Plain-text annual report
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Azarga!Uranium!Corp.!
CONSOLIDATED!FINANCIAL!STATEMENTS!
!
December!31,!2016!
(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., which
comprise the consolidated statements of financial position as at December 31, 2016 and December 31, 2015,
and the consolidated statements of profit or loss and other comprehensive income or 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 consolidated 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 consolidated 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 consolidated 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. as at December 31, 2016 and December 31, 2015 and the consolidated
statements of profit or loss and other comprehensive profit or loss, changes in equity and cash flows for the
years then ended, and a summary of significant accounting policies and other explanatory information 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 $13,015,295. These conditions, along with other
matters as set forth in Note 1, indicate the existence of a material uncertainty that may cast significant
doubt upon the Company’s ability to continue as a going concern.
“BDO CANADA LLP”
Chartered Professional Accountants
Vancouver, Canada
March 29, 2017
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+Income+or+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. Investments+held+for+sale
9. Convertible+loan+receivables
10. Loans+payable+
11. Trade+and+other+payables
12. Deferred+income+tax
13. Administrative+expenses
14. Finance+costs
15. Unrealized+loss
16. Realized+gain
17. Loss+per+share
18. Equity
19. Share+option+reserve
20. Capital+risk+management
21. Financial+instruments
22. Related+party+transactions
23. Supplemental+cash+flow+information
24. Commitments
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Page
4
5
6
7
8
8
10
26
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34
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38
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41
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42
42
43
43
48
50
51
56
58
59
!
!
AZARGA!URANIUM!CORP.!
Consolidated!Statements!of!Financial!Position!
(Expressed)in)U.S.)Dollars)!
!
Notes
December+31,+2016
December+31,+2015
As+at+
ASSETS
Current+assets
Cash
Other-assets
Exploration-and-evaluation-assets-held-for-sale
Investments-held-for-sale
Total+current+assets
Non
(290,085)
(34,319)
3,809
!
The!weighted!average!fair!value!of!the!share!purchase!warrants!granted!for!the!year!ended!
December! 31,! 2016! was! estimated! at! C$0.10! per! share! purchase! warrant! at! the! issuance!
date!using!the!BlackiScholes!Option!Pricing!Model.!
The! assumptions! used! for! the! BlackiScholes! Option! Pricing! model! to! value! the! warrant!
liability!were!as!follows:!
!
December'31,'2016
December'31,'2015
As'at
Risk%free%rate%of%return
Expected%life
Expected%volatility
Expected%dividend%per%share
0.63%
2.73%yrs
76%
Nil
0.48%
0.16?0.83%yrs
21?61% (i)
Nil
%
!
(i)!!!!!Annualized!volatility!has!been!calculated!based!on!the!historical!volatility!of!the!Company’s!stock!price!!
The! share! purchase! warrants! are! considered! a! derivative! liability,! as! the! currency!
denomination!of!the!exercise!price!is!different!from!the!functional!currency!of!the!Company.!!
!
The!share!purchase!warrant!transactions!for!the!years!ended!December!31,!2016!and!2015!
were!as!follows:!
%%
Year%ended%December%31,
2016
2015
Number'of'share'
purchase'
warrants
Weighted'average'
exercise'price'
(C$)
Number'of'share'
purchase'
warrants
Weighted'average'
exercise'price'
(C$)
Balance,'beginning'of'year
Share'purchase'warrants'granted
Share'purchase'warrants'expired
Balance,'end'of'year
'''''''''''
'''''''''''
'''''''''
'''''''''''
5,754,047
4,621,665
(5,754,047)
4,621,665
$'''''''''''''''''
'''''''''''''''''''
'''''''''''''''''''
$'''''''''''''''''
1.26
0.35
1.26
0.35
'''''''''''
5,754,047
J
''''''''''''''''''''
''''''''''''''''''''
J
'''''''''''
5,754,047
$'''''''''''''''''
''''''''''''''''''''
''''''''''''''''''''
$'''''''''''''''''
1.26
J
J
1.26
!
Page!|!45!
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!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2016!and!2015!
(Expressed)in)U.S.)Dollars)and)shares,)unless)otherwise)indicated)!
!
18.%% EQUITY%(Continued)%
!
!
!
!!
!
The!share!purchase!warrants!outstanding!and!exercisable!as!at!December!31,!2016!were!as!
follows:%
!Share!purchase!warrants!
outstanding!and!
exercisable!
Share&purchase&warrants&outstanding&and&exercisable
!Weighted!average!
exercise!
price!(C$)!
!Weighted!average!
remaining!contractual!life!
(years)!
!Exercise!price!(C$)!
$!!!!!!!!!!!!!!!!!!!
0.35
!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!
4,621,665
4,621,665
$!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
$!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
0.35
0.35
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
2.73
2.73
!
The!share!purchase!warrants!outstanding!and!exercisable!as!at!December!31,!2015!were!as!
follows:!
!
!Exercise!price!(C$)!
$!!!!!!!!!!!!!!!!!!!
$!!!!!!!!!!!!!!!!!!!
$!!!!!!!!!!!!!!!!!!!
2.00
1.15
1.00
Share&purchase&warrants&outstanding&and&exercisable
!Share!purchase!warrants!
outstanding!and!
exercisable!
!Weighted!average!
exercise!
price!(C$)!
!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
!
%
18.3%%%%%%Equity%instrument%issued%to%Powerlite%Ventures%Limited%%
!
On! May! 22,! 2013,! the! Company! issued! an! equity! instrument! (“Powerlite! Facility”)! to!
Powerlite! Ventures! Limited! (“Powerlite”).! In! accordance! with! the! Powerlite! Facility,! as!
amended,!the!facility!limit!is!$21,000,000.!!Any!outstanding!principal!and!accrued!interest!
will!be!settled!through!the!issuance!of!the!Company’s!shares!at!C$1.54!per!share.!As!a!result,!
the!financial!instrument!is!classified!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!9)!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!
!
Page!|!46!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2016!and!2015!
(Expressed)in)U.S.)Dollars)and)shares,)unless)otherwise)indicated)!
!
18.%% EQUITY%(Continued)%
!
!
!
• Other!–!the!Powerlite!Facility!is!unsecured.!
!
As!at!December!31,!2016!and!2015,!the!Company!had!drawn!a!total!of!$18,000,000!under!
the! Powerlite! Facility.! ! Although! $3,000,000! remains! available! under! the! terms! of! the!
Powerlite!Facility,!the!Company!believes!it!is!unlikely!that!Powerlite!will!be!able!to!fund!the!
remaining!amount!of!the!Powerlite!Facility.!
!
The! $18,000,000! drawn! under! the! Powerlite! Facility! plus! accrued! interest! was! converted!
into!shares!in!2014.!!Interest!expense!was!not!recognized!for!the!years!ended!December!31,!
2016!and!2015!as!no!amounts!were!outstanding!under!the!Powerlite!Facility.!!!
%
18.4% 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! the! 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! fiveiday! volume! weighted! average! trading! price! of! the! common!
shares!on!the!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! years! ended! December! 31,! 2016! and! 2015,! Employee!
Contributions! totaled! $126,476! and! $110,760,! respectively,! and! Matching! Contributions!
totaled!$84,313!and!$79,280,!respectively.!!For!the!year!ended!December!31,!2016!and!to!
date,!a!total!of!1,465,950!and!1,723,951!common!shares,!respectively,!were!issued!pursuant!
to!the!ESPP.!
!
In! 2015,! the! Company! adopted! the! DSA.! ! The! Company! is! authorized! to! issue! up! to!
2,000,000!common!shares!pursuant!to!the!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!fiveiday!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! years! ended! December! 31,! 2016! and! 2015,! $66,060! and! $91,171,!
respectively,!were!expensed!under!the!DSA.!For!the!year!ended!December!31,!2016!and!to!
date,!a!total!of!640,656!and!711,483!common!shares,!respectively,!were!issued!pursuant!to!
DSA.!
%
%
!
Page!|!47!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2016!and!2015!
(Expressed)in)U.S.)Dollars)and)shares,)unless)otherwise)indicated)!
!
19.%%
%
19.1%%%%%%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!nonitransferable.!!!
!
For! the! year! ended! December! 31,! 2016,! the! Company! granted! 1,235,000! stock! options! to!
officers,!employees,!directors!and!other!eligible!persons!at!an!exercise!price!of!C$0.36!with!
an!expiry!date!of!May!19,!2021.!!The!weighted!average!fair!value!of!the!options!granted!for!
the! year! ended! December! 31,! 2016! was! estimated! at! C$0.21! per! option! at! the! grant! date!
using!the!BlackiScholes!Option!Pricing!model.!!!
!
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! for!the!year!ended!December!31,!2015!
was!estimated!at!C$0.20!per!option!at!the!grant!date!using!the!BlackiScholes!Option!Pricing!
model.!!
!
The!weighted!average!assumptions!used!for!the!BlackiScholes!Option!Pricing!model!were!as!
follows:!
!
Risk%free%rate%of%return
Expected%life
Expected%volatility
Expected%dividend%per%share
!
Year*ended*December*31,
2016
2015
0.69%
5%yrs
79%
%Nil%
1.09%
4.14%yrs
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,! 2016! and! 2015,! the! Company! recognized! shareibased!
compensation! expense! of! $175,766! and! $303,560,! respectively,! of! which! $147,909! and!
$136,596,! respectively,! has! been! allocated! to! administrative! expenses! and! $27,857! and!
$37,704,!respectively,!has!been!allocated!to!exploration!and!evaluation!assets.!!For!the!year!
ended!December!31,!2015,!$129,260!has!also!been!recorded!as!consideration!in!accordance!
with!the!terms!of!the!Termination!Deed!between!the!Company!and!Empire!Equity!(see!Note!
8.1!for!additional!details).!!!
!
Page!|!48!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2016!and!2015!
(Expressed)in)U.S.)Dollars)and)shares,)unless)otherwise)indicated)!
!
19.%%
%
19.2%% Outstanding%stock%options%%
%
SHARE%OPTION%RESERVE%(Continued)%
!
!
The!option!transactions!under!the!stock!option!plan!were!as!follows:%
%%
Year%ended%December%31,
2016
2015
Number'of'
options
Weighted'average'
exercise'price'
(C$)
Number'of'
options
Weighted'average'
exercise'price'
(C$)
Balance,'beginning'of'year
Options'granted
Options'expired
Options'forfeited
Balance,'end'of'year
'''''''''''
'''''''''''
'''''''''
''''''''''''
'''''''''''
5,521,993
1,235,000
(2,510,731)
(167,500)
4,078,762
$'''''''''''''''''
'''''''''''''''''''
'''''''''''''''''''
'''''''''''''''''''
$'''''''''''''''''
0.88
0.36
1.15
0.34
0.58
3,345,506
2,315,000
'''''''''''
'''''''''''
''''''''''''''''''''
''''''''''''
'''''''''''
(138,513)
5,521,993
K
$'''''''''''''''''
'''''''''''''''''''
''''''''''''''''''''
'''''''''''''''''''
$'''''''''''''''''
1.27
0.34
K
1.37
0.88
%
The!stock!options!outstanding!and!exercisable!as!at!December!31,!2016!were!as!follows:!
!
Options(Outstanding
Options(Exercisable
Exercise(price((C$)
(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
(((((
(((((((
(((((((
(((((
3,225,000
628,762
225,000
4,078,762
$(((((((((((
(((((((((((((
(((((((((((((
$(((((((((((
0.35
1.23
2.00
0.58
(((((((((((((
(((((((((((((
(((((((((((((
(((((((((((((
3.20
2.32
0.37
2.91
(((((
(((((((
(((((((
(((((
2,077,450
628,762
225,000
2,931,212
$(((((((((((
(((((((((((((
(((((((((((((
$(((((((((((
0.35
1.23
2.00
0.66
(((((((((((((
(((((((((((((
(((((((((((((
(((((((((((((
2.71
2.32
0.37
2.45
%!
The!stock!options!outstanding!and!exercisable!as!at!December!31,!2015!were!as!follows:%
!
Options(Outstanding
Options(Exercisable
Exercise(price((C$)
(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
!
Page!|!49!
!
%
%
%
!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2016!and!2015!
(Expressed)in)U.S.)Dollars)and)shares,)unless)otherwise)indicated)!
!
19.%%
%
19.3%% Share%option%reserve%
%
SHARE%OPTION%RESERVE%(Continued)%
!
!
!
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.%
Changes!in!the!Company’s!share!option!reserve!for!the!years!ended!December!31,!2016!and!
2015!were!as!follows:!
%%%
Year*ended*December*31,
2016
2015
$(((((((((((((((
(((((((((((((((((((((
1,021,099
27,857
$(((((((((((((((((
(((((((((((((((((((((
717,539
37,704
(((((((((((((((((((
((((((((((((((((((((((((((
147,909
:
(((((((((((((((((((
(((((((((((((((((((
136,596
129,260
$(((((((((((((((
1,196,865
$(((((((((((((((
1,021,099
%
Balance,(beginning(of(year
Share:based(compensation(capitalized(to(
exploration(and(evaluation(assets
Share:based(compensation(charged(to(operations
Share:based(compensation(issued(to(settle(other(
non:current(liabilities
Balance,(end(of(year
%
%
20.%% 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.!
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,! progress! on!
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.!For!the!year!ended!December!31,!2016,!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,! 2016,! the! Company’s! capital! structure! consists!of! loans! payable! (Note!
10)!and!the!equity!of!the!Company!(Note!18).!!
Page!|!50!
!
!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2016!and!2015!
(Expressed)in)U.S.)Dollars)and)shares,)unless)otherwise)indicated)!
!
21.%%
%
21.1% Categories%of%financial%instruments%
%
%
!
FINANCIAL%INSTRUMENTS%
!
Financial,assets
Loans&and&receivables
Cash
Restricted&cash
As,at,December,31,
2016
2015
$&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&
941,370
42,687
$&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&
239,327
40,882
Fair&value&through&profit&or&loss
Investment&in&Western&Uranium&(Note&8)
Investment&in&URI&(Note&8)
Total&financial&assets
&&&&&&&&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&
$&&&&&&&&&&&&&&&
J
68,264
1,052,321
&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&
$&&&&&&&&&&&&&&
1,195,960
1,132,695
2,608,864
%
Financial,liabilities
Other&financial&liabilities
As,at,December,31,
2016
2015
Trade&and&other&payables&(Note&11)
Loan&payable&to&shareholders&(Note&10.1)
Other&loans&payable&(Note&10.2)
Decommissioning&liability
$&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&
1,376,872
1,848,135
90,065
129,933
$&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&
2,594,087
2,202,445
140,053
118,097
Fair&value&through&profit&or&loss
Warrant&liability&(Note&18.2)
Total&financial&liabilities
%
21.2% Fair%value%
&&&&&&&&&&&&&&&&&&&
$&&&&&&&&&&&&&&&
596,602
4,041,607
&&&&&&&&&&&&&&&&&&&&&&
$&&&&&&&&&&&&&&
3,809
5,058,491
!
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.!!!
!
!
!
!
!
!
!
%
!
!
Page!|!51!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2016!and!2015!
(Expressed)in)U.S.)Dollars)and)shares,)unless)otherwise)indicated)!
!
21.%%
!
!
FINANCIAL%INSTRUMENTS%(Continued)%
!!!
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! investment! in! the! shares! of! URI! is! determined! using! this! methodology!
and! the! fair! value! of! the! Company’s! investment! in! the! shares! of! Western! Uranium!
was!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!previously!held!by!the!Company!for!Anatolia!
shares!was!determined!using!the!BlackiScholes!Option!Pricing!model.!
o The!fair!value!of!the!warrant!liability!is!determined!using!the!BlackiScholes!
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.!
o The!loan!asset!component!for!the!Third! Black!Range!Convertible!Loan!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! Third! Black! Range! Convertible! Loan! for! the! year! ended!
December! 31,! 2015! was! related! to! a! change! in! the! credit! risk! of! the!
convertible!loan.!!All!of!the!change!in!fair!value!was!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! shortiterm! 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.!
Page!|!52!
!
!
!
!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2016!and!2015!
(Expressed)in)U.S.)Dollars)and)shares,)unless)otherwise)indicated)!
!
21.%%
!!!
FINANCIAL%INSTRUMENTS%(Continued)%
!
!
As#at#December#31,#2016
Level#1
Level#2
Level#3
Total
!
%
Investment(in(URI
Total(financial(assets(at(fair(value
$(((((((((((
$(((((((((((
68,264
68,264
$((((((((((((((((
$((((((((((((((((
2
2
$((((((((((((((((
$((((((((((((((((
Warrant(liability
Total(financial(liabilities(at(fair(value(
%%
As#at#December#31,#2015
$((((((((((((((((
$((((((((((((((((
2
2
$(((((((((
$(((((((((
596,602
596,602
$((((((((((((((((
$((((((((((((((((
Level#1
Level#2
Level#3
Total
2
2
2
2
$(((((((((((
$(((((((((((
68,264
68,264
$(((((((((
$(((((((((
596,602
596,602
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
!
There!were!no!transfers!between!Level!1,!2!and!3!for!the!years!ended!December!31,!2016!
and!2015.!!
!
21.3% 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,! 2016,! 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.!
Page!|!53!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2016!and!2015!
(Expressed)in)U.S.)Dollars)and)shares,)unless)otherwise)indicated)!
!
21.%%
!
!
FINANCIAL%INSTRUMENTS%(Continued)%
!!!
The! sensitivity! of! the! Company’s! total! 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! total! comprehensive! loss,! whereas! a!
negative!number!indicates!a!decrease!in!total!comprehensive!loss.!
!!
10%*increase*in*foreign*exchange*rate
Changes(to(balances(as(at(December(31,(2016
Changes(to(balances(as(at(December(31,(2015
$((((((((((((((
$((((((((((((
(776)
8,670
$(((((((((((
$(((((((((
70,426
(82,187)
$(((((((((((
$(((((((((((
19,296
16,242
KGS
C$
HK$
KGS
C$
HK$
!
10%*decrease*in*foreign*exchange*rate
Changes(to(balances(as(at(December(31,(2016
Changes(to(balances(as(at(December(31,(2015
$(((((((((((((((
$(((((((((((
776
(8,670)
$(((((((((
$(((((((((((
(70,426)
82,187
$(((((((((
$(((((((((
(19,296)
(16,242)
!
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!investment!in!
URI.!!The!Company!manages!its!exposure!to!share!price!fluctuations,!to!the!extent!possible,!
by! actively! monitoring! its! investment.! The! Company’s! maximum! exposure! to! share! price!
risk!with!respect!to!its!investment!is!equal!to!the!carrying!amount!of!its!investment.!
!
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! 10.1)! and! equity! instrument! issued! to!
Powerlite!(Note!18.3)!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!10.2)!
are!noniinterest!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.!
Page!|!54!
!
!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2016!and!2015!
(Expressed)in)U.S.)Dollars)and)shares,)unless)otherwise)indicated)!
!
21.%%
!
!
FINANCIAL%INSTRUMENTS%(Continued)%
!
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.!!
%
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!nonicore!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!nonicore!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,!progress!on!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! 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,#2016
123#months
3#months#2#1#year
125#years
Total#for#2016
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
!
!
Trade&and&other&payables
Loan&payable&to&shareholders
Other&loans&payable
Total&financial&liabilities
!
!!
!
%
!
<
<
=
=
1,888,976
$&&&&&&
&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&
$&&&&&&
1,888,976
1,021,872
$&&&&&&
&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&
$&&&&&&
1,021,872
$&&&&&&&&&&&
&&&&&&&&
&&&&&&&&&&&&
$&&&&&&
45,000
1,848,135
50,000
1,943,135
$&&&&&&&&&
&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&
$&&&&&&&&&
310,000
<
50,000
360,000
$&&&&&&
&&&&&&&&
&&&&&&&&&&
$&&&&&&
1,376,872
1,848,135
100,000
3,325,007
!
!
$&&&&&&&&&
&&&&&&&&&&
&&&&&&&&&&&&
$&&&&&&&&&
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
Page!|!55!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2016!and!2015!
(Expressed)in)U.S.)Dollars)and)shares,)unless)otherwise)indicated)!
!
22.%
!
RELATED%PARTY%TRANSACTIONS%
!
!
The! consolidated! financial! statements! include! the! financial! statements! of! Azarga! Uranium!
and!its!significant!subsidiaries!listed!in!the!following!table:!!
!
Name
Country(of
incorporation
%(equity(interest
As(at(December(31,
2016
2015
Azarga&Resources&(Hong&Kong)&Limited
Azarga&Resources&Limited
Azarga&Resources&Canada&Ltd.
Azarga&Resources&USA&Company
Powertech&USA,&Inc.
UrAsia
!
The! Company! held! a! significant! influence! investment! in! Black! Range! until! the! close! of! the!
Black!Range!Merger,!at!which!point!Black!Range!was!no!longer!an!associate!of!the!Company!
(refer!to!Note!8.1).!
Hong&Kong
British&Virgin&Islands
Canada
United&States&of&America
United&States&of&America
Kyrgyz&Republic&
100%
100%
100%
100%
100%
70%
100%
100%
100%
100%
100%
70%
For! the! years! ended! December! 31,! 2016! and! 2015,! 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!(Note!10.1);!!
•
• The!conversion!of!the!Third!Black!Range!Convertible!Loan!(Note!9);!
• The!disposal!of!Black!Range!shares!(Note!8.1);!
• An!impairment!charge!on!the!Company’s!investment!in!Black!Range!(Note!8.1);!and!
• The! issuance! of! common! shares! to! key! management! personnel! of! the! Company! to!
settle!trade!and!other!payables,!employee!remuneration!(Note!18)!and!interest!on!
the!Shareholders!Loan!Agreement!(Note!10.1).%
Related%party%liabilities%
%
As(at(December(31,
2016
2015
$%%%%%%%%%%%%%%%
%%%%%%%%%%%%%%%%%%%
Loan%payable%to%shareholders
Trade%and%other%payables%for%key%management%
personnel%A%current
Trade%and%other%payables%for%key%management%
personnel%A%nonAcurrent
Total%liabilities%with%related%parties%
(i)%As%at%December%31,%2016,%of%the%$1,848,135%loan%payable%to%shareholders,%$749,243%was%payable%to%a%
director.%As%at%December%31,%2015,%of%the%$2,202,445%loan%payable%to%shareholders,%$892,883%was%payable%to%
a%director.
1,848,135
339,043
2,202,445
435,518
$%%%%%%%%%%%%%%%
%%%%%%%%%%%%%%%%%%%
2,497,178
3,007,963
%%%%%%%%%%%%%%%%%%%
%%%%%%%%%%%%%%%%%%%
$%%%%%%%%%%%%%%%
$%%%%%%%%%%%%%%%
310,000
370,000
(i)
!
!
Page!|!56!
!
%
!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2016!and!2015!
(Expressed)in)U.S.)Dollars)and)shares,)unless)otherwise)indicated)!
!
22.%
RELATED%PARTY%TRANSACTIONS%(Continued)%
!
Related%party%expenses%%
!
!
!
Year*ended*December*31,
2016
2015
Interest'expense'on'loan'payable'to'shareholders
Equity'loss'pick@up'from'associate
Realized'loss'on'investment'in'Black'Range
Impairment'of'investment'in'Black'Range
Unrealized'loss'on'Third'Black'Range'Convertible'
Loan
Total'related'party'expenses
$'''''''''''''''''
''''''''''''''''''''''''''
''''''''''''''''''''''''''
''''''''''''''''''''''''''
''''''''''''''''''''''''''
178,489
@
@
@
@
$'''''''''''''''''
'''''''''''''''''''
'''''''''''''''''''
'''''''''''''''''''
'''''''''''''''''''''
177,923
602,375
200,363
520,866
16,742
$'''''''''''''''''
178,489
$'''''''''''''''
1,518,269
Related%party%income%%
!
Year*ended*December*31,
2016
2015
Dilution(gain(on(investment(in(associate
Total(related(party(income
$((((((((((((((((((((((((
$((((((((((((((((((((((((
0
0
$(((((((((((((((((
$(((((((((((((((((
138,493
138,493
%
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,
2016
2015
Share&based*compensation
Salaries,*fees*and*other*benefits
Share&based*payments
Severance*benefits
Key*management*personnel*compensation
$*******************
*******************
*******************
**************************
$*****************
87,194
488,357
382,955
&
958,506
$*****************
*******************
*******************
*******************
$***************
121,516
532,891
407,681
480,000
1,542,088
Page!|!57!
%
!
!
%
!
%
%
%
%
%
%
!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2016!and!2015!
(Expressed)in)U.S.)Dollars)and)shares,)unless)otherwise)indicated)!
!
23.%%
!
!
SUPPLEMENTAL%CASH%FLOW%INFORMATION%
!
Non[cash%financing%and%investing%activities%
!
For!the!years!ended!December!31,!2016!and!2015,!the!Company!entered!into!the!following!
nonicash! investing! and! financing! activities! which! are! not! reflected! in! the! consolidated!
statements!of!cash!flows:!
!
• For! the! years! ended! December! 31,! 2016! and! 2015,! shareibased! compensation!
expense! of! $27,857! and! $37,704,! respectively,! was! capitalized! as! exploration! and!
evaluation!assets;!
• For!the!years!ended!December!31,!2016!and!2015,!no!cash!interest!or!income!taxes!
were!paid;!!
• 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,!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!nonicontrolling!interest!
of!UrAsia;!
• For! the! years! ended! December! 31,! 2016! and! 2015,! the! Company! issued! 1,130,664!
and!928,581!common!shares,!respectively,!to!settle!trade!and!other!payables!in!the!
amount!of!$355,658!and!$317,432,!respectively;!!
• For! the! year! ended! December! 31,! 2016,! the! Company! issued! 1,465,950! common!
shares!to!settle!$343,718!owing!pursuant!to!the!Company’s!ESPP;!!
• For! the! year! ended! December! 31,! 2016,! the! Company! issued! 640,656! common!
shares!to!settle!$158,464!owing!pursuant!to!the!Company’s!DSA;!
• For! the! year! ended! December! 31,! 2016,! the! Company! issued! 1,140,626! common!
shares! to! settle! $532,800! of! outstanding! interest! pertaining! to! the! Shareholders!
Loan!Agreement;!
• For! the! year! ended! December! 31,! 2016,! the! Company! issued! 812,500! common!
shares!to!settle!$169,933!of!outstanding!employee!remuneration;!
• For!the!years!ended!December!31,!2016!and!2015,!the!Company!recorded!$416,984!
and! $450,647,! respectively,! to! contributed! surplus! for! equity! settled! transactions!
pursuant!to!the!Company’s!ESPP,!DSA!and!employee!shareibased!remuneration!not!
issued!pursuant!to!the!ESPP!and!DSA;!and!
• For! the! year! ended! December! 31,! 2016,! the! Company! issued! 4,621,665! share!
purchase!warrants!as!part!of!the!Financing.!!
!
Page!|!58!
%
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!
!
!
!
AZARGA%URANIUM%CORP.%
Notes%to%the%Consolidated%Financial%Statements%
For!the!years!ended!December!31,!2016!and!2015!
(Expressed)in)U.S.)Dollars)and)shares,)unless)otherwise)indicated)!
!
24.%% COMMITMENTS%
!
!
As! at! December! 31,! 2016! and! 2015,! the! Company’s! commitments! that! have! not! been!
disclosed!elsewhere!in!the!consolidated!financial!statements!were!as!follows:!
!
Within&1&year
As&at&December&31,&2016
2-4&years
Over&4&years
Total
Operating*lease*commitments
Exploration*and*evaluation*commitments
Total*commitments
$**********
**********
$********
44,927
607,941
652,868
$**********
********
$******
53,513
5,085,029
5,138,542
!
9
$***************
********
$******
2,866,562
2,866,562
$**********
********
$******
98,440
8,559,532
8,657,972
!
Within&1&year
As&at&December&31,&2015
2-4&years
Over&4&years
Total
$**********
**********
$********
44,160
521,887
566,047
Operating*lease*commitments
Exploration*and*evaluation*commitments
Total*commitments
%%
As!at!December!31,!2016!and!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.!!
91,080
5,854,735
5,945,815
135,240
8,294,783
8,430,023
$***************
********
$******
$**********
********
$******
1,918,161
1,918,161
$********
********
$******
8
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Page!|!59!
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Azarga&Uranium&Corp.&
MANAGEMENT’S&DISCUSSION&AND&ANALYSIS&
&
December&31,&2016&&
(Expressed!in!U.S.!Dollars)!
!
!
!
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!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(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!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!
in! the! permitting! process;!
permitting! process;! Native! American!
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.!
involvement!
!
!
2!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(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,!2016!and!2015!
(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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AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(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”)! (which,! together!
with!its!subsidiaries,!is!collectively!referred!to!as!the!“Company”)!dated!March!29,!2017
should! be! read! in! conjunction! with! the! consolidated! financial! statements! of! the!
Company!and!the!notes!thereto!for!the!years!ended!December!31,!2016!and!2015.!!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”).!!
!
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,!2016!
and!subsequent!period!to!March!29,!2017!are!as!follows:!
`!
In! March! 2017,! the! Company! received! notice! that! the! United! States!
Environmental! Protection! Agency! (the! “EPA”)! issued! two! draft! permits! for! the!
Dewey! Burdock! Project.! ! The! issuance! of! the! draft! permits! represents! the!
completion! of! a! major! regulatory! milestone! for! the! Company.! ! The! draft! EPA!
permits! pertain! to! the! Company’s! planned! Class! III! and! Class! V! Underground!
Injection! Control! (“UIC”)! activities! and! address! all! outstanding! permit!
applications!filed!with!the!EPA!for!the!Dewey!Burdock!Project.!!
In!February!2017,!the!Company!received!notice!that!the!Oglala!Sioux!Tribe!filed!
a! petition! for! review! of! the! decision! made! by! the! Commission! of! the! United!
States!Nuclear!Regulatory!Commission!(the!“NRC”)!in!December!2016!pertaining!
to! the! April! 30,! 2015! partial! initial! decision! of! the! Atomic! Safety! and! Licensing!
Board!(the!“ASLB”)!regarding!the!Company’s!NRC!license!for!the!Dewey!Burdock!
Project.!!The!Company’s!NRC!license!continues!to!remain!in!good!standing.!!
•
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5!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
SIGNIFICANT&EVENTS&AND&HIGHLIGHTS&(Continued)!
!
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•
•
•
•
•
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!
In!December!2016,!the!Company!announced!approval!from!the!NRC!for!the!first!
amendment! to! the! NRC! Source! and! Byproduct! Materials! License! for! the! Dewey!
Burdock! Project.! The! amendment! completes! certain! NRC! license! conditions! for!
the!Dewey!Burdock!Project,!including!the!finalization!of!the!financial!assurance!
amount!required!for!construction!of!the!Dewey!Burdock!Project!and!completion!
of!other!initial!preLoperational!NRC!license!conditions.!!
In! November! 2016,! the! Company! announced! the! resignation! of! Kim! Huatt! Ng!
from!the!Board!of!Directors.!
In!September!2016,!the!Company!closed!its!nonLbrokered!private!placement!of!
C$2.2!million!through!the!issuance!of!9,243,336!units!(each,!a!“Unit”)!at!a!price!of!
C$0.24! per! Unit! (the! “Financing”).! ! Each! Unit! consists! of! one! common! share! of!
the!Company!and!oneLhalf!of!one!share!purchase!warrant!(each!whole!warrant,!a!
“Warrant”).! ! One! Warrant! entitles! the! holder! thereof! to! purchase! one! common!
share!at!a!price!of!C$0.35!per!share!for!a!period!of!three!years!from!the!close!of!
the!Financing.!!
!
In! August! 2016,! the! Company! issued! 1,140,626! common! shares! to! settle!
$532,800! of! interest! owing! on! the! Company’s! $1.8! million! convertible! loan!
agreement!with!certain!shareholders.!
In! July! 2016,! the! Company! announced! that! all! resolutions! put! forward! at! the!
Annual! General! and! Special! Meeting! of! the! Company’s! shareholders! were!
approved;! including,! but! not! limited! to,! reLelection! of! the! Company’s! directors,!
the! issuance! of! 123,010! common! shares! to! settle! $44,400! of! debt! and! the!
issuance!of!812,500!common!shares!for!employee!remuneration.!!These!common!
shares!were!subsequently!issued!in!August!2016.!!
&
&
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.!Its!
shares! are! listed! on! the! Toronto! Stock! Exchange! (“TSX”)! (symbol:! AZZ)! and! the!
Frankfurt! Stock! Exchange! (symbol:! P8AA).! The! Company! is! an! integrated! uranium!
exploration!and!development!company.!!
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6!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
BACKGROUND&(Continued)!
!
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.!
&
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INDUSTRY&TRENDS&AND&OUTLOOK&
!
Although!uranium!prices!have!recovered!from!their!recent!lows!in!the!fourth!quarter!of!
2016,!the!Company!believes!that!the!following!key!elements!will!contribute!to!further!
improvements!in!the!uranium!sector:!
&
• Global& reactor& pipeline& exceeds& preOFukushima& total! –! The! global! reactor!
pipeline! consists! of! 1,020 1 !nuclear! reactors! that! are! operable,! under!
construction,! planned! or! proposed! compared! to! 9872!before! the! Fukushima!
incident! in! 2011.! ! Of! the! 1,020! nuclear! reactors,! 447! reactors! are! operable1.! ! A!
total! of! 2231! nuclear! reactors! are! under! construction! or! planned,! which!
represents!approximately!50%!of!the!current!operating!fleet.!China,!Russia!and!
India! lead! the! world! in! terms! of! the! number! of! nuclear! power! plants! under!
construction,!with!twentyLone,!seven!and!five,!respectively1.!China!continues!to!
accelerate! their! nuclear! growth! plans! and! intends! to! have! 58! GWe! of! installed!
capacity!by!2020L21!and!150!GWe!by!20303!(currently!32!GWe4).!!According!to!
their!latest!Five!Year!Plan,!China!is!forecasting!the!approval!and!construction!of!
6L8! units! per! year! between! 2016! and! 2020,! increasing! to! 10! units! per! year!
thereafter3.!
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!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
1 World Nuclear Association – World Nuclear Power Reactors & Uranium Requirements (March 1, 2017)
2 Haywood Securities Inc. – Target & Commodity Price Revisions (May 31, 2016)
3 World Nuclear Association – Nuclear Power in China (March 2017)
4 UBS Global I/O - Miner’s Price Review (December 1, 2016)
!
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7!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
INDUSTRY&TRENDS&AND&OUTLOOK&(Continued)!
!
!
• Current& prices& will& constrain& supply! –! Low! prices! are! forcing! producers! to!
curtail!mining,!development!and!exploration.!!Annual!U3O8!supply!has!decreased!
by!11%!from!2013!to!20155.!!!In!2016,!producers!continued!to!curtail!operations.!!
For!example,!in!2016!Cameco!Corp.!announced!the!shut!down!of!its!Rabbit!Lake!
Mine,! which! produced! 4.2! million! pounds! of! uranium! in! 20156,! curtailed! its!
United!States!operations!and!announced!production!halts!at!its!McArthur!River!
and!Cigar!Lake!mines!for!periods!in!2017.!!Further,!Kazatomprom!announced!a!
10%!production!cut!commencing!in!2017,!which!equates!to!approximately!3%!of!
the!global!uranium!supply7.!
Despite!the!Company’s!belief!that!a!uranium!sector!turnaround!has!commenced,!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!draft!EPA!
permits! in! March! 2017! 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! EPA! permitting!
requirements.! ! In! addition,! the! Company! will! continue! to! evaluate! projectL
financing!options!for!the!Dewey!Burdock!Project,!with!a!view!to!having!a!funding!
solution!in!place!prior!to!or!concurrent!with!the!finalization!of!permits.!
!
• Future&uranium&production&offOtake&–!The!Company!will!continue!the!process!
of! engaging! with! potential! customers! for! future! uranium! production! offLtake.!
Although! the! Company! plans! to! continue! these! discussions,! in! parallel! with! the!
advancement!of!the!Dewey!Burdock!Project,!the!level!of!these!activities! will!be!
dependent!on!the!market!environment.!!
• Minimize& activities& in& the& Kyrgyz& Republic& –! A! maiden! National! Instrument!
43L101!(“NI!43L101”)!uranium!resource!estimate!was!completed!in!April!2014.!
While! the! Company’s! core! focus! continues! to! be! on! the! development! of! the!
Dewey!Burdock!Project,!the!Company!will!continue!to!advance!the!Kyzyl!Ompul!
Project!through!desktop!studies!and!minimal!exploration!activities.!!!!
!
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!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
5 Cantor Fitzgerald – Quarterly Commodity Outlook (July 27, 2016)
6 Saskatoon StarPheonix – Rabbit Lake closure ‘right economic decision’ given tough market: Cameco VP
(April 26, 2016)
7 World Nuclear News – Oversupply prompts Kazakh uranium production cut (January 10, 2017)
!
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8!
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AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
INDUSTRY&TRENDS&AND&OUTLOOK&(Continued)&
!
The!Company!believes!a!unique!opportunity!exists!for!investors!to!build!an!investment!
position! in! Azarga! Uranium.! Firstly,! the! Company! believes! 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! operating! cash! 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.! Finally,! 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!13,160!surface!acres!and!17,340!
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!preliminary!economic!assessment!(“PEA”)!for!the!Dewey!Burdock!Project!
prepared! by! TREC! Inc.! and! Rough! Stock! Mining! Services! (the! “Dewey! Burdock! PEA”)!
with! an! effective! date! of! January! 29,! 2015.! 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!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!April!21,!2015,!a!copy!of!which!is!available!under!the!Company’s!
profile!at!www.sedar.com.!The!Dewey!Burdock!PEA!is!preliminary!in!nature;!it!includes!
inferred!mineral!resources!that!are!considered!too!speculative!geologically!to!have!the!
economic!considerations!applied!to!them!that!would!enable!them!to!be!categorized!as!
mineral! reserves.!! There! is! no! certainty! that! the! Dewey! Burdock! PEA! will! be! realized.!!
Mineral! resources! that! are! not! mineral! reserves! do! not! have! demonstrated! economic!
viability.!!!
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9!
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AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
MINERAL&PROPERTIES&(Continued)!
!
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,! which! included! $6.33/lb! of! local! taxes! and! royalties,! 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!16L
year!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.!!!
!
The!NRC!issued!the!final!Supplemental!Environment!Impact!Statement!(“SEIS”)!for!the!
Dewey! Burdock! Project! in! the! first! quarter! of! 2014.! The! Section! 106! programmatic!
agreement! (“PA”)! was! executed! on! April! 7,! 2014! by! the! Advisory! Council! on! Historic!
Preservation,! the! NRC,! the! South! Dakota! State! Historic! Preservation! Office! and! the!
Bureau! of! Land! Management! (“BLM”).! Subsequent! to! the! PA! being! executed,! the! NRC!
issued! a! final! Safety! Evaluation! Report! and! the! Company’s! Dewey! Burdock! Project!
received! its! Source! and! Byproduct! Materials! License! SUAL1600! on! April! 8,! 2014,!
covering!10,580!acres.!!In!the!fourth!quarter!of!2016,!the!Company!received!approval!
from!the!NRC!for!the!first!amendment!to!the!NRC!license,!which!completed!certain!NRC!
license!conditions.!The!Company!controls!the!mineral!and!surface!rights!for!the!entire!
area!pertaining!to!the!NRC!license.!&
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10!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
MINERAL&PROPERTIES&(Continued)!
!
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! ASLB!
hearings!are!normal!practice!and!are!undertaken!after!the!NRC!license!has!been!granted!
to!determine!whether!or!not!the!NRC!staff!has!considered!all!issues!related!to!the!NRC!
license.!In!April!2015,!the!ASLB!ruled!on!seven!contentions!raised!by!the!consolidated!
intervenors! and! the! Oglala! Sioux! Tribe! (collectively,! the! “Intervenors”)! regarding! the!
NRC!license!for!the!Dewey!Burdock!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! has! retained! jurisdiction! of! the! two! contentions! pertaining! to! identification!
and! protection! of! historic! and! cultural! resources! and! has! asked! for! monthly! status!
reports!from!the!NRC!staff!until!the!outstanding!issues!are!addressed.!The!Company!is!
facilitating!this!process!to!the!fullest!extent!possible.!!
!
Subsequent!to!the!ASLB!partial!initial!decision!in!April!2015,!the!Company!and!the!NRC!
staff!filed!petitions!for!review!of!the!ASLB!decision!to!the!NRC!Commission!with!respect!
to! their! ruling! that! additional! consultation! efforts! were! required! between! the! Oglala!
Sioux! Tribe! and! the! NRC! staff! regarding! the! two! contentions! relating! to! the!
identification! and! protection! of! historic! and! cultural! resources.! The! Intervenors! filed!
petitions!for!review!of!the!ASLB!decision!to!the!NRC!Commission!covering!most!of!the!
contentions! heard! by! the! ASLB.! Upon! consideration! of! the! information! presented,! the!
NRC!Commission!denied!the!party’s!petitions!for!review!of!the!ASLB!decision,!with!the!
exception!of!1)!the!NRC!staff’s!and!the!Company’s!petition!for!review!with!respect!to!the!
ASLB’s! direction! to! NRC! staff! regarding! the! resolution! of! the! outstanding! two!
contentions! relating! to! the! identification! and! protection! of! historic! and! cultural!
resources,!in!which!the!NRC!Commission!ultimately!affirmed!the!ASLB’s!decision!and!2)!
a! petition! for! review! filed! by! the! Oglala! Sioux! Tribe! claiming! that! the! draft! SEIS! had!
been! issued! without! the! requisite! scoping! process,! in! which! the! NRC! Commission!
affirmed!the!ASLB’s!decision!and!dismissed!the!contention.!
!
Though! the! decision! of! the! NRC! Commission! does! not! immediately! resolve! the!
outstanding! two! contentions! from! the! ASLB! partial! initial! decision! pertaining! to! the!
identification!and!protection!of!historic!and!cultural!resources,!the!NRC!staff,!in!parallel!
with! filing! the! petitions! for! review! to! the! NRC! Commission,! has! continued! their!
consultation!efforts!with!the!Oglala!Sioux!Tribe!in!accordance!with!the!ASLB!directive!
on!these!contentions!and!the!NRC!Commission!decision!provides!additional!regulatory!
guidance!so!that!these!contentions!may!be!resolved!in!a!timely!manner.!!
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11!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
MINERAL&PROPERTIES!(Continued)&
!
In!February!2017,!the!Oglala!Sioux!Tribe!filed!a!petition!for!review!of!the!decision!made!
by! the! NRC! Commission! to! the! United! States! Court! of! Appeals! for! the! District! of!
Columbia!Circuit.!!Subsequently,!the!NRC!staff!filed!a!motion!to!dismiss!the!Oglala!Sioux!
Tribe’s!petition!for!review!and!the!Company!plans!to!support!this!to!the!fullest!extent!
possible.!!The!NRC!license!for!the!Dewey!Burdock!Project!continues!to!remain!in!good!
standing.!
!
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!final!Class!
III! and! Class! V! 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.!
!
In!March!2017,!the!EPA!issued!the!Company!draft!Class!III!and!Class!V!UIC!permits!for!
the! Dewey! Burdock! Project.! ! The! issuance! of! the! draft! permits! represents! the!
completion! of! a! major! regulatory! milestone! for! the! Company.! ! According! to! the! EPA’s!
public!notice,!the!draft!permits!will!be!made!available!for!public!review!and!comment!
until!May!19,!2017.!!The!EPA’s!final!permit!decision!will!evaluate!all!public!comments!
pertaining! to! the! draft! permits,! including! any! comments! raised! by! the! Company.! ! The!
Company!is!currently!evaluating!the!draft!permit!conditions.!!
!
The! Company! submitted! applications! to! the! South! Dakota! DENR! in! 2012! for! its!
Groundwater! Disposal! Plan! (“GDP”),! Water! Rights! (“WR”)! and! Large! Scale! Mine! Plan!
(“LSM”)! permits.! ! All! permit! applications! have! been! deemed! complete! and! have! been!
recommended!for!conditional!approval!by!the!DENR!staff.!The!GDP!and!WR!permits!are!
subject! to! hearing! with! public! participation.! The! hearing! commenced! on! October! 28,!
2013!and!continued!through!November!25,!2013,!at!which!point!it!was!determined!that!
the! hearing! will! resume! once! the! NRC! and! EPA! have! ruled! and! set! the! federal! surety.!
The!LSM!permit!has!been!finalized!subject!to!continuation!of!a!hearing!before!the!Board!
of!Minerals!and!Environment,!which!commenced!the!week!of!September!23,!2013!and!
continued! through! November! 5,! 2013,! at! which! point! it! was! determined! that! the!
hearing! will! resume! once! the! NRC! and! EPA! have! ruled! and! set! the! federal! surety.!!
Subject! to! improved! market! conditions,! the! Company! plans! to! reLcommence! the!
regulatory!process!with!the!South!Dakota!DENR!once!the!final!EPA!Class!III!and!Class!V!
UIC!permits!have!been!issued.!
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12!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
MINERAL&PROPERTIES!(Continued)&
!
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!
subsequent! to! the! successful! resolution! of! the! two! remaining! contentions! on! the! NRC!
license,!at!which!point!it!is!also!anticipated!that!the!BLM!will!prepare!an!environmental!
assessment!and!issue!its!Record!of!Decision.!
!
The!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!1,485!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.!!!!
!
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! preLtax! 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.!!!
!
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.!
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13!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
MINERAL&PROPERTIES!(Continued)&
!
Subsequent! to! the! Centennial! PEA! being! completed,! certain! lease! agreements! with!
respect! to! the! Centennial! Project! were! not! renewed! and! certain! parcels! of! redundant!
land!at!the!Centennial!Project!were!sold;!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! 6,570! acres! of! surface! rights! and!
6,000! acres! of! mineral! rights! located! in! Wyoming! along! the! Wyoming/South! Dakota!
border! on! the! northwestern! flank! of! the! Black! Hills! Uplift,! within! sandstones! of! the!
Lower!CretaceousLage!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! the! Teton! Exploration! Company.! 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.!!
!
!
!
!
!
14!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
MINERAL&PROPERTIES!(Continued)&
!
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!Deposit!in!order!to!determine!how!to!
maximize!the!value!that!can!be!extracted!from!this!deposit.!!!
!
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.!!
!
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.!!
!
!
!
!
!
!
!
!
!
!
15!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
MINERAL&PROPERTIES!(Continued)&
!
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!2016,!the!Company!conducted!desktop!studies!for!the!Kyzyl!Ompul!Project,!in!order!
to!conserve!the!Company’s!financial!resources.!!In!2017,!the!Company!plans!to!continue!
these! desktop! studies! and! conduct! minimum! exploration! activities! as! required! under!
the!exploration!license.!!!
!
!
INVESTMENTS&
!
Uranium!Resources,!Inc.!
!
On! November! 9,! 2015,! Uranium! Resources,! Inc.! (“URI”)! merged! with! Anatolia! Energy!
Limited! (“Anatolia”)! (the! “Anatolia! Merger”).! URI! is! listed! on! the! NASDAQ! (NASDAQ:!
URRE).!!URI!owns!a!diverse!portfolio!of!uranium!and!lithium!holdings!in!the!USA!and!
advanced! exploration! and! development! projects! in! the! central! Anatolian! region! of!
Turkey,! including! the! Temrezli! Uranium! Project.! Please! refer! to! the! URI! website! at!
www.uraniumresources.com!for!additional!details.!
!
!
!
!
!
!
!
!
!
16!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
INVESTMENTS&(Continued)&
!
Western!Uranium!Corporation!!
!
On! September! 16,! 2015,! Western! Uranium! Corporation! (“Western! Uranium”)! merged!
with! Black! Range! Minerals! Limited! (“Black! Range”)! (the! “Black! Range! Merger”).!
Western! Uranium! is! listed! on! the! Canadian! Securities! Exchange! (CSE:! WUC).! ! In! the!
second! quarter! of! 2016,! the! Company! disposed! of! its! remaining! interest! in! Western!
Uranium.!
!
!
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!
income! or! loss! and! the! consolidated! statements! of! cash! flows! in! this! MD&A.! ! The!
financial! information! has! been! prepared! as! a! continuation! of! Azarga! Resources!
Limited’s! consolidated! financial! statements.! The! results! of! Powertech! Uranium! Corp.’s!
operations! have! been! included! in! the! Company’s! consolidated! financial! statements!
subsequent!to!the!close!of!the!reverse!takeLover!on!October!28,!2014.!
!
2016
Year+ended+December+31,+
2015
2014
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
(1,924,692)
39,473,305
38,284,484
$&&&&&&&&&&&
&&&&&&&&&&&&
&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&
&&&&&&&&&&&&&
&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&
7,365,390
(3,118,216)
(2,832,069)
(0.05)
(0.05)
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)
&&&&&&&&&&&&
&&&&&&&&&&&&
&&&&&&&&&&&&&&
&&&&&&&&&&&&
&&&&&&&&&&&&&
&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&
(i)$2016$and$2015$includes$investments$classified$as$held$for$sale.
(ii)$Includes$investments$in$associates$and$Anatolia.
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
17!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
SELECTED&ANNUAL&INFORMATION&(Continued)&
!
The! Company! continues! to! actively! manage! and! evaluate! alternatives! to! improve! its!
working!capital!position.!As!at!December!31,!2016,!the!working!capital!deficit!primarily!
consisted! of! trade! and! other! payables! and! loans! payable,! which! primarily! related! to!
interest! and! principal! owing! on! the! $1.8! million! convertible! loan! agreement! with!
certain! shareholders! (“Shareholders! Loan! Agreement”)! partially! offset! by! cash.! ! 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! Shareholders! Loan!
Agreement.!!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,! 2016,! 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.!!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! redundant! 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,! 2016,! the! Company’s! total! nonLcurrent! liabilities! primarily!
consisted!of!deferred!income!tax!liabilities!and!the!warrant!liability.!!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! nonLcurrent! liabilities! primarily! consisted! of!
deferred! income! tax! liabilities,! the! principal! owing! under! the! Shareholders! Loan!
Agreement!and!the!put!option!on!the!nonLcontrolling!interest!of!UrAsia.!!
!
!
!
!
!
!
!
!
!
!
18!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
SELECTED&ANNUAL&INFORMATION&(Continued)&
!
For!the!year!ended!December!31,!2016,!total!comprehensive!loss!primarily!consisted!of!
administrative! expenses,! unrealized! losses,! which! primarily! related! to! the! loss! on! the!
revaluation!of!the!Company’s!investment!in!URI/Anatolia!and!Western!Uranium!and!the!
loss! on! the! warrant! liability,! and! deferred! income! taxes,! partially! offset! by! foreign!
currency! translation! adjustments.! ! For! the! year! ended! December! 31,! 2015,! total!
comprehensive! loss! primarily! consisted! of! administrative! 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! administrative! expenses,! unrealized! losses,!
which! primarily! related! to! the! loss! on! convertible! loans! issued! by! Powertech,! finance!
costs,! the! net! share! of! equity! losses! from! the! Company’s! associates,! Powertech! and!
Black! Range,! an! impairment! on! an! investment! in! Powertech! and! foreign! currency!
translation!adjustments,!partially!offset!by!a!bargain!purchase!gain!recognized!on!close!
of!the!reverse!takeLover.!!
!
Administrative! expenses! for! the! year! ended! December! 31,! 2016! were! $1,554,213!
compared! to! $2,828,249! for! the! year! ended! December! 31,! 2015.! ! The! decrease! in!
administrative!expenses!primarily!related!to!decreased!salaries!and!benefits,!primarily!
due! to! a! decrease! in! the! number! of! employees! and! in! employee! severance! costs,! and!
decreased!corporate!administrative!expenditures!as!a!result!of!the!Company’s!effort!to!
conserve! cash.! ! Administrative! expenses! for! the! year! ended! December! 31,! 2014! were!
$3,802,907.!!The!decrease!in!administrative!expenses!for!the!year!ended!December!31,!
2015!compared!to!2014!primarily!related!to!decreased!consulting!and!professional!fees!
and! corporate! administrative! expenditures! as! a! result! of! the! Company’s! effort! to!
conserve!cash!and!decreased!share!based!compensation!due!to!stock!options!issued!on!
the! close! of! the! reverse! takeLover! in! 2014,! partially! offset! by! increased! salaries! and!
benefits!primarily!due!to!employee!severance!costs.!&
&
&
&
&
&
&
&
&
&
&
&
&
&
&
!
!
19!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
SUMMARY&OF&QUARTERLY&RESULTS&&
!
The! following! tables! provide! selected! quarterly! financial! information! for! the! most!
recent!eight!quarters.!!
!
!
QUARTER'ENDED
Administrative5expenses
Finance5costs
Unrealized5loss
Realized5gain5(loss)
2016
31,Dec
30#Sep
30#Jun
31#Mar
$5555555
(431,425)
$5555555
(415,819)
$5555555
(440,555)
$5555555
(266,414)
55555555555
(46,490)
55555555555
(47,844)
55555555555
(48,968)
55555555555
(47,778)
555555555
(259,944)
55555555555
(15,945)
55555555555
(87,315)
555555555
(840,956)
5555555555555
39,733
5555555555555
42,857
55555555555
(75,743)
5555555555555
13,438
Deferred5income5tax5recovery5(expense)
555555555
(245,236)
5555555555555
57,864
55555555555
(67,028)
55555555555
(11,600)
Net5loss
Net5loss5attributable5to5equity5holders5of5the5
Company
555555555
(930,212)
555555555
(382,491)
555555555
(721,827)
555555
(1,078,415)
555555555
(909,360)
555555555
(393,186)
555555555
(705,075)
555555
(1,110,595)
Total5comprehensive5loss
555555
(1,043,453)
555555555
(392,435)
555555555
(585,454)
555555555
(810,727)
Basic5loss5per5share
Diluted5loss5per5share
!
QUARTER'ENDED
Administrative7expenses
Finance7costs
Unrealized7gain7(loss)
Realized7gain7(loss)
5555555555555555
(0.02)
5555555555555555
(0.01)
5555555555555555
(0.01)
5555555555555555
(0.02)
5555555555555555
(0.02)
5555555555555555
(0.01)
5555555555555555
(0.01)
5555555555555555
(0.02)
!!
2015
31#Dec
30#Sep
30#Jun
31#Mar
$7777777
(603,380)
$7777777
(425,650)
$7777777
(719,187)
$777
(1,080,032)
77777777777
(47,123)
777777777
(135,844)
777777777
(146,656)
777777777
(164,734)
777777
(1,111,205)
77777777777
756,455
777777777777777777
404
77777777777
344,576
7777777777777
58,056
7777777777777
85,928
77777777
1,084,846
777777777
(206,705)
Share7of7equity7income7(loss)7from7associate
7777777777777777777
#
777777777777777
4,769
77777777777
(76,175)
777777777
(530,969)
Impairment7of7investment7in7associate
7777777777777777777
#
7777777777777777777
#
777777777
(520,866)
7777777777777777777
#
Deferred7income7tax7recovery7(expense)
777777777
(384,771)
777777777777777
1,579
7777777777777
30,627
77777777777
(50,435)
Net7income7(loss)
777777
(2,097,262)
77777777777
275,512
777777777
(366,262)
777777
(1,556,818)
Net7income7(loss)7attributable7to7equity7holders7
of7the7Company
777777
(2,055,607)
77777777777
301,374
777777777
(343,430)
777777
(1,527,387)
Total7comprehensive7loss
777777
(2,435,886)
777777777
(102,570)
777777777
(249,549)
777777
(1,868,055)
Basic7income7(loss)7per7share
7777777777777777
(0.03)
77777777777777777
0.00
7777777777777777
(0.01)
7777777777777777
(0.03)
!&
0.00
(0.03)
(0.03)
(0.01)
7777777777777777
7777777777777777
7777777777777777
77777777777777777
Diluted7income7(loss)7per7share
!
For!the!three!months!ended!December!31,!2016!
!
The!Company!recorded!a!net!loss!of!$930,212!for!the!three!months!ended!December!31,!
2016! compared! to! net! loss! of! $2,097,262! for! the! three! months! ended! December! 31,!
2015.!!The!net!loss!in!each!period!primarily!related!to!the!following:!
!
Administrative! expenses! were! $431,425! for! the! three! months! ended! December! 31,!
2016! compared! to! $603,380! for! the! three! months! ended! December! 31,! 2015.! The!
decrease! primarily! related! to! decreased! salaries! and! benefits,! primarily! due! to! a!
decrease!
in! the! number! of! employees! and! decreased! employee! shareLbased!
remuneration.!!
!
!
20!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
SUMMARY&OF&QUARTERLY&RESULTS&&(Continued)&
!
Finance!costs!for!the!three!months!ended!December!31,!2016!were!$46,490!compared!
to!$47,123!for!the!three!months!ended!December!31,!2015!and!consisted!of!interest!on!
the!Shareholders!Loan!Agreement.!!
!
The! Company! recognized! an! unrealized! loss! of! $259,944! for! the! three! months! ended!
December!31,!2016!compared!to!an!unrealized!loss!of!$1,111,205!for!the!three!months!
ended! December! 31,! 2015.! For! the! three! months! ended! December! 31,! 2016,! the!
unrealized! loss! primarily! related! to! losses! on! the! revaluation! of! the! warrant! liability.!!
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.&
!
The! Company! recognized! a! realized! gain! of! $39,733! for! the! three! months! ended!
December!31,!2016!compared!to!a!realized!gain!of!$58,056!for!the!three!months!ended!
December!31,!2015.!!For!the!three!months!ended!December!31,!2016,!the!realized!gain!
primarily!related!to!a!gain!on!the!settlement!of!trade!and!other!payables.!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.!!
&
&
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! on! 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.!!
!
!
!
!
!
!
!
!
!
!
21!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
FINANCING,&LIQUIDITY&AND&CAPITAL&RESOURCES&(Continued)&
!
As!at!December!31,!2016,!the!Company!had!a!working!capital!deficit!of!$1,924,692!and!
an! accumulated! deficit! of! $13,015,295! 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.!
!
As! at! December! 31,! 2016,! the! Company! had! cash! of! $941,370! compared! to! cash! of!
$239,327! as! at! December! 31,! 2015.! ! The! Company’s! working! capital! deficit! (current!
assets! less! current! liabilities)! was! $1,924,692! as! at! December! 31,! 2016! compared! to!
working! capital! of! $306,867! as! at! December! 31,! 2015.! Of! the! Company’s! current!
liabilities,! approximately! $187,500! are! expected! to! be! settled! through! the! issuance! of!
Azarga!Uranium!shares!in!order!to!conserve!cash!resources.!!The!Company!continues!to!
actively!manage!its!cash!and!working!capital!positions.!!In!2016!and!2015,!the!Company!
sold! redundant! assets! for! net! proceeds! of! $615,222! and! $379,500,! respectively.! ! The!
Company!is!not!subject!to!any!externally!imposed!capital!requirements.!
!
Private!Placement!
!
In! September! 2016,! the! Company! closed! its! nonLbrokered! private! placement! of! C$2.2!
million!($1.7!million)!through!the!issuance!of!9,243,336!Units!at!a!price!of!C$0.24!per!
Unit.!!Each!Unit!consists!of!one!common!share!of!the!Company!and!oneLhalf!of!one!share!
purchase!warrant!(each!whole!warrant,!a!“Warrant”).!One!Warrant!entitles!the!holder!
thereof!to!purchase!one!common!share!of!the!Company!at!a!price!of!C$0.35!per!share!
for! a! period! of! three! years! from! the! closing! of! the! Financing.! In! connection! with! the!
Financing,!the!Company!paid!cash!finder’s!fees!and!other!fees!of!$51,408.!The!common!
shares!issued!in!connection!with!the!Financing!are!subject!to!a!fourLmonth!hold!period.!!
The! Company! intends! to! use! the! proceeds! of! the! Financing! for! continuation! of! the!
permitting!process!at!the!Dewey!Burdock!Project,!mineral!and!surface!right!payments!
for!the!Company’s!projects!and!general!working!capital!purposes.!
!
!
!
!
!
!
!
!
22!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
FINANCING,&LIQUIDITY&AND&CAPITAL&RESOURCES&(Continued)&
!
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! the! 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.!!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!
$1,700,000! of! deferred! payments! related! to! the! Purchase! Agreements! and! ii)!
extinguishment!of!the!put!option!on!the!nonLcontrolling!interest!of!UrAsia.!!
!
Investment!in!Western!Uranium!(formerly!Black!Range)!
!
As! at! December! 31,! 2016,! the! Company! no! longer! held! an! ownership! interest! in!
Western!Uranium.!!The!Company!originally!acquired!its!ownership!in!Western!Uranium!
through!the!Black!Range!Merger.!!For!the!years!ended!December!31,!2016!and!2015,!the!
Company!sold!645,399!and!20,800!Western!Uranium!shares,!respectively,!for!proceeds!
of! $749,508! and! $31,762,! respectively.! For! the! year! ended! December! 31,! 2015,! the!
Company!sold!212,007,381!Black!Range!shares!for!proceeds!of!$322,893.!!!!
!
On!February!25,!2014,!Black!Range!and!the!Company!entered!into!a!A$2,000,000!loan!
facility! (the! “Third! Black! Range! Convertible! Loan”).! ! 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.!!
!
In! July! 2015,! the! Company! and! Empire! Equity! Ltd.! (“Empire! Equity”)! agreed! to!
terminate!its!share!sale!agreement!and!economic!exposure!sharing!deed!pertaining!to!
the!sale!of!Black!Range!shares!(the!“Termination!Deed”).!!In!accordance!with!the!terms!
of!the!Termination!Deed,!Empire!Equity!transferred!120,000,000!Black!Range!shares!to!
the! Company,! the! Company! was! not! obligated! to! repay! A$280,000! received! from!
Empire! Equity! 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!August!
6,!2018.!
!
Investment!in!URI!(formerly!Anatolia)!
!
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.!!!
!
!
!
!
23!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
FINANCING,&LIQUIDITY&AND&CAPITAL&RESOURCES&(Continued)&
!
In!August!2014,!Anatolia!and!the!Company!entered!into!an!agreement!that!provided!the!
Company!with!the!ability!to!acquire!up!to!8,333,334!Anatolia!shares!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.!!
!
For! the! years! ended! December! 31,! 2016! and! 2015,! the! Company! sold! 131,694! and!
141,846!URI!shares!(2016!share!figures!adjusted!for!URI’s!12!for!1!share!consolidation!
on! March! 8,! 2016),! respectively,! for! proceeds! of! $347,151! and! $68,921,! respectively.!!
For!the!year!ended!December!31,!2015,!the!Company!sold!1,117,611!Anatolia!shares!for!
proceeds!of!$51,017!and!purchased!1,350,000!Anatolia!shares!for!total!consideration!of!
$77,290.!!
!
Powerlite!Ventures!Limited!–!Powerlite!Facility!
!
On! May! 22,! 2013,! the! Company! issued! an! equity! instrument! (“Powerlite! Facility”)! to!
Powerlite!Ventures!Limited!(“Powerlite”).!!In!accordance!with!the!Powerlite!Facility,!as!
amended,! the! facility! limit! is! $21,000,000.! ! Any! outstanding! principal! and! accrued!
interest! will! be! settled! through! the! issuance! of! the! Company’s! shares! at! C$1.54! per!
share.!!As!a!result,!the!financial!instrument!is!classified!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! 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.!
!
As! at! December! 31,! 2016! and! 2015,! the! Company! had! drawn! a! total! of! $18,000,000!
under!the!Powerlite!Facility.!!Although!$3,000,000!remains!available!under!the!terms!of!
the!Powerlite!Facility,!the!Company!believes!it!is!unlikely!that!Powerlite!will!be!able!to!
fund!the!remaining!amount!of!the!Powerlite!Facility.!!The!$18,000,000!drawn!under!the!
Powerlite!Facility!plus!accrued!interest!was!converted!into!shares!in!2014.!
!
&
&
!
!
24!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
FINANCING,&LIQUIDITY&AND&CAPITAL&RESOURCES&(Continued)&
!
Shareholders!Loan!Agreement!
!
On!July!31,!2012,!the!Company!entered!into!a!$1,800,000!Shareholders!Loan!Agreement,!
as! amended.! The! funds! were! used! to! fund! the! UrAsia! 2012! exploration! program! and!
general!working!capital!purposes.!!The!key!commercial!terms!of!the!loan!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;!
• 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!defer!the!July!
31,! 2014! and! 2015! annual! interest! payments! until! July! 31,! 2016.! ! In! May! 2016,! the!
Company! entered! into! shares! for! debt! settlement! agreements! for! up! to! $532,800! to!
settle! the! July! 31,! 2014,! 2015! and! 2016! annual! interest! payments.! ! As! a! result,! the!
Company! issued! 1,140,626! common! shares! to! settle! the! outstanding! interest! of!
$532,800!as!at!July!31,!2016.!
!
As! at! December! 31,! 2016! and! 2015,! the! Company! had! drawn! $1,776,000! under! the!
Shareholders!Loan!Agreement.!!No!additional!amounts!are!available!to!be!drawn!under!
the!Shareholders!Loan!Agreement.!!!
!
Other!Loans!Payable!
!
For! each! of! the! years! ended! December! 31,! 2016! and! 2015,! the! Company! made!
payments!totaling!$60,000.!!!
!
!
!
!
!
!
!
!
25!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
FINANCING,&LIQUIDITY&AND&CAPITAL&RESOURCES&(Continued)&
!
Centennial!Purchase!Agreement!!
!
In! 2006,! the! Company! entered! into! an! agreement,! as! amended,! to! purchase! uranium!
rights! on! certain! areas! of! the! Centennial! Project! for! consideration! of! $1,895,000,!
excluding! contingent! payments.! As! at! December! 31,! 2016! and! 2015,! $1,855,000! and!
$1,835,000,! respectively,! had! been! paid.! ! The! outstanding! consideration! is! payable! in!
two! annual! installments! of! $20,000! in! September! 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.!!
This!amount!is!included!in!the!Company’s!commitments;!please!refer!to!the!Contractual!
Obligations!and!Commitments!section! of! this! MD&A.& & The! Company! has! also! agreed! to!
purchase!up!to!1,280!surface!acres!at!the!Centennial!Project!upon!receipt!of!regulatory!
permits!and!licenses!allowing!uranium!production.!!The!purchase!price!for!the!surface!
area! acres! will! be!calculated! using! the! then! prevailing! market! rates;! however,! this!
amount! cannot! currently! be! reasonably! quantified! due! to! the! uncertainty! associated!
with!the!timing!of!receipt!of!the!regulatory!permits!and!licenses,!the!number!of!surface!
acres!that!will!be!purchased!and!the!future!prevailing!market!rates!for!the!surface!acres.!
If! the! Company! does! not! obtain! the! regulatory! permits! and! licenses! allowing! uranium!
production! pertaining! to! the! Centennial! purchase! agreement! by! September! 27,! 2019,!
the!uranium!rights!will!transfer!back!to!the!seller,!at!seller’s!option.!!&
!
Dewey!Burdock!Purchase!Agreements!
!
In!2006!and!2008,!the!Company!entered!into!agreements!to!purchase!mineral!rights!on!
certain! areas! of! the! Dewey! Burdock! Project! for! consideration! of! $800,000,! excluding!
contingent! payments.! ! As! at! December! 31,! 2016! and! 2015,! $740,000! and! $700,000,!
respectively,! had! been! paid.! The! outstanding! consideration! is! payable! in! two! annual!
installments!of!$30,000!in!May!2017!and!2018.!An!additional!$2,050,000!is!payable,!in!
four! equal! annual! installments,! commencing! 12! months! subsequent! to! the! receipt! of!
regulatory!permits!and!licenses!allowing!uranium!production!on!the!area!of!the!Dewey!
Burdock! Project! pertaining! to! these! mineral! interests.! This! amount! is! included! in! the!
Company’s!commitments;!please!refer!to!the!Contractual!Obligations!and!Commitments!
section!of!this!MD&A.&&!
!
Cash!Flow!Highlights!
!
Net!cash!used!in!operating!activities!
!
For! the! year! ended! December! 31,! 2016,! the! Company! used! $1,948,179! of! cash! in!
operating! activities! compared! to! $2,660,189! for! the! year! ended! December! 31,! 2015.!
Cash! used! in! operating! activities! decreased! for! the! year! ended! December! 31,! 2016!
primarily! due! to! reduced! administrative! expenditures! as! a! result! of! the! Company’s!
effort! to! conserve! cash,! partially! offset! by! changes! in! working! capital! items! related! to!
other!assets!and!trade!and!other!payables.!
!
!
26!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
FINANCING,&LIQUIDITY&AND&CAPITAL&RESOURCES&(Continued)&
!
Net!cash!generated!by!(used!in)!investing!activities!
!
For! the! year! ended! December! 31,! 2016,! the! Company! generated! $1,061,570! of! cash!
from!investing!activities!compared!to!using!$256,428!for!the!year!ended!December!31,!
2015.! For! the! year! ended! December! 31,! 2016,! net! cash! generated! from! investing!
activities! primarily! related! to! proceeds! of! $1,096,659! from! the! partial! sale! of! the!
Company’s! investment! in! URI! and! the! sale! of! the! Company’s! investment! in! Western!
Uranium!and!proceeds!of!$604,092!from!the!sale!of!exploration!and!evaluation!assets!
pertaining! to! redundant! land! at! the! Centennial! Project,! partially! offset! by! $650,311! of!
net! expenditures! on! the! Company’s! exploration! and! evaluation! assets.! For! the! year!
ended!December!31,!2015,!net!cash!used!in!investing!activities!primarily!related!to!the!
Company’s! investment! of! $1,219,011! in! 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.!
!
Net!cash!generated!by!(used!in)!financing!activities!
!
For! the! year! ended! December! 31,! 2016,! the! Company! generated! $1,590,522! from!
financing!activities!compared!to!using!$60,000!for!the!year!ended!December!31,!2015.!!
For! the! year! ended! December! 31,! 2016,! net! cash! generated! from! financing! activities!
primarily!related!to!the!Financing.!!For!the!year!ended!December!31,!2015,!cash!used!
for!financing!activities!related!to!payments!on!outstanding!loans!payable.!!
!
&
CONTRACTUAL&OBLIGATIONS&AND&COMMITMENTS&
&
As! at! December! 31,! 2016! and! 2015,! the! Company’s! contractual! obligations! were! as!
follows:!
&
As#at#December#31,#2016
3#months#2#1#year
Total#for#2016
123#months
125#years
Trade&and&other&payables
Loan&payable&to&shareholders
Other&loans&payable
Total&financial&liabilities
&
As#at#December#31,#2015
Trade&and&other&payables
Loan&payable&to&shareholders
Other&loans&payable
Total&contractual&obligations
!
!
!
1,021,872
$&&&&&&
&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&
$&&&&&&
1,021,872
$&&&&&&&&&&&
&&&&&&&&
&&&&&&&&&&&&
$&&&&&&
45,000
1,848,135
50,000
1,943,135
$&&&&&&&&&
&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&
$&&&&&&&&&
310,000
<
50,000
360,000
$&&&&&&
&&&&&&&&
&&&&&&&&&&
$&&&&&&
1,376,872
1,848,135
100,000
3,325,007
123#months
3#months#2#1#year
125#years
Total#for#2015
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
<
<
=
=
!
!
27!
&
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
CONTRACTUAL&OBLIGATIONS&AND&COMMITMENTS&(Continued)&
!
As!at!December!31,!2016!and!2015,!the!Company’s!commitments!were!as!follows:!!
!
!
Within&1&year
As&at&December&31,&2016
2-4&years
Over&4&years
Total
Operating*lease*commitments
Exploration*and*evaluation*commitments
Total*commitments
!
$**********
**********
$********
44,927
607,941
652,868
$**********
********
$******
53,513
5,085,029
5,138,542
9
$***************
********
$******
2,866,562
2,866,562
$**********
********
$******
98,440
8,559,532
8,657,972
!
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
&
!
&
As! at! December! 31,! 2016! and! 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.!!!
!
!
!
!
!
!
28!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
FINANCIAL&INSTRUMENTS&(Continued)&
!
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!
is! determined! using! this!
methodology! and! the! fair! value! of! the! Company’s! investment! in! the! shares! of!
Western!Uranium!was!determined!using!this!methodology.!
in! the! shares! of! URI!
investment!
• 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.!
• The! fair! value! of! the! call! option! previously! 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! the! Third! Black! Range! Convertible! Loan!
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! Third! Black! Range! Convertible! Loan! for! the! year! ended!
December! 31,! 2015! was! related! to! a! change! in! the! credit! risk! of! the!
convertible! loan.! ! All! of! the! change! in! fair! value! was! 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.! ! The! Company’s! cash,! restricted! cash! and! other! financial! liabilities! are!
carried!at!amortized!cost.!
!
Financial,assets
Loans&and&receivables
Cash
Restricted&cash
Fair&value&through&profit&or&loss
Investment&in&Western&Uranium
Investment&in&URI
Total&financial&assets
As,at,December,31,
2016
2015
$&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&
941,370
42,687
$&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&
239,327
40,882
&&&&&&&&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&
$&&&&&&&&&&&&&&&
G
68,264
1,052,321
&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&
$&&&&&&&&&&&&&&
1,195,960
1,132,695
2,608,864
!&
!
!
29!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
FINANCIAL&INSTRUMENTS&(Continued)&
&
!
Financial,liabilities
Other&financial&liabilities
Trade&and&other&payables
Loan&payable&to&shareholders
Other&loans&payable
Decommissioning&liability
Fair&value&through&profit&or&loss
Warrant&liability
Total&financial&liabilities
As,at,December,31,
2016
2015
$&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&
1,376,872
1,848,135
90,065
129,933
$&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&
2,594,087
2,202,445
140,053
118,097
&&&&&&&&&&&&&&&&&&&
$&&&&&&&&&&&&&&&
596,602
4,041,607
&&&&&&&&&&&&&&&&&&&&&&
$&&&&&&&&&&&&&&
3,809
5,058,491
&
&
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!investment!in!URI.!!The!
Company! manages! its! exposure! to! share! price! fluctuations,! to! the! extent! possible,! by!
actively!monitoring!its!investment!in!URI.!The!Company’s!maximum!exposure!to!share!
price! risk! with! respect! to! its! investment! in! URI! is! equal! to! the! carrying! amount! of! its!
investment.!!
!
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.&
!!!
&
RELATED&PARTY&TRANSACTIONS&
!
This! MD&A! includes! the! financial! statements! of! Azarga! Uranium! and! its! significant!
subsidiaries!listed!in!the!following!table:!&
!
Name
Azarga&Resources&(Hong&Kong)&Limited
Azarga&Resources&Limited
Azarga&Resources&Canada&Ltd.
Azarga&Resources&USA&Company
Powertech&USA,&Inc.
UrAsia
Country(of
incorporation
Hong&Kong
British&Virgin&Islands
Canada
United&States&of&America
United&States&of&America
Kyrgyz&Republic&
%(equity(interest
As(at(December(31,
2016
100%
100%
100%
100%
100%
70%
2015
100%
100%
100%
100%
100%
70%
!
!
!
30!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RELATED&PARTY&TRANSACTIONS&(Continued)&
!
The! Company! held! a! significant! influence! investment! in! Black! Range! until! the! close! of!
the!Black!Range!Merger,!at!which!point!Black!Range!was!no!longer!an!associate!of!the!
Company.!
!
For! the! years! ended! December! 31,! 2016! and! 2015,! 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!conversion!of!the!Third!Black!Range!Convertible!Loan;!
• The!disposal!of!Black!Range!shares;!
• An!impairment!charge!on!the!Company’s!investment!in!Black!Range;!and!
• The!issuance!of!common!shares!to!key!management!personnel!of!the!Company!
to! settle! trade! and! other! payables,! employee! remuneration! and! interest! on! the!
Shareholders!Loan!Agreement.!
!&
Related&party&liabilities&
!
The!liabilities!of!the!Company!include!the!following!amounts!due!to!related!parties:!
!
As(at(December(31,
2016
2015
$%%%%%%%%%%%%%%%
%%%%%%%%%%%%%%%%%%%
Loan%payable%to%shareholders
Trade%and%other%payables%for%key%management%
personnel%A%current
Trade%and%other%payables%for%key%management%
personnel%A%nonAcurrent
Total%liabilities%with%related%parties%
(i)%As%at%December%31,%2016,%of%the%$1,848,135%loan%payable%to%shareholders,%$749,243%was%payable%to%a%
director.%As%at%December%31,%2015,%of%the%$2,202,445%loan%payable%to%shareholders,%$892,883%was%payable%to%
a%director.
2,202,445
435,518
1,848,135
339,043
$%%%%%%%%%%%%%%%
%%%%%%%%%%%%%%%%%%%
3,007,963
2,497,178
%%%%%%%%%%%%%%%%%%%
%%%%%%%%%%%%%%%%%%%
$%%%%%%%%%%%%%%%
$%%%%%%%%%%%%%%%
370,000
310,000
!
!
Related&party&income&and&expenses&&
(i)
!
&
The!Company’s!related!party!income!and!expenses!consist!of!the!following!amounts:!
!
Year*ended*December*31,
2016
2015
Dilution(gain(on(investment(in(associate
Total(related(party(income
$((((((((((((((((((((((((
$((((((((((((((((((((((((
0
0
$(((((((((((((((((
$(((((((((((((((((
138,493
138,493
!
!
!
!
!
31!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RELATED&PARTY&TRANSACTIONS&(Continued)&
!
!
Interest'expense'on'loan'payable'to'shareholders
Equity'loss'pick@up'from'associate
Realized'loss'on'investment'in'Black'Range
Impairment'of'investment'in'Black'Range
Unrealized'loss'on'Third'Black'Range'Convertible'
Loan
Total'related'party'expenses
Year*ended*December*31,
2016
2015
$'''''''''''''''''
''''''''''''''''''''''''''
''''''''''''''''''''''''''
''''''''''''''''''''''''''
''''''''''''''''''''''''''
178,489
@
@
@
@
$'''''''''''''''''
'''''''''''''''''''
'''''''''''''''''''
'''''''''''''''''''
'''''''''''''''''''''
177,923
602,375
200,363
520,866
16,742
$'''''''''''''''''
178,489
$'''''''''''''''
1,518,269
!
&
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,
2016
2015
!
&
958,506
87,194
488,357
382,955
$*****************
*******************
*******************
*******************
$***************
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!29,!2017,!the!Company!had!75,094,874!
common! shares! outstanding! and! no! preferred! shares! outstanding.! ! The! Company! also!
had!incentive!share!options!outstanding!to!acquire!4,078,762!unissued!common!shares!
with! exercise! prices! ranging! from! C$0.34! to! C$2.00! per! share! and! 4,621,665! share!
purchase! warrants,! each! entitling! the! holder! to! purchase! one! common! share! at! an!
exercise!price!of!C$0.35!until!September!23,!2019.!!
!
As! at! March! 29,! 2017,! Powerlite,! a! wholly! owned! subsidiary! of! Blumont! Group! Ltd.!
(SGX:!A33)!(“Blumont”)!holds!18,053,510!common!shares!representing!approximately!
24%! of! the! issued! and! outstanding! common! shares! of! Azarga! Uranium.! In! April! 2016,!
Powerlite! entered! into! a! debt! settlement! agreement! with! Wintercrest! Advisors! LLC!
(“Wintercrest),! a! wholly! owned! subsidiary! of! Platinum! Partners! Value! Arbitrage! Fund!
L.P.,!to!transfer!Powerlite’s!18,053,510!Azarga!Uranium!common!shares!to!Wintercrest!
conditional!upon!Blumont!obtaining!various!approvals.!!
!
!
32!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
SHARE&CAPITAL&(Continued)&
!
The!Company!granted!a!total!of!1,235,000!stock!options!for!the!year!ended!December!
31,!2016!to!officers,!employees,!directors!and!other!eligible!persons!at!an!exercise!price!
of!C$0.36!with!an!expiry!date!of!May!19,!2021.!
!
The!Company!granted!a!total!of!2,315,000!stock!options!for!the!year!ended!December!
31,!2015!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.!
&
For!the!year!ended!December!31,!2016,!the!Company!issued!4,621,665!share!purchase!
warrants! as! part! of! the! Financing.! Each! Warrant! entitles! the! holder! to! purchase! one!
common!share!at!an!exercise!price!of!C$0.35!per!share!until!September!23,!2019.!&
&
&
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,! 2016! and! 2015.! 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:!!
!
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,! progress! on!
permitting,!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.!!
&
!
!
!
!
!
!
!
33!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
CRITICAL&ACCOUNTING&ESTIMATES&AND&JUDGEMENTS&(Continued)!
!
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.!
!
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!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.!!
&
!
!
!
!
!
!
!
!
!
34!
!
&
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
CRITICAL&ACCOUNTING&ESTIMATES&AND&JUDGEMENTS&(Continued)!
!
Non\current!assets!held!for!sale!!
!
Management!has!determined!that!certain!nonLcurrent!assets!meet!the!definition!of!nonL
current! assets! held! for! sale! under! IFRS! 5,! Non\current! 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.!!
&
Fair!value!of!investments!held!for!sale!
&
The!fair!value!of!the!Company’s!investments!held!for!sale!in!Western!Uranium!was!and!
in!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!and!realized!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&
!
The!Company!has!adopted!the!new!and!revised!standards!and!interpretations!issued!by!
the! IASB! or! IFRIC! listed! below! effective! January! 1,! 2016.! ! The! adoption! of! these!
standards! did! not! have! a! material! impact! on! the! Company’s! condensed! consolidated!
interim!financial!statements.!
!
!
!
!
35!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RECENT&ACCOUNTING&PRONOUNCEMENTS&(Continued)&
!
IFRS!5!NonLcurrent!Assets!Held!for!Sale!and!Discontinued!Operations!(Amendment)!
!
The! amendment! clarifies! that! the! reclassification! of! an! asset! or! disposal! group! from!
being!held!for!sale!to!being!held!for!distribution!to!owners,!or!vice!versa,!is!considered!
to!be!a!continuation!of!the!original!plan!of!disposal.!
!
IFRS!7!Financial!Instruments:!Disclosures!(Amendment)!
!
The! amendment! clarifies! 1)! circumstances! in! which! an! entity! has! continuing!
involvement!from!the!servicing!of!a!transferred!asset!and!2)!that!the!application!of!the!
amendment!Offsetting!Financial!Assets!and!Financial!Liabilities!issued!in!December!2011!
is!not!explicitly!required!for!all!interim!periods.!!!
!
IFRS!11!Acquisition!of!an!Interest!in!a!Joint!Operation!(Amendment)!
!
The! amendments! require! an! entity! to! apply! all! of! the! principles! of! IFRS! 3! Business!
Combinations! (“IFRS! 3”)! when! it! acquires! an! interest! in! a! joint! operation! that!
constitutes!a!business!as!defined!by!IFRS!3.!!!
!
IAS!1!Presentation!of!Financial!Statements!(Amendment)!
!
Amendments! include! changes! to! the! following! sections! of! IAS! 1:! materiality! with!
respect! to! aggregation! or! disaggregation,! line! items! in! primary! financial! statements,!
notes!to!the!financial!statements,!accounting!policies!and!equity!accounted!investments.!!!
!
IAS!16!Property,!Plant!and!Equipment!and!IAS!38!Intangible!Assets!(Amendment)!
!
The!amendments!clarify!that!the!use!of!revenueLbased!depreciation!methods!for!items!
of! property,! plant! and! equipment! is! prohibited! and! that! the! use! of! revenueLbased!
amortization!methods!for!intangible!assets!is!only!appropriate!in!certain!circumstances.!
!
The!effective!date!of!the!amendments!to!IFRS!10!and!International!Accounting!Standard!
28,! expected! to! become! effective! on! January! 1,! 2016,! have! now! been! postponed!
indefinitely.!
!
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,! 2016! are! disclosed! below.! The! Company! intends! to! adopt! these! standards,! if!
applicable,!when!they!become!effective.!
!
!
!
!
!
!
!
36!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RECENT&ACCOUNTING&PRONOUNCEMENTS&(Continued)&
!
!
!
!IAS!7!
!
!!!!!!!!!!!!!!!IAS!12!
!
!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!IFRS!9!
!
!!!!!!!!!!!!!!!IFRS!15!
!
!!!!!!!!!!!!!!!IFRS!16!
!
Amendments!to!IAS!7!Statement!of!Cash!Flows(i)!
!
Amendments!to!IAS!12!Recognition!of!Deferred!Tax!Assets!
for!Unrealized!Losses(i)!
!
Financial!Instruments(ii)!
!
Revenue!from!Contracts!with!Customers(ii)!
!
Leases(iii)!
i) Effective!for!annual!periods!beginning!on!or!after!January!1,!2017!
ii) Effective!for!annual!periods!beginning!on!or!after!January!1,!2018!
iii) Effective!for!annual!periods!beginning!on!or!after!January!1,!2019!
!
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.
&
&
DISCLOSURE&CONTROLS&AND&PROCEDURES&
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.!
&
&
filed! or! submitted! under! securities!
legislation!
!
!
37!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
DISCLOSURE&CONTROLS&AND&PROCEDURES&(Continued)&
!
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,!2016,!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.!
!
&
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.!
!
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,!2016.!
!
There! has! been! no! change! in! the! Company’s! internal! controls! over! financial! reporting!
that! occurred! subsequent! to! December! 31,! 2016! that! has! materially! affected,! or! is!
reasonably! likely! to! materially! affect,! the! Company’s! internal! controls! over! financial!
reporting.!
!
!
38!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
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.!!
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.!
!
!
39!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RISKS&AND&UNCERTAINTIES&(Continued)&
&
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.!!
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.!!
!
!
!
!
!
40!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RISKS&AND&UNCERTAINTIES&(Continued)&
&
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.!
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.!!
!
!
!
41!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RISKS&AND&UNCERTAINTIES&(Continued)&
&
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.!
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! Oglala! Sioux! Tribe! has! filed! petitions! for!
review! of! the! NRC! Commission! decision! to! the! United! States! Court! of! Appeals! for! the!
District!of!Columbia!Circuit,!which!could!result!in!a!substantial!delay!in!the!issuance!of!
required!federal!and!state!permits!or!a!suspension!of!existing!issued!permits.!
&
If! the! Company! is! unable! to! resolve! the! remaining! two! contentions! favorably! or! the!
Oglala!Sioux!Tribe!are!successful!in!their!appeal,!it!could!have!a!material!adverse!impact!
on! the! Company’s! financial! performance,! cash! flows! and! results! of! operations.! In!
addition,! the! Company! will! have! to! assess! whether! an! impairment! allowance! is!
necessary,!which,!if!required,!could!be!material.!
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42!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RISKS&AND&UNCERTAINTIES&(Continued)&
!
With! respect! to! the! Company’s! Dewey! Burdock! Project,! according! to! the! EPA’s! public!
notice,! the! draft! Class! III! and! Class! V! UIC! permits! will! be! made! available! for! public!
review!and!comment!until!May!19,!2017.!!The!EPA’s!final!permit!decision!will!evaluate!
all!public!comments!pertaining!to!the!draft!permits,!including!any!comments!raised!by!
the!Company.!!The!Company!is!currently!evaluating!the!draft!permit!conditions.!!If!the!
EPA! does! not! issue! the! final! Class! III! and! Class! V! UIC! permits! or! the! final! permit!
conditions! are! overly! burdensome! to! the! Company,! it! could! have! a! material! adverse!
impact!on!the!Company’s!financial!performance,!cash!flows!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,! which! created! a! specialized! regulatory! regime! for! inLsitu! uranium! recovery! in!
the! State! of! Colorado.! The! implementation! of! this! law! may! establish! standards! for! inL
situ!recovery!mining!and!restoration!that!ultimately!affect!the!financial!viability!of!the!
Centennial!Project!and!could!result!in!an!impairment!allowance.!!
!
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!the!Kyzyl!Ompul!
Project.!
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”.!
!
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!
43!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RISKS&AND&UNCERTAINTIES&(Continued)&
&
Native!American!Involvement!in!the!Permitting!Process!!
!
None!of!the!Company’s!mineral!properties!are!located!within!the!boundaries!of!Native!
American! lands! or! other! 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!Oglala!Sioux!Tribe!is!successful!in!their!appeal,!it!could!adversely!impact!the!timing!
of!final!licensing!and!permitting!being!granted!at!the!Company’s!Dewey!Burdock!Project!
and!this!could!have!a!material!adverse!impact!on!the!Company’s!financial!position,!cash!
flows!and!results!of!operations.!!In!addition,!the!Company!would!have!to!assess!whether!
an!impairment!allowance!is!necessary,!which,!if!required,!could!be!material.!!!
!
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.!
!
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!
44!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RISKS&AND&UNCERTAINTIES&(Continued)&
&
The! Company! cannot! predict! which! 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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45!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(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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!
46!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(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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47!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(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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48!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(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! Centennial! purchase!
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!the!seller,!at!the!seller’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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49!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(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.!
!
!
50!
!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(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! and!
Kyrgyz! Som.! The! appreciation/depreciation! of! the! United! States! Dollar! against! the!
Canadian! Dollar! and! Kyrgyz! Som! 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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51!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(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.!!
!
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52!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(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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53!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(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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54!
AZARGA&URANIUM&CORP.&
Management’s&Discussion&and&Analysis&
For!the!years!ended!December!31,!2016!and!2015!
(Expressed!in!U.S.!Dollars!and!shares,!unless!otherwise!indicated)!
!
RISKS&AND&UNCERTAINTIES&(Continued)&
&
Disclosure!and!Internal!Controls!
!
Disclosure!controls!and!procedures!are!designed!to!provide!reasonable!but!not!absolute!
assurance! that! information! required! to! be! disclosed! by! the! Company! in! its! annual!
filings,!interim!filings!or!other!reports!filed!or!submitted!under!securities!legislation!is!
recorded,!processed,!summarized!and!reported!within!the!time!periods!specified!in!the!
securities!legislation.!These!disclosure!controls!and!procedures!are!designed!to!ensure!
that!information!required!to!be!disclosed!by!the!Company!in!its!annual!filings,!interim!
filings! or! other! reports! filed! or! submitted! under! securities! legislation! 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! might! 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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55!
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