show shareholders what returns are at various uranium levels. For Centennial we need to do some more modelling work but will have more info on that in Q2.

Is there anything not covered above that you would like to address? 

I think we want to make it clear that these in-situ recovery projects are incredibly rare. They’re much lower cost than the conventional mines like those in Canada and they don’t need a conventional mill in their capex plans. I know there is a lot of excitement around the Athabasca exploration plays but people would be shocked to know that those high-grade deposits don’t necessarily mean low cost… take a look at Cameco (CCJ)… its conventional mines are 200x the grade of its in-situ operations but the in-situ have lower cash costs and lower capex per pound of production. And, many proposed projects there are 10 years or more from production. People need to be more analytical in this sector… grade is NOT king!… amenability for in-situ recovery mining method is KING!!!… I hope people can take a look at our new website (www.azargauranium.com) and learn more about our company and the uranium market.

The information contained in this article is for informational purposes only. It is not intended to provide legal, accounting, tax, investment, financial or other advice to you, and you should not rely upon the information to provide any such advice. This article is not to be construed as a form of promotion, an offer to sell securities or as a solicitation to purchase our securities. This article has been produced as a source of general information only.

Disclaimer for Forward-Looking Information

Certain statements contained herein constitute “forward-looking statements” within the meaning of applicable United States of America securities legislation and “forward-looking information” within the meaning of applicable Canadian securities legislation. All statements that are not historical facts, including without limitation statements regarding future estimates, plans, objectives, assumptions or expectations of future performance, are “forward-looking statements” or “forward looking information”. Such statements reflect the expectations of management at the time the “forward looking information” was posted; however, there is no assurance that these statements will prove to be true. We caution you that such “forward-looking statements” involve known and unknown risks and uncertainties, including: (1) any negative change in the law, regulatory or political environment which would negatively affect the Company’s ability to obtain all necessary environmental and regulatory approvals. licenses and permits, (2) the inherent uncertainties and speculative nature associated with uranium exploration, including the actual results of current exploration activities, conclusions of economic evaluations, changes in project parameters as plans continue to be refined, possible variations in grade and ore densities or recovery rates, failure of plant, equipment or processes to operate as anticipated, accidents or other risks of the mining industry, (3) a decrease in the demand for and/or a decrease in the price of uranium, (4) an increase in the operating costs associated with the extraction and processing of the uranium, (5) any number of events or causes which may delay or cease exploration and development of the Company’s property interests, such as environmental liabilities, weather, mechanical failures, safety concerns and labor problems, (6) the risk that the Company does not execute its business plan, (7) inability to retain key employees, (8) inability to finance operations and growth, including the inability to raise the funding necessary to commence construction and complete the facility at the Dewey-Burdock Project, (9) an extended downturn in general economic conditions in North America and internationally, (10) an increase in the number of competitors with larger resources, and (11) other factors beyond the Company’s control. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in “forward-looking statements” or information, there may be other factors that cause results to be materially different from those anticipated, described, estimated, assessed or intended. There can be no assurance that any “forward-looking statements” or information will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements or information. Accordingly, readers should not place undue reliance on “forward-looking statements” or information. The Company expressly disclaims any obligation to update any “forward-looking statements” other than as required by applicable law. For additional information regarding assumptions relied upon in making any “forward-looking statements” and on the risks and uncertainties that may cause actual results to differ materially from those anticipated in any “forward-looking statements”, please refer the our public disclosure filed with Canadian securities regulatory authorities on SEDAR at www.sedar.com under our profile, and in particular to the sections entitled “Disclaimer for Forward Looking Information” and “Risks and Uncertainties” in our most recently filed Management Discussion and Analysis, a copy of which is available on SEDAR.

Cautionary Note Concerning Technical Information

Unless otherwise indicated, technical information on this website regarding the Dewey Burdock Property is derived from the Company’s technical report entitled “Updated Technical Report on the Dewey-Burdock Uranium Project Custer and Fall River Counties South Dakota” with an effective date of March 1, 2010 prepared by Jerry Bush P. Geo. Such information is based on assumptions, qualifications and procedures, which are not fully described herein. Reference should be made to the full text of these technical reports, which were filed under the Company’s profile on SEDAR at www.sedar.com, you may also find the report here. Richard Clement is a Qualified Person under National Instrument 43-101 – Standards of Disclosure for Mineral Projects and is responsible for and has approved the technical disclosure on this website.

Unless otherwise indicated, technical information on this website regarding the Centennial Property is derived from the Company’s technical report entitled “NI 43-101 Preliminary Economic Assessment Powertech Uranium Corp. Centennial Uranium Project Weld County, Colorado” with an effective date of June 2, 2010 prepared by Allan V. Moran, R.G., CPG and Frank Daviess, MAussIMM. Such information is based on assumptions, qualifications and procedures, which are not fully described herein. Reference should be made to the full text of these technical reports, which were filed under the Company’s profile on SEDAR at www.sedar.com, you may also find the report here. Richard Clement is a Qualified Person under National Instrument 43-101 – Standards of Disclosure for Mineral Projects and is responsible for and has approved the technical disclosure on this website.

Unless otherwise indicated, technical information on this website regarding the Aladdin Property is derived from the Company’s technical report entitled “Technical Report on the Aladdin Uranium Project Crook County, Wyoming” with an effective date of June 21, 2012 prepared by Jerry Bush, P. Geo. Such information is based on assumptions, qualifications and procedures, which are not fully described herein. Reference should be made to the full text of these technical reports, which were filed under the Company’s profile on SEDAR at www.sedar.com, you may also find the report here. Richard Clement is a Qualified Person under National Instrument 43-101 – Standards of Disclosure for Mineral Projects and is responsible for and has approved the technical disclosure on this website.

Unless otherwise indicated, technical information on this website regarding the Kyzyl Ompul Property is derived from the Company’s technical report entitled “NI 43-101 Technical Report on the Kyzyl Ompul Licence, Kyrgyz Republic” with an effective date of April 14, 2014, prepared by Stephen Hyland P. Geo. and Samuel Ulrich P. Geo. Such information is based on assumptions, qualifications and procedures, which are not fully described herein. Reference should be made to the full text of these technical reports, which were filed under the Company’s profile on SEDAR at www.sedar.com, you may also find the report here. Curtis Church is a Qualified Person under National Instrument 43-101 – Standards of Disclosure for Mineral Projects and is responsible for and has approved the technical disclosure on this website.

Disclosure of Mineral Reserves and Mineral Resources

Readers are advised that National Instrument 43-101 (“NI 43-101”) of the Canadian Securities Administrators requires that each category of mineral reserves and mineral resources be reported separately. Readers should refer to the most recent annual information form of Azarga Uranium Corp. (“Azarga”) and other continuous disclosure documents filed by Azarga, available at www.sedar.com, for this detailed information, which is subject to the qualifications and notes set forth therein.

Cautionary Note to United States Investors Concerning Estimates of Measured, Indicated and Inferred Resources

This website uses the terms “Measured”, “Indicated” and “Inferred” Resources. United States investors are advised that while such terms are recognized and required by Canadian regulations, the United States Securities and Exchange Commission does not recognize them. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies. United States investors are cautioned not to assume that all or any part of Measured or Indicated Mineral Resources will ever be converted into Mineral Reserves. United States investors are also cautioned not to assume that all or any part of an Inferred Mineral Resource exists, or is economically or legally mineable.