The Dewey Burdock Uranium Project is located in South Dakota and is a high-grade in-situ recovery deposit. Azarga Uranium owns 100% of the Dewey Burdock Uranium Project.
The Company’s 100% owned Dewey Burdock Uranium Project is an in-situ recovery (“ISR”) uranium project located in the Edgemont uranium district, in South Dakota, USA. Through property purchase agreements, mining leases and/or mining claims, the Dewey Burdock Uranium Project is comprised of approximately 13,160 surface acres and 17,420 net mineral acres. The Dewey Burdock Uranium Project is the Company’s initial development priority.
Uranium was found in the Edgemont district in 1952. Early discoveries were at surface. Later drilling revealed deeper uranium deposits. In the mid 1970’s, Tennessee Valley Authority (TVA) bought a major interest in the area and made Dewey Burdock their main exploration target. Silver King Mines was hired as the operator by TVA and explored the property until the mid 1980’s.
The Dewey Burdock deposit occurs in the Fall River and Lakota Formations of the lower Cretaceous age. The Fall River and Lakota formations consist of permeable sandstones deposited in a major sand channel system. The uranium occurs in the sandstones as classic roll front deposits favorable to ISR mining methods.
Preliminary Economic Assessment
In April 2015, the Company filed an updated National Instrument 43-101 (“NI 43-101”) compliant independent resource estimate and preliminary economic assessment (“PEA”) for the Dewey Burdock Uranium Project prepared by TREC Inc. and Rough Stock Mining Services (the “Dewey Burdock PEA”) with an effective date of January 29, 2015.
|Estimated Measured Resources||Estimated Indicated Resources||Estimated M&I Resources||Estimated Inferred Resources|
The Dewey Burdock Uranium Project contains measured uranium resources of 4,122,000 pounds at 0.33% U3O8 and indicated uranium resources of 4,460,000 pounds at 0.21% U3O8 at a 0.5 grade-thickness (“GT”) cut-off and inferred uranium resources of 3,528,000 pounds at 0.05% U3O8 at a 0.2 GT cut-off in the ISR mineral resource estimate. The mineral resource estimate includes an additional 940,000 pounds of non-ISR (located above the water table) inferred resources at 0.17% U3O8. The non-ISR resources are not included in the resources presented in the economic analysis of the Dewey Burdock PEA.
Details of the assumptions and parameters used with respect to the Dewey Burdock PEA, including information on data verification, are set out in the Dewey Burdock Technical Report dated April 21, 2015, a copy of which is available under the Company’s profile at www.sedar.com. The Dewey Burdock PEA is preliminary in nature; it includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. There is no certainty that the Dewey Burdock PEA will be realized. Mineral resources that are not mineral reserves do not have demonstrated economic viability.
The Dewey Burdock PEA resulted in a pre-federal income tax net present value of $149.4 million at a discount rate of 8% and an internal rate of return of 67% compared to a post-federal income tax net present value of $113.8 million at a discount rate of 8% and an internal rate of return of 57%. The Dewey Burdock PEA post-federal income tax calculations do not include a corporate level assessment of federal income tax liabilities; taxes have only been calculated at the Dewey Burdock Uranium Project level. The estimate of federal income tax at the corporate level is subject to a number of additional considerations that have not been factored in when calculating federal taxes at the project level, including but not limited to, the capital structure to finance the Dewey Burdock Uranium Project, which has not yet been determined and loss carry forwards available at the corporate level.
The Dewey Burdock PEA assumed uranium prices of $65/lb U3O8, cash operating costs of $18.86/lb U3O8 and initial capital expenditures of $27.0 million. Total cash operating costs and capital expenditures are assumed to be $35.66/lb U3O8 (pre-federal income tax). Over its 16-year mine life, the Dewey Burdock Uranium Project is forecast to produce 9.7 million lbs of U3O8 with a pay-back period in the third quarter of the second year of production. The estimated federal income tax is equal to US$6.53/lb of estimated U3O8 production.
The Company’s immediate objective is to obtain the necessary permits and licenses to advance the Dewey Burdock Uranium Project to the construction phase. The Company has embarked on a process to consider project-financing options for the Dewey Burdock Project, with a view to having a funding solution in place concurrent with the finalization of permits.
Regulatory and Permitting
The Nuclear Regulatory Commission (the “NRC”) issued the final Supplemental Environment Impact Statement (“SEIS”) for the Dewey Burdock Uranium Project in the first quarter of 2014. The Section 106 programmatic agreement (“PA”) was executed on April 7, 2014 by the Advisory Council on Historic Preservation, the NRC, the South Dakota State Historic Preservation Office and the Bureau of Land Management (“BLM”). Subsequent to the PA being executed, the NRC issued a final Safety Evaluation Report and the Company’s Dewey Burdock Uranium Project received its Source and Byproduct Materials License SUA-1600 (an operating license) on April 8, 2014, covering 10,580 acres. The Company controls the mineral and surface rights for the entire area pertaining to the NRC license.
In August 2014, the evidentiary hearing was held with the Atomic Safety and Licensing Board (“ASLB”) in regards to the limited contentions raised with respect to the Dewey Burdock Uranium Project. These ASLB hearings are normal practice and are undertaken after the NRC license has been granted to determine whether or not the NRC staff has considered all issues related to the NRC license. In April 2015, the ASLB ruled on seven contentions raised by the consolidated intervenors and the Oglala Sioux Tribe (collectively, the “Intervenors”) regarding the NRC license for the Dewey Burdock Uranium Project.
For five contentions, including those related to groundwater usage, groundwater quality, ability to contain fluid migration, mitigation measures, and connected actions, the ASLB ruled in favor of NRC staff and the Company. For the remaining two contentions, which relate to identification and protection of historic and cultural resources, the ASLB requested additional consultation between the NRC staff and the Oglala Sioux Tribe. It also ruled inadmissible two new contentions that were filed by the Intervenors after the evidentiary hearing.
The NRC license continues to remain in good standing. The ASLB has decided to retain jurisdiction of the two contentions pertaining to identification and protection of historic and cultural resources and has asked for monthly status reports from the NRC staff until the outstanding issues are addressed. The Company is facilitating this process to the fullest extent possible.
The Company and the NRC staff filed petitions to the NRC Commission for review of the ASLB ruling on the identification and protection of historic and cultural resources. The Intervenors also filed petitions for review covering most of the contentions heard by the ASLB. The Company filed responses to each of the petitions for review submitted by the Intervenors to the NRC Commission. The NRC staff filed responses supporting the Company’s petition and opposing the Intervenors’ petitions, while of the Intervenors, only the Oglala Sioux Tribe filed a response to the Company and NRC staff petitions for review within the assigned timeframe. On September 21, 2015, all parties received a response from the NRC Commission indicating that the above filings are still being reviewed. In March 2016, the Company requested a status report from the NRC Commission requesting an update on the above filings that are currently under review. To date the Company has not received a response, however, the Company anticipates a decision from the NRC Commission in the near-term based on information available. However, due to the lack of mandated regulatory timelines, the timing may be subject to change.
The Company continues to be in compliance with the existing conditions of the NRC license and other permitting/licensing requirements. Prior to commencing construction and operations at the Dewey Burdock Uranium Project, the Company requires regulatory approvals from two other major agencies, the EPA and the South Dakota Department of Environment and Natural Resources (“DENR”). These approvals include the Class III and Class V underground injection control (“UIC”) permits from the EPA and three state permits to be issued by the South Dakota DENR. Additional requirements that need to be addressed prior to commencing construction and operations at the Dewey Burdock Uranium Project include the satisfaction of pre-operational conditions under the NRC license and the development and implementation of mitigation plans for protection of cultural resources under the PA, including resolution of the outstanding consultation with the Oglala Sioux Tribe.
The EPA continues to work on the draft Class III and Class V UIC permits. The Company currently anticipates receiving the draft Class III and Class V UIC permits in the near-term based on information available; however, due to the lack of mandated regulatory timelines, these dates may be subject to change. Subsequent to the draft Class III and Class V UIC permits being issued to the Company, the public will have an opportunity to comment on the draft Class III and Class V UIC permits in advance of the final permits being issued.
The Company submitted applications to the South Dakota DENR in 2012 for its Groundwater Disposal Plan (“GDP”), Water Rights (“WR”) and Large Scale Mine Plan (“LSM”) permits. All permit applications have been deemed complete and have been recommended for conditional approval by the DENR staff. The GDP and WR permits are subject to hearing with public participation. The hearing commenced on October 28, 2013 and continued through November 25, 2013, at which point it was determined that the hearing will resume once the NRC and EPA have ruled and set the federal surety. The LSM permit has been finalized subject to continuation of a hearing before the Board of Minerals and Environment, which commenced the week of September 23, 2013 and continued through November 5, 2013, at which point it was determined that the hearing will resume once the NRC and EPA have ruled and set the federal surety. Subject to improved market conditions, the Company plans to re-commence the regulatory process with the South Dakota DENR once the EPA final permits have been issued.
On July 8, 2014, the BLM requested additional information on the Company’s plan of operations for the Dewey Burdock Uranium Project. The Company submitted the requested information and anticipates that the BLM will approve the plan of operations subsequent to the successful resolution of the two remaining contentions on the NRC license, at which point it is also anticipated that the BLM will prepare an environmental assessment and issue its Record of Decision.
The Company’s immediate objective is to obtain the necessary permits and licenses to advance the Dewey Burdock Uranium Project to the construction phase.