Plain-text annual report
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Azarga!Uranium!Corp.!
CONSOLIDATED!FINANCIAL!STATEMENTS!
!
December!31,!2015!
(Expressed!in!U.S.!Dollars)!
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Tel: 604 688 5421
Fax: 604 688 5132
www.bdo.ca
BDO Canada LLP
600 Cathedral Place
925 West Georgia Street
Vancouver BC V6C 3L2 Canada
Independent Auditor’s Report
To the Shareholders of Azarga Uranium Corp.
We have audited the accompanying consolidated financial statements of Azarga Uranium Corp. and its subsidiaries,
which comprise the consolidated statements of financial position as at December 31, 2015 and 2014, and the
consolidated statements of profit or loss and other comprehensive loss, changes in equity and cash flows for the years
then ended, and a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In
making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair
presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal
control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis
for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of Azarga Uranium Corp. and its subsidiaries as at December 31, 2015 and 2014 and its financial performance and
its cash flows for the years then ended in accordance with International Financial Reporting Standards.
Emphasis of Matter
Without qualifying our opinion, we draw attention to Note 1 in the consolidated financial statements, which
indicates that the Company has not generated revenues from operations, is currently in the exploration and
development stage and has an accumulated deficit of $9,897,079. These conditions, along with other matters as
set forth in Note 1, indicate the existence of material uncertainties that may cast significant doubt upon the
Company’s ability to continue as a going concern.
(signed) “BDO CANADA LLP”
Chartered Professional Accountants
Vancouver, Canada
March 30, 2016
BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the
international BDO network of independent member firms.
!
TABLE&OF&CONTENTS
CONSOLIDATED&FINANCIAL&STATEMENTS
Consolidated+Statements+of+Financial+Position
Consolidated+Statements+of+Profit+or+Loss+and+Other+Comprehensive+Loss
Consolidated+Statements+of+Changes+in+Equity
Consolidated+Statements+of+Cash+Flows
NOTES&TO&THE&CONSOLIDATED&FINANCIAL&STATEMENTS
1. Corporate+information+and+going+concern
2. Basis+of+preparation
3. Summary+of+significant+accounting+policies
4. Segmented+information
5. Business+acquisition
6. NonKcontrolling+interest
7. Exploration+and+evaluation+assets
8. Property,+plant+and+equipment
9. Investments
10. Convertible+loan+receivables
11. Loans+payable+
12. Trade+and+other+payables
13. Other+liabilities+
14. Deferred+income+tax
15. Administration+expenses
16. Finance+costs
17. Unrealized+loss
18. Realized+gain/(loss)
19. Loss+per+share
20. Equity
21. Share+option+reserve
22. Capital+risk+management
23. Financial+instruments
24. Related+party+transactions
25. Supplemental+cash+flow+information
26. Commitments
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Page
4
5
6
7
8
9
10
28
29
30
32
34
35
42
44
47
48
48
50
51
51
51
52
52
58
60
61
67
69
70
!
!
AZARGA!URANIUM!CORP.!
Consolidated!Statements!of!Financial!Position!
!(Expressed!in!U.S.!Dollars)!
!
Notes
December+31,+2015
December+31,+2014
As+at+
ASSETS
Current+assets
Cash
Convertible+loan+receivables
Other+current+assets
Exploration+and+evaluation+assets+held+for+sale
Investments+held+for+sale
Total+current+assets
Non
403,000
6,022,790
$''''''''''''''
''''''''''''''''
''''''''''''''''''
$''''''''''''''
1,704,695
3,660,000
255,095
5,619,790
%
14.4% Unrecognized%deductible%temporary%differences%and%unused%tax%losses%%
!
The! Company’s! deductible! temporary! differences! and! unused! tax! losses! for! which! no!
deferred!tax!asset!is!recognized!consist!of!the!following!amounts!(tax!effected):!
!
As(at(December(31,
2015
2014
Non$capital+losses
Deductible+temporary+differences
Total+unrecognized+amounts
$++++++++++++++
++++++++++++++++++
$++++++++++++++
1,997,000
177,000
2,174,000
$+++++++++++++++++
++++++++++++++++++
$++++++++++++++
918,000
210,410
1,128,410
!
As!at!December!31,!2015,!the!Company!had!unrecognized!deferred!tax!assets!attributable!to!
temporary! differences! of! $177,000! (December! 31,! 2014:! $210,410)! primarily! related! to!
value!added!tax!receivables!not!recognized!and!certain!deferred!payments!not!recognized.!
The! deferred! tax! assets! related! to! the! temporary! differences! were! not! recognized,! as! its!
recoverability!was!not!considered!to!be!probable.!
Page!|!49!
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!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
14.%% DEFERRED%INCOME%TAX%%(Continued)%
!
14.5% Expiry%dates%
!
!
!
The!expiry!dates!of!the!Company’s!unused!tax!losses!are!as!follows:!
!
As2at2December231,22015
Amount
Expiry
Non.capital2losses
Kyrgyz&Republic
Hong&Kong
Canada
United&States
Non.capital2losses
Kyrgyz&Republic
Hong&Kong
Canada
United&States
%
%
15.%%%% ADMINISTRATION%EXPENSES%
%%%%%
Salaries(and(benefits
Consulting(and(professional(fees
Corporate(administration(
Depreciation
ShareCbased(compensation
Administration(expenses
%
%
%
%
%
%
%
%
%
%
!
$&&&&&&&&&&&&&&
2,818,587
611,974
2,795,541
2,536,211
&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&
201872020
Indefinite
203472035
203472035
As2at2December231,22014
Amount
Expiry
$&&&&&&&&&&&&&&
3,530,109
581,591
668,944
842,482
&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&
201872019
Indefinite
2034
2034
!
Year*ended*December*31,
2015
2014
$((((((((((((((
((((((((((((((((((
((((((((((((((((((
((((((((((((((((((((
((((((((((((((((((
$((((((((((((((
2,062,482
220,886
394,771
13,514
136,596
2,828,249
$((((((((((((((
((((((((((((((((((
((((((((((((((((((
((((((((((((((((((((
((((((((((((((((((
$((((((((((((((
1,442,346
995,822
729,891
14,056
620,792
3,802,907
%
Page!|!50!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
16.%%
%
!
FINANCE%COSTS%
%
%
%
!
Interest'expense'on'put'option'on'non-controlling'interest'of'
UrAsia
Interest'expense'on'deferred'consideration
Interest'expense'on'loan'payable'to'shareholders'(Note'11.1)
Interest'expense'on'equity'instrument'issued'to'Powerlite'
(Note'20.4)
Interest'expense'on'other'loans'payable'(Note'11.2)
Other'interest'expense
Finance'costs
%
%
17.%% UNREALIZED%LOSS%
!
Loss$on$convertible$loans$issued$by$Powertech$(Note$10.1)
Gain$on$revaluation$of$investment$in$Western$Uranium$$$$$$$$$$
(Note$9.2)
Gain/(loss)$on$convertible$loans$issued$by$Black$Range$$$$$$
(Note$10.2)
Loss$on$revaluation$of$investment$in$URI$(Note$9.3)
Loss$on$revaluation$of$call$option$on$Anatolia$shares$(Note$9.3)
Dilution$gain$on$investment$in$associates
Gain$on$warrant$liability$(Note$20.2)
Unrealized$loss,$net
%
%
REALIZED%GAIN/(LOSS)%
%
18.%
Loss$on$investment$in$Black$Range$
Gain$recognized$on$assets$settled$on$close$of$RTO
Gain$on$termination$of$Empire$Equity$facility$(Note$9.1)
Gain$on$revaluation$of$put$option$on$Anatolia$shares$(Note$9.3)
Loss$on$maturity$of$call$option$on$Anatolia$shares$(Note$9.3)
Gain$on$extinguishment$of$liabilities$to$sellers$of$UrAsia$$$$$$$$$
(Note$5)
Gain$on$extinguishment$of$other$loans$payable$(Note$11.2)
Gain$on$sale$of$exploration$and$evaluation$assets$(Note$7)
Other$realized$loss
Realized$gain/(loss),$net
Year*ended*December*31,
2015
2014
$'''''''''''''''''
125,889
$'''''''''''''''''
160,567
118,187
177,923
-
''''''''''''''''''''''''''
'''''''''''''''''''''
$'''''''''''''''''
38,805
33,553
494,357
157,330
177,991
757,754
29,126
44,952
1,327,720
!
$'''''''''''''''
Year*ended*December*31,
2015
2014
$$$$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$
;
464,308
$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$$$$$
(2,193,710)
;
$$$$$$$$$$$$$$$$$$$$
(16,742)
$$$$$$$$$$$$$$$$$$$
353,778
$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$
(885,914)
;
138,493
290,085
(9,770)
$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$
(135,116)
(19,399)
469,784
(36,533)
(1,561,196)
!!!%
Year*ended*December*31,
2015
2014
(200,363)
$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$$$$$
D
92,853
D
(36,878)
D
$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$
1,084,846
84,158
(2,491)
1,022,125
(1,550,695)
301,133
120,304
957,778
$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$
D
D
D
D
D
(171,480)
%
!
Page!|!51!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
19.%%
%
!
LOSS%PER%SHARE%
!
The! weighted! average! shares! outstanding! used! to! calculate! loss! per! share! for! the! years!
ended! December! 31,! 2015! and! 2014! were! 59,759,902! and! 38,105,247,! respectively.! The!
effect! of! outstanding! options,! warrants! and! convertible! securities! were! excluded! from! the!
calculation!of!diluted!loss!per!share!for!the!years!ended!December!31,!2015!and!2014!as!the!
impact!would!have!been!antiXdilutive.!!
!
!
20.%% EQUITY%
!
20.1%%%%%%Share%capital%and%contributed%surplus%(deficit)%%
!
The! Company! has! authorized! the! issuance! of! an! unlimited! number! of! common! and!
preferred!shares!with!no!par!value.!!As!at!December!31,!2015,!the!Company!had!60,332,314!
common! shares! outstanding! (December! 31,! 2014:! 59,403,733)! and! no! preferred! shares!
outstanding!(December!31,!2014:!nil).!
!
On!April!1,!2013,!the!Company!entered!into!share!subscription!agreements!with!investors!
to!subscribe!for!4,250,000!shares!for!total!subscription!proceeds!of!$1,700,000!at!$0.40!per!
share.! As! at! the! close! of! the! RTO,! the! investors! had! paid! subscription! deposits! totaling!
$645,064.! No! additional! amounts! were! funded! through! the! subscription! agreements! as! a!
result! of! the! RTO! (refer! to! Note! 5! for! additional! details).! In! 2014,! the! Company! issued!
904,387! common! shares! to! the! investors! for! total! proceeds! of! $361,755! (share! capital! of!
$3,618!plus!contributed!surplus!of!$358,137)!at!an!average!price!of!$0.40.!In!addition,!the!
Company! issued! 125,000! common! shares! pursuant! to! a! key! management! employment!
agreement!at!an!average!price!of!$0.40,!a!price!equivalent!to!the!fair!value!of!the!common!
shares! based! on! the! most! recent! equity! raise,! resulting! in! an! increase! in! the! Company’s!
equity!by!$50,000!(share!capital!of!$500!plus!contributed!surplus!of!$49,500)!and!a!charge!
to!shareXbased!compensation!expense.!
!
On!July!1,!2014,!38,212,493!shares!were!issued!to!Powerlite!Ventures!Limited!(“Powerlite”)!
(refer! to! Note! 20.4! for! additional! details)! on! conversion! of! the! accumulated! Powerlite!
equity!contributions!plus!accrued!interest!pursuant!to!the!Powerlite!Facility.!!As!a!result!of!
the!share!issuance,!$152,850!was!reclassified!from!contributed!surplus!to!share!capital.!!!In!
addition,! the! Company! recorded! $6,757,754! to! contributed! surplus! for! the! equity!
instrument!issued!to!Powerlite.!!
!
!
!
!
!
!
!
!
!
Page!|!52!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
!
20.%% EQUITY%(CONTINUED)%
!
!
Concurrent! with! the! closing! of! the! RTO! (refer! to! Note! 5! for! additional! details)! and! the!
Consolidation,!the!Company!completed!a!private!placement!financing!for!gross!proceeds!of!
approximately! C$5,000,000! ($4,450,442)! (the! “Financing”)! through! the! issuance! of!
8,338,134!postXConsolidation!units!(“Units”),!each!Unit!consisting!of!one!postXConsolidation!
common!share!and!oneXhalf!of!a!common!share!purchase!warrant!(“Warrant”).!Each!whole!
Warrant! entitles! the! holder! to! purchase! one! postXConsolidation! common! share! at! an!
exercise!price!of!C$1.00!per!share!until!October!28,!2016.!Accounting!for!the!Consolidation!
adjustment,! the! Units! subscribed! for! pursuant! to! the! Financing! were! subscribed! for! at!
C$0.60! per! Unit.! Finder’s! fees! in! connection! with! the! Financing! consisted! of! C$145,617!
($129,622)! and! 242,696! postXConsolidation! shares.! All! securities! issued! pursuant! to! the!
Financing!were!subject!to!a!hold!period!that!expired!March!1,!2015.!
!
In! addition,! subsequent! to! the! close! of! the! RTO,! 252,808! common! shares! were! issued!
pursuant! to! a! key! management! employment! agreement! at! an! average! price! of! C$0.60,! a!
price!equivalent!to!the!fair!value!of!the!common!shares!based!on!the!Financing.!
!
In!August!2015,!the!Company!issued!928,581!common!shares!at!an!average!deemed!price!of!
approximately! C$0.44! per! share! to! settle! trade! and! other! payables! of! $317,432.! The! fair!
value! differential! between! the! common! shares! issued! and! the! carrying! value! of! the! trade!
and!other!payables!settled!was!insignificant.!!
!
In! October! 2015,! the! Company! recognized! a! net! increase! of! $1,910,372! in! contributed!
surplus! relating! to! the! Amended! Purchase! Agreement! (refer! to! Note! 5! for! additional!
details).! ! In! addition,! for! the! year! ended! December! 31,! 2015,! the! Company! recorded!
$450,647! to! contributed! surplus! pursuant! to! equity! settled! transactions! pertaining! to! the!
Company’s! employee! share! purchase! plan! (“ESPP”)! (refer! to! Note! 20.5! for! additional!
details),!director!service!agreements!(“DSA”)!(refer!to!Note!20.5!for!additional!details)!and!
2015!employee!shareXbased!remuneration!not!issued!pursuant!to!the!ESPP!and!DSA.!
!
Subsequent!to!December!31,!2015,!89,461!common!shares!were!issued!at!a!deemed!price!of!
C$0.60!per!share!and!643,405!common!shares!were!issued!at!a!deemed!price!of!C$0.32!per!
share!to!settle!trade!and!other!payables!in!the!amount!of!$193,273.!!!
!
20.2%%%%%Share%purchase%warrants%
%
On! closing! of! the! RTO,! the! Company! assumed! 2,000,000! share! purchase! warrants! with! an!
exercise! price! of! C$2.00! per! share! and! 84,980! share! purchase! warrants! with! an! exercise!
price!of!C$1.15!per!share.!!As!at!December!31,!2015,!500,000!share!purchase!warrants!with!
an!exercise!price!of!$2.00!per!share!had!expired.!!Of!the!remaining!share!purchase!warrants,!
each!whole!share!purchase!warrant!entitles!the!holder!to!purchase!one!common!share!until!
February!27,!2016.!!!
!
!
!
Page!|!53!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
!
20.%% EQUITY%(CONTINUED)%
!
!
In! October! 2014,! the! Company! issued! 4,169,067! share! purchase! warrants! as! a! part! of! the!
Financing.!Each!whole!share!purchase!warrant!entitles!the!holder!to!purchase!one!common!
share!at!an!exercise!price!of!C$1.00!per!share!until!October!28,!2016.!!!
The!fair!value!of!the!share!purchase!warrant!liability!as!at!December!31,!2015!was!$3,809!
(December!31,!2014:!$328,213).%
The!movement!of!the!Company’s!share!purchase!warrant!liability!is!as!follows:!
!
Year*ended*December*31,
2015
2014
Balance,(beginning(of(year
Assumed(on(close(of(RTO
Share(purchase(warrants(granted
(Gain)/loss(on(revaluation(
Currency(translation(effect
Balance,(end(of(year
!!
The!assumptions!used!for!the!BlackXScholes!option!pricing!model!are!as!follows:!
!
$(((((((((((((((((
((((((((((((((((((((((((((
((((((((((((((((((((((((((
((((((((((((((((((
((((((((((((((((((((
$(((((((((((((((((((((
328,213
5
5
(290,085)
(34,319)
3,809
$((((((((((((((((((((((((
(((((((((((((((((((((
(((((((((((((((((((
(((((((((((((((((((((
((((((((((((((((((((
$(((((((((((((((((
5
25,891
277,410
36,533
(11,621)
328,213
!
As(at(December(31,
2015
2014
Risk%free%rate%of%return
Expected%life
Expected%volatility
Expected%dividend%per%share
0.48%
0.16;0.83%yrs
61%
Nil
1.00%
1.16;1.83%yrs
93;99% (i)
Nil
%
!
(i)!!!!!Annualized!volatility!has!been!calculated!based!on!the!historical!volatility!of!the!Company’s!stock!price!!
The! share! purchase! warrants! are! considered! a! derivative! liability,! as! the! currency!
denomination!of!the!exercise!price!is!different!from!the!functional!currency!of!the!Company.!!
!
!
!
!
!
!
!
!
!
!
!
Page!|!54!
!
!
!
!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
!
20.%% EQUITY%(CONTINUED)%
!
!
The!share!purchase!warrant!transactions!for!the!years!ended!December!31,!2015!and!2014!
are!as!follows:!
%%
Year%ended%December%31,
2015
2014
Number'of'share'
purchase'
warrants
Weighted'average'
exercise'price'
(C$)
Number'of'share'
purchase'
warrants
Weighted'average'
exercise'price'
(C$)
Balance,'beginning'of'year
Assumed'on'close'of'RTO
Share'purchase'warrants'granted
Share'purchase'warrants'expired
Balance,'end'of'year
5,754,047
'''''''''''
''''''''''''''''''''
''''''''''''''''''''
''''''''''''''''''''
'''''''''''
H
H
H
5,754,047
$'''''''''''''''''
''''''''''''''''''''
''''''''''''''''''''
''''''''''''''''''''
$'''''''''''''''''
1.26
H
H
H
1.26
''''''''''''''''''''
H
'''''''''''
'''''''''''
''''''''''''
2,084,980
4,169,067
(500,000)
5,754,047
'''''''''''
$''''''''''''''''''
'''''''''''''''''''
'''''''''''''''''''
'''''''''''''''''''
$'''''''''''''''''
H
1.97
1.00
2.00
1.26
The!share!purchase!warrants!outstanding!and!exercisable!as!at!December!31,!2015!are!as!
follows:%
!Exercise!price!(C$)!
$!!!!!!!!!!!!!!!!!!!
$!!!!!!!!!!!!!!!!!!!
$!!!!!!!!!!!!!!!!!!!
2.00
1.15
1.00
Share&purchase&warrants&outstanding&and&exercisable
!Share!purchase!warrants!
outstanding!and!
exercisable!
!Weighted!average!
exercise!
price!(C$)!
!Weighted!average!
remaining!contractual!life!
(years)!
!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!
1,500,000
84,980
4,169,067
5,754,047
$!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
$!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
2.00
1.15
1.00
1.26
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
0.16
0.16
0.83
0.64
!
In! February! 2016,! 1,500,000! and! 84,980! share! purchase! warrants! with! exercise! prices! of!
C$2.00!and!C$1.15,!respectively,!expired.!!
The!share!purchase!warrants!outstanding!and!exercisable!as!at!December!31,!2014!are!as!
follows:!
!
!Share!purchase!warrants!
outstanding!and!
exercisable!
Share&purchase&warrants&outstanding&and&exercisable
!Weighted!average!
exercise!
price!(C$)!
!Weighted!average!
remaining!contractual!life!
(years)!
!Exercise!price!(C$)!
!
!
$!!!!!!!!!!!!!!!!!!!
$!!!!!!!!!!!!!!!!!!!
$!!!!!!!!!!!!!!!!!!!
2.00
1.15
1.00
!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!
1,500,000
84,980
4,169,067
5,754,047
$!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
$!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
2.00
1.15
1.00
1.26
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
1.16
1.16
1.83
1.64
!
%
Page!|!55!
!
!!
!
%
!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
!
20.%% EQUITY%(CONTINUED)%
%
20.3%%%%%Accumulated%deficit%and%dividends%
!
!
As! at! December! 31,! 2015,! the! Company! had! an! accumulated! deficit! of! $9,897,079!
(December! 31,! 2014:! $6,272,029).! ! No! dividends! have! been! paid! or! declared! by! the!
Company!since!inception.!
!
20.4%%%%%%Equity%instrument%issued%to%Powerlite%Ventures%Limited%%
!
On! May! 22,! 2013,! the! Company! issued! an! equity! instrument! (“Powerlite! Facility”)! to!
Powerlite! for! $15,000,000! (“Facility! Limit”).! In! accordance! with! the! Powerlite! Facility,! as!
amended,! the! outstanding! principal! and! interest! accrued! will! be! settled! through! the!
issuance!of!the!Company’s!shares!at!C$1.54!per!share.!As!a!result,!the!financial!instrument!
has!been!classified!as!equity.!Accrued!interest!has!been!recorded!to!interest!expense!with!
the!offset!being!recorded!as!equity.!Other!key!commercial!terms!of!the!financing!include:!
!
•
Interest! –! 10%! per! annum,! payable! on! conversion! of! each! note! (the! Powerlite!
Facility!can!be!drawn!over!multiple!drawings,!each!a!separate!note);!
• Maturity!–!May!22,!2023;!
• Conversion!price!–!C$1.54!per!share;!
• Powerlite’s! conversion! right! –! to! convert! the! outstanding! notes! plus! accrued!
interest!into!the!Company’s!shares!after!the!date!of!issue;!
• Company’s!conversion!right!–!to!convert!the!outstanding!notes!plus!accrued!interest!
at!the!earlier!of!six!months!from!the!issuance!date!of!each!note!or!an!event!causing!
conversion!of!any!Black!Range!convertible!loans!(Note!10.2)!held!by!the!Company;!!
• Mandatory! conversion! –! all! outstanding! notes! plus! accrued!
interest! will!
automatically!convert!to!shares!within!10!business!days!of!the!maturity;!and!
• Other!–!the!Powerlite!Facility!is!unsecured.!
On!August!28,!2013!and!February!12,!2014,!the!Facility!Limit!was!increased!to!$21,000,000!
and! $26,000,000,! respectively;! however,! the! Facility! Limit! increase! on! February! 12,! 2014!
was! subject! to! mutually! agreeing! a! draw! down! schedule! prior! to! December! 31,! 2014! and!
this! was! not! agreed.! ! As! at! December! 31,! 2015,! the! Company! had! drawn! a! total! of!
$18,000,000! (December! 31,! 2014:! $18,000,000)! under! the! Powerlite! Facility.! ! Under! the!
Powerlite! Facility,! $3,000,000! remains! available,! subject! to! the! Powerlite! Facility! terms!
discussed!above.!
!
On!July!1,!2014,!pursuant!to!the!terms!of!the!Powerlite!Facility,!the!Company!exercised!its!
conversion! right! and! 38,212,493! shares! were! issued! to! Powerlite! on! conversion! of! the!
accumulated!Powerlite!equity!contributions!of!$18,000,000,!plus!accrued!interest.!
!
!
Page!|!56!
!
!
!
!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
!
20.%% EQUITY%(CONTINUED)%
!
!
For! the! year! ended! December! 31,! 2014,! the! Company! recognized! an! interest! expense! of!
$757,754.!!Interest!expense!was!not!recognized!for!the!year!ended!December!31,!2015!as!
no!amounts!were!outstanding!under!the!Powerlite!Facility.!!For!the!year!ended!December!
31,!2014,!the!Company!drew!down!$6,000,000!under!the!Powerlite!Facility.!
!
20.5% Equity%settled%compensation%arrangements%%
!
In! 2015,! the! Company! adopted! an! ESPP.! ! The! Company! is! authorized! to! issue! up! to!
3,000,000!common!shares!pursuant!to!terms!and!conditions!of!the!ESPP.!Employees,!who!
elect! to! participate! in! the! ESPP,! can! contribute! up! to! 50%! of! their! salary! (the! “Employee!
Contribution).!!The!Company!will!then!match!66.67%!of!the!Employee’s!Contribution!(the!
“Matching!Contribution”).!!The!purchase!price!of!the!common!shares!is!calculated!based!on!
the!fiveXday!volume!weighted!average!trading!price!of!the!common!shares!on!the!Toronto!
Stock! Exchange! (“TSX”)! immediately! preceding! the! end! of! each! calendar! quarter.! The!
Employee!Contribution!and!the!Matching!Contribution!are!expensed!in!the!period!in!which!
they!are!incurred!with!the!offsetting!amount!being!recorded!in!contributed!surplus!until!the!
common! shares! are! issued.!
! For! the! year! ended! December! 31,! 2015,! Employee!
Contributions! totaled! $110,760! and! Matching! Contributions! totaled! $79,280.! ! To! date,! no!
common!shares!have!been!issued!under!the!ESPP.!
!
In! 2015,! the! Company! adopted! DSA.! ! The! Company! is! authorized! to! issue!up! to! 2,000,000!
common! shares! pursuant! to! terms! and! conditions! of! the! DSA.! ! Directors! who! elect! to!
participate! in! the! DSA! contribute! 50%! of! their! director! fee/salary! to! the! ESPP! and! the!
remaining! 50%! of! their! director! fee/salary! is! settled! through! the! issuance! of! common!
shares!in!accordance!with!the!DSA.!!The!purchase!price!of!the!common!shares!is!calculated!
based!on!the!fiveXday!volume!weighted!average!trading!price!of!the!common!shares!on!the!
TSX! immediately! preceding! the! end! of! each! calendar! quarter.! Amounts! settled! in!
accordance! with! the! DSA! are! expensed! in! the! period! in! which! they! are! incurred! with! the!
offsetting! amount! being! recorded! in! contributed! surplus! until! the! common! shares! are!
issued.!!For!the!year!ended!December!31,!2015,!$91,171!was!expensed!under!the!DSA.!To!
date,!no!common!shares!have!been!issued!under!the!DSA.!
!
%
%
%
%
%
%
%
%
%
%
%
!
Page!|!57!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
21.%%
%
21.1%%%%%%Stock%option%plan%
!
!
SHARE%OPTION%RESERVE%
!
On! October! 28,! 2014,! the! Company! adopted! a! new! stock! option! plan,! which! permits! the!
board!of!directors!of!the!Company!to!grant!stock!options!to!acquire!common!shares!of!the!
Company! to! eligible! persons.! The! Company! is! authorized! to! issue! stock! options! for! a!
maximum!of!7,271,816!common!shares!pursuant!to!the!stock!option!plan.!The!stock!option!
plan!permits!the!board!of!directors!of!the!Company!to!set!the!terms!for!each!stock!option!
grant;! however,! stock! options! granted! under! the! plan! cannot! exceed! a! maximum! exercise!
period!of!5!years.!!!!The!options!are!nonXtransferable.!!!
For! the! year! ended! December! 31,! 2015,! the! Company! granted! 2,315,000! stock! options! to!
officers,! employees,! directors! and! other! eligible! persons! at! exercise! prices! ranging! from!
C$0.34! to! C$0.38! with! expiry! dates! ranging! from! August! 6,! 2018! to! June! 3,! 2020.! ! The!
weighted! average! fair! value! of! the! options! granted! in! the! year! ended! December! 31,! 2015!
was!estimated!at!C$0.20!per!option!at!the!grant!date!using!the!BlackXScholes!option!pricing!
model.!!
!
For! the! year! ended! December! 31,! 2014,! the! Company! granted! 2,650,754! stock! options! to!
officers,!employees,!directors!and!other!eligible!persons!at!an!exercise!price!of!C$1.20!with!
an!expiry!date!of!October!28,!2019.!!The!weighted!average!fair!value!of!the!options!granted!
in!the!year!ended!December!31,!2014!was!estimated!at!C$0.15!per!option!at!the!grant!date!
using!the!BlackXScholes!Option!Pricing!Model.!!
The!weighted!average!assumptions!used!for!the!BlackXScholes!option!pricing!model!were!as!
follows:!
!
Risk%free%rate%of%return
Expected%life
Expected%volatility
Expected%dividend%per%share
!
Year*ended*December*31,
2015
2014
1.09%
4.14%years
83% (i)
Nil
1.56%
5%years
83% (i)
Nil
!
(i) Annualized!volatility!has!been!calculated!based!on!the!historical!volatility!of!the!Company’s!stock!price.!%
!
For! the! years! ended! December! 31,! 2015! and! 2014,! the! Company! recognized! shareXbased!
compensation! expense! of! $303,560! and! $645,470,! respectively,! of! which! $136,596! and!
$620,792,! respectively,! has! been! allocated! to! administration! expenses! and! $37,704! and!
$24,678,!respectively,!has!been!allocated!to!evaluation!and!exploration!assets.!!For!the!year!
ended!December!31,!2015,!$129,260!has!also!been!recorded!as!consideration!in!accordance!
with!the!terms!of!the!Termination!Deed!between!the!Company!and!Empire!Equity!(see!Note!
9.1!for!additional!details).!!!
Page!|!58!
!
!
%
!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
21.%%
%
21.2%% Outstanding%stock%options%%
%
SHARE%OPTION%RESERVE%(Continued)%
!
!
The!option!transactions!under!the!stock!option!plan!are!as!follows:%
%%
Year%ended%December%31,
2015
2014
Number'of'
options
Weighted'average'
exercise'price'
(C$)
Number'of'
options
Weighted'average'
exercise'price'
(C$)
Balance,'beginning'of'year
Options'granted
Options'forfeited
Balance,'end'of'year
'''''''''''
'''''''''''
''''''''''''
'''''''''''
3,345,506
2,315,000
(138,513)
5,521,993
$'''''''''''''''''
'''''''''''''''''''
'''''''''''''''''''
$'''''''''''''''''
1.27
0.34
1.37
0.88
'''''''''''''
'''''''''''''
'''''''''''
'''''''''''
419,752
275,000
2,650,754
3,345,506
$'''''''''''''''''
'''''''''''''''''''
'''''''''''''''''''
$'''''''''''''''''
1.24
2.00
1.20
1.27
%
Note!–!the!outstanding!stock!options!and!exercise!prices!for!the!year!ended!December!31,!2014!have!
been!adjusted!to!reflect!the!RTO!and!the!Consolidation.!
!
!
The!stock!options!outstanding!and!exercisable!as!at!December!31,!2015!are!as!follows:!
!
Options(Outstanding
Options(Exercisable
Exercise(price((C$)
(Options(
outstanding(
Weighted(
average(
exercise(
price((C$)
(Weighted(
average(
remaining(
contractual(
life((years)(
(Options(
outstanding(
and(
exercisable(
Weighted(
average(
exercise(
price((C$)
(Weighted(
average(
remaining(
contractual(
life((years)(
!
$0.34B$0.38
$1.20B$1.50
$2.00
(((((
(((((
(((((((
(((((
2,305,000
2,981,993
235,000
5,521,993
$(((((((((((
(((((((((((((
(((((((((((((
$(((((((((((
0.34
1.21
2.00
0.88
(((((((((((((
(((((((((((((
(((((((((((((
(((((((((((((
3.61
3.68
1.38
3.55
(((((
(((((
(((((((
(((((
1,457,450
2,981,993
235,000
4,674,443
$(((((((((((
(((((((((((((
(((((((((((((
$(((((((((((
0.34
1.21
2.00
0.98
(((((((((((((
(((((((((((((
(((((((((((((
(((((((((((((
3.16
3.67
1.38
3.40
%%
Subsequent!to!December!31,!2015,!2,288,443!stock!options!were!forfeited!with!an!exercise!
price!of!C$1.20,!200,000!stock!options!were!forfeited!with!an!exercise!price!of!C$0.34!and!
10,000!stock!options!were!forfeited!with!an!exercise!price!of!C$2.00.!!
!
!
!
!
!
!
!
!
!
!
!
Page!|!59!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
21.%%
!
!
SHARE%OPTION%RESERVE%(Continued)%
!
The!stock!options!outstanding!and!exercisable!as!at!December!31,!2014!are!as!follows:!
!
Options(Outstanding
Options(Exercisable
Exercise(price((C$)
$(((((((((((((((((((
$(((((((((((((((((((
$(((((((((((((((((((
$(((((((((((((((((((
1.20
1.20
1.50
2.00
(Options(
outstanding(
(((((((
(((((
(((((((((
(((((((
(((((
365,002
2,650,754
54,750
275,000
3,345,506
Weighted(
average(
exercise(
price((C$)
$(((((((((((
(((((((((((((
(((((((((((((
(((((((((((((
$(((((((((((
1.20
1.20
1.50
2.00
1.27
(Weighted(
average(
remaining(
contractual(
life((years)(
(((((((((((((
(((((((((((((
(((((((((((((
(((((((((((((
(((((((((((((
3.36
4.83
3.85
2.37
4.45
(Options(
outstanding(
and(
exercisable(
(((((((
(((((
(((((((((
(((((((
(((((
240,901
2,650,754
36,135
275,000
3,202,790
Weighted(
average(
exercise(
price((C$)
$(((((((((((
(((((((((((((
(((((((((((((
(((((((((((((
$(((((((((((
1.20
1.20
1.50
2.00
1.27
(Weighted(
average(
remaining(
contractual(
life((years)(
(((((((((((((
(((((((((((((
(((((((((((((
(((((((((((((
(((((((((((((
3.36
4.83
3.85
2.37
4.49
Note!–!the!outstanding!stock!options!and!exercise!prices!for!the!year!ended!December!31,!2014!have!
been!adjusted!to!reflect!the!RTO!and!the!Consolidation.!
%
21.3%% Share%option%reserve%
%
The! Company’s! share! option! reserve! relates! to! stock! options! granted! by! the! Company! to!
officers,!employees,!directors!and!other!eligible!persons!under!its!stock!option!plan.%
!
The!movement!of!the!Company’s!share!option!reserve!is!as!follows:!
%%%
Year*ended*December*31,
2015
2014
$(((((((((((((((((
((((((((((((((((((((((((((
(((((((((((((((((((((
717,539
B
37,704
$(((((((((((((((((
(((((((((((((((((((((
(((((((((((((((((((((
219,098
37,995
24,678
(((((((((((((((((((
(((((((((((((((((((
136,596
129,260
(((((((((((((((((((
((((((((((((((((((((((((((
435,768
B
$(((((((((((((((
1,021,099
$(((((((((((((((((
717,539
Balance,(beginning(of(year
Securities(assumed(on(close(of(RTO
ShareBbased(compensation(capitalized(to(
exploration(and(evaluation(assets((Note(7)
ShareBbased(compensation(charged(to(operations
ShareBbased(compensation(issued(to(settle(other(
nonBcurrent(liabilities
Balance,(end(of(year
%
%
22.%% CAPITAL%RISK%MANAGEMENT%
!
The!Company’s!capital!risk!management!objectives!are!to!safeguard!the!Company’s!ability!
to! continue! as! a! going! concern! in! order! to! support! the! Company’s! exploration! and!
development! of! its! mineral! properties! and! to! maintain! a! flexible! capital! structure! which!
optimizes!the!costs!of!capital!at!an!acceptable!risk.!
Page!|!60!
%
!
!
%
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
22.%% CAPITAL%RISK%MANAGEMENT%(Continued)%
!
!
!
The! Company! depends! on! external! financing! to! fund! its! activities! and! there! can! be! no!
guarantee!that!external!financing!will!be!available!at!terms!acceptable!to!the!Company.!The!
Company! manages! its! capital! structure! and! makes! adjustments! to! it! in! light! of! changes! in!
economic! conditions! and! the! risk! characteristics! of! the! underlying! assets.! ! In! order! to!
maintain!or!adjust!the!capital!structure,!the!Company!may!issue!new!shares,!issue!new!debt!
or! acquire! or! dispose! of! assets.! In! order! to! facilitate! the! management! of! its! capital!
requirements,! the! Company! prepares! annual! expenditure! budgets! that! are! updated! as!
necessary! depending! on! various! factors,! including! capital! deployment,! results! from! the!
exploration!and!development!of!its!properties!and!general!industry!conditions.!!The!annual!
and!updated!budgets!are!approved!by!the!board!of!directors.!For!the!year!ended!December!
31,!2015,!there!were!no!significant!changes!in!the!processes!used!by!the!Company!or!in!the!
Company’s!objectives!and!policies!for!managing!its!capital.!!The!Company!is!not!subject!to!
any!externally!imposed!capital!requirements.!
!
As! at! December! 31,! 2015,! the! Company’s! capital! structure! consists!of! loans! payable! (Note!
11)!and!the!equity!of!the!Company!(Note!20).!!
!
FINANCIAL%INSTRUMENTS%
%
23.%%
%
23.1% Categories%of%financial%instruments%
%
Financial,assets
Loans&and&receivables
Cash
Restricted&cash
Fair&value&through&profit&or&loss
Investment&in&URI&(Note&9.3)
Investment&in&Western&Uranium&(Note&9.2)
Convertible&loan&issued&by&Black&Range
Call&option&on&Anatolia&shares
Total&financial&assets
%
!
%
%
%
%
%
%
!
As,at,December,31,
2015
2014
$&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&
239,327
40,882
$&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&
3,214,529
231,948
1,132,695
1,195,960
&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&&&&&&
$&&&&&&&&&&&&&&&
2,608,864
L
L
2,061,257
&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&
$&&&&&&&&&&&&&&
L
427,139
36,878
5,971,751
!
Page!|!61!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
23.%%
FINANCIAL%INSTRUMENTS%(Continued)%
%%
!
!
As,at,December,31,
2015
2014
Financial,liabilities
Other&financial&liabilities
Trade&and&other&payables&(Note&12)
Loan&payable&to&shareholders&(Note&11.1)
Deferred&consideration&(Note&5)
Put&option&on&nonEcontrolling&interest&of&UrAsia&
(Note&5)
Decommissioning&liability&(Note&13)
Other&loans&payable&(Note&11.2)
Fair&value&through&profit&or&loss
Warrant&liability&(Note&20.2)
Empire&Equity&facility&(Note&9.1)
Total&financial&liabilities
%
23.2% Fair%value%
2,594,087
2,202,445
$&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&&&&&&
E
E
$&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&
3,470,711
2,024,522
1,400,672
1,423,118
&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&
118,097
140,053
&&&&&&&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&
1,246,094
E
&&&&&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&&&&&&
$&&&&&&&&&&&&&&&
3,809
E
5,058,491
&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&
$&&&&&&&&&&&&
328,213
228,422
10,121,752
!
!
The! fair! value! of! financial! assets! and! financial! liabilities! measured! at! amortized! cost! is!
determined!in!accordance!with!generally!accepted!pricing!models!based!on!discounted!cash!
flow! analysis! or! using! prices! from! observable! current! market! transactions.! ! The! Company!
considers! that! the! carrying! amount! of! all! its! financial! assets! and! financial! liabilities!
measured!at!amortized!cost!approximates!their!fair!value.!!!
The!fair!values!of!the!Company’s!financial!instruments!classified!as!FVTPL!are!determined!
as!follows:!
!
• The!fair!value!of!financial!instruments!that!are!traded!on!an!active!liquid!market!are!
determined! with! reference! to! the! quoted! market! prices.! ! The! fair! value! of! the!
Company’s!investments!in!the!shares!of!URI!and!Western!Uranium!are!determined!
using!this!methodology.!!
• The! fair! value! of! financial! instruments! that! are! not! traded! in! an! active! market! are!
determined!using!generally!accepted!valuation!models!using!inputs!that!are!directly!
(i.e.!prices)!or!indirectly!(i.e.!derived!prices)!observable.!
o The!fair!value!of!the!call!option!held!by!the!Company!for!Anatolia!shares!was!
determined!using!the!BlackXScholes!Option!Pricing!Model.!
o The!fair!value!of!the!warrant!liability!is!determined!using!the!BlackXScholes!
Option!Pricing!Model.!
• The! fair! value! of! financial! instruments! that! are! not! traded! in! an! active! market! are!
determined! using! generally! accepted! valuation! models! using! inputs! that! are! not!
directly!(i.e.!prices)!or!indirectly!(i.e.!derived!from!prices)!observable.!
Page!|!62!
%
!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
23.%%
%
FINANCIAL%INSTRUMENTS%(Continued)%
!
!
o The!loan!asset!component!for!Black!Range!was!valued!based!on!the!present!
value! of! expected! future! cash! flows! at! the! discount! rate! that! would! have!
applied! to! the! financial! asset! without! conversion! or! other! embedded!
derivative!features.!None!of!the!fair!value!change!in!the!convertible!loans!for!
the!years!ended!December!31,!2015!and!2014!is!related!to!a!change!in!the!
credit! risk! of! the! convertible! loans.! ! All! of! the! change! in! fair! value! is!
associated!with!changes!in!market!conditions.!
The!fair!value!of!all!other!financial!instruments!of!the!Company!approximates!their!carrying!
value!because!of!the!demand!nature!or!shortXterm!maturity!of!these!instruments.!
!
The!Company’s!cash,!restricted!cash!and!other!financial!liabilities!are!carried!at!amortized!
cost.!
!
The! following! table! provides! an! analysis! of! the! Company’s! financial! instruments! that! are!
measured!subsequent!to!initial!recognition!at!fair!value,!grouped!into!Level!1!to!3!based!on!
the!degree!to!which!the!inputs!used!to!determine!the!fair!value!are!observable.!
!
• Level! 1! fair! value! measurements! are! those! derived! from! quoted! prices! in! active!
markets!for!identical!assets!or!liabilities.!
• Level! 2! fair! value! measurements! are! those! derived! from! inputs! other! than! quoted!
prices!included!within!Level!1,!that!are!observable!either!directly!or!indirectly.!!
• Level! 3! fair! value! measurements! are! those! derived! from! valuation! techniques! that!
include!inputs!that!are!not!based!on!observable!market!data.!
%%
As#at#December#31,#2015
Level#1
Level#2
Level#3
Total
Investment(in(URI
Investment(in(Western(Uranium
Total(financial(assets(at(fair(value
$((((((
((((((((
$((((((
1,132,695
1,195,960
2,328,655
$((((((((((((((((
(((((((((((((((((
$((((((((((((((((
4
4
4
$((((((((((((((((
(((((((((((((((((
$((((((((((((((((
Warrant(liability
Total(financial(liabilities(at(fair(value(
$((((((((((((((((
$((((((((((((((((
4
4
$((((((((((((
$((((((((((((
3,809
3,809
$((((((((((((((((
$((((((((((((((((
4
4
4
4
4
$((((((
((((((((
$((((((
1,132,695
1,195,960
2,328,655
$((((((((((((
$((((((((((((
3,809
3,809
%
As#at#December#31,#2014
Level#1
Level#2
Level#3
Total
Investment(in(Anatolia(
Convertible(loans(issued(by(Black(Range(
Call(option(on(Anatolia(shares
Total(financial(assets(at(fair(value
2,061,257
$((((((
(((((((((((((((((
(((((((((((((((((
$((((((
6
6
2,061,257
$((((((((((((((((
(((((((((((((((((
((((((((((((
$(((((((((((
6
6
36,878
36,878
$((((((((((((((((
((((((((((
(((((((((((((((((
$(((((((((
6
427,139
6
427,139
$((((((
((((((((((
((((((((((((
$((((((
2,061,257
427,139
36,878
2,525,274
Empire(Equity(facility
Warrant(liability
Total(financial(liabilities(at(fair(value(
$((((((((((((((((
(((((((((((((((((
$((((((((((((((((
6
6
6
$(((((((((
((((((((((
$(((((((((
228,422
328,213
556,635
$((((((((((((((((
(((((((((((((((((
$((((((((((((((((
6
6
6
$(((((((((
((((((((((
$(((((((((
228,422
328,213
556,635
Page!|!63!
%
%
!
!
!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
23.%%
!
!
FINANCIAL%INSTRUMENTS%(Continued)%
!
There!were!no!transfers!between!Level!1,!2!and!3!for!the!years!ended!December!31,!2015!
and!2014.!!
!
23.3% Financial%risk%management%objectives%and%policies!
!
The! financial! risk! arising! from! the! Company’s! operations! are! market! risk,! credit! risk,! and!
liquidity!risk.!!These!risks!arise!from!the!normal!course!of!operations!and!all!transactions!
undertaken!are!to!support!the!Company’s!ability!to!continue!as!a!going!concern.!!The!risks!
associated!with!these!financial!instruments!and!the!policies!on!how!to!mitigate!these!risks!
are!set!out!below.!!Management!of!the!Company!manages!and!monitors!these!exposures!to!
ensure! appropriate! measures! are! implemented! on! a! timely! and! effective! manner.! For! the!
year! ended! December! 31,! 2015,! there! were! no! significant! changes! in! the! Company’s!
financial! risk! management! objectives! and! policies.! The! Company’s! risk! exposure! and! the!
impact!on!the!Company’s!financial!instruments!are!summarized!below:%
Market%risk!
!
Market!risk!is!the!risk!that!the!fair!value!of!the!future!cash!flows!of!a!financial!instrument!
will!fluctuate!due!to!changes!in!market!factors.!Market!risk!comprises!three!types!of!risks:!
currency!risk,!price!risk!and!interest!rate!risk:!
Currency!risk!
!
Currency!risk!is!the!risk!that!the!fair!values!or!future!cash!flows!of!the!Company’s!financial!
instruments! will! fluctuate! because! of! changes! in! foreign! currency! exchange! rates.! The!
Company!is!exposed!to!currency!risk!through!financial!assets!and!liabilities!denominated!in!
currencies!other!than!the!United!States!dollar.!
The!sensitivity!of!the!Company’s!comprehensive!loss!due!to!changes!in!the!carrying!values!
of!monetary!assets!and!liabilities!denominated!in!foreign!currencies!is!presented!below.!!A!
positive! number! indicates! an! increase! in! comprehensive! loss,! whereas! a! negative! number!
indicates!a!decrease!in!comprehensive!loss.!
!
KGS
C$
A$
HK$
10%+increase+in+foreign+exchange+rate
Changes(to(balances(as(at(December(31,(2015
Changes(to(balances(as(at(December(31,(2014
$((((((((((((
$((((((((((((
8,670
2,130
$(((((((((
$(((((((((((
(82,187)
83,613
$((((((((((((
$(((((((
1,631
(229,685)
$(((((((((((
$((((((((((((
16,242
8,609
10%+decrease+in+foreign+exchange+rate
Changes(to(balances(as(at(December(31,(2015
Changes(to(balances(as(at(December(31,(2014
$(((((((((((
$(((((((((((
(8,670)
(2,130)
$(((((((((((
$(((((((((
82,187
(83,613)
$(((((((((((
$(((((((((
(1,631)
229,685
$(((((((((
$(((((((((((
(16,242)
(8,609)
!
KGS
C$
A$
HK$
!
!
Page!|!64!
%
!
!
!
!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
23.%%
!
!
FINANCIAL%INSTRUMENTS%(Continued)%
!
Price!risk!
!
Price! risk! is! the! risk! that! the! fair! value! of! future! cash! flows! of! the! Company’s! financial!
instruments!will!fluctuate!because!of!changes!in!market!prices.!The!Company!is!exposed!to!
the! risk! of! fluctuations! in! prevailing! market! prices! for! its! uranium! products.! ! However,! as!
the! Company! is! currently! an! exploration! and! development! stage! company,! the! risk! is!
insignificant.!!The!Company!is!subject!to!share!price!risk!with!respect!to!its!investments!in!
Western!Uranium!and!URI.!!The!Company!manages!its!exposure!to!share!price!fluctuations,!
to! the! extent! possible,! by! actively! monitoring! its! investments.! The! Company’s! maximum!
exposure!to!share!price!risk!with!respect!to!its!investments!is!equal!to!the!carrying!amount!
of!its!investments.!!!!
!
Interest!rate!risk!
!
Interest!rate!risk!is!the!risk!that!the!fair!values!and!future!cash!flows!of!the!Company!will!
fluctuate!because!of!changes!in!market!interest!rates.!The!Company!is!exposed!to!interest!
rate! risk! to! the! extent! that! the! cash! maintained! at! the! financial! institutions! is! subject! to! a!
floating!rate!of!interest.!The!interest!rate!risk!on!cash!is!not!significant.!
!
The! Company’s! loan! payable! to! shareholders! (Note! 11)! and! equity! instrument! issued! to!
Powerlite!(Note!20.4)!accrue!interest!at!fixed!rates;!therefore!the!Company!is!not!exposed!
to!interest!rate!risk!on!these!instruments.!!The!Company’s!other!loans!payable!(Note!11)!are!
nonXinterest!bearing!and!interest!is!calculated!using!an!effective!interest!rate.!
%
Credit%risk%
!
Credit! risk! is! the! risk! of! potential! loss! to! the! Company! if! the! counterparty! to! a! financial!
instrument!fails!to!meet!its!contractual!obligations.!
!
The! Company! is! exposed! to! credit! risk! associated! with! its! cash.! The! Company’s! maximum!
exposure!to!credit!risk!is!equal!to!the!carrying!amount!of!its!cash.!
!
%
!
The! Company’s! credit! risk! on! cash! arises! from! default! of! the! counterparty.! The! Company!
limits! its! exposure! to! counterparty! credit! risk! on! cash! by! only! dealing! with! financial!
institutions!with!high!credit!ratings.!!
%
%
%
%
%
%
%
%
Page!|!65!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
23.%%
!
!
FINANCIAL%INSTRUMENTS%(Continued)%
%
Liquidity%risk%
!
Liquidity!risk!is!the!risk!that!the!Company!will!not!be!able!to!settle!or!manage!its!obligations!
associated! with! financial! liabilities.! ! The! Company’s! approach! to! managing! liquidity! is! to!
evaluate! current! and! expected! liquidity! requirements! under! both! normal! and! stressed!
conditions! to! ensure! that! it! maintains! sufficient! reserves! of! cash! and! cash! equivalents,!
access! to! financing! facilities! or! access! to! cash! generating! opportunities,! such! as! the!
liquidation!of!nonXcore!and!redundant!assets!to!meet!its!liquidity!requirements!in!the!short!
and!long!term.!In!order!to!ensure!that!the!Company!has!sufficient!cash!and!cash!equivalents,!
access! to! financing! facilities! or! access! to! cash! generating! opportunities,! such! as! the!
liquidation!of!nonXcore!and!redundant!assets!to!meet!expected!expenditures,!the!Company!
prepares!annual!expenditure!budgets!that!are!updated!as!necessary!depending!on!various!
factors,! including! capital! deployment,! results! from! the! exploration! and! development! of! its!
properties!and!general!industry!conditions.!The!annual!and!updated!budgets!are!approved!
by!the!board!of!directors.!
!
The! Company’s! current! and! expected! remaining! contractual! maturities! for! its! financial!
liabilities! with! agreed! repayment! periods! are! presented! below.! ! The! table! includes! the!
undiscounted! cash! flows! of! financial! liabilities! based! on! the! earliest! date! on! which! the!
Company!can!be!required!to!satisfy!the!liabilities.!!
!
!
As#at#December#31,#2015
123#months
3#months#2#1#year
125#years
Total#for#2015
Trade&and&other&payables
Loan&payable&to&shareholders
Other&loans&payable
Total&financial&liabilities
!
1,888,976
$&&&&&&
&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&
$&&&&&&
=
=
1,888,976
$&&&&&&&&&
&&&&&&&&&&
&&&&&&&&&&&&
$&&&&&&&&&
335,111
426,445
60,000
821,556
$&&&&&&&&&
&&&&&&&&
&&&&&&&&&&
$&&&&&&
370,000
1,776,000
100,000
2,246,000
$&&&&&&
&&&&&&&&
&&&&&&&&&&
$&&&&&&
2,594,087
2,202,445
160,000
4,956,532
!
As#at#December#31,#2014
123#months
3#months#2#1#year
125#years
Total#for#2014
Trade&and&other&payables
Loan&payable&to&shareholders
Deferred&consideration
Other&loans&payable
Other&non9current&liabilities
Total&financial&liabilities
!!
!
%
%
%
%
%
%
%
!
3,020,711
$&&&&&&
&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&
&&&&&&&&&&
&&&&&&&&&&&&&&&&&
$&&&&&&
9
9
395,000
9
3,415,711
450,000
248,522
700,000
435,000
9
$&&&&&&&&&
&&&&&&&&&&
&&&&&&&&&&
&&&&&&&&&&
&&&&&&&&&&&&&&&&&
$&&&&&&
1,833,522
9
$&&&&&&&&&&&&&&&&
&&&&&&&&
&&&&&&&&
&&&&&&&&&&
&&&&&&&&
$&&&&&&
1,776,000
1,000,000
475,000
2,228,422
5,479,422
$&&&&&&
&&&&&&&&
&&&&&&&&
&&&&&&&&
&&&&&&&&
$&&&&
3,470,711
2,024,522
1,700,000
1,305,000
2,228,422
10,728,655
Page!|!66!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
24.%
!
RELATED%PARTY%TRANSACTIONS%
!
!
The! consolidated! financial! statements! include! the! financial! statements! of! Azarga! Uranium!
and!its!significant!subsidiaries!and!associates!listed!in!the!following!table:!!
!
Name
Country(of
incorporation
%(equity(interest
As(at(December(31,
2015
2014
Hong&Kong
British&Virgin&Islands
Canada
United&States&of&America
Kyrgyz&Republic&
United&States&of&America
Australia
Azarga&Resources&(Hong&Kong)&Limited
Azarga&Resources&Limited
Azarga&Resources&Canada&Ltd.
Azarga&Resources&USA&Company
UrAsia
Powertech&USA,&Inc.
Black&Range
!
The!Company!held!a!significant!influence!investment!in!Powertech!until!October!28,!2014,!
at!which!point!the!RTO!closed!(refer!to!Note!5).!!The!Company!held!a!significant!influence!
investment! in! Black! Range! until! the! close! of! the! Black! Range! Merger,! at! which! point! the!
Company!no!longer!held!significant!influence!(refer!to!Note!9.1).!
100%
100%
100%
100%
80%
100%
24%
100%
100%
100%
100%
70%
100%
N/A
!
!
%
!
For! the! years! ended! December! 31,! 2015! and! 2014,! the! Company! had! related! party!
transactions! with! the! Company’s! directors,! shareholders,! management! and! significant!
influence!investees!including:!
!
!
Interest! accruing! to! certain! directors/shareholders! of! the! Company! on! the!
Shareholders!Loan!Agreement;!!
•
• The!execution!of!the!Third!Black!Range!Convertible!Loan!(Note!10.2);!
• The!conversion!of!the!First,!Second!and!Third!Black!Range!Convertible!Loans!(Note!
10.2);%
• The!execution!of!the!Second!Powertech!Convertible!Loan!(Note!10.1);%
• The!purchase!of!convertible!loans!issued!by!Powertech!(Note!10.1);!!
• The!purchase!of!convertible!loans!issued!by!Black!Range!(Note!10.2);!%
• Certain!shareholders!and!key!management!personnel!subscribed!for!the!Company’s!
shares!under!subscription!agreements;!
• The!disposal!of!Black!Range!shares!(Note!9.1);!
•
Impairment! charges! on! the! Company’s! investments! in! Powertech! and! Black! Range!
(Note!9.1);!
• The! issuance! of! the! Company’s! common! shares! to! key! management! personnel! to!
settle!trade!and!other!payables!owing;!and!
• The!RTO!with!Powertech!(Note!5).!
%
%
%
%
Page!|!67!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
24.%
%
RELATED%PARTY%TRANSACTIONS%(Continued)%
!
!
Related%party%assets%%
!!
As(at(December(31,
2015
2014
Convertible+loan+issued+by+Black+Range
Investment+in+Black+Range
Total+assets+with+related+parties+
$++++++++++++++++++++++++
++++++++++++++++++++++++++
$++++++++++++++++++++++++
6
6
6
$+++++++++++++++++
+++++++++++++++++
$+++++++++++++++
427,139
1,890,623
2,317,762
Related%party%liabilities%
!
As(at(December(31,
2015
2014
$%%%%%%%%%%%%%%%
%%%%%%%%%%%%%%%%%%%
Loan%payable%to%shareholders
Trade%and%other%payables%for%key%management%
personnel%>%current
Trade%and%other%payables%for%key%management%
personnel%>%non>current
Total%liabilities%with%related%parties%
(i)%As%at%December%31,%2015,%of%the%$2,202,445%loan%payable%to%shareholders,%$892,883%was%payable%to%a%
director.%As%at%December%31,%2014,%of%the%$2,024,522%loan%payable%to%shareholders,%$820,752%was%payable%to%
a%director.
2,024,522
621,707
2,202,445
435,518
$%%%%%%%%%%%%%%%
%%%%%%%%%%%%%%%%%%%
%%%%%%%%%%%%%%%%%%%%%%%%%%
3,007,963
2,646,229
%%%%%%%%%%%%%%%%%%%
$%%%%%%%%%%%%%%%
$%%%%%%%%%%%%%%%
370,000
>
%
(i)
!%
Related%party%expenses%%
!
Interest'expense'on'loan'payable'to'shareholders
Interest'expense'on'promissory'note'issued'to'
Powertech'for'Centennial'
Interest'expense'on'put'option'held'by'Powertech'
on'Centennial'Project'
Equity'loss'pick@up'from'Black'Range'
Realized'loss'on'investment'in'Black'Range
Impairment'of'investment'in'Black'Range
Impairment'of'investment'in'Powertech
Unrealized'loss'on'Black'Range'convertible'loan
Unrealized'loss'on'Powertech'convertible'loan'
Total'related'party'expenses
!
!
!
Year*ended*December*31,
2015
2014
$'''''''''''''''''
''''''''''''''''''''''''''
177,923
@
$'''''''''''''''''
'''''''''''''''''''''
177,991
19,795
''''''''''''''''''''''''''
@
'''''''''''''''''''''
17,604
'''''''''''''''''''
'''''''''''''''''''
'''''''''''''''''''
''''''''''''''''''''''''''
'''''''''''''''''''''
''''''''''''''''''''''''''
$'''''''''''''''
602,375
200,363
520,866
@
16,742
@
1,518,269
2,625,218
1,550,695
3,707,133
'''''''''''''''''
'''''''''''''''''
''''''''''''''''''''''''''
'''''''''''''''''
''''''''''''''''''''''''''
'''''''''''''''''
$'''''''''''''
2,193,710
10,292,146
@
@
Page!|!68!
%
!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
24.%
%
RELATED%PARTY%TRANSACTIONS%(Continued)%
!
!
Related%party%income%%
!
Equity'income'pick/up'from'Powertech
Gain'recognized'on'assets'settled'on'close'of'RTO
Unrealized'gain'on'Black'Range'convertible'loans
Dilution'gain'on'investment'in'associates
Total'related'party'income
!%
!
Key%management%personnel%compensation%
Year*ended*December*31,
2015
2014
/
/
/
$''''''''''''''''''''''''
''''''''''''''''''''''''''
''''''''''''''''''''''''''
'''''''''''''''''''
$'''''''''''''''''
138,493
138,493
$'''''''''''''''''
'''''''''''''''''''
'''''''''''''''''''
'''''''''''''''''''
$'''''''''''''''
341,757
301,133
353,778
469,784
1,466,452
!
%
%
25.%%
%
!
!
!
The!remuneration!of!the!Company’s!directors!and!other!members!of!key!management,!who!
have!the!authority!and!responsibility!for!planning,!directing!and!controlling!the!activities!of!
the!Company,!consist!of!the!following!amounts:!
!!!!
Year*ended*December*31,
2015
2014
Share&based*compensation
Salaries,*fees*and*other*benefits
Share&based*payments
Severance*benefits
Key*management*personnel*compensation
$*****************
*******************
*******************
*******************
$***************
121,516
532,891
407,681
480,000
1,542,088
$*****************
*******************
**************************
**************************
$***************
490,992
887,029
&
&
1,378,021
!
SUPPLEMENTAL%CASH%FLOW%INFORMATION%
!
Non[cash%financing%and%investing%activities%
!
For!the!years!ended!December!31,!2015!and!2014,!the!Company!entered!into!the!following!
nonXcash! investing! and! financing! activities! which! are! not! reflected! in! the! consolidated!
statements!of!cash!flows:!
!
• For! the! years! ended! December! 31,! 2015! and! 2014,! shareXbased! compensation!
expense! of! $37,704! and! $24,678,! respectively,! were! capitalized! as! exploration! and!
evaluation!assets;!
• For!the!years!ended!December!31,!2015!and!2014,!no!interest!or!income!taxes!were!
paid;!!
Page!|!69!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
25.%%
!
!
!
SUPPLEMENTAL%CASH%FLOW%INFORMATION%(Continued)%
• For!the!year!ended!December!31,!2015,!the!Third!Black!Range!Convertible!Loan!was!
converted! into! 73,284,314! Black! Range! shares.! The! fair! value! of! the! Black! Range!
shares!issued!to!the!Company!was!$228,069;!!
• For! the! year! ended! December! 31,! 2014,! the! First! and! Second! Black! Range!
Convertible! Loans! were! converted! into! 163,300,000! and! 141,666,667! Black! Range!
shares,!respectively.!!The!fair!value!of!the!Black!Range!shares!issued!to!the!Company!
was!$1,524,833;!!
• For! the! year! ended! December! 31,! 2015,! the! Company! issued! 928,581! common!
shares!to!settle!$317,432!of!trade!and!other!payables;!
• For!the!year!ended!December!31,!2014,!the!Company!settled!$129,622!of!financing!
costs!with!the!issuance!of!242,696!shares;!and!
• For!the!year!ended!December!31,!2015,!the!Company!sold!10%!of!the!charter!capital!
of! UrAsia! back! to! the! original! sellers! of! UrAsia! for! consideration! that! included:! i)!
forgiving!the!outstanding!$1,700,000!of!deferred!payments!related!to!the!Purchase!
Agreements!and!ii)!extinguishment!of!the!put!option!on!the!nonXcontrolling!interest!
of!UrAsia.!
!
!
26.%% COMMITMENTS%
As! at! December! 31,! 2015! and! 2014,! the! Company’s! commitments! that! have! not! been!
disclosed!elsewhere!in!the!consolidated!financial!statements!are!as!follows:!
!
Within&1&year
As&at&December&31,&2015
2-4&years
Over&4&years
Total
Operating*lease*commitments
Exploration*and*evaluation*commitments
Total*commitments
$**********
**********
$********
44,160
521,887
566,047
$**********
********
$******
91,080
5,854,735
5,945,815
%
8
$***************
********
$******
1,918,161
1,918,161
$********
********
$******
135,240
8,294,783
8,430,023
Within&1&year
As&at&December&31,&2014
2-4&years
Over&4&years
Total
Operating*lease*commitments
Exploration*and*evaluation*commitments
Total*commitments
$**********
**********
$********
43,240
634,860
678,100
$********
**********
$********
135,240
774,730
909,970
8
$***************
********
$******
1,019,395
1,019,395
$********
********
$******
178,480
2,428,985
2,607,465
%
As! at! December! 31,! 2015,! exploration! and! evaluation! commitments! include! lease,! mineral!
claim,! exploration! license! and! property! purchase! agreement! payments! (the! “Leases”)!
required! to! maintain! the! surface! and/or! mineral! rights! for! the! Company’s! mineral!
properties! until! the! earlier! of! the! Lease! expiration! or! the! date! of! the! Lease’s! expected!
release.!!
Page!|!70!
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!
!
!
Azarga&Uranium&Corp.&
MANAGEMENT’S&DISCUSSION&AND&ANALYSIS&
&
December&31,&2015&&
(Expressed!in!U.S.!Dollars)!
!
!
!
!
!
!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
DISCLAIMER&FOR&FORWARDOLOOKING&STATEMENTS&
&
Certain!statements!in!this!Management’s!Discussion!and!Analysis!of!Financial!Condition!
and!Results!of!Operations!are!forwardLlooking!statements.!!ForwardLlooking!statements!
consist!of!statements!that!are!not!purely!historical,!including!any!statements!regarding!
beliefs,! plans,! expectations! or! intentions! regarding! the! future.! ! Often,! but! not! always,!
forwardLlooking! statements! can! be! identified! by! the! use! of! words! such! as! “plans”,!
“expects”,! “budget”,! “scheduled”,! “estimates”,! “forecasts”,! “intends”,! “anticipates”,! or!
“believes”!or!variations!(including!negative!and!grammatical!variations)!of!such!words!
and! phrases! or! statements! that! certain! actions,! events! or! results! “may”,! “could”,!
“would”,! “should”,! “might”! or! “will”! be! taken,! occur! or! be! achieved.! Such! forwardL
looking!statements!involve!known!and!unknown!risks,!uncertainties!and!other!factors,!
which! may! cause! the! Company’s! actual! results,! performance! or! achievements,! or!
industry! results,! to! be! materially! different! from! any! future! results,! performance! or!
achievements!expressed!or!implied!by!such!forwardLlooking!statements.!!No!assurance!
can!be!given!that!any!of!the!events!anticipated!by!the!forwardLlooking!statements!will!
occur! or,! if! they! do! occur,! what! benefits! the! Company! will! obtain! from! them.! ! These!
forwardLlooking! statements! reflect! management's! current! views! and! are! based! on!
certain! expectations,! estimates! and! assumptions,! which! may! prove! to! be! incorrect.!!!
Material! expectations,! estimates! and! assumptions! pertaining! to! forward! looking!
statements! include,! but! are! not! limited! to:! the! timing! of! final! permits! and! licenses!
necessary! to! project! finance! and! develop! the! Company’s! Dewey! Burdock! Project,! the!
improvement! of! uranium! markets! and! uranium! pricing,! the! availability! of! additional!
capital! to! enable! the! Company! to! continue! as! a! going! concern,! including! capital!
generated!from!the!sale!of!assets!classified!as!held!for!sale,!and!the!Company’s!mineral!
properties! provide! a! pipeline! for! continued! growth.!
! A! number! of! risks! and!
uncertainties!could!cause!its!actual!results!to!differ!materially!from!those!expressed!or!
implied! by! the! forward! looking! statements,! including,! but! not! limited! to:! global!
economic! conditions;! uranium! price! fluctuations;! government! regulation! and! policy!
risks;!public!involvement!in!the!permitting!process;!Native!American!involvement!in!the!
permitting!process;!environmental!regulatory!requirements!and!risks;!the!market!price!
of! the! Company’s! shares;! public! acceptance! of! nuclear! energy! and! competition! from!
other! energy! sources;! the! Company! will! require! significant! amounts! of! additional!
capital! in! the! future;! competition! for! properties! and! experienced! employees;! uranium!
industry! competition! and! international! trade! restrictions;! exposure! to! emerging!
markets;! possible! loss! of! interests! in! exploration! and! development! properties;! mining!
and! mineral! exploration! is! inherently! dangerous! and! subject! to! factors! beyond! the!
Company’s! control;! the! Company’s! mineral! resources! are! estimates;! the! nature! of!
exploration! and! development! projects;! political! risk;! currency! fluctuations;! the!
Company!has!no!history!of!mining!operations;!property!title!rights;!dependence!on!key!
personnel! and! qualified! and! experienced! employees;! delineation! of! mineral! reserves!
and! additional! mineral! resources;! insurance! coverage;! dilution! from! further! equity!
financing!and!outstanding!stock!options!and!share!purchase!warrants;!the!Company!has!
never!paid!dividends!and!may!not!do!so!in!the!foreseeable!future;!litigation!and!other!
legal! proceedings;! technical! innovation! and! obsolescence;! disclosure! and! internal!
controls;!and!conflicts!of!interest.!
!
!
2!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
DISCLAIMER&FOR&FORWARDOLOOKING&STATEMENTS&(Continued)!
!
Please!refer!to!the!Risks!and!Uncertainties!section!of!this!Management’s!Discussion!and!
Analysis!of!Financial!Condition!and!Results!of!Operations!for!additional!information!on!
the!above!risk!factors.!!
Undue! reliance! should! not! be! placed! on! forwardLlooking! statements! because! they!
involve! known! and! unknown! risks,! uncertainties! and! other! factors! that! are! in! many!
cases!beyond!the!Company’s!control.!ForwardLlooking!statements!are!not!guarantees!of!
future!performance!and!the!Company’s!actual!results!of!operations,!financial!condition!
and! liquidity,! and! the! development! of! the! industry! in! which! it! operates,! may! differ!
materially! from! statements! made! or! incorporated! by! reference! in! this! Management’s!
Discussion!and!Analysis!of!Financial!Condition!and!Results!of!Operations.!
!
The! Company! undertakes! no! obligation! to! update! forwardLlooking! statements! if!
management’s!beliefs,!estimates!and!opinions!or!the!Company’s!circumstances!as!at!the!
date! hereof! should! change.! ! The! Company! disclaims! any! intention! or! obligation! to!
update! or! revise! any! forwardLlooking! statements,! whether,! as! a! result! of! new!
information,!future!events!or!otherwise.!
!
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AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
TABLE&OF&CONTENTS
1. General
2. Significant1events1and1highlights
3. Background
4. Industry1trends1and1outlook
5. Mineral1properties
6. Investments
7. Selected1annual1information
8. Summary1of1quarterly1results
9. Financing,1liquidity1and1capital1resources
10. Contractual1obligations1and1commitments
11. Off1balance1sheet1arrangements
12. Financial1instruments
13. Related1party1transactions
14. Share1capital
15. Critical1accounting1estimates1and1judgments
16. Recent1accounting1pronouncements
17. Management's1responsibility1for1financial1information
18. Disclosure1controls1and1procedures
19. Internal1controls1over1financial1reporting
20. Disclosure1of1a1scientific1or1technical1nature
21. Risks1and1uncertainties
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4!
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AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
GENERAL&
!
This! Management’s! Discussion! and! Analysis! of! Financial! Condition! and! Results! of!
Operations! (“MD&A”)! of! Azarga! Uranium! Corp.! (“Azarga! Uranium”)! (formerly!
Powertech! Uranium! Corp.! (“Powertech”))! (which,! together! with! its! subsidiaries,! is!
collectively! referred! to! as! the! “Company”)! dated! March! 30,! 2016 should! be! read! in!
conjunction! with! the! consolidated! financial! statements! of! the! Company! and! the! notes!
thereto!for!the!years!ended!December!31,!2015!and!2014.!!!The!Company’s!consolidated!
financial! statements,! including! comparatives,! have! been! prepared! in! accordance! with!
and! using! accounting! policies! in! compliance! with! International! Financial! Reporting!
Standards! (“IFRS”)! and! interpretations! issued! by! the! International! Accounting!
Standards! Board! (“IASB”)! and! interpretations! of! the! IFRS! Interpretations! Committee!
(“IFRIC”).!!
!
Financial! information! presented! in! this! MD&A! has! been! prepared! as! a! continuation! of!
Azarga! Resources! Limited’s! (“Azarga! Resources”)! consolidated! financial! statements.!
The! comparative! figures! presented! include! the! results! of! Powertech’s! operations!
subsequent! to! the! close! of! the! reverse! takeLover! (“RTO”)! on! October! 28,! 2014.! In! the!
consolidated! statement! of! cash! flow! for! the! year! ended! December! 31,! 2014,! the!
Company! reclassified! the! purchase! of! convertible! loans! of! $3,746,788! from! financing!
activities!to!investing!activities.!
!
The! functional! currency! of! each! entity! is! determined! by! the! currency! of! the! primary!
economic! environment! in! which! the! entity! operates.! ! The! functional! currency! of! each!
entity! is! the! United! States! Dollar,! with! the! exception! of! UrAsia! in! Kyrgyzstan! Limited!
Liability!Company!(“UrAsia”),!whose!functional!currency!is!the!Kyrgyz!Som.!!
!
All! references! to! $! in! this! MD&A! refer! to! the! United! States! Dollar,! all! references! to! C$!
refer!to!the!Canadian!Dollar!and!all!references!to!A$!refer!to!the!Australian!Dollar.&
&
Additional! information! relating! to! the! Company,! including! the! Annual! Information!
Form,!is!available!under!the!Company’s!profile!on!SEDAR!at!www.sedar.com.!
!
!
SIGNIFICANT&EVENTS&AND&HIGHLIGHTS&
!
The!Company’s!significant!events!and!highlights!for!the!year!ended!December!31,!2015!
and!subsequent!period!to!March!30,!2016!are!as!follows:!
&
•
In! April! 2015,! the! Company! filed! a! National! Instrument! 43L101! (“NI! 43L101”)!
compliant! updated! resource! estimate! and! preliminary! economic! assessment!
(“PEA”)! for! the! Dewey! Burdock! Project,! prepared! by! TREC! Inc.! (“TREC”)! and!
Rough!Stock!Mining!Services!(“Rough!Stock”).!Refer!to!the!“Mineral!Properties!–!
The!Dewey!Burdock!Project”!section!of!this!MD&A!for!additional!details.!
!
!
!
!
5!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
SIGNIFICANT&EVENTS&AND&HIGHLIGHTS&(Continued)&
!
•
!
In!May!2015,!the!Company!announced!that!the!United!States!Atomic!Safety!and!
Licensing!Board!(“ASLB”)!ruled!on!seven!contentions!raised!by!the!consolidated!
intervenors!and!the!Oglala!Sioux!Tribe!(collectively!the!“Intervenors”)!regarding!
the! United! States! Nuclear! Regulatory! Commission! (“NRC”)! Final! Source! and!
Byproduct! Materials! License! for! the! Dewey! Burdock! Project.! For! five!
contentions,!the!ASLB!ruled!in!favor!of!NRC!staff!and!the!Company;!however,!for!
two!contentions,!which!relate!to!the!identification!and!protection!of!historic!and!
cultural!resources,!the!ASLB!requested!additional!consultation!between!the!NRC!
staff! and! the! Oglala! Sioux! Tribe.! Subsequent! to! this! ruling! by! the! ASLB,! the!
Company!and!the!NRC!staff!filed!petitions!for!review!of!the!ASLB!ruling!on!the!
identification!and!protection!of!historic!and!cultural!resources!to!the!commission!
of! the! United! States! Nuclear! Regulatory! Commission! (the! “NRC! Commission”).!!
The!Intervenors!also!filed!petitions!for!review!covering!most!of!the!contentions!
heard! by! the! ASLB.! ! The! Company! and! the! NRC! staff! filed! responses! to! these!
petitions;! however,! of! the! Intervenors! only! the! Oglala! Sioux! Tribe! filed! a!
response.! ! Although! the! above! process! is! ongoing,! the! Dewey! Burdock! NRC!
license!remains!in!effect.!
!
• On! July! 23,! 2015,! Cantor! Fitzgerald! initiated! research! coverage! on! Azarga!
Uranium.!
!
• On!September!16,!2015,!the!Western!Uranium!Corporation!(“Western!Uranium”)!
and!Black!Range!Minerals!Limited!(“Black!Range”)!merger!closed.!!Refer! to! the!
“Investments”!section!of!this!MD&A!for!additional!details.!
!
• On!November!9,!2015,!the!Uranium!Resources,!Inc.!(“URI”)!and!Anatolia!Energy!
Limited! (“Anatolia”)! merger! closed.! ! Refer! to! the! “Investments”! section! of! this!
MD&A!for!additional!details.&
•
In! March! 2016,! the! Company! sold! redundant! assets! for! net! proceeds! of!
approximately!$320,000!(C$430,000)!and!settled!$193,273!(C$262,318)!of!trade!
and!other!payables!through!the!issuance!of!the!Company’s!common!shares.!!
!
• The! Company! announced! Board! and! senior! management! changes! including! the!
appointment!of!Alexander!Bayer!and!Kim!Huatt!Ng!to!the!Board,!the!resignation!
of!Douglas!Eacrett!from!the!Board,!the!temporary!leave!of!Alexander!Molyneux!
from!the!Company!and!the!appointment!of!Blake!Steele,!Chief!Financial!Officer,!
as!President!and!Corporate!Secretary.!Richard!Clement,!the!Company’s!Chairman!
and!interim!CEO,!previously!held!the!roles!of!President!and!Corporate!Secretary.!!
!
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6!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
BACKGROUND&
!
Azarga! Uranium! is! a! publicly! listed! company! incorporated! in! Canada! on! February! 10,!
1984!with!limited!liability!under!the!legislation!of!the!Province!of!British!Columbia!and!
its! shares! are! listed! on! the! Toronto! Stock! Exchange! (symbol:! TSX:AZZ)! and! the!
Frankfurt!Stock!Exchange!(symbol:!FRA:P8AA).!The!Company!is!an!integrated!uranium!
exploration!and!development!company.!!On!October!28,!2014,!Powertech!completed!a!
RTO! with! Azarga! Resources.! Refer! to! the! “Reverse! TakeHover! of! Powertech! Uranium!
Corp.”!section!of!this!MD&A!for!additional!details.!!
&
The! Company! controls! uranium! properties! located! in! the! United! States! of! America!
(“USA”)!and!in!the!Kyrgyz!Republic.!!The!Company’s!Dewey!Burdock!Project,!located!in!
South!Dakota,!is!the!Company’s!initial!development!priority.!!The!Company!also!owns!
the! Centennial! Project! in! Colorado,! the! Aladdin! Deposit! in! Wyoming,! two! uranium!
exploration!properties!in!Wyoming!and!70%!of!the!Kyzyl!Ompul!Project!in!the!Kyrgyz!
Republic.!!As!at!the!date!of!this!MD&A,!the!Company!holds!investments!in!the!following!
uranium!exploration!and!development!companies:!a!3.6%!stake!in!Western!Uranium,!a!
publicly! listed! company! on! the! Canadian! Securities! Exchange! (“CSE”)! (symbol:!
CSE:WUC)! (formerly! the! Company’s! investment! in! Black! Range)! and! a! 2.7%! stake! in!
URI,!a!publicly!listed!company!on!the!NASDAQ!(symbol:!NASDAQ:URRE)!(formerly!the!
Company’s!investment!in!Anatolia).!!
&
Reverse!TakeHover!of!Powertech!Uranium!Corp.!
!
On! October! 28,! 2014,! Powertech! completed! its! acquisition! of! all! of! the! issued! and!
outstanding! common! shares! of! Azarga! Resources.! In! connection! with! closing! the!
transaction,! Powertech! changed! its! name! to! Azarga! Uranium! Corp.! and! completed! a!
consolidation! of! its! outstanding! common! shares! on! the! basis! of! 1! postLconsolidation!
share! for! 10! preLconsolidation! shares! (the! “Consolidation”).! Pursuant! to! the! share!
purchase! agreement,! as! amended,! in! exchange! for! obtaining! all! of! the! issued! and!
outstanding! shares! of! Azarga! Resources,! Powertech!
issued! 41,911,182! postL
Consolidation! common! shares! to! the! former! shareholders! of! Azarga! Resources,!
representing!approximately!82.9%!of!the!combined!entity’s!ownership.!As!a!result,!the!
transaction!represented!an!RTO!and!Azarga!Resources!was!identified!as!the!accounting!
acquirer.! All! common! shares! issued! on! close! of! the! RTO! were! subject! to! a! 24Lmonth!
escrow!period,!with!25%!of!the!escrowed!securities!released!on!October!28,!2015!and!
the!remaining!escrowed!securities!to!be!released!on!October!28,!2016.!
!
Total!consideration!of!$6,386,140!was!transferred!on!close!of!the!RTO!and!comprised!
of:!the!equivalent!of!15,558,071!postLConsolidation!common!shares,!outstanding!share!
options! and! share! purchase! warrants! and! the! net! amount! of! loans! forgiven! by! Azarga!
Resources.! Total! identifiable! assets! of! $17,991,381! were! transferred! on! close! of! the!
RTO,!resulting!in!a!bargain!purchase!gain!of!$11,605,241.!!The!Company!recognized!a!
bargain!purchase!gain!on!close!of!the!RTO!due!to!Powertech’s!assets!being!undervalued!
as!a!result!of!a!combination!of!factors,!including!weak!equity!markets.!!
&
!
!
7!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
INDUSTRY&TRENDS&AND&OUTLOOK&
!
The! March! 2011! Fukushima! incident! continues! to! have! ramifications! on! the! broader!
nuclear!and!uranium!industries;!however,!the!Company!believes!that!a!turnaround!for!
uranium!is!underway.!Our!views!are!predicated!on!a!number!of!key!elements:!
&
!
• Many&countries&that&eliminated&or&reduced&their&nuclear&reliance&are&now&
encountering& significant& consequences& –! Increased! cost! of! electricity!
generation! and! increased! pollution! from! switching! to! fossil! fuels! is! a! key! issue!
for!such!countries.!For!example,!Japanese!CO2!emissions!are!at!an!allLtime!high1.!
However,! Japan! has! now! created! Asia’s! first! mandatory! scheme! for! cutting!
emissions,! with! a! plan! to! cut! emissions! by! 26%! by! 2030! and! to! have!
approximately! 20%! of! the! country’s! electricity! generated! from! nuclear! power1.!!
Furthermore,!the!switch!away!from!nuclear!has!caused!a!significant!increase!in!
Japan’s! trade! deficit2.! TwentyLsix! Japanese! nuclear! reactors! have! applied! for!
regulatory! approvals! to! reLstart! operations! and! two! reactors! are! currently!
operating3.!!
!
• Demand& is& rapidly& accelerating& in& new& markets!–!The!‘BRICS’!countries!(i.e.!
Brazil,! Russia,! India,! China! and! South! Africa)! are! rapidly! growing! their! nuclear!
power!capacity!and!increasing!their!reliance!on!nuclear!power!as!a!proportion!of!
overall! power! generation.! In! fact,! when! considering! the! number! of! nuclear!
power! plants! operating,! those! under! construction! and! those! proposed! for!
construction,!the!figures!have!reached!an!allLtime!high4.!China,!Russia!and!India!
lead! the! world! in! terms! of! the! number! of! new! nuclear! power! plants! under!
construction,! with! twentyLfour,! eight! and! six,! respectively4.! ! China! has! recently!
announced! in! its! latest! Five! Year! Plan! that! it! intends! to! have! at! least! 110!
operating! nuclear! power! reactors! by! 2030 5 ,! accelerating! its! approval! and!
construction! process! from! 3L5! units! per! year! (previous! Five! Year! Plan)! to! 6L8!
units! per! year! between! 2016! and! 2020! and! increasing! to! 10! units! per! year!
thereafter5.! ! Even! the! United! States! is! seeing! renewed! growth! in! its! nuclear!
industry,! with! the! NRC! approving! the! licensing! of! new! nuclear! reactors! in! the!
United!States!for!the!first!time!in!nearly!two!decades6.!
!
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!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
1 Irish Times – Japan’s Emissions Have Soared Since Fukushima Nuclear Disaster (September 21, 2015)
2 World Nuclear Association – Nuclear Power in Japan (March 2016)
3 Nuclear Energy Institute – Japan Nuclear Update (March 24, 2016)
4 World Nuclear Association – World Nuclear Power Reactors & Uranium Requirements (March 1, 2016)
5 Barclays Equity Research – Asia ex-Japan Power & Utilities: Raising the heat in the nuclear space (October
16, 2015)
6 Times Free Press – Watts Bar Nuclear Plant Unit Passes Key Test (October 13, 2015)
!
!
8!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
INDUSTRY&TRENDS&AND&OUTLOOK&(Continued)!
!
• Current& prices& will& constrain& supply&–!According! to! supply! cost! curves!
published!by!industry!analysts,!approximately!one!third!of!current!mine!supply!
is!not!economic!at!the!current!spot!price7.!!Low!prices!are!forcing!producers!to!
curtail! mining,! development! and! exploration.! In! 2014,! annual! U3O8! supply!
decreased!by!approximately!11%8.!
!
Despite! the! Company’s! belief! that! a! uranium! industry! turnaround! is! tentatively!
underway,! its! strategies! are! focused! on! making! prudent! plans! to! progress! its!
business,! whilst! conserving! its! financial! resources.! At! this! time,! the! Company’s!
strategy!involves!the!following!key!elements:!
!
• Continue& with& the& advancement& of& the& Dewey& Burdock& Project!–!Receiving!
the!NRC!license!for!the!Dewey!Burdock!Project!in!April!2014!and!the!ASLB!ruling!
in! April! 2015! were! key! risk! reduction! events! for! the! Dewey! Burdock! Project.!!
The!Company!is!now!continuing!work!to!resolve!the!remaining!two!contentions!
on! the! NRC! license! and! to! complete! the! Environmental! Protection! Agency!
(“EPA”)!and!South!Dakota!state!permitting!requirements!through!2016!and!2017!
in! order! to! have! the! project! ready! for! construction! in! the! second! half! of! 2017.!
The!Company!has!embarked!on!a!process!to!consider!projectLfinancing!options!
for!the!Dewey!Burdock!Project,!with!a!view!to!having!a!funding!solution!in!place!
concurrent!with!the!finalization!of!permits.!
!
• Future& uranium& production& offOtake& –!In!2015,!the!Company!commenced!the!
process!of!engaging!with!potential!customers!for!future!uranium!production!offL
take.! The! Company! plans! to! continue! these! discussions! throughout! 2016! in!
parallel!with!the!advancement!of!the!Dewey!Burdock!Project.!!
• Curtail& activities& in& the& Kyrgyz& Republic& –! A! maiden! NI! 43L101! uranium!
resource! was! completed! in! April! 2014! on! the! foundations! of! a! twoLyear!
exploration!program!on!the!Kyzyl!Ompul!Project.!!In!2015,!the!Company!focused!
on! completing! desktop! studies! for! the! Kyzyl! Ompul! Project.! ! These! desktop!
studies!will!continue!throughout!2016.!!
!
• Manage& investments& for& value! –! The! Company’s! investments! in! Western!
Uranium!and!URI!have!a!combined!market!value!of!$1.2!million!as!at!March!29,!
2016.! The! Company! will! continue! to! monitor! these! investments! and! plans! to!
generate! cash! through! the! realization! of! these! investments! to! fund! the!
Company’s!2016!strategic!initiatives.!
!
&
&
&
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
7 RBC Capital Markets – Uranium Market Outlook – Third Quarter 2015 (August 24, 2015)
8 Cantor Fitzgerald – Quarterly Commodity Outlook (October 29, 2015)
!
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9!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
INDUSTRY&TRENDS&AND&OUTLOOK&(Continued)&
!
•
Identify& opportunities& to& generate& capital& through& the& sale& of& redundant&
assets&–!The!Company!expects!to!generate!approximately!$300,000!of!additional!
cash! from! the! sale! of! redundant! assets.! ! To! date,! the! Company! has! sold!
redundant! assets! for! net! proceeds! of! approximately! $700,000.! The! redundant!
assets!primarily!pertain!to!land!at!the!Centennial!Project.!!As!a!condition!of!the!
sale,!the!Company!will!retain!the!surface!rights.!!The!Company!does!not!expect!
the!sale!of!redundant!assets!to!jeopardize!its!overall!strategy.!!!
!
The!Company!believes!a!unique!opportunity!exists!for!investors!to!build!an!investment!
in!Azarga!Uranium.!Firstly,!the!Company!has!a!firm!belief!that!uranium!prices!will!move!
higher!in!the!medium!term.!Secondly,!the!Company’s!‘flagship’!Dewey!Burdock!Project!
is! one! of! the! world’s! leading! undeveloped! uranium! deposits! in! terms! of! its! low! initial!
capital! expenditure! and! post! startLup! cash! operating! costs.! Therefore,! the! Company!
believes!that!once!permitting!is!complete,!the!Company!will!be!able!to!attract!financing!
and! move! into! the! construction! phase.! ! Thirdly,! the! Company! has! an! asset! suite!
inclusive! of! mineral! properties! at! various! stages! of! development,! which! provide! a!
pipeline! for! continued! growth.! Lastly,! management! and! the! board! of! directors! have!
extensive!experience!in!uranium,!the!broader!mining!sector!and!financial!markets.!
&
&
MINERAL&PROPERTIES!
The!Dewey!Burdock!Project!(100%!interest)!–!South!Dakota,!USA!
!
The! Company’s! 100%! owned! Dewey! Burdock! Project! is! an! inLsitu! 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!Project!is!comprised!of!approximately!13,560!surface!acres!and!17,900!
net! mineral! acres.! ! The! Dewey! Burdock! Project! is! the! Company’s! initial! development!
priority.!!!
!
In!April!2015,!the!Company!filed!an!updated!NI!43L101!compliant!independent!resource!
estimate! and! PEA! for! the! Dewey! Burdock! Project! prepared! by! TREC! and! Rough! Stock!
(the! “Dewey! Burdock! PEA”)! with! an! effective! date! of! January! 29,! 2015.! The! Dewey!
Burdock!PEA!provides!an!updated!preliminary!economic!analysis!of!the!Dewey!Burdock!
Project! based! on! exploration! and! development! work! performed! subsequent! to! the!
previous!PEA!filed!in!April!2012.!!
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10!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
MINERAL&PROPERTIES!(Continued)&
!
The!Dewey!Burdock!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!gradeLthickness!(“GT”)!cutLoff!and!inferred!uranium!resources!of!3,528,000!pounds!
at!0.05%!U3O8!at!a!0.2!GT!cutLoff!in!the!ISR!mineral!resource!estimate.!The!Company’s!
measured!and!indicated!resources!increased!by!28%!compared!to!the!PEA!filed!in!April!
2012!to!8,582,000!pounds!of!uranium!at!an!average!grade!of!0.25%!U3O8.!The!mineral!
resource!estimate!includes!an!additional!940,000!pounds!of!nonLISR!(located!above!the!
water!table)!inferred!resources!at!0.17%!U3O8.!The!nonLISR!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! January! 29th,! 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! preLfederal! 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!postLfederal!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!postLfederal!income!tax!
calculations!do!not!include!a!corporate!level!assessment!of!federal!income!tax!liabilities;!
taxes! have! only! been! calculated! at! the! Dewey! Burdock! 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!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!(preLfederal! income!
tax).!!Over!its!16Lyear!mine!life,!the!Dewey!Burdock!Project!is!forecast!to!produce!9.7!
million! lbs! of! U3O8! with! a! payLback! 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!Project!to!the!construction!phase.!!
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11!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
MINERAL&PROPERTIES!(Continued)&
!
The!NRC!issued!the!final!Supplemental!Environment!Impact!Statement!(“SEIS”)!for!the!
Dewey!Burdock!Project!on!January!31,!2014.!!The!EPA!issued!a!notice!of!receipt!of!the!
final!SEIS!on!February!7,!2014,!starting!a!30Lday!review!period!and!subsequently!issued!
final! comments! on! the! SEIS! on! March! 10,! 2014.! ! The! NRC! also! prepared! a! Safety!
Evaluation!Report!(“SER”),!which!was!published!in!November!2013!and!a!draft!Section!
106!Programmatic!Agreement!(“PA”).!The!final!Section!106!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! revised! SER! and! the! Company’s! Dewey!
Burdock! Project! received! its! Source! and! Byproduct! Materials! License! SUAL1600! (an!
operating!license)!on!April!8,!2014,!covering!10,580!acres.!!The!Company!holds!mineral!
and!surface!rights!for!the!entire!area!pertaining!to!the!NRC!license.!&
!
In! August! 2014,! the! evidentiary! hearing! was! held! with! the! ASLB! in! regards! to! the!
limited!contentions!raised!with!respect!to!the!Dewey!Burdock!Project.!These!hearings!
with!the!ASLB!are!normal!practice!and!are!undertaken!after!the!NRC!license!is!granted!
to! determine! whether! or! not! the! NRC! staff! has! considered! all! issues! related! to! the!
license.! In! April! 2015,! the! ASLB! ruled! on! seven! contentions! raised! by! the! Intervenors!
regarding! the! NRC! license! for! the! Dewey! Burdock! 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!ASLB!determined!that!its!partial!initial!decision!would!constitute!a!final!decision!in!
120!days!(i.e.!August!28,!2015),!subject!to!an!NRC!Commission!determination!that!it!will!
review! the! decision! or! the! NRC! Commission! granting! leave! to! any! appeal.! ! As! the!
Company,!the!NRC!staff!and!the!Intervenors!have!filed!petitions!for!review!of!the!ASLB!
ruling,! a! final! decision! was! not! issued! by! August! 28,! 2015.! ! Further,! the! ASLB! did! not!
suspend! the! NRC! license.! Instead,! the! ASLB! decided! to! retain! jurisdiction! of! the! two!
contentions! and! has! asked! for! monthly! status! reports! from! the! NRC! staff! until! the!
outstanding! issues! are! addressed.! The! Company! is! fully! facilitating! this! process! to! the!
extent!possible.!!
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12!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
MINERAL&PROPERTIES!(Continued)&
!
The! Company! and! the! NRC! staff! filed! petitions! for! review! of! the! ASLB! ruling! on! the!
identification!and!protection!of!historic!and!cultural!resources!to!the!NRC!Commission.!!
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!to!the!NRC!
Commission!submitted!by!the!Intervenors.!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,! as! anticipated! by! the!
Company,!all!parties!received!a!response!from!the!NRC!Commission!indicating!that!the!
above!filings!are!still!being!reviewed.!!The!Company!anticipates!a!decision!from!the!NRC!
Commission!in!the!first!half!of!2016.!!However,!due!to!the!lack!of!mandated!regulatory!
timelines,!the!dates!may!be!subject!to!change.!!In!March!2016,!the!Company!submitted!a!
status!report!to!the!NRC!Commission!requesting!an!update!on!the!above!filings!that!are!
currently!under!review.!
!!
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! 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!
Project!include!the!satisfaction!of!preLoperational!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!EPA!has!
informed! the! Company! that! they! are! currently! conducting! formal! consultations! with!
Native! American! Tribes! that! may! be! potentially! impacted! by! the! Dewey! Burdock!
Project.!!The!Company!currently!anticipates!receiving!the!draft!permits!in!the!first!half!
of! 2016! and! the! final! Class! III! and! Class! V! UIC! permits! in! the! second! half! of! 2016;!
however,!due!to!the!lack!of!mandated!regulatory!timelines,!these!dates!may!be!subject!
to!change.!!
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13!
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AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
MINERAL&PROPERTIES!(Continued)&
!
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.!
!
On! July! 8,! 2014,! the! BLM! requested! additional! information! on! the! Company’s! plan! of!
operations! for! the! Dewey! Burdock! Project.! The! Company! submitted! the! requested!
information! and! anticipates! that! the! BLM! will! approve! the! plan! of! operations! for! the!
Dewey!Burdock!Project!in!the!first!half!of!2016,!at!which!point!it!is!also!anticipated!that!
the!BLM!will!prepare!an!environmental!assessment!and!issue!its!Record!of!Decision.!
!
The!Company!anticipates!the!regulatory!process!with!respect!to!the!NRC!Commission,!
the! EPA,! the! South! Dakota! DENR! and! the! BLM! to! be! completed! by! the! second! half! of!
2017;! however,! the! Company! remains! cautious! regarding! the! anticipated! schedule! for!
obtaining! the! outstanding! regulatory! approvals! because! of! factors! outside! the!
Company’s! control,! including! a! lack! of! mandated! regulatory! timelines! for! permit!
issuances!and!the!logistics!of!scheduling!and!holding!regulatory!hearings.!
!
The!Centennial!Project!(100%!interest)!–!Colorado,!USA!
!
The!Company’s!100%!owned!Centennial!Project!is!located!in!the!western!part!of!Weld!
County!in!northeastern!Colorado.!Through!property!purchase!and/or!lease!agreements,!
the!Centennial!Project!is!comprised!of!approximately!1,520!acres!of!surface!rights!and!
approximately!6,540!acres!of!mineral!rights.!!
!
Historical! exploration! work! included! drilling,! recovery! tests,! water! well! tests! and!
environmental!studies.!At!the!request!of!the!Colorado!Division!of!Reclamation,!Mining!
and!Safety,!the!Company!prepared!and!submitted!an!updated!Site!Characterization!Plan!
in!April!2009.!All!the!required!environmental!surveys!and!studies!have!been!completed!
and!the!draft!reports!have!been!received.!The!Company!completed!its!application!to!the!
EPA!for!a!Class!I!UIC!Permit!in!November!2010.!In!December!2010,!the!EPA!informed!
the! Company! that! the! application! was! deemed! complete.! ! The! majority! of! the! major!
mine! permit! applications! for! the! Centennial! Project! have! not! been! prepared! or!
submitted!to!date.!!!!
!
!
!
!
!
14!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
MINERAL&PROPERTIES!(Continued)&
!
In! August! 2010,! a! NI! 43L101! compliant! independent! PEA! (the! “Centennial! PEA”)! was!
prepared!by!SRK!Consulting!(U.S.),!Inc.!and!Lyntek!Incorporated!with!an!effective!date!
of! June! 2,! 2010.! ! The! Centennial! PEA! indicated! that! the! Centennial! Project! can! be!
developed!using!the!ISR!method!and!resulted!in!a!net!present!value!of!$51.8!million!at!a!
discount!rate!of!8%!and!an!internal!rate!of!return!of!18%.!!The!Centennial!PEA!assumed!
uranium!prices!of!$65/lb!U3O8,!cash!operating!costs!of!$34.95/lb!U3O8!and!capital!costs!
of! $71.1! million.! ! The! Centennial! PEA! included! indicated! uranium! resources! of!
10,371,571!pounds!at!0.09%!U3O8!and!inferred!uranium!resources!of!2,325,514!pounds!
at! 0.09%! U3O8! at! a! 0.20! GT! cutLoff! and! annual! production! of! 700,000! lbs! per! annum,!
which!resulted!in!a!14Lyear!mine!life.!!The!effective!date!of!the!resource!estimate!is!June!
2,!2010.!
!
Details! of! the! assumptions! and! parameters! used! with! respect! to! the! Centennial! PEA,!
including! information! on! data! verification,! are! set! out! in! the! Centennial! PEA! dated!
August! 6,! 2010,! a! copy! of! which! is! available! under! the! Company’s! profile! at!
www.sedar.com.! The! Centennial! PEA! is! preliminary! in! nature! and! 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! Centennial! PEA! will! be! realized.! Mineral!
resources!that!are!not!mineral!reserves!do!not!have!demonstrated!economic!viability.!
!
Subsequent! to! the! Centennial! PEA! being! completed,! certain! lease! agreements! with!
respect! to! the! Centennial! Project! were! not! renewed;! however,! the! impact! to! the!
Centennial!PEA!is!immaterial.!!!!
!
The!Company!continues!to!analyse!development!scenarios!for!the!Centennial!Project!in!
order!to!maximize!the!value!that!can!be!extracted!from!this!project.!!!
!
The!Aladdin!Deposit!(100%!interest)!–!Wyoming,!USA!
!
The! Aladdin! Deposit! is! comprised! of! approximately! 6,810! acres! of! mineral! rights! and!
7,150! acres! of! surface! rights! located! along! the! Wyoming/South! Dakota! border! on! the!
northwestern!flank!of!the!Black!Hills!Uplift,!within!sandstones!of!the!Lower!CretaceousL
age! Inyan! Kara! Group.! ! The! Aladdin! property! is! 80! miles! northwest! of! the! Dewey!
Burdock!Project.!Uranium!resources!at!the!Aladdin!Deposit!have!developed!within!the!
same!host!rocks!that!contain!the!Dewey!Burdock!uranium!resources.!
!
In! June! 2012,! the! Company! completed! a! NI! 43L101! compliant! technical! report! for! the!
Aladdin! Deposit,! with! an! effective! date! of! June! 21,! 2012,! describing! the! results! of! the!
Company’s! confirmation! drilling! program! and! continued! evaluation! of! the! historic!
exploration!drilling!data!from!Teton!Exploration!Company.!!
!
!
!
!
!
15!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
MINERAL&PROPERTIES!(Continued)&
!
The! Aladdin! Deposit! contains! indicated! uranium! resources! of! 1,038,023! pounds! at!
0.111%! U3O8! and! inferred! uranium! resources! of! 101,255! pounds! at! 0.119%! U3O8!at! a!
0.20! GT! cutLoff.! ! Mineral! resources! that! are! not! mineral! reserves! do! not! have!
demonstrated!economic!viability.!
!
In! addition,! using! the! same! cutLoff,! the! quantity! of! mineralization! for! the! exploration!
target!was!determined!to!be!5.0!to!11.0!million!pounds!of!uranium,!averaging!0.11%!L!
0.12%!U3O8.!!In!over!80%!of!the!project!area,!the!density!of!exploration!drilling!is!light!
and!insufficient!to!calculate!resources.!In!these!lightly!explored!areas,!there!is!sufficient!
drill!hole!control!for!subsurface!geochemical!mapping!and!thirteen!mineralized!trends!
were!identified.!This!estimation!used!a!range!of!i)!mineralized!trend!lengths,!ii)!widths!
of!mineralization!and!iii)!grades!of!mineralization.!
!
The!grade!and!quantity!of!this!exploration!target!is!conceptual!in!nature!and!there!has!
been!insufficient!exploration!work!performed!with!respect!to!the!exploration!target!to!
define! a! NI! 43L101! compliant! resource.! It! is! uncertain! whether! further! exploration! of!
the!exploration!target!will!result!in!the!delineation!of!a!NI!43L101!compliant!resource.!
Details!of!the!assumptions!and!parameters!used!with!respect!to!the!Aladdin!NI!43L101!
Technical!Report,!including!quality!estimates!and!information!on!data!verification,!are!
available!under!the!Company’s!profile!on!SEDAR!at!www.sedar.com.!!
!
Subsequent!to!the!NI!43L101!compliant!technical!report!being!completed,!certain!lease!
agreements/claims! were! not! renewed;! however,! the! impact! to! the! Aladdin! NI! 43L101!
Technical!Report!is!immaterial.!
!
The!Company!is!currently!evaluating!the!Aladdin!Project!in!order!to!determine!how!to!
maximize!the!value!that!can!be!extracted!from!this!project.!!!
!
Kyzyl!Ompul!Project!(70%!interest)!–!Kyrgyz!Republic!
!
The! uranium! deposit/prospects! of! the! Kyzyl! Ompul! Project! are! located! in! the! Kyrgyz!
Republic,! approximately! 125! kilometers! (“km”)! east! of! the! capital! of! Bishkek.! More!
specifically,! the! Kyzyl! Ompul! Project! is! located! in! the! Kochkor! region! of! the! Naryn!
Oblast! and! the! IssykLKul! region! of! the! IssykLKul! Oblast.! ! The! Kyzyl! Ompul! Project! is!
100%!owned!and!operated!by!UrAsia,!in!which!the!Company!owns!a!70%!interest,!and!
consists!of!one!exploration!license!with!an!area!of!42,379!hectares.!The!license!is!valid!
until!December!31,!2020!and!permits!exploration!for!uranium.!!
!
The! Kyzyl! Ompul! Project! has! been! explored! since! the! 1950s! for! uranium,! with! most!
historic! exploration! occurring! during! the! 1950s! and! 1960s.! This! historic! exploration!
identified! a! number! of! hydrothermal! and! placer! uranium! prospects! within! the! Kyzyl!
Ompul!Project.!!In!total,!five!hydrothermal!uranium!prospects!and!five!placer!uranium!
prospects!were!identified.!!
!
!
!
16!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
MINERAL&PROPERTIES!(Continued)&
!
The! Kok! Moinok! deposit,! the! most! advanced! of! the! hydrothermal! deposits,! was!
discovered!in!1953.!From!1953!to!1957,!144!holes!were!drilled!on!a!grid!of!50m!x!50m.!
Soviet! classified! C1! and! C2! reserves! were! calculated! using! the! information! obtained!
from!these!drill!holes.!!Additional!drilling!was!completed!from!1958!to!1969!on!a!200m!
x!200m!grid!attempting!to!identify!further!extensions!of!the!uranium!prospects.!
!
Further! exploration! was! undertaken! by! UrAsia! from! 2005! to! 2008,! with! the! aim! to!
confirm! the! hydrothermal! uranium! mineralization! and! placer! uranium! mineralization!
by! targeting! previously! identified! uranium! deposits! and! prospects.! ! The! exploration!
program!during!this!period!included!traverses,!geological!mapping!(80km2),!trenching!
(4,300m3),!soil!gas!radon!emanation!surveys!(60!readings),!geophysical!surveys!and!the!
collection!of!84!hydrogeological!samples!for!radon!assays,!7,458!channel!samples,!455!
rock!chip!samples!and!28!crushed!samples.!!
!
In! 2012,! a! more! extensive! exploration! program! commenced.! ! In! 2012! and! 2013,! the!
Company! completed! nine! drill! holes! for! approximately! 2,275m! at! the! Sai! Bezvodniy!
hydrothermal!prospect,!40!drill!holes!at!the!Tash!Bulak!placer!prospect,!31!drill!holes!at!
the! Backe! placer! prospect! and! 9! drill! holes! at! the! Tunduk! placer! prospect.! ! The!
Company! also! completed! 17! drill! holes! for! approximately! 4,345m! at! the! Kok! Moinok!
deposit.! The! 2012! and! 2013! drilling! program! was! designed! to! twin! a! selection! of!
historic! drill! holes! to! confirm! mineralized! intervals! and! uranium! grades! in! those!
mineralized!intervals!as!well!as!confirm!the!geological!and!mineralogical!understanding!
of!the!Kyzyl!Ompul!Project.!
!
In! April! 2014,! Ravensgate! Mining! Industry! Consultants! (“Ravensgate”)! prepared! a!
maiden! NI! 43L101! compliant! independent! resource! estimate! for! the! Kok! Moinok!
deposit! located! within! the! Kyzyl! Ompul! Project.! ! Ravensgate! estimated! that! the! Kok!
Moinok!deposit!contained!inferred!uranium!resources!of!7.51!million!pounds!at!225.2!
parts!per!million!U3O8!using!a!cutLoff!of!100!parts!per!million!as!at!December!31,!2013,!
the!effective!date!of!the!resource!estimate.!!Details!of!the!assumptions!and!parameters!
used! for! the! resource! estimate! at! Kyzyl! Ompul,! including! information! on! data!
verification,! are! set! out! in! the! Kyzyl! Ompul! Technical! Report! dated! April! 14,! 2014,& a!
copy! of! which! is! available! under! the! Company’s! profile! at! www.sedar.com.! Mineral!
resources!that!are!not!mineral!reserves!do!not!have!demonstrated!economic!viability.!
!
In!2015,!the!company!completed!desktop!studies!for!the!Kyzyl!Ompul!Project!in!order!
to! apply! for! an! extension! of! the! exploration! license.! ! The! Kyzyl! Ompul! exploration!
license!was!successfully!extended!until!December!31,!2020.!!In!2016,!the!Company!will!
focus! on! completing! desktop! studies! for! the! Kyzyl! Ompul! Project! to! conserve! the!
Company’s!financial!resources.!!!
!
!
!
!
!
!
17!
!
to!
the!
Please!
Project.!
Uranium!
URI! website!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
INVESTMENTS&
!
Uranium!Resources,!Inc.!(2.7%!interest!as!at!the!date!of!this!MD&A)!
!
On! November! 9,! 2015,! URI! merged! with! Anatolia! (formerly! listed! on! the! Australian!
Stock! Exchange! (ASX:AEK))! (the! “Anatolia! Merger”).! URI! is! listed! on! the! NASDAQ!
(NASDAQ:!URRE).!!URI!owns!a!diverse!portfolio!of!uranium!mineral!holdings!in!the!USA,!
including!the!Kingsville!Dome!Project!and!the!Rosita!Project!and!advanced!exploration!
and! development! projects! in! the! central! Anatolian! region! of! Turkey,! including! the!
Temrezli!
at!
refer!
www.uraniumresources.com!for!additional!details.!
!
Western!Uranium!Corporation!(3.6%!interest!as!at!the!date!of!this!MD&A)!!
!
On!September!16,!2015,!Western!Uranium!merged!with!Black!Range!(formerly!listed!on!
the! Australian! Stock! Exchange! (ASX:! BLR))! (the! “Black! Range! Merger”).! Western!
Uranium!is!listed!on!the!Canadian!Securities!Exchange!(CSE:!WUC).!!Western!Uranium!
owns!uranium!and!vanadium!projects!in!the!USA,!including!the!Hansen/Taylor!Project,!
the!Sunday!Complex!Project!and!the!San!Rafael!Project!and!has!a!tolling!agreement!at!
the!White!Mesa!mill!in!Blanding,!Utah.!Please!refer!to!the!Western!Uranium!website!at!
www.westernLuranium.com!for!additional!details.!
!
The! Company! will! continue! to! monitor! these! investments! and! plans! to! generate! cash!
through! the! realization! of! these! investments! to! fund! the! Company’s! 2016! strategic!
initiatives.&
&
&
SELECTED&ANNUAL&INFORMATION&
&
Management! cautions! the! reader! of! the! comparability! of! financial! information!
presented!in!the!consolidated!statements!of!profit!or!loss!and!other!comprehensive!loss!
and!the!consolidated!statements!of!cash!flows!in!this!MD&A.!!The!financial!information!
has! been! prepared! as! a! continuation! of! Azarga! Resources’! consolidated! financial!
statements.!The!results!of!Powertech’s!operations!have!been!included!in!the!Company’s!
consolidated! financial! statements! subsequent! to! the! close! of! the! RTO! on! October! 28,!
2014.!!!
!
!
!
!
!
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18!
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AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
SELECTED&ANNUAL&INFORMATION&(Continued)&
!
!
2015
Year+ended+December+31,+
2014
2013
Total&working&capital/(deficit)&(i)
Total&assets
Exploration&and&evaluation&assets
Investments&(ii)
Total&nonHcurrent&liabilities
Net&loss&attributable&to&equity&holders&of&the&Company
Total&comprehensive&loss
Basic&loss&per&share
Diluted&loss&per&share
H
306,867
40,354,891
37,174,175
$&&&&&&&&&&&&&&&
&&&&&&&&&&&&
&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&
&&&&&&&&&&&&&
&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&
8,370,749
(3,625,050)
(4,656,060)
(0.06)
(0.06)
$&&&&&&&&&&&
(1,567,300)
45,531,152
37,433,869
3,951,880
10,502,309
(1,277,122)
(2,207,652)
(0.04)
(0.04)
&&&&&&&&&&&&
&&&&&&&&&&&&
&&&&&&&&&&&&&&
&&&&&&&&&&&&
&&&&&&&&&&&&&
&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&
$&&&&&&&&&&&
(4,406,395)
26,062,427
12,418,765
10,344,230
3,858,509
(4,119,153)
(4,393,788)
(0.18)
(0.18)
&&&&&&&&&&&&
&&&&&&&&&&&&
&&&&&&&&&&&&
&&&&&&&&&&&&&&
&&&&&&&&&&&&&
&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&
(i)$2015$includes$investments$in$URI$and$Western$Uranium,$which$have$been$classified$as$held$for$sale
(ii)$Includes$investments$in$associates$and$the$investment$in$Anatolia
!
As! at! December! 31,! 2015,! working! capital! primarily! consisted! of! assets! held! for! sale,!
which! included! the! Company’s! investments! in! URI! and! Western! Uranium! and! certain!
exploration!and!evaluation!assets,!partially!offset!by!trade!and!other!payables!and!loans!
payable,! which! primarily! related! to! interest! owing! on! the! convertible! loan! agreement!
with! certain! shareholders! (“Shareholders! Loan! Agreement”).! ! The! Company! continues!
to!actively!manage!and!evaluate!alternatives!to!improve!its!working!capital!position.!As!
at! December! 31,! 2014,! the! working! capital! deficit! primarily! consisted! of! deferred!
consideration!owing!to!the!original!sellers!of!UrAsia,!trade!and!other!payables!and!loans!
payable,! which! primarily! related! to! the! loan! agreement! with! Anadarko! Land! Corp.!
(“Anadarko”),! partially! offset! by! cash.! As! at! December! 31,! 2013,! the! working! capital!
deficit! primarily! consisted! of! deferred! consideration! owing! to! the! original! sellers! of!
UrAsia!and!other!current!liabilities,!which!primarily!consisted!of!the!put!option!on!the!
nonLcontrolling!interest!of!UrAsia!and!the!put!option!held!by!Anatolia,!partially!offset!by!
convertible!loan!receivables!and!cash.!!
&
As! at! December! 31,! 2015,! the! Company’s! total! assets! primarily! consisted! of! the!
Company’s! investment! in! exploration! and! evaluation! assets,! which! primarily! included!
the!Company’s!investment!in!the!Dewey!Burdock!Project,!the!Kyzyl!Ompul!Project!and!
the! Centennial! Project,! and! the! Company’s! assets! held! for! sale,! which! included! its!
investment!in!Western!Uranium!and!URI!and!certain!exploration!and!evaluation!assets.!
As! at! December! 31,! 2014,! the! Company’s! total! assets! primarily! consisted! of! the!
Company’s! investment! in! exploration! and! evaluation! assets,! which! primarily! included!
the!Company’s!investment!in!the!Dewey!Burdock!Project,!the!Kyzyl!Ompul!Project!and!
the! Centennial! Project,! the! Company’s! investments,! which! included! its! investment! in!
associate! (Black! Range)! and! the! Company’s! investment! in! Anatolia,! and! cash.! As! at!
December!31,!2013,!the!total!assets!primarily!consisted!of!the!Company’s!investments,!
which! included! its! investment! in! associates! (Black! Range! and! Powertech)! and! the!
Company’s! investment! in! Anatolia,! the! Company’s! investment! in! exploration! and!
evaluation! assets,! which! primarily! included! the! Company’s! investment! in! the! Kyzyl!
Ompul!Project!and!convertible!loan!receivables!issued!by!Powertech!and!Black!Range.!!!!
!
!
!
19!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
SELECTED&ANNUAL&INFORMATION&(Continued)&
!
As! at! December! 31,! 2015,! the! Company’s! total! nonLcurrent! liabilities! primarily!
consisted! of! deferred! income! tax! liabilities! and! the! principal! owing! under! the!
Shareholders! Loan! Agreement.! ! As! at! December! 31,! 2014,! the! Company’s! total! nonL
current! liabilities! primarily! consisted! of! deferred! income! tax! liabilities,! the! principal!
owing! under! the! Shareholders! Loan! Agreement! and! the! put! option! on! the! nonL
controlling! interest! of! UrAsia.! ! As! at! December! 31,! 2013,! the! Company’s! total! nonL
current!liabilities!primarily!consisted!of!deferred!income!tax!liabilities!and!the!principal!
owing!under!the!Shareholders!loan!Agreement.!!!
!
For!the!year!ended!December!31,!2015,!total!comprehensive!loss!primarily!consisted!of!
administration! expenses,! finance! costs,! an! impairment! of! an! investment! in! associate!
(Black! Range),! the! Company’s! share! of! equity! losses! from! its! investment! in! associate!
(Black! Range),! deferred! income! taxes! and! foreign! currency! translation! adjustments,!
partially!offset!by!realized!gains,!which!primarily!related!to!the!gain!on!extinguishment!
of!other!loans!payable!due!to!the!Anadarko!agreement!amendment.!!For!the!year!ended!
December! 31,! 2014,! total! comprehensive! loss! primarily! consisted! of! administration!
expenses,! unrealized! losses,! which! primarily! related! to! the! loss! on! convertible! loans!
issued! by! Powertech,! finance! costs,! the! net! share! of! equity! losses! from! associates!
(Powertech! and! Black! Range),! an! impairment! on! an! investment! in! associate!
(Powertech)!and!foreign!currency!translation!adjustments,!partially!offset!by!a!bargain!
purchase!gain!recognized!on!close!of!the!RTO.!For!the!year!ended!December!31,!2013,!
total! comprehensive! loss! primarily! consisted! of! administration! expenses,! unrealized!
losses,! which! primarily! related! to! the! loss! on! the! revaluation! of! the! put! option! on!
Anatolia! shares! and! the! loss! on! convertible! loans! issued! by! Powertech,! and! finance!
costs.!!!
!
Administration! expenses! for! the! year! ended! December! 31,! 2015! were! $2,828,249!
compared! to! $3,802,907! for! the! year! ended! December! 31,! 2014.! ! The! decrease! in!
administration! expenses! is! primarily! explained! by! a! decrease! in! consulting! and!
professional! fees! and! corporate! administration! expenditures! as! a! result! of! the!
Company’s!effort!to!conserve!cash!and!a!decrease!in!share!based!compensation!due!to!
stock! options! issued! on! the! close! of! the! RTO! in! 2014,! partially! offset! by! increased!
salaries! and! benefits! primarily! due! to! employee! severance! costs.! Administration!
expenses! for! the! year! ended! December! 31,! 2013! were! $1,940,724.! ! The! increase! in!
administration!expenses!for!the!year!ended!December!31,!2014,!is!primarily!explained!
by!the!completion!of!the!RTO,!which!resulted!in!increased!consulting!and!professional!
fees,!increased!shareLbased!compensation!expense!and!increased!salaries!and!benefits!
due!to!additional!employees.!
&
&
&
&
&
&
!
!
20!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
SUMMARY&OF&QUARTERLY&RESULTS&&
!
The! following! table! provides! selected! quarterly! financial! information! for! the! most!
recent!eight!quarters.!!
!
!
QUARTER'ENDED
Administration5expenses
Finance5costs
Unrealized5gain/(loss)
Realized5gain/(loss)
2015
31,Dec
30#Sep
30#Jun
31#Mar
$5555555
(603,380)
$5555555
(425,650)
$5555555
(719,187)
$555
(1,080,032)
55555555555
(47,123)
555555555
(135,844)
555555555
(146,656)
555555555
(164,734)
555555
(1,111,205)
55555555555
756,455
555555555555555555
404
55555555555
344,576
5555555555555
58,056
5555555555555
85,928
55555555
1,084,846
555555555
(206,705)
Share5of5equity5income/(loss)5from5associates
5555555555555555555
#
555555555555555
4,769
55555555555
(76,175)
555555555
(530,969)
Impairment5of5investment5in5associates
5555555555555555555
#
5555555555555555555
#
555555555
(520,866)
5555555555555555555
#
Deferred5income5tax5recovery/(expense)
555555555
(384,771)
555555555555555
1,579
5555555555555
30,627
55555555555
(50,435)
Net5income/(loss)
555555
(2,097,262)
55555555555
275,512
555555555
(366,262)
555555
(1,556,818)
Net5income/(loss)5attributable5to5equity5
holders5of5the5Company
555555
(2,055,607)
55555555555
301,374
555555555
(343,430)
555555
(1,527,387)
Total5comprehensive5loss
555555
(2,435,886)
555555555
(102,570)
555555555
(249,549)
555555
(1,868,055)
Basic5income/(loss)5per5share
5555555555555555
(0.03)
55555555555555555
0.00
5555555555555555
(0.01)
5555555555555555
(0.03)
Diluted5income/(loss)5per5share
!
QUARTER'ENDED
Administration7expenses
Finance7costs
Unrealized7gain/(loss)
Realized7gain/(loss)
5555555555555555
(0.03)
55555555555555555
0.00
5555555555555555
(0.01)
5555555555555555
(0.03)
!!
2014
31#Dec
30#Sep
30#Jun
31#Mar
$777
(1,622,416)
$7777777
(464,607)
$7777777
(729,183)
$7777777
(986,701)
777777777
(164,118)
777777777
(138,134)
777777777
(546,740)
777777777
(478,728)
777777777
(749,459)
777777
(1,283,982)
77777777777
(52,451)
77777777777
524,696
77777777777
301,133
77777777777
170,216
777777
(1,589,776)
77777777777
946,947
Share7of7equity7income/(loss)7from7associates
777777
(1,942,957)
77777777777
234,964
777777777
(352,905)
777777777
(222,563)
Impairment7of7investment7in7associates
777777
(3,707,133)
7777777777777777777
#
7777777777777777777
#
7777777777777777777
#
Gain7on7bargain7purchase7on7close7of7RTO
77777
11,605,241
7777777777777777777
#
7777777777777777777
#
7777777777777777777
#
Deferred7income7tax7recovery/(expense)
777777777
(122,546)
77777777777
(33,196)
7777777777777
28,907
777777777
(128,260)
Net7income/(loss)
77777777
3,633,140
777777
(1,514,918)
777777
(3,251,385)
777777777
(342,562)
Net7income/(loss)7attributable7to7equity7
holders7of7the7Company
77777777
3,723,211
777777
(1,485,273)
777777
(3,239,554)
777777777
(275,506)
Total7comprehensive7income/(loss)
77777777
3,238,470
777777
(1,679,572)
777777
(3,093,264)
777777777
(673,286)
Basic7income/(loss)7per7share
77777777777777777
0.07
7777777777777777
(0.04)
7777777777777777
(0.12)
7777777777777777
(0.01)
0.07
(0.04)
7777777777777777
7777777777777777
77777777777777777
Diluted7income/(loss)7per7share
!
For!the!three!months!ended!December!31,!2015!
!
The!Company!recorded!a!net!loss!of!$2,097,262!for!the!three!months!ended!December!
31,!2015!compared!to!net!income!of!$3,633,140!for!the!three!months!ended!December!
31,!2014.!!The!net!income/(loss)!in!each!period!primarily!related!to!the!following:!
!
!
7777777777777777
(0.01)
(0.12)
!&
!
!
21!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
SUMMARY&OF&QUARTERLY&RESULTS&(Continued)&
!
Administration! expenses! were! $603,380! for! the! three! months! ended! December! 31,!
2015! compared! to! $1,622,416! for! the! three! months! ended! December! 31,! 2014.! The!
decrease!primarily!related!to!decreased!consulting!and!professional!fees!and!corporate!
administration! expenditures! as! a! result! of! the! Company’s! effort! to! conserve! cash! and!
decreased! consulting! and! professional! fees! and! share! based! compensation! due! to! the!
close!of!the!RTO!in!2014.!&
!
Finance!costs!were!$47,123!for!the!three!months!ended!December!31,!2015!compared!
to! $164,118! for! the! three! months! ended! December! 31,! 2014.! ! The! decrease! primarily!
related! to! $nil! interest! expense! on! the! put! option! on! the! nonLcontrolling! interest! of!
UrAsia!and!$nil!interest!expense!on!deferred!consideration!owing!to!the!original!sellers!
of! UrAsia,! which! were! both! extinguished! in! October! 2015,! and! a! decrease! in! interest!
expense!on!other!loans!payable!due!to!the!Anadarko!agreement!amendment.!!!!
!
The!Company!recognized!an!unrealized!loss!of!$1,111,205!for!the!three!months!ended!
December! 31,! 2015! compared! to! an! unrealized! loss! of! $749,459! for! the! three! months!
ended! December! 31,! 2014.! For! the! three! months! ended! December! 31,! 2015,! the!
unrealized! loss! primarily! related! to! losses! on! the! revaluation! of! the! Company’s!
investments!in!URI!and!Western!Uranium.!!For!the!three!months!ended!December!31,!
2014,! the! unrealized! loss! primarily! related! to! a! loss! on! convertible! loans! issued! by!
Powertech!and!a!loss!from!the!revaluation!of!the!Company’s!investment!in!Anatolia.&
!
The! Company! recognized! a! realized! gain! of! $58,056! for! the! three! months! ended!
December!31,!2015!compared!to!a!realized!gain!of!$301,133!for!the!three!months!ended!
December!31,!2014.!!For!the!three!months!ended!December!31,!2015,!the!realized!gain!
primarily!related!to!a!gain!on!the!sale!of!redundant!land!at!the!Centennial!Project.!For!
the!three!months!ended!December!31,!2014,!the!realized!gain!primarily!related!to!the!
settlement!of!outstanding!obligations!between!the!Company!and!Powertech!on!close!of!
the!RTO.!!!
!
The! Company! recognized! an! equity! loss! pickLup! of! $1,942,957! for! the! three! months!
ended! December! 31,! 2014! related! to! an! equity! loss! pickLup! recognized! on! the!
Company’s! investment! in! Black! Range,! partially! offset! by! an! equity! income! pickLup!
recognized!on!the!Company’s!investment!in!Powertech.!!Subsequent!to!the!Black!Range!
Merger,! which! occurred! in! the! third! quarter! of! 2015,! the! Company! does! not! have! an!
investment!in!an!associate.!!!!
!
For! the! three! months! ended! December! 31,! 2014,! the! Company! recognized! an!
impairment! charge! of! $3,707,133! on! its! investment! in! Powertech! prior! to! completing!
the! RTO! based! on! the! fair! value! of! the! Company’s! previously! held! equity! interest! in!
Powertech.!
!
!
!
!
!
22!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
SUMMARY&OF&QUARTERLY&RESULTS&(Continued)&
!
For! the! three! months! ended! December! 31,! 2014,! the! Company! recognized! a!
$11,605,241! bargain! purchase! gain! on! close! of! the! RTO! as! a! result! of! the! fair! value! of!
consideration! paid! being! lower! than! the! fair! value! of! the! identifiable! net! assets!
acquired.!
!
&
FINANCING,&LIQUIDITY&AND&CAPITAL&RESOURCES&
!
The!Company’s!capital!risk!management!objectives!have!been!established!to!safeguard!
the!Company’s!ability!to!continue!as!a!going!concern!in!order!to!support!the!Company’s!
permitting!and!exploration!and!development!of!its!mineral!properties!and!to!maintain!a!
flexible! capital! structure! which! optimizes! the! cost! of! capital! at! an! acceptable! risk.! In!
order! to! facilitate! the! management! of! its! capital! requirements,! the! Company! prepares!
annual! expenditure! budgets! that! are! updated! as! necessary! depending! on! various!
factors,! including! capital! deployment,! progress! towards! permitting,! results! from! the!
exploration! and! development! of! its! properties! and! general! industry! conditions.! ! The!
annual!and!updated!budgets!are!approved!by!the!board!of!directors.!!
!
The! consolidated! financial! statements! have! been! prepared! on! a! going! concern! basis,!
which! contemplates! that! the! Company! will! continue! operations! for! the! foreseeable!
future! and! will! be! able! to! realize! its! assets! and! discharge! its! liabilities! in! the! normal!
course! of! business! as! they! fall! due.! To! date,! the! Company! has! not! generated! revenues!
from!operations!and!is!currently!in!the!exploration!and!development!stage.!!
!
As! at! December! 31,! 2015,! the! Company! had! working! capital! of! $306,867! and! an!
accumulated!deficit!of!$9,897,079!and!will!continue!incurring!losses!in!the!foreseeable!
future.! Additional! funding! will! be! required! by! the! Company! to! complete! its! strategic!
objectives! and! continue! as! a! going! concern.! There! is! no! certainty! that! additional!
financing,!at!terms!that!are!acceptable!to!the!Company,!will!be!available.!These!material!
uncertainties! cast! significant! doubt! on! the! Company’s! ability! to! continue! as! a! going!
concern.!!The!Company!has!successfully!raised!financing!in!the!past!and!will!continue!to!
assess!available!alternatives;!however,!there!is!no!assurance!that!the!Company!will!be!
able!to!raise!additional!funds!in!the!future.!
!
The! Company! manages! its! capital! structure! and! makes! adjustments! to! it! in! light! of!
changes!in!economic!conditions!and!the!risk!characteristics!of!the!underlying!assets.!!In!
order! to! maintain! or! adjust! the! capital! structure,! the! Company! may! issue! new! shares,!
issue!new!debt!or!acquire!or!dispose!of!assets.!
!
!
!
!
!
!
!
!
23!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
FINANCING,&LIQUIDITY&AND&CAPITAL&RESOURCES&(Continued)&
!
As! at! December! 31,! 2015,! the! Company! had! cash! of! $239,327! compared! to! cash! of!
$3,214,529! as! at! December! 31,! 2014.! ! The! Company’s! working! capital! (current! assets!
less!current!liabilities)!was!$306,867!as!at!December!31,!2015!compared!to!a!working!
capital! deficit! of! $1,567,300! as! at! December! 31,! 2014.! The! Company! continues! to!
actively!manage!its!cash!and!working!capital!positions.!!The!Company!is!not!subject!to!
any!externally!imposed!capital!requirements.!
!
The! Company! has! also! identified! opportunities! to! generate! cash! through! the! sale! of!
redundant! assets.! ! The! Company! expects! to! generate! approximately! $300,000! of!
additional! cash! from! the! sale! of! redundant! assets.! ! For! the! year! ended! December! 31,!
2015,!the!Company!sold!redundant!assets!for!net!proceeds!of!$379,500.!!Subsequent!to!
December! 31,! 2015,! the! Company! has! sold! redundant! assets! for! net! proceeds! of!
approximately!$320,000.!!
!
The! Company! will! also! continue! to! monitor! its! investments! in! URI! and! Western!
Uranium! and! plans! to! generate! cash! through! the! realization! of! these! investments! to!
fund!the!Company’s!2016!strategic!initiatives.&
!
Powertech!Uranium!Corp.!
!
On! October! 18,! 2013,! the! Company! agreed! to! provide! a! loan! facility! of! $3,600,000! to!
Powertech!(“Powertech!Convertible!Loan”)!repayable!in!cash!or!shares.!Subsequently,!
on!September!12,!2014,!Powertech!and!the!Company!agreed!to!enter!into!an!additional!
$650,000! loan! facility! (“Second! Powertech! Convertible! Loan”)! repayable! in! cash! or!
shares.! The! Powertech! Convertible! Loan! and! the! Second! Powertech! Convertible! Loan!
were!settled!on!close!of!the!RTO.!!!
!
For!the!year!ended!December!31,!2014,!the!Company!drew!down!$2,575,000,!under!the!
Powertech! Convertible! Loan.! ! For! the! year! ended! December! 31,! 2014,! $305,000! was!
drawn!down!under!the!Second!Powertech!Convertible!Loan.!
!
UrAsia!in!Kyrgyzstan!Limited!Liability!Company!
!
On! July! 27,! 2012,! the! Company! acquired! 80%! of! the! charter! capital! of! UrAsia! through!
the! Share! Transfer! Agreement! and! Agreement! of! Participants! (the! “Purchase!
Agreements”)! for! an! upfront! cash! payment! of! $200,000! and! a! deferred! payment! of!
$5,800,000.! ! Under! the! terms! of! the! Purchase! Agreements,! as! amended,! the! original!
sellers!of!UrAsia!also!had!the!right!to!sell!the!remaining!20%!of!UrAsia’s!charter!capital!
to!the!Company!for!1)!$2,000,000!in!cash;!or!2)!$2,000,000!of!the!Company’s!shares.!
&
!
!
!
!
!
!
24!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
FINANCING,&LIQUIDITY&AND&CAPITAL&RESOURCES&(Continued)&
!
In! October! 2015,! the! Company! sold! 10%! of! the! charter! capital! of! UrAsia! back! to! the!
original! sellers! of! UrAsia! for! consideration! that! included:! i)! forgiving! the! outstanding!
US$1,700,000! of! deferred! payments! and! ii)! extinguishment! of! the! put! option! on! the!
20%! nonLcontrolling! interest! of! UrAsia! (the! “Amended! Purchase! Agreement”).! ! The!
Amended! Purchase! Agreement! resulted! in! a! decrease! of! the! Company’s! ownership!
interest!in!UrAsia!to!70%.!!
!
For!the!year!ended!December!31,!2014,!the!Company!paid!$150,000!to!settle!a!portion!
of!the!deferred!consideration!owing!to!the!original!sellers!of!UrAsia.!!No!payments!were!
made!for!the!year!ended!December!31,!2015.!
!
Investment!in!Western!Uranium!(formerly!Black!Range)!
!
As!at!March!29,!2016,!the!Company’s!ownership!interest!in!Western!Uranium!was!3.6%!
and!had!a!market!value!of!$880,737.!!The!Company!acquired!its!ownership!in!Western!
Uranium! through! the! Black! Range! Merger,! where! each! Black! Range! shareholder!
received!one!new!Western!Uranium!share!for!every!750!Black!Range!shares!held.!!!
!
On!July!2,!2013,!the!Company!entered!into!a!financing!agreement!with!Black!Range!to!
provide! a! A$2,000,000! convertible! loan! (“First! Black! Range! Convertible! Loan”)!
repayable!in!cash!or!common!shares!of!Black!Range!(the!“Black!Range!Shares”).!!
!
On! October! 26,! 2013,! the! Company! entered! into! a! second! financing! agreement! with!
Black! Range! to! provide! a! A$1,500,000! convertible! loan! (“Second! Black! Range!
Convertible! Loan”)! repayable! in! cash! or! Black! Range! Shares.! ! For! the! year! ended!
December!31,!2014,!Black!Range!drew!down!A$500,000!($447,408)!under!the!Second!
Black!Range!Convertible!Loan.!
!
In!June!2014,!the!First!and!Second!Black!Range!Convertible!Loans!were!fully!converted!
into!Black!Range!Shares!and!the!facilities!were!extinguished.!
!
On! February! 25,! 2014,! the! Company! entered! into! a! third! financing! agreement! with!
Black!Range!to!provide!a!A$2,000,000!convertible!loan!(“Third!Black!Range!Convertible!
Loan”)! repayable! in! cash! or! Black! Range! Shares! at! the! higher! of! a)! the! three! month!
volume! weighted! average! price! of! Black! Range! Shares! traded! on! the! Australian! Stock!
Exchange!from!the!date!of!the!first!draw!down!or!b)!A$.007.!
!
In!March!2015,!the!Third!Black!Range!Convertible!Loan,!in!the!amount!of!$410,397,!was!
converted! into! 73,284,314! Black! Range! Shares! at! a! conversion! price! of! A$0.008! per!
share!and!the!facility!was!extinguished.!!!
!
For!the!year!ended!December!31,!2015,!no!amounts!were!drawn!under!the!Third!Black!
Range! Convertible! Loan.! For! the! year! ended! December! 31,! 2014,! Black! Range! drew!
down!A$460,000!($419,080)!under!the!Third!Black!Range!Convertible!Loan.!
!
!
25!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
FINANCING,&LIQUIDITY&AND&CAPITAL&RESOURCES&(Continued)&
!
On!October!3,!2014,!the!Company!closed!a!share!sale!agreement!and!economic!exposure!
sharing!deed!with!Empire!Equity!to!sell!140,000,000!Black!Range!Shares!at!A$0.008!per!
share! for! total! consideration! of! A$1,120,000.! The! consideration! was! payable! in! four!
equal! installments;! however,! the! Company! only! received! the! first! installment! from!
Empire!Equity.!!!
!
In! July! 2015,! the! Company! and! Empire! Equity! agreed! to! terminate! the! share! sale!
agreement!and!economic!exposure!sharing!deed!(the!“Termination!Deed”).!!Under!the!
Termination! Deed,! Empire! Equity! transferred! 120,000,000! Black! Range! Shares! to! the!
Company,!the!Company!was!not!obligated!to!repay!the!first!installment!received!from!
Empire!Equity!of!A$280,000!and!the!Company!granted!Empire!Equity!1,000,000!stock!
options!to!acquire!the!Company’s!shares!at!C$0.35!per!share.!!The!stock!options!expire!
on!their!third!anniversary,!August!6,!2018.!
!
For!the!year!ended!December!31,!2015!and!prior!to!the!Black!Range!Merger!closing,!the!
Company! sold! 212,007,381! shares! of! Black! Range! for! proceeds! of! $322,892.! ! For! the!
year! ended! December! 31,! 2014,! the! Company! sold! 39,388,824! Black! Range! shares! for!
proceeds!of!$301,062.!!
!
For! the! year! ended! December! 31,! 2015! and! subsequent! to! the! Black! Range! Merger!
closing,! the! Company! sold! 20,800! Western! Uranium! shares! for! proceeds! of! $31,762.!!
Subsequent!to!December!31,!2015,!the!Company!sold!62,700!Western!Uranium!shares!
for!proceeds!of!approximately!$82,000.&
!
Investment!in!URI!(formerly!Anatolia)!
!
As! at! March! 29,! 2016,! the! Company’s! ownership! interest! in! URI! was! 2.7%! and! had! a!
market! value! of! $350,115.! ! The! Company! acquired! its! ownership! in! URI! through! the!
Anatolia! Merger,! where! each! Anatolia! shareholder! received! one! new! URI! share! for!
every!15!Anatolia!shares!held.!!!
!
On!October!1,!2013,!the!Company!signed!a!put!option!agreement!with!Anatolia.!Under!
the! put! option! agreement,! Anatolia! could! issue! a! total! of! 16,666,667! shares! to! the!
Company! at! an! issue! price! of! A$0.12! per! share! in! tranches! of! 8,333,333! shares!
(“Tranche!1”)!and!8,333,334!shares!(“Tranche!2”).!In!February!2014,!Anatolia!exercised!
Tranche! 1! of! the! put! option! agreement! and! issued! 8,333,333! Anatolia! shares! to! the!
Company!at!an!exercise!price!of!$898,100.!
!
In! August! 2014,! Anatolia! and! the! Company! amended! the! put! option! agreement.! ! The!
Company! paid! consideration! of! $348,338! to! Anatolia! to! settle! Tranche! 2! of! the! put!
option!agreement!and!provide!the!Company!with!the!ability!to!acquire!up!to!8,333,334!
shares!in!Anatolia!at!a!price!of!A$0.08!per!share!(the!“Call!Option!Agreement”).!The!Call!
Option!Agreement!was!not!exercised!by!the!Company!and!expired!on!March!31,!2015.!!
!
!
!
26!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
FINANCING,&LIQUIDITY&AND&CAPITAL&RESOURCES&(Continued)&
!
For!the!year!ended!December!31,!2015!and!prior!to!the!Anatolia!Merger,!the!Company!
sold! 1,117,611! shares! of! Anatolia! for! proceeds! of! $51,017! and! purchased! 1,350,000!
shares!of!Anatolia!for!total!consideration!of!$77,290.!!For!the!year!ended!December!31,!
2014,!the!Company!sold!450,000!Anatolia!shares!for!proceeds!of!$34,172.!
!
For! the! year! ended! December! 31,! 2015! and! subsequent! to! the! Anatolia! Merger,! the!
Company! sold! 141,846! URI! shares! for! proceeds! of! $68,922.! ! Subsequent! to! December!
31,! 2015,! the! Company! sold! 484,152! URI! shares! for! proceeds! of! approximately!
$160,000.!
!
Powerlite!Ventures!Limited!–!Powerlite!Facility!
!
On! May! 22,! 2013,! the! Company! issued! an! equity! instrument! (“Powerlite! Facility”)! to!
Powerlite!for!$15,000,000!(“Facility!Limit”).!In!accordance!with!the!Powerlite!Facility,!
as!amended,!the!outstanding!principal!and!interest!accrued!will!be!settled!through!the!
issuance! of! the! Company’s! shares! at! C$1.54! per! share.! ! As! a! result,! the! financial!
instrument!has!been!classified!as!equity.!!Accrued!interest!has!been!recorded!to!interest!
expense! with! the! offset! being! recorded! as! equity.! ! Other! key! commercial! terms! of! the!
financing!include:!
!
•
Interest! –! 10%! per! annum,! payable! on! conversion! of! each! note! (the! Powerlite!
Facility!can!be!drawn!over!multiple!drawings,!each!a!separate!note);!
• Maturity!–!May!22,!2023;!
• Conversion!price!–!C$1.54!per!share;!
• Powerlite’s! conversion! right! –! convert! the! outstanding! notes! plus! accrued!
interest!into!the!Company’s!shares!after!the!date!of!issue;!
• Company’s! conversion! right! –! convert! the! outstanding! notes! plus! accrued!
interest! at! the! earlier! of! six! months! from! the! issuance! date! of! each! note! or! an!
event! causing! conversion! of! any! Black! Range! convertible! loans! held! by! the!
Company;!
• Mandatory! conversion! –! all! outstanding! notes! plus! accrued! interest! will!
automatically!convert!to!shares!within!10!business!days!of!the!maturity;!and!
• Other!–!the!Powerlite!Facility!is!unsecured.!
!
On! August! 28,! 2013! and! February! 12,! 2014,! the! Facility! Limit! was! increased! to!
$21,000,000! and! $26,000,000,! respectively;! however,! the! Facility! Limit! increase! on!
February! 12,! 2014! was! subject! to! mutually! agreeing! a! draw! down! schedule! prior! to!
December! 31,! 2014! and! this! was! not! agreed.! ! As! at! December! 31,! 2015,! the! Company!
had! drawn! a! total! of! $18,000,000! (December! 31,! 2014:! $18,000,000)! under! the!
Powerlite!Facility.!!Under!the!Powerlite!Facility,!$3,000,000!remains!available,!subject!
to!the!Powerlite!Facility!terms!discussed!above.!
!
!
!
!
27!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
FINANCING,&LIQUIDITY&AND&CAPITAL&RESOURCES&(Continued)&
!
For! the! year! ended! December! 31,! 2015,! the! Company! did! not! make! any! drawdowns!
under!the!Powerlite!Facility.!For!the!year!ended!December!31,!2014,!the!Company!drew!
down!$6,000,000!under!the!Powerlite!Facility.!
!
On!July!1,!2014,!pursuant!to!the!terms!of!the!Powerlite!Facility,!the!Company!exercised!
its! conversion! right! and! 38,212,493! shares! were! issued! to! Powerlite! on! conversion! of!
the!accumulated!Powerlite!equity!contributions!of!$18,000,000,!plus!accrued!interest.!
!
Private!Placement!Financing!!
!
Concurrent!with!the!closing!of!the!RTO!and!the!Consolidation,!the!Company!completed!
a! private! placement! financing! for! gross! proceeds! of! approximately! C$5,000,000!
($4,450,442)! (the! “Financing”)! through! the! issuance! of! 8,338,134! postLConsolidation!
units!(“Units”),!each!Unit!consisting!of!one!postLConsolidation!common!share!and!oneL
half!of!a!common!share!purchase!warrant!(“Warrant”).!Each!whole!Warrant!entitles!the!
holder!to!purchase!one!postLConsolidation!common!share!at!an!exercise!price!of!C$1.00!
per! share! until! October! 28,! 2016.! Accounting! for! the! Consolidation! adjustment,! the!
Units!subscribed!for!pursuant!to!the!Financing!were!subscribed!for!at!C$0.60!per!Unit.!
Finder’s!fees!in!connection!with!the!Financing!consisted!of!C$145,617!($129,622)!and!
242,696!postLConsolidation!shares.!All!securities!issued!pursuant!to!the!Financing!were!
subject!to!a!hold!period!that!expired!March!1,!2015.!
!
The!proceeds!of!the!Financing!were!used!for:!continuation!of!the!permitting!process!for!
the! Dewey! Burdock! Project;! land! and! claim! payments! with! respect! to! the! Company’s!
directly! controlled! projects! in! the! USA! and! the! Kyrgyz! Republic;! exploration;! and!
general!working!capital!purposes.!
!
Shareholders!Loan!Agreement!
!
On!July!31,!2012,!the!Company!entered!into!a!$1,800,000!Shareholders!Loan!Agreement,!
as!amended.!The!funds!were!used!for!funding!the!UrAsia!2012!exploration!program!and!
general!working!capital!purposes.!!The!key!commercial!terms!of!the!financing!include:!!
!
•
Interest!–!10%!per!annum!payable!on!each!anniversary!date!of!the!Shareholders!
Loan!Agreement;!
• Term!–!5!years,!commencing!July!31,!2012;!
• Conversion!price!–!C$1.23;!
• Shareholders’!conversion!right!–!to!convert!the!outstanding!balance!of!the!loan!
plus!accrued!interest,!in!whole!or!in!part,!into!ordinary!shares!of!the!Company!at!
the!conversion!price;!
• Extension!of!the!term!–!the!Company!has!the!option,!on!maturity,!to!extend!the!
term!of!the!loan!for!an!additional!three!years.!Upon!exercise!of!this!option,!the!
annual!interest!rate!increases!to!15%!per!annum;!
!
!
!
28!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
FINANCING,&LIQUIDITY&AND&CAPITAL&RESOURCES&(Continued)&
!
!
• Early!repayment!option!–!the!Company!has!the!right,!but!not!the!obligation,!to!
repay!the!whole!balance!of!the!loan!plus!accrued!interest!at!any!time!out!of!the!
proceeds!of!a!capital!raising!or!if!the!loan!is!refinanced!or!replaced!by!a!new!loan!
on!or!before!the!maturity;!and!
• The!Shareholders!Loan!Agreement!is!unsecured.!
!
The! terms! of! the! Shareholders! Loan! Agreement! were! further! amended! to! delay! the!
2014!and!2015!annual!interest!payments!to!coincide!with!the!date!of!the!2016!annual!
interest!payment.!
!
As!at!December!31,!2015,!the!Company!had!drawn!$1,776,000!under!the!Shareholders!
Loan! Agreement! (December! 31,! 2014:! $1,776,000).! ! The! Company! drew! down! no!
amounts!for!the!years!ended!December!31,!2015!and!2014.!!
!
Other!Loans!Payable!
!
The!Company!assumed!loan!agreements!with!Anadarko!and!Elston!on!close!of!the!RTO.!!
These!agreements!include:!
!
Anadarko!Agreement!
!
The!Company!entered!into!an!agreement!with!Anadarko!to!purchase!uranium!rights!on!
certain! areas! of! the! Centennial! Project! for! total! consideration! of! $3,000,000! (the!
“Anadarko!Agreement”).!!As!at!December!31,!2015,!payments!totaling!$1,835,000!have!
been!made!to!Anadarko!(December!31,!2014:!$1,815,000).!!In!April!2015,!the!Anadarko!
Agreement! was! amended! to! modify! the! payment! amount! and! the! payment! terms! as!
follows:! $20,000! is! payable! annually! in! each! of! September! 2016,! 2017! and! 2018.! ! An!
additional! $3,165,000! is! payable! upon! receipt! of! regulatory! permits! and! licenses!
allowing!uranium!production!on!the!area!of!the!Centennial!Project!pertaining!to!these!
uranium!interests.!Other!key!terms!of!the!Anadarko!Agreement!include:!
!
• Failure! to! Permit! –! if! the! Company! does! not! obtain! the! regulatory! permits! and!
licenses! allowing! uranium! production! by! September! 27,! 2019,! the! uranium!
rights!will!transfer!back!to!Anadarko,!at!Anadarko’s!option;!
In! the! event! of! default,! the! uranium! rights! will! transfer! back! to! Anadarko,! at!
Anadarko’s!option;!and!
•
• The!Anadarko!Agreement!is!nonLinterest!bearing.!
!
For! the! years! ended! December! 31,! 2015! and! 2014,! the! Company! made! payments!
totaling!$20,000!and!$nil,!respectively.!!
!
!
!
!
!
29!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
FINANCING,&LIQUIDITY&AND&CAPITAL&RESOURCES&(Continued)!
!
Elston!Agreements!
!
!
The! Company! entered! into! an! agreement! with! Elston! to! purchase! mineral! rights! on!
certain!areas!of!the!Dewey!Burdock!Project!for!total!consideration!of!$600,000,!of!which!
$510,000!has!been!paid!as!at!December!31,!2015!(December!31,!2014:!$480,000)!(the!
“Elston! Agreement”).! The! outstanding! consideration! is! payable! in! three! annual!
installments! of! $30,000! in! May! 2016,! 2017! and! 2018.! An! additional! $1,300,000! is!
payable,! in! four! equal! annual! installments,! upon! receipt! of! regulatory! permits! and!
licenses! allowing! uranium! production! on! the! area! of! the! Dewey! Burdock! Project!
pertaining!to!these!mineral!interests.!Other!key!terms!of!the!Elston!Agreement!include:!
&
•
In! the! event! of! default,! Elston! has! the! option! to! purchase! the! mineral! property!
interests!for!$1;!and!
• The!Elston!Agreement!is!nonLinterest!bearing.!
!
For! the! years! ended! December! 31,! 2015! and! 2014,! the! Company! made! payments!
totaling!$30,000!and!$nil,!respectively.!!
!
The!Company!also!assumed!an!additional!Elston!agreement!with!$750,000!payable,!in!
four!equal!annual!installments,!upon!receipt!of!regulatory!permits!and!licenses!allowing!
uranium!production!on!the!area!of!the!Dewey!Burdock!Project!pertaining!to!the!mineral!
interests!covered!by!the!agreement.!!
!
Cash!Flow!Highlights!
!
Net!cash!used!in!Operating!Activities!
!
For! the! year! ended! December! 31,! 2015,! the! Company! used! $2,660,189! of! cash! in!
operating! activities! compared! to! $2,137,962! for! the! year! ended! December! 31,! 2014.!
Cash! used! in! operating! activities! increased! for! the! year! ended! December! 31,! 2015!
primarily!due!to!changes!in!working!capital!items!related!to!trade!and!other!payables!
and!other!liabilities,!partially!offset!by!reduced!administration!expenditures!due!to!the!
Company’s!efforts!to!conserve!cash.!
!
Net!cash!used!in!Investing!Activities!
!
For!the!year!ended!December!31,!2015,!the!Company!used!$256,428!of!cash!in!investing!
activities!compared!to!$5,745,261!for!the!year!ended!December!31,!2014.!For!the!year!
ended! December! 31,! 2015,! net! cash! used! in! investing! activities! primarily! related! to!
$1,219,011!of!expenditures!related!to!the!Company’s!exploration!and!evaluation!assets,!
partially! offset! by! proceeds! of! $474,593! from! the! partial! sale! of! the! Company’s!
investments! and! proceeds! of! $339,320! from! the! sale! of! exploration! and! evaluation!
assets!pertaining!to!redundant!land!at!the!Centennial!Project.!
!
!
!
30!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
FINANCING,&LIQUIDITY&AND&CAPITAL&RESOURCES&(Continued)!
!
For!the!year!ended!December!31,!2014,!net!cash!used!in!investing!activities!primarily!
related!to!a!$898,100!investment!in!Anatolia,!$3,746,788!to!purchase!convertible!loans!
in! Powertech! and! Black! Range,! $348,338! to! settle! the! Anatolia! put! option! agreement!
and! $940,089! of! exploration! and! evaluation! expenditures! related! to! the! Company’s!
mineral!properties,!partially!offset!by!$335,232!in!proceeds!from!the!partial!sale!of!the!
Company’s!investments!in!Black!Range!and!Anatolia.!!!
!
Net!cash!generated!by!(used!in)!Financing!Activities!
!
For! the! year! ended! December! 31,! 2015,! the! Company! used! $60,000! for! financing!
activities! compared! to! generating! $10,812,197! from! financing! activities! for! the! year!
ended! December! 31,! 2014.! ! For! the! year! ended! December! 31,! 2015,! cash! used! for!
financing! activities! related! to! payments! on! other! loans! payable.! ! For! the! year! ended!
December! 31,! 2014,! cash! generated! from! financing! activities! related! to! $6,000,000!
drawn!under!the!Powerlite!Facility!and!$4,812,197!of!proceeds!from!share!issuances.!!
!
&
CONTRACTUAL&OBLIGATIONS&AND&COMMITMENTS&
&
As! at! December! 31,! 2015! and! 2014,! the! Company’s! contractual! obligations! are! as!
follows:!
&
As#at#December#31,#2015
3#months#2#1#year
Total#for#2015
123#months
125#years
Trade&and&other&payables
Loan&payable&to&shareholders
Other&loans&payable
Total&contractual&obligations
!
As#at#December#31,#2014
1,888,976
$&&&&&&
&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&
$&&&&&&
=
=
1,888,976
$&&&&&&&&&
&&&&&&&&&&
&&&&&&&&&&&&
$&&&&&&&&&
335,111
426,445
60,000
821,556
$&&&&&&&&&
&&&&&&&&
&&&&&&&&&&
$&&&&&&
370,000
1,776,000
100,000
2,246,000
$&&&&&&
&&&&&&&&
&&&&&&&&&&
$&&&&&&
2,594,087
2,202,445
160,000
4,956,532
123#months
3#months#2#1#year
125#years
Total#for#2014
3,020,711
Trade&and&other&payables
Loan&payable&to&shareholders
Deferred&consideration
Other&loans&payable
Other&non9current&liabilities
Total&contractual&obligations
!
As!at!December!31,!2015!and!2014,!the!Company’s!commitments!are!as!follows:!!
!
$&&&&&&&&&&&&&&&&
&&&&&&&&
&&&&&&&&
&&&&&&&&&&
&&&&&&&&
$&&&&&&
$&&&&&&
&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&
&&&&&&&&&&
&&&&&&&&&&&&&&&&&
$&&&&&&
$&&&&&&&&&
&&&&&&&&&&
&&&&&&&&&&
&&&&&&&&&&
&&&&&&&&&&&&&&&&&
$&&&&&&
1,776,000
1,000,000
475,000
2,228,422
5,479,422
450,000
248,522
700,000
435,000
9
9
9
395,000
9
$&&&&&&
&&&&&&&&
&&&&&&&&
&&&&&&&&
&&&&&&&&
$&&&&
3,415,711
1,833,522
9
3,470,711
2,024,522
1,700,000
1,305,000
2,228,422
10,728,655
Within&1&year
As&at&December&31,&2015
2-4&years
Over&4&years
Total
Operating*lease*commitments
Exploration*and*evaluation*commitments
Total*commitments
$**********
**********
$********
44,160
521,887
566,047
$**********
********
$******
91,080
5,854,735
5,945,815
&
!
!
31!
8
$***************
********
$******
1,918,161
1,918,161
$********
********
$******
135,240
8,294,783
8,430,023
!
!
&
&
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
CONTRACTUAL&OBLIGATIONS&AND&COMMITMENTS&(Continued)&
&
!
Within&1&year
As&at&December&31,&2014
2-4&years
Over&4&years
Total
Operating*lease*commitments
Exploration*and*evaluation*commitments
Total*commitments
$**********
**********
$********
43,240
634,860
678,100
$********
**********
$********
135,240
774,730
909,970
8
$***************
********
$******
1,019,395
1,019,395
$********
********
$******
178,480
2,428,985
2,607,465
&
As! at! December! 31,! 2015,! exploration! and! evaluation! commitments! include! lease,!
mineral! claim,! exploration! license! and! property! purchase! agreement! payments! (the!
“Leases”)! required! to! maintain! the! surface! and/or! mineral! rights! for! the! Company’s!
mineral! properties! until! the! earlier! of! the! Lease! expiration! or! the! date! of! the! Lease’s!
expected!release.!!
!
For!further!information!on!the!source!of!funds!for!the!above!contractual!obligations!and!
commitments,! please! refer! to! the! Financing,!Liquidity!and!Capital!Resources! section! of!
this!MD&A.!
&
&
OFF&BALANCE&SHEET&ARRANGEMENTS&
!
The! Company! does! not! have! any! off! balance! sheet! arrangements! that! have! or! are!
reasonably!likely!to!have!a!current!or!future!effect!on!its!financial!condition,!changes!in!
financial! condition,! revenues! or! expenses,! results! of! operations,! liquidity,! capital!
expenditures!or!capital!resources.!
&
&
FINANCIAL&INSTRUMENTS&
&
The!fair!value!of!financial!assets!and!financial!liabilities!measured!at!amortized!cost!is!
determined!in!accordance!with!generally!accepted!pricing!models!based!on!discounted!
cash! flow! analysis! or! using! prices! from! observable! current! market! transactions.! ! The!
Company! considers! that! the! carrying! amount! of! all! its! financial! assets! and! financial!
liabilities!measured!at!amortized!cost!approximates!their!fair!value.!!!
!
The! fair! values! of! the! Company’s! financial! instruments! classified! as! fair! value! through!
profit!or!loss!are!determined!as!follows:!
!
• The!fair!value!of!financial!instruments!that!are!traded!on!an!active!liquid!market!
are!determined!with!reference!to!the!quoted!market!prices.!!The!fair!value!of!the!
Company’s! investment! in! the! shares! of! URI! and! Western! Uranium! are!
determined!using!this!methodology.!!
• The!fair!value!of!financial!instruments!that!are!not!traded!in!an!active!market!are!
determined! using! generally! accepted! valuation! models! using! inputs! that! are!
directly!(i.e.!prices)!or!indirectly!(i.e.!derived!prices)!observable.!
!
!
32!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
FINANCIAL&INSTRUMENTS&(Continued)&
!
!
• The!fair!value!of!the!call!option!held!by!the!Company!for!Anatolia!shares!
was!determined!using!the!BlackLScholes!Option!Pricing!Model.!
• The! fair! value! of! the! warrant! liability! is! determined! using! the! BlackL
Scholes!Option!Pricing!Model.!
• The!fair!value!of!financial!instruments!that!are!not!traded!in!an!active!market!are!
determined!using!generally!accepted!valuation!models!using!inputs!that!are!not!
directly!(i.e.!prices)!or!indirectly!(i.e.!derived!from!prices)!observable.!
• The! loan! asset! component! for! Black! Range! was! valued! based! on! the!
present! value! of! expected! future! cash! flows! at! the! discount! rate! that!
would! have! applied! to! the! financial! asset! without! conversion! or! other!
embedded! derivative! features.! None! of! the! fair! value! change! in! the!
convertible! loans! for! the! years! ended! December! 31,! 2015! and! 2014! is!
related! to! a! change! in! the! credit! risk! of! the! convertible! loans.! ! All! of! the!
change!in!fair!value!is!associated!with!changes!in!market!conditions.!
!
The! fair! value! of! all! other! financial! instruments! of! the! Company! approximates! their!
carrying! value! because! of! the! demand! nature! or! shortLterm! maturity! of! these!
instruments.!
!
As,at,December,31,
2015
2014
$&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&
239,327
40,882
$&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&
3,214,529
231,948
1,132,695
1,195,960
&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&&&&&&
$&&&&&&&&&&&&&&&
2,608,864
H
H
2,061,257
&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&
$&&&&&&&&&&&&&&
H
427,139
36,878
5,971,751
!&
Financial,assets
Loans&and&receivables
Cash
Restricted&cash
Fair&value&through&profit&or&loss
Investment&in&URI
Investment&in&Western&Uranium
Convertible&loan&issued&by&Black&Range
Call&option&on&Anatolia&shares
Total&financial&assets
&
&
&
&
&
&
&
&
&
&
&
&
!
!
33!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
FINANCIAL&INSTRUMENTS&(Continued)&
&
!
As,at,December,31,
2015
2014
Financial,liabilities
Other&financial&liabilities
Trade&and&other&payables
Loan&payable&to&shareholders
Deferred&consideration
Put&option&on&nonAcontrolling&interest&of&UrAsia
Decommissioning&liability
Other&loans&payable
Fair&value&through&profit&or&loss
2,594,087
2,202,445
$&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&
A
A
118,097
140,053
3,470,711
2,024,522
1,400,672
1,423,118
$&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&
1,246,094
A
Warrant&liability
Empire&Equity&facility
Total&financial&liabilities
&&&&&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&&&&&&
$&&&&&&&&&&&&&&&
3,809
A
5,058,491
&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&
$&&&&&&&&&&&&
328,213
228,422
10,121,752
&
!
&
The! Company! is! exposed! to! credit! risk! associated! with! its! cash.! The! Company’s!
maximum!exposure!to!credit!risk!is!equal!to!the!carrying!amount!of!its!cash.!
!
The! Company’s! credit! risk! on! cash! arises! from! default! of! the! counterparty.! The!
Company! limits! its! exposure! to! counterparty! credit! risk! on! cash! by! only! dealing! with!
financial!institutions!with!high!credit!ratings.!!
&
The!Company!is!subject!to!share!price!risk!with!respect!to!its!investments!in!Western!
Uranium! and! URI.! ! The! Company! manages! its! exposure! to! share! price! fluctuations,! to!
the! extent! possible,! by! actively! monitoring! its! investments.! The! Company’s! maximum!
exposure! to! share! price! risk! with! respect! to! its! investments! is! equal! to! the! carrying!
amount! of! its! investments.! ! The! Company’s! investment! in! Western! Uranium! is! also!
is!
subject! to! currency! risk.! The! Company's!
denominated!in!Canadian!Dollars.!!
&
The!Company!is!subject!to!liquidity!risk,!which!is!the!risk!that!the!Company!will!not!be!
able!to!settle!or!manage!its!obligations!associated!with!financial!liabilities.!!For!further!
information!on!the!Company’s!liquidity!risk,!please!refer!to!the!Financing,!Liquidity!and!
Capital!Resources!section!of!this!MD&A.&
!!!
&
&
&
&
&
&
&
&
in! Western! Uranium!
investment!
!
!
34!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RELATED&PARTY&TRANSACTIONS&
!
This! MD&A! includes! the! financial! statements! of! Azarga! Uranium! and! its! significant!
subsidiaries!and!associates!listed!in!the!following!table:!&
!
!
Name
Country(of
incorporation
%(equity(interest
As(at(December(31,
2015
2014
100%
100%
100%
100%
70%
100%
N/A
100%
100%
100%
100%
80%
100%
24%
Hong&Kong
British&Virgin&Islands
Canada
United&States&of&America
Kyrgyz&Republic&
United&States&of&America
Australia
Azarga&Resources&(Hong&Kong)&Limited
Azarga&Resources&Limited
Azarga&Resources&Canada&Ltd.
Azarga&Resources&USA&Company
UrAsia
Powertech&USA,&Inc.
Black&Range
!
The! Company! held! a! significant! influence! investment! in! Powertech! until! October! 28,!
2014,! at! which! point! the! RTO! closed.! ! The! Company! held! a! significant! influence!
investment!in!Black!Range!until!the!close!of!the!Black!Range!Merger,!at!which!point!the!
Company!no!longer!held!significant!influence.!
!
For! the! years! ended! December! 31,! 2015! and! 2014,! the! Company! had! related! party!
transactions! with! the! Company’s! directors,! shareholders,! management! and! significant!
influence!investees!including:!
!
!
Interest! accruing! to! certain! directors/shareholders! of! the! Company! on! the!
Shareholders!Loan!Agreement;!!
•
!
• The!execution!of!the!Third!Black!Range!Convertible!Loan;!
• The!conversion!of!the!First,!Second,!and!Third!Black!Range!Convertible!Loans;!
• The!execution!of!the!Second!Powertech!Convertible!Loan;!
• The!purchase!of!convertible!loans!issued!by!Powertech;!!
• The!purchase!of!convertible!loans!issued!by!Black!Range;!
• Certain! shareholders! and! key! management! personnel! subscribed! for! the!
Company’s!shares!under!subscription!agreements;!
• The!disposal!of!Black!Range!shares;!
•
Impairment! charges! on! the! Company’s! investments! in! Powertech! and! Black!
Range;!!
• The!issuance!of!the!Company’s!common!shares!to!key!management!personnel!to!
settle!trade!and!other!payables!owing;!and!
• The!RTO!with!Powertech.!
&
&
&
&
&
&
&
!
!
35!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RELATED&PARTY&TRANSACTIONS&(Continued)!
&
Related&party&assets&&
&
The!assets!of!the!Company!include!the!following!related!party!amounts:!
!
!
As(at(December(31,
2015
2014
Convertible+loan+issued+by+Black+Range
Investment+in+Black+Range
Total+assets+with+related+parties+
$++++++++++++++++++++++++
++++++++++++++++++++++++++
$++++++++++++++++++++++++
6
6
6
$+++++++++++++++++
+++++++++++++++++
$+++++++++++++++
427,139
1,890,623
2,317,762
!
&
Related&party&liabilities&
!
The!liabilities!of!the!Company!include!the!following!amounts!due!to!related!parties:!
!
As(at(December(31,
2015
2014
$%%%%%%%%%%%%%%%
%%%%%%%%%%%%%%%%%%%
Loan%payable%to%shareholders
Trade%and%other%payables%for%key%management%
personnel%>%current
Trade%and%other%payables%for%key%management%
personnel%>%non>current
Total%liabilities%with%related%parties%
(i)%As%at%December%31,%2015,%of%the%$2,202,445%loan%payable%to%shareholders,%$892,883%was%payable%to%a%
director.%As%at%December%31,%2014,%of%the%$2,024,522%loan%payable%to%shareholders,%$820,752%was%payable%to%
a%director.
2,024,522
621,707
2,202,445
435,518
$%%%%%%%%%%%%%%%
%%%%%%%%%%%%%%%%%%%
%%%%%%%%%%%%%%%%%%%%%%%%%%
3,007,963
2,646,229
%%%%%%%%%%%%%%%%%%%
$%%%%%%%%%%%%%%%
$%%%%%%%%%%%%%%%
370,000
>
&
Related&party&income&and&expenses&&
&
The!Company’s!related!party!income!and!expenses!consist!of!the!following!amounts:!
!
Year*ended*December*31,
2015
2014
&
(i)
!
/
/
/
$''''''''''''''''''''''''
''''''''''''''''''''''''''
''''''''''''''''''''''''''
'''''''''''''''''''
$'''''''''''''''''
138,493
138,493
$'''''''''''''''''
'''''''''''''''''''
'''''''''''''''''''
'''''''''''''''''''
$'''''''''''''''
341,757
301,133
353,778
469,784
1,466,452
!
Equity'income'pick/up'from'Powertech
Gain'recognized'on'assets'settled'on'close'of'RTO
Unrealized'gain'on'Black'Range'convertible'loans
Dilution'gain'on'investment'in'associates
Total'related'party'income
!
!
!
!
!
&
!
!
36!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RELATED&PARTY&TRANSACTIONS&(Continued)!
!
!
Interest'expense'on'loan'payable'to'shareholders
Interest'expense'on'promissory'note'issued'to'
Powertech'for'Centennial'
Interest'expense'on'put'option'held'by'Powertech'
on'Centennial'Project'
Equity'loss'pick@up'from'Black'Range'
Realized'loss'on'investment'in'Black'Range
Impairment'of'investment'in'Black'Range
Impairment'of'investment'in'Powertech
Unrealized'loss'on'Black'Range'convertible'loan
Unrealized'loss'on'Powertech'convertible'loan'
Total'related'party'expenses
Year*ended*December*31,
2015
2014
$'''''''''''''''''
''''''''''''''''''''''''''
177,923
@
$'''''''''''''''''
'''''''''''''''''''''
177,991
19,795
''''''''''''''''''''''''''
@
'''''''''''''''''''''
17,604
'''''''''''''''''''
'''''''''''''''''''
'''''''''''''''''''
''''''''''''''''''''''''''
'''''''''''''''''''''
''''''''''''''''''''''''''
$'''''''''''''''
602,375
200,363
520,866
@
16,742
@
1,518,269
2,625,218
1,550,695
3,707,133
'''''''''''''''''
'''''''''''''''''
''''''''''''''''''''''''''
'''''''''''''''''
''''''''''''''''''''''''''
'''''''''''''''''
$'''''''''''''
2,193,710
10,292,146
@
@
!
&
Key&management&personnel&compensation&
!
The!remuneration!of!the!Company’s!directors!and!other!members!of!key!management,!
who! have! the! authority! and! responsibility! for! planning,! directing! and! controlling! the!
activities!of!the!Company,!consist!of!the!following!amounts:!
!
!!&
Year*ended*December*31,
2015
2014
&
&
1,378,021
490,992
887,029
$*****************
*******************
*******************
*******************
$***************
121,516
532,891
407,681
480,000
1,542,088
$*****************
*******************
**************************
**************************
$***************
Share&based*compensation
Salaries,*fees*and*other*benefits
Share&based*payments
Severance*benefits
Key*management*personnel*compensation
!!!!!
&
SHARE&CAPITAL&
!
The! Company! has! authorized! the! issuance! of! an! unlimited! number! of! common! and!
preferred!shares!with!no!par!value.!!As!at!March!30,!2016,!the!Company!had!61,065,181!
common! shares! outstanding! and! no! preferred! shares! outstanding.! ! The! Company! also!
had!incentive!share!options!outstanding!to!acquire!3,023,550!unissued!common!shares!
with! exercise! prices! ranging! from! C$0.34! to! C$2.00! per! share! and! share! purchase!
warrants! outstanding! to! acquire! 4,169,067! unissued! common! shares! with! an! exercise!
price!of!C$1.00!per!share.!!
!
!
!
!
!
!
37!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
SHARE&CAPITAL&(Continued)&
!
Subsequent! to! December! 31,! 2015,! 89,461! common! shares! were! issued! at! a! deemed!
price!of!C$0.60!per!share!and!643,405!common!shares!were!issued!at!a!deemed!price!of!
C$0.32!per!share!to!settle!trade!and!other!payables!in!the!amount!of!$193,273.!
!
In! August! 2015,! the! Company! issued! 928,581! common! shares! at! an! average! deemed!
price!of!approximately!C$0.44!per!share!to!settle!trade!and!other!payables!of!$317,432.!
In!October!2015,!the!Company!recognized!a!net!increase!of!$1,910,372!in!contributed!
surplus!relating!to!the!Amended!Purchase!Agreement.!!In!addition,!for!the!year!ended!
December!31,!2015,!the!Company!recorded!$450,647!to!contributed!surplus!pursuant!
to! equity! settled! transactions! pertaining! to! the! Company’s! employee! share! purchase!
plan! (“ESPP”),! director! service! agreements! (“DSA”)! and! 2015! employee! shareLbased!
remuneration!not!issued!pursuant!to!the!ESPP!and!DSA.!
!
In! connection! with! the! closing! of! the! RTO! and! the! Consolidation,! the! Company!
completed! the! Financing! through! the! issuance! of! 8,338,134! postLConsolidation! Units,!
each! Unit! consisting! of! one! postLConsolidation! common! share! and! oneLhalf! Warrant.!
Each! whole! Warrant! entitles! the! holder! to! purchase! one! postLConsolidation! common!
share!at!an!exercise!price!of!C$1.00!per!share!until!October!28,!2016.!Accounting!for!the!
Consolidation! adjustment,! the! Units! subscribed! for! pursuant! to! the! Financing! were!
subscribed!for!at!C$0.60!per!Unit.!Finder’s!fees!in!connection!with!the!Financing!were!
comprised! of! $129,622! (C$145,617)! and! 242,696! postLConsolidation! shares.! All!
securities!issued!pursuant!to!the!Financing!were!subject!to!a!hold!period!that!expired!
March!1,!2015.!
!
In! addition,! subsequent! to! the! close! of! the! RTO,! 252,808! common! shares! were! issued!
pursuant!to!a!key!management!employment!agreement!at!an!average!price!of!C$0.60,!a!
price!equivalent!to!the!fair!value!of!the!common!shares!based!on!the!Financing.!
!
On!July!1,!2014,!pursuant!to!the!terms!of!the!Powerlite!Facility,!the!Company!exercised!
its! conversion! right! and! 38,212,493! shares! were! issued! to! Powerlite! on! conversion! of!
the! accumulated! Powerlite! equity! contributions! of! $18,000,000,! plus! accrued! interest.!!
As!a!result!of!the!share!issuance,!$152,850!was!reclassified!from!contributed!surplus!to!
share!capital.!!In!addition,!the!Company!recorded!$6,757,754!to!contributed!surplus!for!
the!equity!instrument!issued!to!Powerlite.!!!
!
!
!
!
!
!
!
!
!
!
!
!
38!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
SHARE&CAPITAL&(Continued)&
!
On! April! 1,! 2013,! the! Company! entered! into! share! subscription! agreements! with!
investors! to! subscribe! for! 4,250,000! shares! for! total! subscription! proceeds! of!
$1,700,000! at! $0.40! per! share.! As! at! the! close! of! the! RTO,! the! investors! had! paid!
subscription! deposits! totaling! $645,064.! No! additional! amounts! were! funded! through!
the! subscription! agreements! as! a! result! of! the! RTO.! In! 2014,! the! Company! issued!
904,387!common!shares!to!the!investors!for!total!proceeds!of!$361,755!(share!capital!of!
$3,618!plus!contributed!surplus!of!$358,137)!at!an!average!price!of!$0.40.!In!addition,!
the! Company! issued! 125,000! common! shares! pursuant! to! a! key! management!
employment!agreement!at!an!average!price!of!$0.40,!a!price!equivalent!to!the!fair!value!
of!the!common!shares!based!on!the!most!recent!equity!raise,!resulting!in!an!increase!in!
the! Company’s! equity! by! $50,000! (share! capital! of! $500! plus! contributed! surplus! of!
$49,500)!and!a!charge!to!shareLbased!compensation!expense.!
!
Subsequent! to! December! 31,! 2015,! 2,288,443! stock! options! were! forfeited! with! an!
exercise!price!of!C$1.20,!200,000!stock!options!were!forfeited!with!an!exercise!price!of!
C$0.34! and! 10,000! stock! options! were! forfeited! with! an! exercise! price! of! C$2.00.! In!
addition,! subsequent! to! December! 31,! 2015,! 1,500,000! and! 84,980! share! purchase!
warrants!with!exercise!prices!of!C$2.00!and!C$1.15,!respectively,!expired.!!
!
For!the!year!ended!December!31,!2015,!the!Company!granted!2,315,000!stock!options!
to! officers,! employees,! directors! and! other! eligible! persons! at! exercise! prices! ranging!
from!C$0.34!to!C$0.38!with!expiry!dates!ranging!from!August!6,!2018!to!June!3,!2020.!
The!weighted!average!fair!value!of!the!options!granted!in!the!year!ended!December!31,!
2015! was! estimated! at! C$0.20! per! option! at! the! grant! date! using! the! BlackLScholes!
Option!Pricing!Model.!!
!
For!the!year!ended!December!31,!2014,!the!Company!granted!2,650,754!stock!options!
to!officers,!employees,!directors!and!other!eligible!persons!at!an!exercise!price!of!C$1.20!
with!an!expiry!date!of!October!28,!2019.!!The!weighted!average!fair!value!of!the!options!
granted!in!the!year!ended!December!31,!2014!was!estimated!at!C$0.15!per!option!at!the!
grant!date!using!the!BlackLScholes!Option!Pricing!Model.!!
!
&
CRITICAL&ACCOUNTING&ESTIMATES&AND&JUDGEMENTS&
!
The!preparation!of!financial!statements!in!conformity!with!IFRS!requires!the!Company!
to! establish! accounting! policies! and! to! make! estimates! and! judgments! that! affect! both!
the!amount!and!timing!of!the!recording!of!assets,!liabilities,!revenues!and!expenses.!
A!detailed!summary!of!the!Company’s!significant!accounting!policies!is!included!in!Note!
3! to! the! Company’s! consolidated! annual! financial! statements! for! the! years! ended!
December! 31,! 2015! and! 2014.! Information! regarding! judgments! and! estimates! in!
applying! accounting! policies! that! have! the! most! significant! effect! on! the! amounts!
recognized!in!the!Company’s!consolidated!financial!statements!are!as!follows:!!
!
!
39!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
CRITICAL&ACCOUNTING&ESTIMATES&AND&JUDGEMENTS&(Continued)&
!
Liquidity!and!going!concern!assumption!
!
In!the!determination!of!the!Company’s!ability!to!meet!its!ongoing!obligations!and!future!
contractual! commitments! management! relies! on! the! Company’s! planning,! budgeting!
and!forecasting!process!to!help!determine!the!funds!required!to!support!the!Company’s!
normal!operations!on!an!ongoing!basis!and!its!expansionary!plans.!!The!key!inputs!used!
by!the!Company!in!this!process!include!forecasted!capital!deployment,!results!from!the!
exploration! and! development! of! its! properties! and! general! industry! conditions.!!
Changes!in!these!inputs!may!alter!the!Company’s!ability!to!meet!its!ongoing!obligations!
and! future! contractual! commitments! and! could! result! in! adjustments! to! the! amounts!
and!classifications!of!assets!and!liabilities!should!the!Company!be!unable!to!continue!as!
a!going!concern.!!
!
Valuation!of!derivatives!
!
Certain! derivatives! issued! by! the! Company! are! valued! using! the! Black! Scholes! Option!
Pricing! Model.! The! Black! Scholes! Option! Pricing! Model! is! a! formula! that! is! used! to!
determine!the!fair!value!of!a!call!or!put!option!based!on!factors!such!as!underlying!stock!
volatility,!days!to!expiration,!and!others.!Changes!in!the!inputs!to!the!valuation!model!
could!impact!the!carrying!value!of!the!derivatives!and!the!amount!of!unrealized!gains!or!
losses!recognized!in!profit!or!loss.!!!
!
Valuation!of!convertible!loans!!
!
The! Company’s! convertible! loans! are! valued! using! a! binomial! option! pricing! model,! if!
appropriate.!!A!binomial!tree!is!a!valuation!model!that!uses!a!lattice!of!the!underlying's!
price!varying!over!discreet!time!periods!and!determines!the!value!of!an!option!at!each!
node.!The!financial!asset!components!are!valued!based!on!the!present!value!of!expected!
future! cash! flows! at! the! discount! rate! that! would! have! applied! to! the! financial! assets!
without!conversion!or!other!embedded!derivative!features.!Changes!in!the!inputs!to!the!
valuation! model! could! impact! the! carrying! value! of! the! embedded! derivatives! and!
financial! assets! in! the! convertible! loans! and! the! amount! of! unrealized! gains! or! losses!
recognized!in!profit!or!loss.!!!
!
Review!of!carrying!value!of!assets!and!impairment!charges!
!
In! the! determination! of! carrying! values! and! impairment! charges,! management! of! the!
Company!reviews!the!higher!of!the!recoverable!amount!and!the!fair!value!less!costs!to!
sell! or! the! value! in! use! in! the! case! of! nonLfinancial! assets! and! at! objective! evidence!
indicating! impairment! in! the! case! of! financial! assets.! These! determinations! and! their!
individual! assumptions! require! that! management! make! a! decision! based! on! the! best!
available!information!at!each!reporting!period.!!Changes!in!these!assumptions!may!alter!
the! results! of! nonLfinancial! asset! and! financial! asset! impairment! testing,! impairment!
charges!recognized!in!profit!or!loss!and!the!resulting!carrying!amounts!of!assets.!
!
!
40!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
CRITICAL&ACCOUNTING&ESTIMATES&AND&JUDGEMENTS&(Continued)&
!
!
As! at! each! reporting! date,! the! Company! reviews! assets! to! determine! whether! there! is!
any!indication!that!those!assets!have!suffered!an!impairment!loss.!!
!
Capitalization!of!exploration!and!evaluation!costs!!
!
Management!has!determined!that!exploration!and!evaluation!costs!incurred!during!the!
year! have! future! economic! benefits! and! are! economically! recoverable.! In! making! this!
judgment,!management!has!assessed!various!sources!of!information!including,!but!not!
limited! to,! the! geologic! and! metallurgic! information,! history! of! conversion! of! mineral!
deposits! to! proven! and! probable! mineral! reserves,! scoping! studies,! preliminary!
economic! assessments,! proximity! of! operating! facilities,! operating! management!
expertise!and!existing!permits.!
!
Determination!of!business!combinations!and!asset!acquisitions!!
!
Management! determines! the! assets! acquired! and! liabilities! assumed! constitute! a!
business! if! it! consists! of! inputs! and! processes! applied! to! those! inputs! that! have! the!
ability! to! create! outputs.! Powertech! completed! a! RTO! with! Azarga! Resources! on!
October! 28,! 2014! and,! in! accordance! with! its! policy,! applied! IFRS! 3,! Business!
Combinations,!and!concluded!that!the!transaction!qualified!as!a!business!combination!as!
significant!inputs!and!processes!that!constitute!a!business!were!identified.!!!
!
Determination!of!asset!and!liability!fair!values!!
!
Business! combinations! require! judgment! and! estimates! to! be! made! at! the! date! of!
acquisition! in! relation! to! determining! asset! and! liability! fair! values.! ! The! information!
necessary! to! measure! the! fair! values! as! at! the! acquisition! date! of! assets! acquired! and!
liabilities! assumed! requires! management! to! make! certain! judgments! and! estimates!
about! future! events,! including! but! not! limited! to! estimates! of! mineral! resources!
acquired,!exploration!potential,!future!operating!costs!and!capital!expenditures,!future!
metal! prices! and! longLterm! foreign! exchange! rates.! Changes! to! the! provisional!
measurements!of!assets!and!liabilities!acquired!may!be!retrospectively!adjusted!when!
new! information! is! obtained! until! the! final! measurements! are! determined! which! is!
within!one!year!of!the!acquisition!date.!!
!
NonHcurrent!assets!held!for!sale!!
!
Management!has!determined!that!certain!nonLcurrent!assets!meet!the!definition!of!nonL
current! assets! held! for! sale! under! IFRS! 5,! NonHcurrent! Assets! Held! for! Sale! and!
Discontinued! Operations.! ! The! determinations! and! individual! assumptions! made! by!
management! are! based! on! the! best! available! information! at! each! reporting! period.!!
Changes! in! these! assumptions! could! result! in! the! asset! no! longer! meeting! the!
classification! requirements! and! as! a! result,! the! Company! may! cease! to! classify! these!
assets!as!held!for!sale.!
!
!
41!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
CRITICAL&ACCOUNTING&ESTIMATES&AND&JUDGEMENTS&(Continued)!
!
Fair!value!of!investments!held!for!sale!
&&
!
The!fair!value!of!the!Company’s!investments!held!for!sale!in!Western!Uranium!and!URI!
is!based!on!the!price!within!the!bidLask!spread!that!is!most!representative!of!fair!value!
in! the! circumstances.! ! Changes! to! the! most! representative! price! could! impact! the! fair!
value!of!the!Company’s!investments!held!for!sale!and!the!amount!of!unrealized!gains!or!
losses!recognized!in!profit!or!loss.&&!
!!!
Income!taxes!and!recoverability!of!deferred!tax!assets!
!
Actual! amounts! of! income! tax! expense! are! not! final! until! tax! returns! are! filed! and!
accepted! by! the! taxation! authorities.! ! Therefore,! profit! or! loss! in! future! reporting!
periods! will! be! affected! by! the! amount! that! income! tax! expense! estimates! differ! from!
the!final!tax!returns.!!
!
Judgment!is!required!in!determining!whether!deferred!tax!assets!are!recognized!on!the!
statement! of! financial! position.! ! Deferred! tax! assets,! including! those! arising! from!
unutilized!tax!losses,!require!management!of!the!Company!to!assess!the!likelihood!that!
the!Company!will!generate!sufficient!taxable!profit!in!future!periods!in!order!to!utilize!
recognized!deferred!tax!assets.!!Estimates!of!future!taxable!profit!are!based!on!forecast!
cash!flows!from!operations!and!the!application!of!existing!tax!laws!in!each!jurisdiction.!
To!the!extent!that!future!cash!flows!and!taxable!profit!differ!from!estimates,!the!ability!
of!the!Company!to!realize!the!deferred!tax!assets!recorded!on!the!statement!of!financial!
position!could!be!impacted.!!
!
&
RECENT&ACCOUNTING&PRONOUNCEMENTS&
!
There! have! been! no! new! and/or! revised! standards! and! interpretations! issued! by! the!
IASB! or! IFRIC! adopted! by! the! Company! effective! January! 1,! 2015! that! have! had! a!
material!impact!on!the!consolidated!financial!statements!of!the!Company.!!
!
The! standards! and! interpretations! that! are! issued! up! to! the! date! of! issuance! of! the!
Company’s!financial!statements,!but!were!not!effective!during!the!year!ended!December!
31,! 2015! are! disclosed! below.! The! Company! intends! to! adopt! these! standards,! if!
applicable,!when!they!become!effective.!
!
!
!
!
!
!
!
!
!
!
42!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RECENT&ACCOUNTING&PRONOUNCEMENTS&(Continued)&
!
IFRS!5!Amendment!
!
!
&
IFRS!7!Amendment!
!
!
IFRS!9!
!
IFRS! 10! and! IAS! 28!
Amendments!
&
!
Amendments! to! IFRS! 5! Non! Current! Assets! Held! for! Sale! and!
Discontinued!Operations(i)!
Amendments!to!IFRS!7!Financial!Instruments:!Disclosures(i)!
Amendments!to!IAS!16!Property,!Plant!and!Equipment!and!IAS!
38!Intangible!Assets(i)!
Financial!Instruments(iii)!
!
Amendments! to! IFRS! 10! Consolidated! Financial! Statements!
and!IAS!28!Investments!in!Associates!and!Joint!Ventures(i)!
!
Amendments!to!IFRS!11!Joint!Arrangements(i)!
!
Revenue!from!Contracts!with!Customers(ii)!
!
Amendments!to!IAS!1!Presentation!of!Financial!Statements(i)!
!
IFRS!11!Amendments!
!
IFRS!15!
!
IAS!1!Amendments!!
!
IAS! 16! and! IAS! 38!
Amendments!
&
i) Effective!for!annual!periods!beginning!on!or!after!January!1,!2016!
ii) Effective!for!annual!periods!beginning!on!or!after!January!1,!2017!
iii) Effective!for!annual!periods!beginning!on!or!after!January!1,!2018!
!
The! Company! is! in! the! process! of! assessing! the! impact! of! the! adoption! of! these!
standards!and!interpretations.!
!
&
MANAGEMENT’S&RESPONSIBILITY&FOR&FINANCIAL&INFORMATION!
&
The! Company’s! consolidated! financial! statements! are! the! responsibility! of! the!
Company's! management! and! have! been! approved! by! the! Board! of! Directors.! ! The!
Company’s! consolidated! financial! statements! were! prepared! by! the! Company’s!
! The! Company’s! consolidated! financial!
management! in! accordance! with! IFRS.!
statements! include! certain! amounts! based! on! the! use! of! estimates! and! assumptions.!
Management!has!established!these!amounts!in!a!reasonable!manner,!in!order!to!ensure!
that!the!Company’s!consolidated!financial!statements!are!presented!fairly!in!all!material!
respects.
!
&
&
&
&
&
&
&
!
!
43!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
DISCLOSURE&CONTROLS&AND&PROCEDURES&
!
filed! or! submitted! under! securities!
Disclosure!controls!and!procedures!are!designed!to!provide!reasonable!assurance!that!
information!required!to!be!disclosed!by!the!Company!in!its!annual!filings,!interim!filings!
or! other! reports! filed! or! submitted! by! it! under! securities! legislation! is! recorded,!
processed,!summarized!and!reported!within!the!time!periods!specified!in!the!securities!
legislation! and! include! controls! and! procedures! designed! to! ensure! that! information!
required! to! be! disclosed! by! the! Company! in! its! annual! filings,! interim! filings! or! other!
is! accumulated! and!
reports!
communicated! to! the! Company’s! management,! including! its! CEO! and! CFO,! as!
appropriate!to!allow!timely!decisions!regarding!required!disclosure.!
!
Management,!including!the!CEO!and!CFO,!has!evaluated!the!effectiveness!of!the!design!
and! operation! of! the! Company’s! disclosure! controls! and! procedures.! ! As! of! December!
31,!2015,!the!CEO!and!CFO!have!each!concluded!that!the!Company’s!disclosure!controls!
and! procedures,! as! required! by! the! applicable! rules! of! the! Canadian! Securities!
Administrators!(or!Canadian!securities!regulatory!authorities),!are!effective!to!achieve!
the!purpose!for!which!they!have!been!designed.!
legislation!
&
INTERNAL&CONTROLS&OVER&FINANCIAL&REPORTING&
!
Internal!controls!over!financial!reporting!are!designed!to!provide!reasonable!assurance!
regarding! the! reliability! of! financial! reporting! and! the! preparation! of! financial!
statements!in!accordance!with!IFRS.!Management!is!also!responsible!for!the!design!of!
the!Company’s!internal!controls!over!financial!reporting!in!order!to!provide!reasonable!
assurance!regarding!the!reliability!of!financial!reporting!and!the!preparation!of!financial!
statements!for!external!purposes!in!accordance!with!IFRS.!
!
The! Company’s! internal! controls! over! financial! reporting! include! policies! and!
procedures! that:! pertain! to! the! maintenance! of! records! that,! in! reasonable! detail!
accurately! and! fairly! reflect! the! transactions! and! disposition! of! assets;! provide!
reasonable!assurance!that!transactions!are!recorded!as!necessary!to!permit!preparation!
of!the!financial!statements!in!accordance!with!IFRS!and!that!receipts!and!expenditures!
are!being!made!only!in!accordance!with!authorization!of!management!and!directors!of!
the! Company;! and! provide! reasonable! assurance! regarding! prevention! or! timely!
detection! of! unauthorized! acquisition,! use! or! disposition! of! assets! that! could! have! a!
material!effect!on!the!financial!statements.!
!
Because! of! their! inherent! limitations,! internal! controls! over! financial! reporting! can!
provide! only! reasonable! assurance! and! may! not! prevent! or! detect! misstatements.!
Furthermore,!projections!of!any!evaluation!of!effectiveness!to!future!periods!are!subject!
to! the! risk! that! controls! may! become! inadequate! because! of! changes! in! conditions,! or!
that!the!degree!of!compliance!with!the!policies!or!procedures!may!deteriorate.!
!
!
!
!
44!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
INTERNAL&CONTROLS&OVER&FINANCIAL&REPORTING&(Continued)&
!
The! Company’s! management,! under! the! supervision! of! the! CEO! and! the! CFO,! has!
evaluated!the!effectiveness!of!the!Company’s!internal!controls!over!financial!reporting!
using! the! framework! and! criteria! as! required! by! the! applicable! rules! of! the! Canadian!
Securities!Administrators!(or!Canadian!securities!regulatory!authorities).!Based!on!this!
evaluation,! management! has! concluded! that! internal! controls! over! financial! reporting!
were!effective!as!at!December!31,!2015.!
!
There! has! been! no! change! in! the! Company’s! internal! controls! over! financial! reporting!
that! occurred! subsequent! to! December! 31,! 2015! that! has! materially! affected,! or! is!
reasonably! likely! to! materially! affect,! the! Company’s! internal! controls! over! financial!
reporting.!
&
DISCLOSURE&OF&A&SCIENTIFIC&OR&TECHNICAL&NATURE&
Disclosure! of! a! scientific! or! technical! nature! in! this! MD&A! has! been! reviewed! and!
approved!by!John!Mays,!P.E.,!Chief!Operating!Officer!and!a!“qualified!person”!as!defined!
under!NI!43L101.&
&
&
RISKS&AND&UNCERTAINTIES&
&
The!Company’s!operations!and!financial!performance!are!subject!to!the!normal!risks!of!
mining!investments!made!in!other!entities!and!are!subject!to!various!identified!factors,!
which!are!beyond!the!control!of!the!Company.!!Additional!risks!not!currently!known!to!
the!Company,!or!that!it!currently!considers!immaterial,!may!also!adversely!impact!the!
Company’s! business,! operations,! financial! results! or! prospects,! should! any! such! other!
events!occur.!!!
Global!Economic!Conditions!
!
In!the!event!of!a!general!economic!downturn!or!a!recession,!there!can!be!no!assurance!
that! the! business,! financial! condition! and! results! of! operations! of! the! Company! would!
not!be!materially!adversely!affected.!During!the!past!several!years,!the!global!economy!
faced!a!number!of!challenges.!During!the!global!financial!crisis!of!2007/2008,!economic!
problems! in! the! United! States! and! Eurozone! caused! deterioration! in! the! global!
economy,! as! numerous! commercial! and! financial! enterprises! either! went! into!
bankruptcy! or! creditor! protection! or! had! to! be! rescued! by! governmental! authorities.!
Access!to!public!financing!was!negatively!impacted!by!subLprime!mortgage!defaults!in!
the! United! States,! the! liquidity! crisis! affecting! the! assetLbacked! commercial! paper! and!
collateralized! debt! obligation! markets! and! investment! losses! by! banks! with! resultant!
recapitalization!efforts.!!
!
!
!
45!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RISKS&AND&UNCERTAINTIES&(Continued)&
&
Although! economic! conditions! have! shown! improvement! in! recent! years,! the! global!
recovery! from! the! recession! has! been! slow! and! uneven.! The! effects! of! the! global!
financial! crisis! continue! to! limit! growth.! In! addition,! increasing! levels! of! government!
debt,! slowing! economic! growth! in! certain! key! regions,! including! China,! the! threat! of!
sovereign! defaults! and! political! instability! in! certain! countries! continue! to! weigh! on!
markets.! ! These! factors! continue! to! impact! the! commodities! sector! and! commodities!
prices,!including!uranium,!as!well!as!currencies,!debt!markets!and!stock!markets.!
!
These!factors!may!impact!the!Company’s!ability!to!obtain!equity,!debt,!or!bank!financing!
on!terms!commercially!reasonable!to!the!Company,!or!at!all.!!Additionally,!these!factors,!
as!well!as!other!related!factors,!may!cause!decreases!in!asset!values!that!are!deemed!to!
be! other! than! temporary,! which! may! result! in! impairment! losses.! ! If! these! increased!
levels!of!volatility!and!market!turmoil!continue,!or!there!is!a!material!deterioration!in!
general! business! and! economic! conditions,! the! Company’s! operations! could! be!
adversely!impacted!and!the!trading!price!of!the!Company’s!securities!could!continue!to!
be!adversely!affected.!
Uranium!Price!Fluctuations!!
The!Company’s!potential!revenue!is!anticipated!to!be!derived!from!the!sale!of!uranium!
products.! The! Company’s! financial! condition,! results! of! operations,! earnings! and!
operating!cash!flows!will!be!significantly!affected!by!the!market!price!of!uranium,!which!
is! cyclical! and! subject! to! substantial! short! and! longLterm! price! fluctuations.! Among!
other!factors,!uranium!prices!also!affect!the!value!of!the!Company’s!resources,!as!well!as!
the!market!price!of!the!Company’s!common!shares.!
Market! prices! are! affected! by! numerous! factors! beyond! the! Company’s! control.! Such!
factors! include,! among! others:! demand! for! nuclear! power;! political! and! economic!
conditions! in! uranium! producing! and! consuming! countries;! public! and! political!
response!to!a!nuclear!incident;!reprocessing!of!used!reactor!fuel,!the!reLenrichment!of!
depleted!uranium!tails!and!the!enricher!practice!of!underfeeding;!sales!of!excess!civilian!
and! military! inventories! (including! from! the! dismantling! of! nuclear! weapons;! the!
premature!decommissioning!of!nuclear!power!plants;!and!from!the!buildLup!of!Japanese!
utility!uranium!inventories!as!a!result!of!the!Fukushima!incident)!by!governments!and!
industry! participants;! uranium! supply,! including! the! supply! from! other! secondary!
sources;! production! levels! and! costs! of! production;! levels! of! supply! and! demand! for! a!
broad!range!of!industrial!products;!substitution!of!new!or!different!products!in!critical!
applications!for!the!Company’s!potential!products;!expectations!with!respect!to!the!rate!
of! inflation;! the! relative! strength! of! the! US! dollar! and! of! certain! other! currencies;!
interest! rates;! global! or! regional! political! or! economic! crises;! regional! and! global!
economic!conditions;!and!sales!of!uranium!by!holders!in!response!to!such!factors.!!
!
!
!
!
46!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RISKS&AND&UNCERTAINTIES&(Continued)!
!
If!the!Company!is!able!to!successfully!commence!uranium!production!and!the!price!of!
uranium! declines! below! the! Company’s! cash! costs! of! production! and! remains! at! such!
levels!for!any!sustained!period,!the!Company!may!determine!that!it!is!not!economically!
feasible! to! continue! commercial! production! at! any! or! all! of! the! Company’s! sites.! The!
Company’s! expected! business! activities! are! dependent! on! the! Company’s! and! the!
industry’s! expectations! of! uranium! prices,! which! may! or! may! not! be! realized.! In! the!
event! the! Company! concludes! that! a! significant! deterioration! in! expected! future!
uranium! prices! has! occurred,! the! Company! will! assess! whether! an! impairment!
allowance!is!necessary,!which,!if!required,!could!be!material.!
The! recent! fluctuations! in! the! price! of! many! commodities,! including! uranium,! is! an!
example! of! a! situation! over! which! the! Company! has! no! control! and! which! could!
materially! adversely! affect! the! Company! in! a! manner! for! which! it! may! not! be! able! to!
compensate.!!
Government!Regulation!and!Policy!Risks!
The!Company’s!mineral!exploration!and!planned!development!activities!are!subject!to!
various! laws! governing,! among! other! things;! acquisition! of! the! mining! interests;!
maintenance! of! claims;! tenure;! expropriation;! prospecting;! exploration;! development;!
mining;!taxes!and!royalties;!labor!standards;!occupational!health;!waste!disposal;!toxic!
substances;!water!use;!land!use;!Native!American!land!claims;!environmental!protection!
and! remediation;! endangered! and! protected! species;! mine! decommissioning! and!
reclamation;! mine! safety;! transportation! safety! and! emergency! response;! and! other!
matters.!Compliance!with!such!laws!and!regulations!has!increased!the!Company’s!costs!
of!exploring,!drilling!and!developing!mineral!properties.!!
It!is!possible!that,!in!the!future,!the!costs,!delays!and!other!effects!associated!with!such!
laws!and!regulations!may!impact!the!Company’s!decision!as!to!whether!to!proceed!with!
exploration! or! development! of! mineral! properties,! or! that! such! laws! and! regulations!
may! result! in! the! Company! incurring! significant! costs! to! remediate! properties! that! do!
not! comply! with! applicable! environmental! standards! at! such! time.! The! Company!
expends! significant! financial! and! managerial! resources! to! comply! with! such! laws! and!
regulations.! The! Company! anticipates! it! will! have! to! continue! to! do! so! as! the! historic!
trend! toward! stricter! government! regulation! is! likely! to! continue.! There! can! be! no!
assurance! that! future! changes! in! applicable! laws! and! regulations! will! not! adversely!
affect!the!financial!condition!of!the!Company.!New!laws!and!regulations,!amendments!to!
existing! laws! and! regulations! or! more! stringent! implementation! of! existing! laws! and!
regulations,! including! stricter! license! and! permit! conditions,! could! have! a! material!
adverse! impact! on! the! Company,! increase! costs! and/or! delay! or! prevent! the!
development!of!mining!properties.!
!
!
!
!
47!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RISKS&AND&UNCERTAINTIES&(Continued)!
!
Mining! is! subject! to! potential! risks! and! liabilities! associated! with! pollution! of! the!
environment! and! the! disposal! of! waste! products! occurring! as! a! result! of! mineral!
exploration,! mining! and! production.! Environmental! liability! may! result! from! mining!
activities!conducted!by!others!prior!to!the!Company’s!ownership!of!a!property.!Failure!
to!comply!with!applicable!laws,!regulations!and!permitting!requirements!may!result!in!
enforcement!actions.!These!actions!may!result!in!orders!issued!by!regulatory!or!judicial!
authorities! causing! operations! to! cease! or! be! curtailed,! and! may! include! corrective!
measures! requiring! capital! expenditures,! installation! of! additional! equipment! or!
remedial! actions.! Companies! engaged! in! uranium! exploration! operations! may! be!
required!to!compensate!others!who!suffer!loss!or!damage!by!reason!of!such!activities!
and! may! have! civil! or! criminal! fines! or! penalties! imposed! for! violations! of! applicable!
laws!or!regulations.!Should!the!Company!be!unable!to!fully!fund!the!cost!of!remedying!
an! environmental! problem,! it! might! be! required! to! suspend! operations! or! enter! into!
interim!compliance!measures!pending!completion!of!the!required!remedy,!which!could!
have!a!material!adverse!effect!on!the!Company.!!
To! the! extent! that! the! Company! is! subject! to! uninsured! environmental! liabilities,! the!
payment! of! such! liabilities! would! reduce! otherwise! available! cash! and! could! have! a!
material! adverse! effect! on! the! Company.! In! addition,! the! Company! does! not! have!
insurance! coverage! for! certain! environmental! losses! and! other! risks! as! such! coverage!
cannot! be! purchased! at! a! commercially! reasonable! cost.! Compliance! with! applicable!
environmental! laws! and! regulations! requires! significant! expenditures! and! increases!
mine!development!and!operating!costs.!
Worldwide!demand!for!uranium!is!directly!tied!to!the!demand!for!electricity!produced!
by!the!nuclear!power!industry,!which!is!also!subject!to!extensive!government!regulation!
and! policies.! The! development! of! mines! and! related! facilities! is! contingent! upon!
governmental! approvals! that! are! complex! and! time! consuming! to! obtain! and! which,!
depending! upon! the! location! of! the! project,! involve! multiple! governmental! agencies.!
The! duration! and! success! of! such! approvals! are! subject! to! many! variables! outside! the!
Company’s! control.! Any! significant! delays! in! obtaining! or! renewing! such! permits! or!
licenses!in!the!future!could!have!a!material!adverse!effect!on!the!Company.!In!addition,!
the!international!marketing!of!uranium!is!subject!to!governmental!policies!and!certain!
trade!restrictions.!!Changes!in!these!policies!and!restrictions!may!adversely!impact!the!
Company’s!business.!
!
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48!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RISKS&AND&UNCERTAINTIES&(Continued)!
!
With!respect!to!the!Company’s!Dewey!Burdock!Project,!the!resolution!of!the!remaining!
two! contentions,! which! relate! to! the! identification! and! protection! of! historic! and!
cultural!resources,!could!impact!the!implementation!of!the!NRC!license!for!construction!
and! operation! of! the! Dewey! Burdock! Project,! as! mitigation! strategies! must! be!
implemented!under!the!PA!prior!to!ground!disturbances!at!the!Dewey!Burdock!Project!
site.! !Further,! if! the! remaining! two! contentions! are! not! resolved! favorably,! the! Dewey!
Burdock! NRC! license! could! be! suspended! and! the! issuance! of! other! federal! and! state!
permits!could!be!impacted.!!In!addition,!the!Intervenors!have!filed!petitions!for!review!
covering! most! of! the! contentions! heard! by! the! ASLB,! which! could! result! in! the! same!
issues!discussed!above.!!!
&
If! the! Company! is! unable! to! resolve! the! remaining! two! contentions! favorably! or! the!
Intervenors!are!successful!in!their!appeal!or!the!NRC!Commission!determines!to!review!
the! partial! decision! of! the! ASLB,! it! may! have! a! material! adverse! impact! on! the!
Company’s!financial!performance,!cash!flow!and!results!of!operations.!In!addition,!the!
Company!will!have!to!assess!whether!an!impairment!allowance!is!necessary,!which,!if!
required,!could!be!material.!
!
With! respect! to! the! Company’s! Centennial! Project,! originating! from! opposition! to! the!
Centennial! Project! by! numerous! interested! parties! in! Colorado,! House! Bill! 1161! was!
signed!creating!a!specialized!regulatory!regime!for!inLsitu!uranium!recovery!in!the!State!
of! Colorado.! The! implementation! of! this! law! may! establish! standards! for! inLsitu!
recovery! mining! and! restoration! that! ultimately! affect! the! financial! viability! of! the!
Centennial!Project.!!
!
Public!Involvement!in!the!Permitting!Process!!
!
The! process! of! obtaining! radioactive! materials! licenses! (“RML”)! for! the! Company’s!
mineral! properties! in! the! United! States! allows! for! public! participation.! Third! parties!
may! object! to! the! issuance! of! RMLs! and/or! permits! required! by! the! Company,! which!
may! significantly! delay! the! Company’s! ability! to! obtain! an! RML! and/or! permit.!
Generally,! public! objections! can! be! overcome! through! the! procedures! set! forth! in! the!
applicable! permitting!
financial! resources! and!
managerial! resources! are! required! through! this! process.! In! addition,! the! various!
regulatory! agencies! must! allow! and! fully! consider! the! public! objections/comments!
according! to! such! procedures! set!out!in!the!applicable!legislation! and! there! can! be! no!
assurance! that! the! Company! will! be! successful! in! obtaining! an! RML! and/or! permit,!
which!could!have!a!material!adverse!effect!on!the!viability!of!a!project.!!
legislation;! however,! significant!
In! the! Kyrgyz! Republic,! the! process! of! obtaining! RMLs! is! determined! by! the! State!
Agency!of!Geology,!the!State!Department!on!Technical!Safety,!and!the!State!Department!
of!Ecology.!!There!can!be!no!assurance!that!the!Company!will!be!successful!in!obtaining!
an!RML,!which!could!have!a!material!adverse!effect!on!the!viability!of!a!project.!
!
!
49!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RISKS&AND&UNCERTAINTIES&(Continued)&
&
Please!refer!to!the!“Government!Regulation!and!Policy!Risks”!risk!factor!for!specific!risks!
identified!pertaining!to!the!Dewey!Burdock!Project!and!the!Centennial!Project!that!also!
pertain!to!“Public!Involvement!in!the!Permitting!Process”.!
!
Native!American!Involvement!in!the!Permitting!Process!!
None!of!the!Company’s!mineral!properties!are!located!within!the!boundaries!of!Native!
American! lands,! property! interests! that! are! controlled! or! owned! by! Native! Americans!
under! the! jurisdiction! of! the! United! States! Federal! Government.! However,! under!
Federal! legislation,! “historic! cultural! properties! of! religious! significance! that! can! be!
identified!are!to!be!avoided!or!activities!are!to!be!mitigated!such!that!the!essential!nature!
of! the! properties! is! not! lost! to! a! culture.! Throughout! the! western! United! States,! Indian!
tribes! have! had! historical! relationship! with! properties! that! are! now! owned! by! private!
parties,!the!Federal!Government!or!State!Government.!In!any!Federal!permitting!action!on!
these!properties,!the!agency!involved!is!required!to!make!an!effort!to!communicate!with!
Native!American!Tribes!to!determine!any!areas!of!“Traditional!Cultural!Significance”.!This!
process!involves!“Government!to!Government”!discussions!with!the!potentially!affected!
Native!American!Tribes;!therefore,!delays!in!permitting!may!occur!through!this!process.!
In! the! event! that! “Traditional! Cultural! Properties”! are! identified! within! a! project! area,!
the!Company!and!the!agency!must!determine!the!best!method!of!development!to!ensure!
that! disturbances! are! minimized! or! mitigated.! Please! refer! to! the! “Government!
Regulation! and! Policy! Risks”! risk! factor! for! specific! risks! identified! pertaining! to! the!
Dewey! Burdock! Project! that! also! pertain! to! “Native! American! Involvement! in! the!
Permitting!Process”.! ! As! noted! under! the! “Government!Regulation!and!Policy!Risks”! risk!
factor,!if!the!Company!is!unable!to!resolve!the!remaining!two!contentions!favorably!or!
the! Intervenors! are! successful! in! their! appeal! or! the! NRC! Commission! determines! to!
review! the! partial! decision! of! the! ASLB,! it! may! have! a! material! adverse! impact! on! the!
Company’s!financial!performance,!cash!flow!and!results!of!operations.!In!addition,!the!
Company!will!have!to!assess!whether!an!impairment!allowance!is!necessary,!which,!if!
required,!could!be!material.!!Further,!this!process!could!also!impact!the!timing!of!final!
licensing!and!permitting!being!granted!at!the!Company’s!Dewey!Burdock!Project.!!
!
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50!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RISKS&AND&UNCERTAINTIES&(Continued)!
!
Environmental!Regulatory!Requirements!and!Risks!!!
!
The! Company! is! required! to! comply! with! environmental! protection! laws! and!
regulations! and! permitting! requirements! in! the! jurisdictions! in! which! it! operates.! The!
uranium! industry! is! subject! not! only! to! health! and! safety! and! environmental! risks!
associated! with! all! mining! businesses,! but! also! to! additional! risks! uniquely! associated!
with!the!uranium!industry.!The!Company!expends!significant!resources,!both!financial!
and! managerial,! to! comply! with! these! laws! and! regulations.! The! possibility! of! more!
stringent! regulations! exists! in! the! areas! of! worker! health! and! safety,! storage! of!
hazardous!materials,!standards!for!heavy!equipment!used!in!mining,!the!disposition!of!
wastes,! the! decommissioning! and! reclamation! of! exploration! and! inLsitu! sites,! climate!
change!and!other!environmental!matters,!each!of!which!could!have!a!material!adverse!
effect!on!the!cost!or!the!viability!of!a!particular!project.&
The! Company! cannot! predict! what! environmental! legislation,! regulations! or! policies!
will! be! enacted! or! adopted! in! the! future! or! how! future! laws! and! regulations! will! be!
administered! or! interpreted.! The! recent! trend! in! environmental! legislation! and!
regulation!is!generally!towards!stricter!standards,!and!this!trend!is!likely!to!continue!in!
the!future.!This!recent!trend!includes,!without!limitation,!laws!and!regulations!relating!
to!air!and!water!quality,!mine!reclamation,!waste!handling!and!disposal,!the!protection!
of!certain!species!and!the!preservation!of!certain!lands.!These!regulations!may!require!
the!acquisition!of!permits!or!other!authorizations!for!certain!activities.!These!laws!and!
regulations!may!also!limit!or!prohibit!activities!on!certain!lands.!Compliance!with!more!
stringent! laws! and! regulations,! as! well! as! potentially! more! vigorous! enforcement!
policies,! stricter! interpretation! of! existing! laws! and! stricter! permit! and! license!
conditions,! may! necessitate! significant! capital! outlays,! may! materially! affect! the!
Company’s!results!of!operations!and!business!or!may!cause!material!changes!or!delays!
in! the! Company’s! intended! activities.! There! can! be! no! assurance! of! the! Company’s!
continued! compliance! or! ability! to! meet! stricter! environmental! laws! and! regulations!
and!permit!or!license!conditions.!Delays!in!obtaining!permits!and!licenses!could!impact!
the!Company’s!anticipated!development!plans.!
The! Company’s! operations! may! require! additional! analysis! in! the! future! including!
environmental,! cultural! and! social! impact! and! other! related! studies.! Certain! activities!
require! the! submission! and! approval! of! environmental! impact! assessments.! The!
Company! cannot! provide! assurance! that! it! will! be! able! to! obtain! or! maintain! all!
necessary!permits!that!may!be!required!to!continue!exploration!and!development!of!its!
properties!or,!if!feasible,!to!commence!construction!or!operation!of!mining!facilities!at!
such! properties! on! terms! that! enable! operations! to! be! conducted! at! economically!
justifiable! costs.! If! the! Company! is! unable! to! obtain! or! maintain,! licenses,! permits! or!
other!rights!for!development!of!its!properties,!or!otherwise!fails!to!manage!adequately!
future!environmental!issues,!its!operations!could!be!materially!and!adversely!affected.!
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!
51!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RISKS&AND&UNCERTAINTIES&(Continued)&
&
Market!Price!of!Shares!
!
Securities!of!mining!companies!have!experienced!substantial!volatility!in!the!past,!often!
based!on!factors!unrelated!to!the!financial!performance!or!prospects!of!the!companies!
involved.! These! factors! include! macroeconomic! conditions! in! North! America! and!
globally,!and!market!perceptions!of!the!attractiveness!of!particular!industries.!The!price!
of! the! Company’s! securities! is! also! likely! to! be! significantly! affected! by! shortLterm!
changes! in! uranium! prices,! changes! in! industry! forecasts! of! uranium! prices,! other!
mineral! prices,! currency! exchange! fluctuations,! its! financial! condition! or! results! of!
operations.!Other!factors!unrelated!to!the!performance!of!the!Company!that!may!have!
an!effect!on!the!price!of!the!securities!of!the!Company!include!the!following:!the!extent!
of! analytical! coverage! available! to! investors! concerning! the! business! of! the! Company!
may! be! limited! if! investment! banks! with! research! capabilities! do! not! follow! the!
Company’s! securities;! lessening! in! trading! volume! and! general! market! interest! in! the!
Company’s! securities! may! affect! an! investor's! ability! to! trade! significant! numbers! of!
securities! of! the! Company;! the! size! of! the! Company’s! public! float! and! its! inclusion! in!
market! indices! may! limit! the! ability! of! some! institutions! to! invest! in! the! Company's!
securities;! and! a! substantial! decline! in! the! price! of! the! securities! of! the! Company! that!
persists! for! a! significant! period! of! time! could! cause! the! Company’s! securities! to! be!
delisted!from!an!exchange,!further!reducing!market!liquidity.!If!an!active!market!for!the!
securities! of! the! Company! does! not! continue,! the! liquidity! of! an! investor's! investment!
may!be!limited!and!the!price!of!the!securities!of!the!Company!may!decline.!If!an!active!
market!does!not!exist,!investors!may!lose!their!entire!investment!in!the!Company.!As!a!
result!of!any!of!these!factors,!the!market!price!of!the!securities!of!the!Company!at!any!
given!point!in!time!may!not!accurately!reflect!the!longLterm!value!of!the!Company.!!
Public!Acceptance!of!Nuclear!Energy!and!Competition!from!Other!Energy!Sources!!
Growth!of!the!uranium!and!nuclear!industry!will!depend!upon!continued!and!increased!
acceptance!of!nuclear!technology!as!a!means!of!generating!electricity.!Because!of!unique!
political,! technological! and! environmental! factors! that! affect! the! nuclear! industry,!
including! the! risk! of! a! nuclear! incident,! the! industry! is! subject! to! public! opinion! risks!
that!could!have!an!adverse!impact!on!the!demand!for!nuclear!power!and!increase!the!
regulation!of!the!nuclear!power!industry.!Nuclear!energy!competes!with!other!sources!
of! energy,! including! oil,! natural! gas,! coal,! hydroLelectricity! and! renewable! energy!
sources.! These! other! energy! sources! are! to! some! extent! interchangeable! with! nuclear!
energy,!particularly!over!the!longer!term.!Sustained!lower!prices!of!oil,!natural!gas,!coal!
and! hydroelectricity! may! result! in! lower! demand! for! uranium! concentrates.! Technical!
advancements!in!renewable!and!other!alternate!forms!of!energy,!such!as!wind!and!solar!
power,!could!make!these!forms!of!energy!more!commercially!viable!and!put!additional!
pressure!on!the!demand!for!uranium!concentrates.!
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52!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RISKS&AND&UNCERTAINTIES&(Continued)!
!
The!Company!Will!Require!Significant!Amounts!of!Additional!Capital!in!the!Future!!
The! Company! has! limited! financial! resources.! The! Company! will! need! additional!
financing! in! connection! with! the! implementation! of! its! business! and! strategic! plans!
from!time!to!time,!including!the!continued!exploration!and!development!of!its!mineral!
properties.! The! exploration! and! development! of! mineral! properties! requires! a!
substantial! amount! of! capital! and! may! depend! on! the! Company’s! ability! to! obtain!
financing! through! joint! ventures,! debt! financing,! equity! financing! or! other! means.! The!
Company! may! accordingly! need! further! capital! in! order! to! take! advantage! of! further!
opportunities!or!acquisitions.!!
The! Company’s! financial! condition,! general! market! conditions,! volatile! uranium!
markets,!volatile!interest!rates,!a!claim!against!the!Company,!a!significant!disruption!to!
the! Company’s! business! or! operations! or! other! factors! may! make! it! difficult! to! secure!
financing! necessary! for! exploration! and! development! of! the! Company’s! mineral!
properties! or! to! take! advantage! of! opportunities! for! acquisitions.! Further,! continuing!
volatility!in!the!credit!markets!may!increase!costs!associated!with!debt!instruments!due!
to!increased!spreads!over!relevant!interest!rate!benchmarks,!or!may!affect!the!ability!of!
the! Company,! or! third! parties! it! seeks! to! do! business! with,! to! access! those! markets.!
There! is! no! assurance! that! the! Company! will! be! successful! in! obtaining! required!
financing!as!and!when!needed!on!acceptable!terms,!if!at!all.!!
Failure! to! obtain! such! financing,! including! further! advances! under! the! Powerlite!
Facility,! could! result! in! a! delay! or! indefinite! postponement! of! further! exploration! and!
development! of! the! Company’s! mineral! properties,! including! the! loss! of! rights!
associated! with! such! mineral! properties.! In! the! event! the! Company’s! exploration! and!
development! of! mineral! properties! is! delayed,! the! Company! will! assess! whether! an!
impairment!allowance!is!necessary,!which,!if!required,!could!be!material.!
Competition!for!Properties!and!Experienced!Employees!!
The! Company! competes! with! other! mining! companies! and! individuals! for! capital,!
mining! interests! on! exploration! properties! and! undeveloped! lands,! acquisitions! of!
mineral!resources!and!reserves!and!other!mining!assets.!!The!Company!also!competes!
with!other!mining!companies!to!attract!and!retain!key!executives!and!employees.!There!
can!be!no!assurance!that!the!Company!will!continue!to!be!able!to!compete!successfully!
with! its! competitors! in! acquiring! such! properties! and! assets! or! in! attracting! and!
retaining! skilled! and! experienced! employees.! The! mining! industry! has! been! impacted!
by! increased! worldwide! demand! for! critical! resources! such! as! input! commodities,!
labor,! and! these! shortages! have! caused!
drilling! equipment,! tires! and! skilled!
unanticipated!cost!increases!and!delays!in!delivery!times,!thereby!impacting!operating!
costs,!capital!expenditures!and!production!schedules.!
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53!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RISKS&AND&UNCERTAINTIES&(Continued)!
!
The! Company! may! be! at! a! competitive! disadvantage! due! to! the! fact! that! many! of! the!
Company’s! competitors! have! greater! financial! resources! to! source! mineral! properties!
and! attract! and! retain! key! executives! and! employees.! Accordingly,! there! can! be! no!
assurance! that! the! Company! will! be! able! to! compete! successfully! with! industry!
competitors.!&
Uranium!Industry!Competition!and!International!Trade!Restrictions!!
The! international! uranium! industry,! including! the! supply! of! uranium! concentrates,! is!
competitive.! The! Company! is! marketing! uranium! in! direct! competition! with! supplies!
available! from! both! public! and! private! uranium! mining! companies,! from! nationalized!
uranium! mining! companies,! from! uranium! produced! as! a! byproduct! of! other! mining!
operations,! from! excess! inventories,! including! inventories! made! available! from!
decommissioning!of!nuclear!weapons,!from!reprocessed!uranium!and!plutonium,!from!
used!reactor!fuel,!and!from!the!use!of!excess!Russian!enrichment!capacity!to!reLenrich!
depleted!uranium!tails!held!by!European!enrichers!in!the!form!of!UF6.!A!large!quantity!
of!current!World!production!is!inelastic,!in!that!uranium!market!prices!have!little!effect!
on!the!quantity!supplied.!The!supply!of!uranium!from!Russia!and!from!certain!republics!
of! the! former! Soviet! Union! is,! to! some! extent,! impeded! by! a! number! of! international!
trade! agreements! and! policies.! These! agreements! and! any! similar! future! agreements,!
governmental!policies!or!trade!restrictions!are!beyond!the!control!of!the!Company!and!
may! affect! the! supply! of! uranium! available! in! the! United! States! and! the! rest! of! the!
World.!
Exposure!to!Emerging!Markets!!
Emerging!markets!such!as!the!Kyrgyz!Republic!are!subject!to!different!risks!than!more!
developed! markets,! including! economic,! political! and! social,! and! legal! and! legislative!
risks.!Laws!and!regulations!affecting!businesses!in!Kyrgyz!Republic!continue!to!change!
rapidly,! tax! and! regulatory! frameworks! are! subject! to! varying! interpretations.! The!
future! economic! direction! of! Kyrgyz! Republic! is! heavily! influenced! by! the! fiscal! and!
monetary!policies!adopted!by!the!government,!together!with!developments!in!the!legal,!
regulatory,!and!political!environment.!!Varying!interpretations!of!the!above!frameworks!
could!have!a!material!adverse!effect!on!the!Company’s!operations.!!
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54!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RISKS&AND&UNCERTAINTIES&(Continued)&
&
Possible!Loss!of!Interests!in!Exploration!and!Development!Properties!!
!
If!the!Company!does!not!have!the!financial!capacity!(see!the!above!risk!“The!Company!
Will!Require!Significant!Amounts!of!Additional!Capital!in!the!Future”)!to! make! required!
payments! or! minimum! expenditures! to! maintain! mineral! properties! in! good! standing,!
the! Company! may! lose! some,! or! all,! of! its! interest! in! those! mineral! properties.! This! is!
particularly! significant! with! respect! to! the! Company’s! material! property,! the! Dewey!
Burdock!Project!in!the!United!States.!A!loss!of!an!interest!at!the!Dewey!Burdock!Project!
could!have!a!material!adverse!effect!on!the!Company’s!reported!resources.!!In!addition,!
the!Company!will!have!to!assess!whether!an!impairment!allowance!is!necessary,!which,!
if!required,!could!be!material.!!
Further,! in! accordance! with! the! terms! of! the! Company’s! Anadarko! Agreement,! which!
pertains! to! the! Company’s! Centennial! Project,! if! the! Company! does! not! obtain!
regulatory! permits! and! licenses! allowing! uranium! production! by! September! 27,! 2019,!
the! uranium! rights! will! transfer! back! to! Anadarko,! at! Anadarko’s! option.! ! This! could!
have! a! material! adverse! effect! on! the! Company’s! reported! resources.! ! In! addition,! the!
Company!will!have!to!assess!whether!an!impairment!allowance!is!necessary,!which,!if!
required,!could!be!material.!!
Mining! and! Mineral! Exploration! is! Inherently! Dangerous! and! Subject! to! Factors! Beyond!
the!Company’s!Control!!
The!Company’s!business,!and!any!future!development!or!mining!operations,!will!involve!
various!types!of!risks!and!hazards!typical!of!companies!engaged!in!the!mining!industry.!
These!risks!will!affect!the!exploration!and!development!of!the!Company,!and!will!affect!
its! business! to! an! even! larger! extent! once! commercial! mining! operations,! if! any,!
commence.!!
Such! risks! include,! but! are! not! limited! to:! industrial! accidents,! unusual! or! unexpected!
rock! formations,! structural! caveLins! or! slides! and! pitfall,! ground! or! slope! failures! and!
accidental! release! of! water! from! surface! storage! facilities,! fire,! flooding! and!
earthquakes,! rock! bursts,! minerals! losses,! periodic! interruptions! due! to! inclement! or!
hazardous! weather! conditions,! environmental! hazards,! discharge! of! pollutants! or!
hazardous! materials,! failure! of! processing! and! mechanical! equipment! and! other!
performance! problems,! geotechnical! risks,! including! the! stability! of! the! underground!
hanging! walls! and! unusual! and! unexpected! geological! conditions,! unanticipated!
variations! in! grade! and! other! geological! problems,! water,! surface! or! underground!
conditions,!labor!disputes!or!slowdowns,!work!force!health!issues!as!a!result!of!working!
conditions,!and!force!majeure!events,!or!other!unfavorable!operating!conditions.!!
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55!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RISKS&AND&UNCERTAINTIES&(Continued)&
&
These! risks,! conditions! and! events! could! result! in:! damage! to,! or! destruction! of,! the!
value! of,! the! Company’s! projects! or! their! facilities,! personal! injury! or! death,!
environmental!damage!to!the!Company’s!projects!or!the!properties!of!others,!delays!or!
prohibitions!on!mining!or!the!transportation!of!minerals,!monetary!losses,!and!potential!
legal! liability.! Any! of! the! foregoing! could! have! a! material! adverse! effect! on! the!
Company’s!business,!financial!condition,!and!results!of!operation!or!prospects.!
!
The!Company’s!Mineral!Resources!are!Estimates!!
Mineral! resources! are! statistical! estimates! of! mineral! content,! based! on! limited!
information! acquired! through! drilling! and! other! sampling! methods,! and! require!
judgmental!interpretations!of!geology.!The!Company’s!mineral!resources!are!estimates!
and! no! assurance! can! be! given! that! the! estimated! resources! are! accurate! or! that! the!
indicated!level!of!uranium!will!be!produced.!Such!estimates!are,!in!large!part,!based!on!
interpretations! of! geological! data! obtained! from! drill! holes! and! other! sampling!
techniques.!Actual!mineralization!or!formations!may!be!different!from!those!predicted.!
Further,!it!may!take!many!years!from!the!initial!phase!of!drilling!before!production!is!
possible,! and! during! that! time! the! economic! feasibility! of! exploiting! a! discovery! may!
change.!
Mineral! resource! estimates! for! properties! that! have! not! commenced! production! are!
based,!in!many!instances,!on!limited!and!widely!spaced!drillLhole!information,!which!is!
not!necessarily!indicative!of!the!conditions!between!and!around!drill!holes.!Accordingly,!
such! mineral! resource! estimates! may! require! revision! as! more! drilling! information!
becomes! available! or! as! actual! production! experience! is! gained.! It! should! not! be!
assumed!that!all!or!any!part!of!the!Company’s!mineral!resources,!constitute!or!will!be!
converted!into!reserves.!The!extent!to!which!resources!may!ultimately!be!reclassified!as!
proven! or! probable! reserves! is! dependent! upon! the! demonstration! of! their! profitable!
recovery.! The! evaluation! of! resources! and! reserves! is! influenced! by! economic! and!
technological!factors,!which!may!change!over!time.!!
Nature!of!Exploration!and!Development!Projects!
The! exploration! and! development! of! mineral! properties! involves! significant! risks.!
Development!of!exploration!properties,!in!which!the!Company!has!an!interest,!will!only!
follow! subsequent! to! obtaining! satisfactory! exploration! results.! The! exploration! and!
development!of!mineral!properties!involves!significant!risks!over!an!extended!period!of!
time,! which! even! a! combination! of! careful! evaluation,! experience! and! knowledge! may!
not! eliminate.! While! the! discovery! of! a! mineral! property! may! result! in! significant!
rewards,! few! properties,! which! are! explored! are! ultimately! developed! into! producing!
mines.!Significant!expenses!may!be!required!to!establish!mineral!reserves!and!mineral!
resources! and! to! construct! mining! and! processing! facilities.! It! is! impossible! to! ensure!
that! the! Company’s! exploration! and! development! properties! will! result! in! a! profitable!
commercial!mining!operation.!
!
!
56!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RISKS&AND&UNCERTAINTIES&(Continued)&
&
Whether! a! mineral! property! will! be! commercially! viable! depends! on! a! number! of!
factors,! which! include,! among! other! things:! the! accuracy! of! reserve! and! resource!
estimates;!the!particular!attributes!of!the!deposit,!such!as!its!size!and!grade;!ability!to!
economically! recover! commercial! quantities! of!
to!
infrastructure;! financing! costs! and! governmental! regulations,! including! regulations!
relating!to!prices,!taxes,!royalties;!infrastructure;!land!use;!importing!and!exporting!and!
environmental! protection.! The! effect! of! these! factors! cannot! be! accurately! predicted,!
but! the! combination! of! these! factors! may! result! in! the! Company! not! receiving! an!
adequate!return!on!invested!capital.!
the! minerals;! proximity!
Political!Risk!!
The! Company’s! prospects! may! be! affected! by! political! decisions! that! impact! the!
uranium!market.!There!can!be!no!assurance!that!the!United!States,!the!Kyrgyz!Republic!
or!other!government!/!quasiLgovernmental!authorities!in!the!jurisdictions!in!which!the!
Company!operates!or!holds!investments!in!will!not!enact!legislation!restricting!uranium!
exploration,! development,! extraction! and! processing! or! the! actual! sale! of! uranium.! In!
addition,!the!price!of!uranium!may!be!impacted!by!decisions!of!national!governments!to!
decommission!nuclear!weapons;!thus,!increasing!the!supply!of!uranium.!!
Currency!Fluctuations!!
The!Company’s!operations!are!subject!to!foreign!currency!fluctuations.!!The!Company’s!
operating! expenditures! are! primarily! incurred! in! United! States! Dollars,! while! some! of!
the! Company’s! cash! balances! and! expenses! are! measured! in! Canadian! Dollars,! Kyrgyz!
Som!and!Australian!Dollars.!!The!appreciation/depreciation!of!the!United!States!Dollar!
against!the!Canadian!Dollar,!Kyrgyz!Som!and!Australian!Dollar!will!consequently!have!
an!impact!on!the!Company’s!financial!results.!!!
The!Company!has!no!History!of!Mining!Operations!!
The! Company! has! never! owned/operated! uraniumLproducing! properties.! There! is! no!
assurance! that! commercially! viable! quantities! of! uranium! will! be! discovered! at! the!
Company’s! mineral! properties! nor! is! there! any! assurance! that! the! Company’s!
exploration!and!development!programs!will!yield!positive!results.!Even!if!commercially!
viable!quantities!of!uranium!are!discovered,!there!can!be!no!assurance!that!any!of!the!
Company’s!mineral!properties!will!be!brought!to!a!stage!of!profitable!production!or!that!
an! adequate! return! on! invested! capital! will! be! achieved.! Factors! that! may! limit! the!
ability! of! the! Company! to! produce! uranium! resources! from! its! properties! include,! but!
are! not! limited! to,! the! price! of! uranium,! the! availability! of! additional! capital! and!
financing!and!the!nature!of!the!mineral!deposits.!!
!
!
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!
57!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RISKS&AND&UNCERTAINTIES&(Continued)&
&
Property!Title!Rights!
!
The!Company!has!investigated!its!rights!to!explore!and!develop!its!material!properties!
and,! to! the! best! of! its! knowledge,! those! rights! are! in! good! standing.! However,! no!
assurance!can!be!given!that!such!rights!will!not!be!revoked,!or!significantly!altered,!to!
the!Company’s!detriment.!There!can!also!be!no!assurance!that!the!Company’s!rights!will!
not!be!challenged!or!impugned!by!third!parties,!including!by!local!governments!and!title!
insurance!is!generally!not!available.!
The! validity! of! unpatented! mining! claims! on! United! States! public! lands! is! sometimes!
difficult! to! confirm! and! may! be! contested.! Due! to! the! extensive! requirements! and!
associated! expense! required! to! obtain! and! maintain! mining! rights! on! United! States!
public! lands,! the! Company's! United! States! properties! are! subject! to! various! title!
uncertainties! which! are! common! to! the! industry! or! the! geographic! location! of! such!
claims,! with! the! resultant! risk! that! there! may! be! defects! in! its! title.! The! Company’s!
surface! or! mineral! properties! may! also! be! subject! to! prior! unregistered! agreements,!
transfers!or!claims,!and!title!may!be!affected!by,!among!other!things,!undetected!defects.!
Such! third! party! claims! could! have! a! material! adverse! impact! on! the! Company’s!
reported!resources!and!operations.!In!addition,!the!Company!may!be!unable!to!enforce!
its!rights!or!operate!the!impacted!mineral!property!as!previously!permitted.!
Dependence!on!Key!Personnel!and!Qualified!and!Experienced!Employees!
The!Company’s!success!will!largely!depend!on!the!efforts!and!abilities!of!certain!senior!
officers!and!key!employees.!Certain!of!these!individuals!have!significant!experience!in!
the! uranium! industry.! The! number! of! individuals! with! significant! experience! in! this!
industry!is!small.!While!the!Company!does!not!foresee!any!reason!why!such!officers!and!
key!employees!will!not!remain!with!the!Company,!other!than!through!retirement,!if!for!
any!reason!they!do!not,!the!Company!could!be!adversely!affected.!!
The!Company’s!success!will!also!depend!on!the!availability!of!qualified!and!experienced!
employees! to! work! on! the! Company’s! operations! and! the! Company’s! ability! to! attract!
and! retain! such! employees.! The! number! of! individuals! with! relevant! mining! and!
operational!experience!in!this!industry!is!small.!
&
Delineation!of!Mineral!Reserves!and!Additional!Mineral!Resources!
The! extent! to! which! resources! may! ultimately! be! reclassified! as! proven! or! probable!
reserves! is! dependent! upon! the! demonstration! of! their! profitable! recovery.! The!
evaluation! of! resources! and! reserves! is! influenced! by! economic! and! technological!
factors,! which! may! change! over! time.! ! At! present,! the! Company! does! not! have! any!
mineral!reserves.!!
!
!
!
58!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RISKS&AND&UNCERTAINTIES&(Continued)&
&
There! can! be! no! assurance! that! the! Company’s! future! exploration,! development! and!
acquisition! efforts! will! be! successful! in! determining! mineral! reserves! and! additional!
mineral!resources.!The!Company’s!ability!to!delineate!mineral!reserves!and!additional!
mineral! resources! may! impact! future! operations.! There! can! be! no! assurance! that! the!
Company!will!be!able!to!bring!any!of!its!mineral!properties!into!production!or!identify!
mineral!reserves!on!any!of!its!mineral!properties.!!
!
Insurance!Coverage!!
The! Company’s! business! will! be! subject! to! a! number! of! risks! and! hazards! (as! further!
described! herein).! Although! the! Company! will! maintain! insurance! to! protect! against!
certain!risks!in!such!amounts!as!it!considers!to!be!reasonable,!such!insurance!will!likely!
not! cover! all! the! potential! risks! associated! with! its! activities,! including! any! future!
mining!operations.!The!Company!may!also!be!unable!to!maintain!insurance!to!cover!its!
risks!at!economically!feasible!premiums,!or!at!all.!Insurance!coverage!may!not!continue!
to! be! available! or! may! not! be! adequate! to! cover! any! resulting! liability.! Moreover,!
insurance!against!risks!such!as!environmental!pollution!or!other!hazards!as!a!result!of!
exploration,! development! or! production! may! not! be! available! to! the! Company! on!
acceptable,! or! any,! terms.! The! Company! might! also! become! subject! to! liability! for!
pollution!or!other!hazards,!which!it!is!not!currently!insured!against!and/or!in!the!future!
may!not!insure!against!because!of!premium!costs!or!other!reasons.!Losses!from!these!
events!may!cause!the!Company!to!incur!significant!costs,!which!could!have!a!material!
adverse! effect! on! the! Company’s! business,! financial! condition,! results! of! operations! or!
prospects.!
!
Dilution! from! Further! Equity! Financing! and! Outstanding! Stock! Options! and! Share!
Purchase!Warrants!
If! the! Company! raises! additional! funding! by! issuing! additional! equity! securities! or!
convertible!securities,!exercisable!or!exchangeable!for!equity!securities,!such!financing!
may! substantially! dilute! the! interests! of! shareholders! of! the! Company! and! reduce! the!
value!of!their!investment.!
In! addition,! the! Company! currently! has! outstanding! stock! options! and! share! purchase!
warrants,! which! if! exercised,! may! substantially! dilute! the! interests! of! shareholders! of!
the!Company!and!reduce!the!value!of!their!investment.!
&
!
!
!
!
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!
59!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RISKS&AND&UNCERTAINTIES&(Continued)&
&
The!Company!has!Never!Paid!Dividends!and!May!Not!do!so!in!the!Foreseeable!Future!!
!
The!Company!has!never!paid!dividends!and!intends!to!retain!its!future!earnings,!if!any,!
to!fund!the!development!and!growth!of!its!business!and!does!not!anticipate!paying!any!
dividends! in! the! near! future.! Thus,! shareholders! of! the! Company! will! have! to! rely! on!
capital! appreciation,! if! any,! to! earn! a! return! on! their! investment! in! the! Company’s!
shares!for!the!foreseeable!future.!The!Board!will!review!the!Company’s!dividend!policy!
from!time!to!time.!!
Litigation!and!Other!Legal!Proceedings!!
The!Company!is!subject!to!litigation!and!other!legal!proceedings!arising!in!the!normal!
course! of! business! and! may! be! involved! in! disputes! with! other! parties! in! the! future,!
which! may! result! in! litigation.! The! causes! of! potential! future! litigation! and! legal!
proceedings! cannot! be! known! and! may! arise! from,! among! other! things,! business!
activities,! environmental! laws,! permitting! and! licensing! activities,! volatility! in! stock!
prices! or! failure! to! comply! with! disclosure! obligations.! The! results! of! litigation! and!
proceedings!cannot!be!predicted!with!certainty,!and!may!include!potential!injunctions!
pending! the! outcome! of! such! litigation! and! proceedings.! If! the! Company! is! unable! to!
resolve! these! disputes! favourably,! it! may! have! a! material! adverse! impact! on! the!
Company’s!financial!performance,!cash!flow!and!results!of!operations.!!Securities!classL
action!litigation!often!has!been!brought!against!companies!in!periods!of!volatility!in!the!
market!price!of!their!securities,!and!following!major!corporate!transactions!or!mergers!
and! acquisitions.! The! Company! may! in! the! future! be! the! target! of! similar! litigation.!
Securities! litigation! could! result! in! substantial! costs! and! damages! and! divert!
management's!attention!and!resources.!
Technical!Innovation!and!Obsolescence!!
Requirements! for! the! Company’s! potential! products! may! be! affected! by! technological!
changes! in! nuclear! reactors,! enrichment! and! used! uranium! fuel! reprocessing.! These!
technological!changes!could!reduce!the!demand!for!uranium.!In!addition,!the!Company’s!
competitors!may!adopt!technological!advancements!that!give!them!an!advantage!over!
the!Company.!
!
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60!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2015!and!2014!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RISKS&AND&UNCERTAINTIES&(Continued)&
&
Disclosure!and!Internal!Controls!
!
legislation!
filed! or! submitted! under! securities!
Disclosure!controls!and!procedures!are!designed!to!provide!reasonable!assurance!that!
information!required!to!be!disclosed!by!the!Company!in!its!annual!filings,!interim!filings!
or! other! reports! filed! or! submitted! by! it! under! securities! legislation! is! recorded,!
processed,!summarized!and!reported!within!the!time!periods!specified!in!the!securities!
legislation! and! include! controls! and! procedures! designed! to! ensure! that! information!
required! to! be! disclosed! by! the! Company! in! its! annual! filings,! interim! filings! or! other!
reports!
is! accumulated! and!
communicated! to! the! Company’s! management,! including! its! CEO! and! CFO,! as!
appropriate!to!allow!timely!decisions!regarding!required!disclosure.!
!
Internal!controls!over!financial!reporting!are!designed!to!provide!reasonable!assurance!
regarding! the! reliability! of! financial! reporting! and! the! preparation! of! financial!
statements!in!accordance!with!IFRS.!Management!is!also!responsible!for!the!design!of!
the!Company’s!internal!controls!over!financial!reporting!in!order!to!provide!reasonable!
assurance!regarding!the!reliability!of!financial!reporting!and!the!preparation!of!financial!
statements!for!external!purposes!in!accordance!with!IFRS.!
!
A! control! system,! no! matter! how! well! designed! and! operated,! can! provide! only!
reasonable,!not!absolute,!assurance!with!respect!to!the!reliability!of!reporting,!including!
financial! reporting! and! financial! statement! preparation.! A! control! failure! could! have! a!
material!adverse!effect!on!the!Company’s!operations.!
&
Conflicts!of!Interest!
Some!of!the!directors!of!the!Company!are!also!directors/employees!of!other!companies!
that! are! similarly! engaged! in! the! business! of! acquiring,! exploring! and! developing!
natural!resource!properties.!Such!associations!may!give!rise!to!conflicts!of!interest!from!
time!to!time.!In!particular,!one!of!the!consequences!will!be!that!corporate!opportunities!
presented! to! a! director! of! the! Company! may! be! offered! to! another! company! or!
companies! with! which! the! director! is! associated,! and! may! not! be! presented! or! made!
available! to! the! Company.! The! directors! of! the! Company! are! required! by! law! to! act!
honestly!and!in!good!faith!with!a!view!to!the!best!interests!of!the!Company,!to!disclose!
any!interest,!which!they!may!have!in!any!project!or!opportunity!of!the!Company,!and!to!
abstain!from!voting!on!such!matter.!Conflicts!of!interest!that!arise!will!be!subject!to!and!
governed! by! the! procedures! prescribed! in! the! Company’s! Code! of! Ethics! and! by! the!
Business!Corporations!Act!(British!Columbia).!
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61!
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