Azarga Uranium Corp.
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
(Expressed in U.S. Dollars)
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, 2017 and December 31, 2016, and the consolidated
statements of loss and comprehensive loss, changes in equity and cash flows for the years then ended, and a
summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about
whether the 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, 2017 and December 31, 2016 and the consolidated statements of loss
and comprehensive 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 $16,593,976. These conditions, along with other matters as set forth in
Note 1, indicate the existence of material uncertainties that may cast significant doubt upon the Company’s ability
to continue as a going concern.
(signed) “BDO CANADA LLP”
Chartered Professional Accountants
Vancouver, Canada
March 27, 2018
BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the
international BDO network of independent member firms.
TABLE OF CONTENTSCONSOLIDATED FINANCIAL STATEMENTSPageConsolidated Statements of Financial Position4Consolidated Statements of Loss and Comprehensive Loss5Consolidated Statements of Changes in Equity6Consolidated Statements of Cash Flows7NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS1.Corporate information and going concern82.Basis of preparation83.Summary of significant accounting policies104.Segmented information255.Investments held for sale266.Exploration and evaluation assets277.Loans payable 298.Decommissioning liability329.Warrant liabilities3310.Equity3311.Share option reserve3812.Administrative expenses4013.Finance costs4014.Unrealized gain (loss)4015.Realized gain (loss)4116.Related party transactions4117.Financial instruments and risk management4318.Capital risk management4719.Commitments4820.Supplemental cash flow information4821.Non-controlling interest4922.Deferred income tax5123.Subsequent events53
AZARGA URANIUM CORP.
Consolidated Statements of Financial Position
(Expressed in U.S. Dollars)
Approved by the Board:
“Joseph L. Havlin”, Director
“Richard F. Clement, Jr.”, Director
The accompanying notes are an integral part of these consolidated financial statements.
4
Notes20172016ASSETSCurrent assetsCash432,192$ 941,370$ Other assets123,160 30,681 Investments held for sale5- 68,264 Total current assets555,352 1,040,315 Non-current assetsRestricted cash39,176 42,687 Exploration and evaluation assets633,003,670 38,284,484 Property, plant and equipment97,322 105,819 Total non-current assets33,140,168 38,432,990 Total assets33,695,520$ 39,473,305$ LIABILITIES AND EQUITYCurrent liabilitiesTrade and other payables 1,525,906$ 1,066,872$ Loans payable7328,678 1,898,135 Total current liabilities1,854,584 2,965,007 Non-current liabilitiesTrade and other payables 16- 310,000 Loans payable71,776,000 40,065 Deferred income tax liabilities224,052,790 6,288,790 Decommissioning liability8142,918 129,933 Warrant liabilities9258,116 596,602 Total non-current liabilities6,229,824 7,365,390 Total liabilities8,084,408 10,330,397 EquityCommon shares1041,286,853 39,762,939 Contributed surplus10768,652 793,625 Share option reserve111,427,563 1,196,865 Foreign currency translation reserve(827,984) (842,006) Accumulated deficit(16,593,976) (13,015,295) Equity attributable to the equity holders of the Company26,061,108 27,896,128 Non-controlling interest21(449,996) 1,246,780 Total equity25,611,112 29,142,908 Total liabilities and equity33,695,520$ 39,473,305$ As at December 31,
AZARGA URANIUM CORP.
Consolidated Statements of Loss and Comprehensive Loss
(Expressed in U.S. Dollars)
The accompanying notes are an integral part of these consolidated financial statements.
5
Notes20172016Administrative expenses12(1,659,228)$ (1,554,213)$ Foreign exchange gain114,110 82,223 Impairment of exploration and evaluation assets6(6,346,899) - Loss from operations(7,892,017) (1,471,990) Finance costs13(216,478) (191,080) Unrealized gain (loss)14595,801 (1,204,160) Realized gain (loss)15(3,938) 20,285 Loss before income tax(7,516,632) (2,846,945) Deferred income tax recovery (expense)222,236,000 (266,000) Net loss(5,280,632) (3,112,945) Other comprehensive income (loss)Item that may be reclassified subsequently as profit or lossForeign currency translation adjustment 19,197 280,876 Total comprehensive loss(5,261,435)$ (2,832,069)$ Net income (loss) attributable to:Equity holders of the Company(3,578,681) (3,118,216) Non-controlling interest(1,701,951) 5,271 Net loss(5,280,632)$ (3,112,945)$ Other comprehensive income attributable to:Equity holders of the Company14,022 207,995 Non-controlling interest5,175 72,881 Other comprehensive income19,197$ 280,876$ Basic and diluted loss per share(0.07)$ (0.05)$ Weighted average number of common shares outstanding77,506,606 65,360,184 Year ended December 31,
AZARGA URANIUM CORP.
Consolidated Statements of Changes in Equity
(Expressed in U.S. Dollars and shares)
The accompanying notes are an integral part of these consolidated financial statements.
6
Foreign currencyNumber ofCommonContributedtranslationAccumulatedNon-controllingsharessharessurplusreservedeficitTotal equityinterestTotal equityBalances, December 31, 201674,766,046 39,762,939$ 793,625$ 1,196,865$ (842,006)$ (13,015,295)$ 27,896,128$ 1,246,780$ 29,142,908$ Issuance of shares for private placements6,626,938 1,089,008 - - - - 1,089,008 - 1,089,008 Issuance of shares to settle ESPP1,100,918 234,652 (234,652) - - - - - - Issuance of shares to settle DSA288,448 61,060 (61,060) - - - - - - Issuance of shares to settle employee remuneration750,000 123,466 (123,466) - - - - - - Issuance of shares for services87,500 15,728 - - - - 15,728 - 15,728 Share-based compensation- - - 230,698 - - 230,698 - 230,698 Compensation settled by equity- - 394,205 - - - 394,205 - 394,205 Net loss for the year- - - - - (3,578,681) (3,578,681) (1,701,951) (5,280,632) Other comprehensive income for the year- - - - 14,022 - 14,022 5,175 19,197 Balances, December 31, 201783,619,850 41,286,853$ 768,652$ 1,427,563$ (827,984)$ (16,593,976)$ 26,061,108$ (449,996)$ 25,611,112$ Foreign currencyNumber ofCommonContributedtranslationAccumulatedNon-controllingsharessharessurplusreservedeficitTotal equityinterestTotal equity Balances, December 31, 201560,332,314 37,256,196$ 766,630$ 1,021,099$ (1,050,001)$ (9,897,079)$ 28,096,845$ 1,168,628$ 29,265,473$ Issuance of shares for private placements9,243,336 1,303,553 - - - - 1,303,553 - 1,303,553 Issuance of shares to settle trade and other payables1,130,664 280,401 - - - - 280,401 - 280,401 Issuance of shares to settle ESPP1,465,950 343,718 (343,718) - - - - - - Issuance of shares to settle DSA640,656 158,464 (158,464) - - - - - - Issuance of shares to settle employee remuneration812,500 169,933 (169,933) - - - - - - Issuance of shares to settle interest1,140,626 250,674 282,126 - - - 532,800 - 532,800 Share-based compensation- - - 175,766 - - 175,766 - 175,766 Compensation settled by equity- - 416,984 - - - 416,984 - 416,984 Net income (loss) for the year- - - - - (3,118,216) (3,118,216) 5,271 (3,112,945) Other comprehensive income for the year- - - - 207,995 - 207,995 72,881 280,876 Balances, December 31, 201674,766,046 39,762,939$ 793,625$ 1,196,865$ (842,006)$ (13,015,295)$ 27,896,128$ 1,246,780$ 29,142,908$ Attributable to equity holders of the CompanyShare option reserveAttributable to equity holders of the CompanyShare option reserve
AZARGA URANIUM CORP.
Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)
The accompanying notes are an integral part of these consolidated financial statements.
7
Azarga Uranium Corp. Consolidated Statements of Cash FlowsNotes20172016OPERATING ACTIVITIESNet loss(5,280,632)$ (3,112,945)$ Adjustments for:Depreciation2,123 6,015 Share-based compensation11198,706 147,909 Impairment of exploration and evaluation assets66,346,899 - Deferred income tax (recovery) expense22(2,236,000) 266,000 Equity compensation expense10409,933 - Finance costs13216,478 191,080 Unrealized (gain) loss14(595,801) 1,204,160 Realized (gain) loss153,938 (20,285) Unrealized foreign exchange gain(33,500) (17,883) Operating cash flows before changes in non-cash working capital items(967,856) (1,335,949) Change in other assets(92,479) (147,002) Change in trade and other payables242,166 (456,392) Change in other liabilities- (8,836) Net cash used in operating activities(818,169) (1,948,179) INVESTING ACTIVITIESSale of investments571,106 1,096,659 Sale of exploration and evaluation assets6- 604,092 Expenditures on exploration and evaluation assets6(1,163,207) (650,311) Option payments received for exploration and evaluation assets6150,000 - Sale (purchase)of property, plant and equipment(1,350) 11,130 Net cash generated by (used in) investing activities(943,451) 1,061,570 FINANCING ACTIVITIESProceeds from issuance of common shares 101,353,937 1,701,930 Share issue costs10(55,006) (51,408) Payment of other loans payable7(50,000) (60,000) Net cash generated by financing activities1,248,931 1,590,522 Effect of foreign exchange rate changes on cash3,511 (1,870) Increase (decrease) in cash(509,178) 702,043 Cash, beginning of year941,370 239,327 Cash, end of year432,192$ 941,370$ Year ended December 31,
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
1.
CORPORATE INFORMATION AND GOING CONCERN
Azarga Uranium Corp. (“Azarga Uranium”) was incorporated on February 10, 1984 in
British Columbia, Canada. Azarga Uranium’s common shares are publicly traded on the
Toronto Stock Exchange (“TSX”) (Symbol: AZZ) and the Frankfurt Stock Exchange (Symbol:
P8AA). Azarga Uranium, together with its subsidiaries (collectively referred to as the
“Company”), is an integrated uranium exploration and development company.
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.
The address of the Company’s corporate office and registered and records office is Unit 1 –
15782 Marine Drive, White Rock, BC, V4B 1E6.
These consolidated financial statements have been prepared on a going concern basis,
which contemplates that the Company will continue operations for the foreseeable future
and will be able to realize its assets and discharge its liabilities in the normal course of
business as they fall due. To date, the Company has not generated revenues from operations
and is currently in the exploration and development stage. As at December 31, 2017, the
Company had a working capital deficit of $1,299,232 and an accumulated deficit of
$16,593,976 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.
2.
BASIS OF PREPARATION
2.1
Statement of compliance
These 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”).
These consolidated financial statements for the year ended December 31, 2017 were
approved and authorized for issue by the Company’s Board of Directors on March 22, 2018.
8
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
2.
BASIS OF PREPARATION (Continued)
2.2
Basis of presentation
These consolidated financial statements have been prepared on a historical cost basis
except for certain financial assets and financial liabilities, which are measured at fair value.
The Company’s financial instruments are further disclosed in Note 17 of these consolidated
financial statements.
2.3
Adoption of new and revised standards and interpretations
The Company has adopted all new and revised standards and interpretations issued by the
IASB or IFRIC effective January 1, 2017. The adoption of these standards did not have a
material impact on the Company’s consolidated financial statements.
2.4
Standards issued but not yet effective
The standards and interpretations that are issued up to the date of issuance of the
Company’s consolidated financial statements, but were not effective for the year ended
December 31, 2017, are disclosed below. The Company intends to adopt these standards, if
applicable, when they become effective.
IFRS 9 – Financial Instruments (Effective January 1, 2018)
IFRS 9 will replace IAS 39 – Financial Instruments: Recognition and Measurement. IFRS 9
provides a revised model for recognition and measurement of financial instruments and a
single, forward-looking ‘expected loss’ impairment model. IFRS 9 also includes a revised
approach to hedge accounting.
Under IFRS 9, the Company will have the option to designate equity securities as financial
assets at fair value through other comprehensive income, where they will be recorded
initially at fair value with changes in fair value recognized in other comprehensive income,
which will not be subsequently transferred into profit or loss. The Company does not
expect IFRS 9 to have a significant impact on the Company’s financial statements.
IFRS 15 – Revenue from Contracts with Customers (Effective January 1, 2018)
IFRS 15 establishes a single five-step model framework for determining the nature, amount,
timing and uncertainty of revenue and cash flows arising from a contract with a customer.
IFRS 15 supercedes: IAS 11 – Construction Contracts; IAS 18 – Revenue; IFRIC 13 –
Customer Loyalty Programmes; IFRIC 15 – Agreements for the Construction of Real Estate;
IFRIC 18 – Transfers of Assets from Customers; and SIC 31 – Revenue – Barter Transactions
involving Advertising Services.
9
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
2.
BASIS OF PREPARATION (Continued)
2.4
Standards issued but not yet effective (Continued)
The introduction of IFRS 15 is not expected to have a significant impact on the Company’s
financial statements.
IFRS 16 – Leases (Effective January 1, 2019)
IFRS 16 applies a control model to the identification of leases, distinguishing between a
lease and a service contract on the basis of whether the customer controls the asset being
leased. For those assets determined to meet the definition of a lease, IFRS 16 introduces
significant changes to the accounting for the lessee, introducing a single, on-balance sheet
accounting model that is similar to finance lease accounting, with limited exceptions for
short-term leases or leases of low value assets. Lessor accounting remains similar to the
current accounting practice.
The introduction of IFRS 16 is not expected to have a significant impact on the Company’s
financial statements, as the leases currently held by the Company are either leases to
explore for uranium resources, which are exempt from IFRS 16, or relate to office leases
which are not material.
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3.1
Basis of consolidation
The consolidated financial statements include the financial statements of Azarga Uranium
and its controlled subsidiaries.
Name of subsidiary
Powertech USA, Inc.
Azarga Resources Limited
UrAsia in Kyrgyzstan LLC
Azarga Resources (Hong
Kong) Limited
Azarga Resources Canada
Ltd.
Azarga Resources USA
Company
Place of
incorporation
United States
of America
BVI
Kyrgyz
Republic
Ownership
interest
at December
31, 2017
100%
100%
70%
Principal activity
Operating uranium
exploration company
Holding company
Operating uranium
exploration company
Hong Kong
100%
Holding company
Canada
100%
Holding company
United States
of America
100%
Holding company
10
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company controls an entity when the Company is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect those returns
through its power over the entity.
The results of subsidiaries acquired or disposed of during the year are included in the
consolidated statements of profit or loss and other comprehensive income or loss from the
effective date of acquisition or up to the effective date of disposal, as appropriate. All
intercompany transactions, balances, income and expenses are eliminated in full on
consolidation.
3.2
Associates
Associates are all entities over which the Company has significant influence but not control,
generally accompanying a shareholding of between 20% and 50% of the voting rights.
Investments in associates are accounted for using the equity method of accounting. Under
the equity method, the investment is initially recognized at cost, and the carrying amount is
increased or decreased to recognize the investor’s share of the profit or loss of the investee
after the date of acquisition. The carrying amount is further decreased by the investor’s
share of the payment of dividends by the investee after the date of acquisition. When the
Company’s share of losses in an associate equals or exceeds its interest in the associate,
including any other unsecured receivables, the Company does not recognize further losses,
unless it has incurred legal or constructive obligations or made payments on behalf of the
associate. The Company’s investment in associates includes goodwill recognized on
acquisition.
The Company determines at each reporting date whether there is any objective evidence
that the investment in the associate is impaired. If this is the case, the Company calculates
the amount of impairment as the difference between the recoverable amount of the
associate and its carrying value and recognizes the amount in the statements of profit or
loss and other comprehensive income or loss.
Profits and losses resulting from upstream and downstream transactions between the
Company and its associate are recognized in the Company’s consolidated financial
statements only to the extent of unrelated investor’s interests in the associates. Unrealized
losses are eliminated unless the transaction provides evidence of an impairment of the asset
transferred. Accounting policies of associates have been changed where necessary to ensure
consistency with the policies adopted by the Company.
Dilution gains and losses arising in investments in associates are recognized in profit or
loss.
11
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
A step acquisition of an associate acquired in stages is accounted under the ‘fair value as
deemed cost’ method. The cost of an associate acquired in stages is measured as the sum of
the fair value of the interest previously held plus the fair value of any additional
consideration transferred as of the date when the investment became an associate. Any
acquisition related costs are expensed in the periods in which the costs are incurred.
3.3
Functional and presentation currency
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 LLC, whose functional
currency is the Kyrgyz Som.
These consolidated financial statements are presented in United States Dollars.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the
exchange rates prevailing at the dates of the transactions. Foreign currency monetary items
are translated at the period-end exchange rate. Non-monetary items measured at historical
cost continue to be carried at the exchange rate at the date of the transaction. Non-
monetary items measured at fair value are reported at the exchange rate at the date when
fair values were determined.
Exchange differences arising on the translation of monetary items or on settlement of
monetary items are recognized in profit or loss in the consolidated statements of profit or
loss and other comprehensive income or loss in the period in which they arise.
Exchange differences arising on the translation of non-monetary items are recognized in
other comprehensive income or loss in the consolidated statements of profit or loss and
other comprehensive income or loss to the extent that gains and losses arising on those
non-monetary items are also recognized in other comprehensive income or loss. Where the
non-monetary gain or loss is recognized in profit or loss, the exchange component is also
recognized in profit or loss.
12
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Parent and subsidiary companies
The financial position and results of operations whose functional currency is different from
the presentation currency are translated as follows:
• Assets and liabilities are translated at period-end exchange rates prevailing at that
reporting date; and
•
Income and expenses are translated at the average exchange rates for the period.
Exchange differences are transferred directly to other comprehensive income or loss and
are included in a separate component of shareholders’ equity titled foreign currency
translation reserve. These differences are recognized in profit or loss in the period in which
the subsidiary is disposed of.
3.4
Restricted cash
In the USA, restricted cash consists of deposits held for collateral pursuant to bonds
provided to state authorities in connection with exploration and evaluation property
activities. In the Kyrgyz Republic, restricted cash consists of deposits made pursuant to the
requirements of the Company’s exploration license agreements. The Company makes such
cash deposits for restoration provisions related to rehabilitation obligations.
3.5
Property, plant and equipment
Property, plant and equipment (“PPE”) includes the Company’s machinery and equipment,
office equipment, furniture and fixtures, vehicles and buildings. PPE is stated at cost less
accumulated depreciation and accumulated impairment losses.
Initial recognition
The cost of an item of PPE consists of the purchase price or construction cost, including
vendor prepayments, any costs directly attributable to bringing the asset to the location and
condition necessary for its intended use, borrowing costs during construction, if applicable,
and the estimated costs associated with dismantling and removing the assets.
Depreciation
Depreciation is recorded based on the cost of an item of PPE, less its estimated residual
value, using the straight-line method over the following estimated useful lives:
• Machinery and equipment
• Vehicles
5 to 10 years
3 years
13
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.5
Property, plant and equipment (Continued)
• Office equipment
• Furniture and fixtures
• Building
3 to 5 years
4 to 5 years
10 to 40 years
When major components of an item of PPE have different useful lives, they are accounted
for as separate items of PPE and depreciated as per each component’s useful life.
The cost of replacing a component of PPE is recognized as part of the carrying value of the
item if it is probable that the future economic benefit will flow to the Company and its cost
can be measured. The carrying amount of the replaced component is derecognized.
An item of PPE is derecognized upon disposal, when held for sale or when no future
economic benefits are expected to arise from the continued use of the asset. Any gain or
loss arising on disposal of the asset, determined as the difference between the net disposal
proceeds and the carrying amount of the asset, is recognized in profit or loss.
The Company conducts an annual assessment of the residual balances, estimated useful
lives and depreciation methods being used for PPE and any changes arising from the
assessment are applied by the Company prospectively.
3.6
Exploration and evaluation assets
Pre-exploration costs are expensed in the period in which they occur.
Exploration and evaluation expenditures are recognized as assets in the period in which
they are incurred once the legal right to explore a property has been acquired. This includes
any acquisition costs associated with such property. These direct expenditures include such
costs as drilling/engineering, salaries and consulting, rehabilitation costs and license fees,
inclusive of land payments and claims maintenance. Costs not directly attributable to
exploration and evaluation activities, including general and administrative overhead costs,
are expensed in the period in which they occur. Payments received by the Company from
partners are credited to the capitalized cost of the exploration and evaluation asset. If the
payments received exceed the capitalized cost of the exploration and evaluation asset, the
excess is recognized as a gain.
The Company assesses exploration and evaluation assets for impairment when facts and
circumstances suggest that the carrying amount of the asset may exceed its recoverable
amount. Any such impairment charges will be written off to profit or loss.
14
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.6
Exploration and evaluation assets (continued)
Once the technical feasibility and commercial viability of extracting the resource has been
determined and management plans to develop the property, the property will be
considered a mine under development and will be classified as “mines under construction.”
Exploration and evaluation expenditures are classified as intangible assets.
3.7
Rehabilitation provisions
The Company recognizes provisions for statutory, contractual, constructive or legal
obligations, including those associated with the reclamation of environmental disturbances
caused by exploration and evaluation activities. The nature of the rehabilitation activities
includes restoration, reclamation and re-vegetation of the affected exploration sites.
Initially, a provision for a decommissioning liability is recognized as its present value in the
period in which it is incurred. Upon initial recognition of the liability, a corresponding
amount is added to the carrying amount of the related asset and the cost is amortized as an
expense over the economic life of the asset using either the unit-of-production method or
the straight-line method, as appropriate. Following the initial recognition of the
decommissioning liability, the carrying amount of the liability is increased for the passage of
time and adjusted for changes to the current market based discount rate and the amount or
timing of the underlying cash flows needed to settle the obligation.
3.8
Taxation
Income tax expense represents the sum of current and deferred income tax.
Current income tax
Current income tax assets and liabilities for the current and prior periods are measured at
the amount expected to be recovered from or paid to taxation authorities. The tax rates and
tax laws used to compute current income taxes for each jurisdiction in which the Company
operates, are those that are substantively enacted at the end of each reporting period. The
Company incurred no current income taxes for the years ended December 31, 2017 and
2016.
Deferred income tax
Deferred income tax is provided for using the liability method on temporary differences, at
the end of each reporting period, between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognized for all taxable temporary differences, except:
15
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.8
Taxation (Continued)
Deferred income tax (Continued)
• Where the deferred income tax liability arises from the initial recognition of goodwill or
of an asset or liability in a transaction that is not a business combination and, at the time
of the transaction, affects neither the accounting profit nor taxable profit or loss; and
In respect of taxable temporary differences associated with investments in subsidiaries,
associates and joint ventures, where the timing of the reversal of the temporary
differences can be controlled by the parent, investor or venturer and it is probable that
the temporary differences will not reverse in the foreseeable future.
•
Deferred income tax assets are recognized for all deductible temporary differences, carry
forward of unused tax credits and unused tax losses, to the extent that it is probable that
taxable profit will be available against which the deductible temporary differences and the
carry forward of unused tax credits and unused tax losses can be utilized except:
• Where the deferred income tax asset relating to the deductible temporary difference
arises from the initial recognition of an asset or liability in a transaction that is not a
business combination and, at the time of the transaction, affects neither the accounting
profit nor taxable profit or loss; and
In respect of deductible temporary differences associated with investments in
subsidiaries, associates and joint ventures, deferred income tax assets are recognized
only to the extent that it is probable that the temporary differences will reverse in the
foreseeable future and taxable profit will be available against which the temporary
differences can be utilized.
•
The carrying amount of deferred income tax assets is reviewed at the end of each reporting
period and reduced to the extent that it is no longer probable that sufficient taxable profit
will be available to allow all or part of the deferred income tax asset to be utilized.
Unrecognized deferred income tax assets are reassessed at the end of each reporting period
and are recognized to the extent that it has become probable that future taxable profit will
allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are
measured at the tax rates that are expected to apply to the year when the asset is realized or
the liability is settled, based on tax rates and tax laws that have been substantively enacted
at the end of each reporting period.
In consolidated financial statements, temporary differences are determined by comparing
the carrying amounts of assets and liabilities in the consolidated financial statements with
the appropriate tax base. The tax base is determined by reference to the tax returns of each
entity in the group.
16
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.8
Taxation (Continued)
Deferred income tax (Continued)
Deferred income tax relating to items recognized directly in equity or other comprehensive
income or loss are recognized in equity and not in profit or loss or other comprehensive
income or loss.
Deferred income tax assets and deferred income tax liabilities are offset if, and only if, a
legally enforceable right exists to set off current tax assets against current tax liabilities and
the deferred tax assets and liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable entities which intend to
either settle current tax liabilities and assets on a net basis, or to realize the assets and
settle the liabilities simultaneously, in each future period in which significant amounts of
deferred tax assets or liabilities are expected to be settled or recovered.
3.9
Financial instruments
Financial assets
All financial assets are initially recorded at fair value and designated upon inception into
one of the following four categories: held-to-maturity, available-for-sale, loans-and-
receivables or fair value through profit or loss.
Financial assets classified as fair value through profit or loss (“FVTPL”) are measured at fair
value with unrealized gains and losses recognized through profit or loss.
Financial assets classified as loans-and-receivables and held-to-maturity are measured at
amortized cost using the effective interest method less any allowance for impairment. The
effective interest rate is the rate that exactly discounts estimated future cash receipts,
including all fees paid or received that form an integral part of the effective interest rate,
transaction costs and other premiums or discounts, through the expected life of the
financial asset, or, where appropriate, a shorter period.
Financial assets classified as available-for-sale are measured at fair value with unrealized
gains and losses recognized in other comprehensive income or loss except when there is
objective evidence that the financial asset is impaired. Impairment losses on available-for-
sale financial assets are recognized in profit or loss.
Transaction costs associated with FVTPL financial assets are expensed as incurred, while
transaction costs associated with all other financial assets are included in the initial
carrying amount of the asset.
17
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.9
Financial instruments (Continued)
Financial assets (Continued)
Derivative instruments, including embedded derivatives, are carried at fair value with any
changes in the fair values of derivative instruments being recognized in profit or loss with
the exception of derivatives designated as effective cash flow hedges. The Company has no
such designated hedges.
Financial liabilities
All financial liabilities are initially recorded at fair value and designated upon inception as
FVTPL or other financial liabilities.
Financial liabilities classified as other financial liabilities are initially recognized at fair value
less directly attributable transaction costs. After initial recognition, other financial liabilities
are subsequently measured at amortized cost using the effective interest method. The
effective interest rate is the rate that exactly discounts estimated future cash payments
through the expected life of the financial liability, or, where appropriate, a shorter period.
Financial liabilities classified as FVTPL include financial liabilities designated upon initial
recognition as FVTPL. Transaction costs on financial liabilities classified as FVTPL are
expensed as incurred. At the end of each reporting period, financial liabilities classified as
FVTPL are measured at fair value, with changes in fair value recognized directly in profit or
loss in the period in which they arise. The net gain or loss recognized in profit or loss
excludes any interest paid on the financial liabilities.
Derivative instruments, including embedded derivatives, are carried at fair value with any
changes in the fair values of derivative instruments being recognized in profit or loss with
the exception of derivatives designated as effective cash flow hedges. The Company has no
such designated hedges.
3.10 Derivative financial instruments
The Company may issue or hold compound financial instruments with embedded
derivatives. An embedded derivative is separated from its host contract and accounted for
as a derivative only when three criteria are satisfied:
• When the economic risks and characteristics of the embedded derivative are not closely
related to those of the host contract;
• A separate instrument with the same terms as the embedded derivative would meet the
definition of a derivative; and
18
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.9
Financial instruments (Continued)
Derivative financial instruments (continued)
• The entire instrument is not measured at fair value with changes in fair value
recognized in the consolidated statements of profit or loss and other comprehensive
income or loss.
Financial assets
The Company designates financial assets with embedded derivatives as FVTPL on the initial
recognition and accordingly does not bifurcate between the host contract and the
embedded derivative. The embedded derivative is measured at each reporting period using
an appropriate valuation model with changes in the fair value being recognized
immediately in profit or loss.
Financial liabilities
The Company designates certain financial liabilities with embedded derivatives as FVTPL
on the initial recognition and accordingly does not bifurcate between the host contract and
the embedded derivative. However, other financial liabilities with embedded derivatives
are bifurcated depending on the instrument. In the case of the latter, the debt host
component is classified as other financial liabilities and is measured at amortized cost using
the effective interest rate method. The embedded derivatives are classified as FVTPL and
all changes in fair value are recorded in profit or loss. The difference between the debt host
component and the principal amount of the loan outstanding is recorded as profit or loss
over the expected life of the financial liabilities.
3.11
Impairment of financial assets
Assets carried at amortized cost
The Company assesses at the end of each reporting period whether a financial asset is
impaired.
If there is objective evidence that an impairment loss on assets carried at amortized cost has
been incurred, the amount of the loss is measured as the difference between the asset’s
carrying amount and the present value of estimated future cash flows discounted at the
financial asset’s original effective interest rate. The carrying amount of the asset is then
reduced by the amount of the impairment. The amount of the loss is recognized in profit or
loss.
19
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.11
Impairment of financial assets (continued)
Assets carried at amortized cost (continued)
If, in a subsequent period, the amount of the impairment loss decreases and the decrease
can be related objectively to an event occurring after the impairment was recognized, the
previously recognized impairment loss is reversed to the extent that the carrying value of
the asset does not exceed what the amortized cost would have been had the impairment not
been recognized. Any subsequent reversal of an impairment loss is recognized in profit or
loss.
3.12
Impairment of non-financial assets
At the end of each reporting period, the Company reviews the carrying amounts of its
tangible and intangible assets to determine whether there is an indication that those assets
have suffered an impairment loss. If any such indication exists, the recoverable amount of
the asset is estimated in order to determine the extent of the impairment loss, if any. Where
it is not possible to estimate the recoverable amount of an individual asset, the Company
estimates the recoverable amount of the cash-generating unit to which the assets belong.
The recoverable amount is the higher of fair value less costs to sell and value in use. In
assessing fair value less costs to sell, recent market transactions are taken into account. The
Company also considers the results of an appropriate valuation model, which would
generally be determined based on the present value of estimated future cash flows arising
from the continued use and eventual disposal of the asset. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects the current market and the risks specific to the asset.
If the recoverable amount of an asset or cash-generating unit is estimated to be less than its
carrying amount, the carrying amount is reduced to its recoverable amount. The
impairment loss is recognized in profit or loss.
Where an impairment loss subsequently reverses, the carrying amount is increased to the
revised estimate of its recoverable amount, but not above the original carrying amount.
20
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.13 Derecognition of financial assets and financial liabilities
Financial assets are derecognized when the rights to receive cash flows from the assets
expire or the Company has transferred substantially all the risks and rewards of ownership.
On derecognition, the difference between the asset’s carrying amount and the sum of the
consideration received and receivable and the cumulative gain or loss that had been
recognized directly in equity is recognized in profit or loss.
Financial liabilities are derecognized when the obligation specified in the underlying
contract is discharged, cancelled or expired. The difference between the carrying amount of
the financial liability derecognized and the consideration paid and payable is recognized in
profit or loss, unless the financial liability is settled with the Company’s shares, in which
case it is recognized in profit or loss or equity.
3.14
Share-based payment transactions
Equity-settled transactions
For equity-settled plans, the grant date fair value of share-based compensation awards
granted to employees, inclusive of directors of the Company (the “Employees”), is
recognized as an expense or is capitalized as appropriate, with a corresponding increase in
equity, over the period that the Employees unconditionally become entitled to the awards.
The amount recognized as an expense is adjusted to reflect the number of awards for which
the related service and vesting conditions, if any, are expected to be met, such that the
amount ultimately recognized as an expense is based on the number of awards that meet
the related service and non-market performance conditions at the vesting date.
Certain Employees of the Company receive a portion of their remuneration in the form of
share-based payments.
Cash-settled transactions
For cash-settled plans, the fair value of the amount payable to Employees is recognized as
an expense, with a corresponding increase in liabilities, over the period that the Employees
unconditionally become entitled to payment. The liability is re-measured at each reporting
date and at settlement date. Any changes in the fair value of the liability are recognized as
an expense.
21
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.14
Share-based payment transactions (continued)
Choice of settlement
If the Company has a choice of whether to settle a share-based payment in cash or by
issuing equity, the Company will record this as an equity-settled transaction, unless there is
a present obligation to settle in cash, whereby the Company will record this as cash-settled
transaction.
3.15 Common shares
Common shares are classified as equity. Costs directly attributable to the issuance of
common shares are shown in equity as a reduction, net of tax, of the proceeds.
3.16
Share purchase warrants
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. As a result,
the fair value of the share purchase warrants are calculated on the issuance date using the
Black-Scholes Option Pricing model. Any foreign exchange or change in the fair value of the
warrant subsequent to the initial recognition is recorded in profit or loss.
3.17 Loss per share
Basic loss per share is calculated by dividing the net loss attributable to equity holders of
the Company by the weighted average number of shares outstanding during the reporting
period.
Diluted loss per share is calculated by adjusting the net loss attributable to equity holders of
the Company and the weighted average number of shares outstanding for the effects of all
dilutive share equivalents. The Company’s dilutive share equivalents include stock options,
share purchase warrants and convertible securities.
In the Company’s case, diluted loss per share is the same as basic loss per share, as the effect
of outstanding share options on loss per share would be anti-dilutive.
22
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.18 Related party transactions
Parties are considered related if one party has the ability, directly or indirectly, to control
the other party or exercise significant influence over the other party in making financial and
operating decisions. Parties are also considered related if they are subject to common
control. Related parties may be individuals or corporate entities. A transaction is
considered to be a related party transaction when there is a transfer of resources or
obligations between related parties.
3.19
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting
provided to the chief operating decision-maker. The chief operating decision-maker, who is
responsible for allocating resources and assessing performance of the operating segments,
has been identified as the executive management that makes strategic decisions.
3.20
Significant accounting judgments and estimates
Information about judgments and estimates in applying accounting policies that have the
most significant effect on the amounts recognized in the 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 (Note 1).
23
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.20
Significant accounting judgments and estimates (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 non-financial 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
non-financial 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.
During the year ended December 31, 2017, the Company recorded an impairment loss of
$6,346,899 on its Kyzul Ompul project in Kyrgyzstan (Note 6).
Capitalization of exploration and evaluation costs
Management has determined that exploration and evaluation costs incurred during the year
will have future economic benefits and are economically recoverable. In making this
judgment, management has assessed various sources of information including, but not
limited to, the geologic and metallurgic information, history of conversion of mineral
deposits to proven and probable mineral reserves, scoping studies, preliminary economic
assessments, proximity of operating facilities, operating management expertise and existing
permits.
3.21 Comparative figures
Certain comparative figures have been reclassified to conform to the financial statement
presentation adopted for the current year.
24
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
4.
SEGMENTED INFORMATION
The Company has two reportable business segments: the United States Uranium Division
and the Kyrgyzstan Uranium Division. The Company’s chief operating decision maker
reviews both business segments’ discrete financial information in order to make decisions
about resources to be allocated to each segment and to assess its performance.
The carrying amount of the Company’s assets, liabilities and exploration and evaluation
assets and the Company’s loss before income tax and impairment of exploration and
evaluation assets analyzed by operating segment are as follows:
25
Kyrgyzstan Uranium DivisionUnited States Uranium DivisionUnallocated (i)Consolidated TotalSegment assetsAs at December 31, 20174,141,856$ 29,288,567$ 265,097$ 33,695,520$ As at December 31, 201610,402,932$ 28,120,831$ 949,542$ 39,473,305$ Segment liabilitiesAs at December 31, 20171,036,156$ 3,677,443$ 3,370,809$ 8,084,408$ As at December 31, 20162,093,651$ 4,946,039$ 3,290,707$ 10,330,397$ Exploration and evaluation assets (Note 6)As at December 31, 20174,069,145$ 28,934,525$ -$ 33,003,670$ As at December 31, 201610,363,942$ 27,920,542$ -$ 38,284,484$ Loss before income taxYear ended December 31, 2017(6,416,438)$ (271,561)$ (828,633)$ (7,516,632)$ Year ended December 31, 2016(174,777)$ (193,604)$ (2,478,564)$ (2,846,945)$ Impairment of exploration and evaluation assets (Note 6)Year ended December 31, 2017(6,346,899)$ -$ -$ (6,346,899)$ Year ended December 31, 2016-$ -$ -$ -$ (i) The unallocated amount contains all amounts associated with the corporate division.
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
5.
INVESTMENTS HELD FOR SALE
5.1
Investment in Uranium Resources, Inc.
As at December 31, 2017, the Company no longer held an ownership interest in Uranium
Resources, Inc. (“URI”). The Company accounted for its investment in URI as FVTPL and fair
value changes were recorded through profit or loss.
During the year ended December 31, 2017, the Company sold its remaining 49,828 URI
shares for proceeds of $71,106 and recognized a realized loss of $22,570. In addition, the
Company also recorded an unrealized gain on revaluation of its investment in URI of
$25,412. During the year ended December 31, 2016, the Company sold 131,694 URI shares
for proceeds of $347,151 and recognized a realized loss of $72,050. In addition, the
Company also recorded an unrealized loss on revaluation of its investment in URI of
$645,230.
5.2
Investment in Western Uranium Corporation
As at December 31, 2016, the Company no longer held an ownership interest in Western
Uranium Corporation (“Western Uranium”). The Company accounted for its investment in
Western Uranium as FVTPL and fair value changes were recorded through profit or loss.
26
20172016Balance, beginning of year68,264$ 1,132,695$ Disposition of shares(93,676) (419,201) Unrealized gain (loss) on revaluation of investment25,412 (645,230) Balance, end of year-$ 68,264$ Year ended December 31,20172016Balance, beginning of year-$ 1,195,960$ Disposition of shares- (897,649) Unrealized loss on revaluation of investment- (298,311) Balance, end of year-$ -$ Year ended December 31,
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
5.
INVESTMENTS HELD FOR SALE (continued)
5.2
Investment in Western Uranium Corporation
During the year ended December 31, 2016, the Company sold 645,399 Western Uranium
shares for proceeds of $749,508 and recognized a realized loss of $148,141. In addition, the
Company also recorded an unrealized loss on revaluation of its investment in Western
Uranium of $298,311.
6.
EXPLORATION AND EVALUATION ASSETS
The Company's exploration and evaluation assets consist of the following amounts:
27
South DakotaKyrgyzstanColoradoWyomingDewey BurdockKyzyl OmpulCentennialOtherTotalBalance, December 31, 201625,073,304$ 10,363,942$ 2,288,492$ 558,746$ 38,284,484$ Salaries and consulting 558,701 56,153 21,172 21,000 657,026 License fees263,038 50,735 6,724 110,187 430,684 Decommissioning liability- - 12,985 - 12,985 Share-based compensation14,492 11,816 2,842 2,842 31,992 Rehabilitation costs- 2,269 - - 2,269 Depreciation- 7,901 - - 7,901 Option payments received- (150,000) - - (150,000) Impairment- (6,346,899) - - (6,346,899) Currency translation effect- 73,228 - - 73,228 Balance, December 31, 201725,909,535$ 4,069,145$ 2,332,215$ 692,775$ 33,003,670$ South DakotaKyrgyzstanColoradoWyomingDewey BurdockKyzyl OmpulCentennialOtherTotalBalance, December 31, 201524,649,275$ 9,908,668$ 2,189,362$ 426,870$ 37,174,175$ Salaries and consulting 188,625 109,670 55,246 - 353,541 License fees213,576 43,146 32,049 131,876 420,647 Decommissioning liability- - 11,835 - 11,835 Share-based compensation21,828 6,029 - - 27,857 Depreciation- 5,997 - - 5,997 Currency translation effect- 290,432 - - 290,432 Balance, December 31, 201625,073,304$ 10,363,942$ 2,288,492$ 558,746$ 38,284,484$
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
6.
EXPLORATION AND EVALUATION ASSETS (continued)
6.1
Dewey Burdock Project, South Dakota
The Dewey Burdock Uranium Project is an in-situ recovery uranium project located in the
Edgemont uranium district in South Dakota. The Dewey Burdock Uranium Project is the
Company’s initial development priority.
6.2
Dewey Terrace Project, South Dakota
The Dewey Terrace Uranium Project is located in the Weston and Niobrara Counties of
Wyoming, adjacent to the Dewey Burdock Project.
6.3
Kyzyl Ompul Project, Kyrgyz Republic
The Kyzyl Ompul Project is 100% owned and operated by UrAsia in Kyrgyzstan LLC
(“UrAsia”), in which the Company owns a 70% interest and consists of one exploration
license. The license is valid until December 31, 2020 and permits exploration for uranium.
On July 31, 2017, UrAsia executed an earn-in agreement (the “Earn-In Agreement”) with
Mining Investment Company Alliance (“Alliance”). The Earn-In Agreement provides Alliance
with an earn-in option to acquire a 100% interest in the Kyzyl Ompul Project in exchange
for $6.0 million of cash payments and a two percent net smelter royalty of up to $5.0 million
as well as Alliance making $1.6 million of exploration and development expenditures over a
three-year period. During the year ended December 31, 2017, UrAsia received $150,000 in
cash payments from Alliance. The remaining cash payments are expected to be received as
follows: $60,000 per month commencing February 1, 2018, increasing to $229,000 per
month commencing August 1, 2018, and a final payment of $223,000 on July 1, 2020. Cash
payments received from Alliance over the course of the Earn-In Agreement are not
reimbursable if Alliance does not exercise its earn-in option.
The February 1 and March 1, 2018 cash payments have not yet been received and the
Company is in discussions with Alliance to resolve this default using the remedies available
to it under the Earn-In Agreement.
The net smelter royalty is subject to Alliance exercising its earn-in option and is payable on
the commencement of commercial production at the Kyzyl Ompul Project for a minimum
royalty of $2.5 million and a maximum royalty of $5.0 million. If Alliance fails to make any
of the payments under the Earn-In Agreement, UrAsia has the right to retain its 100%
interest in the Kyzyl Ompul Project.
28
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
6.
EXPLORATION AND EVALUATION ASSETS (Continued)
6.3
Kyzyl Ompul Project, Kyrgyz Republic (continued)
During the year ended December 31, 2017, the Company recognized an impairment charge
of $6,346,899 for the Kyzyl Ompul Project on execution of the Earn-In Agreement. The
recoverable amount of the Kyzyl Ompul Project was based on a fair value less cost to sell
model, which incorporated the net present value of expected cash flows in accordance with
the Earn-In Agreement discounted at a rate of 22%. It was categorized as a non-recurring
level 3 fair value measurement. The discount rate was determined based on a market
participant’s cost of capital, adjusted for political and development risks.
6.4
Centennial Project, Colorado
The Centennial Uranium Project is located in the western part of Weld County in
northeastern Colorado.
During the year ended December 31, 2016, the Company sold redundant land for net
proceeds of $604,092 resulting in a gain on sale of $154,092.
7.
LOANS PAYABLE
29
20172016Loan payable to shareholders2,057,805$ 1,848,135$ Other loans payable46,873 90,065 Loans payable2,104,678$ 1,938,200$ Current portion328,678$ 1,898,135$ Non-current portion1,776,000$ 40,065$ As at December 31,20172016Loan payable to shareholders - current281,805$ 1,848,135$ Loan payable to shareholders - non-current1,776,000 - Loan payable to shareholders2,057,805$ 1,848,135$ As at December 31,
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
7.
LOANS PAYABLE (Continued)
7.1
Loan payable to shareholders
On July 31, 2012, the Company entered into a $1,800,000 convertible loan agreement with
certain shareholders (“Shareholders Loan Agreement”), as amended. The proceeds were
used to fund the UrAsia 2012 exploration program and for general working capital
purposes. On June 30, 2017, the Company exercised its option to extend the term of the
Shareholders Loan Agreement for an additional three years. The changes to the term of the
Shareholders Loan Agreement was accounted for as a debt modification in accordance with
IAS 39. The key commercial terms of the loan include:
•
Interest – 15% per annum payable on each anniversary date of the Shareholders
Loan Agreement (10% per annum prior to the Company’s exercise of the term
extension);
• Term – 8 years, commencing July 31, 2012;
• Conversion price – Canadian dollar (“C$”)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;
• 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 also 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.
In July 2017, the terms of the Shareholders Loan Agreement were further amended to defer
the July 31, 2017 annual interest payment until July 31, 2018.
As at December 31, 2017, the Company had drawn $1,776,000 under the Shareholders Loan
Agreement and no additional amounts are available to be drawn. During the year ended
December 31, 2017, the Company recorded interest expense on the convertible loan of
$209,670 (2016 - $178,489).
30
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
7.
LOANS PAYABLE (Continued)
7.2 Other loans payable
For the year ended December 31, 2017, the imputed effective interest expense on other
loans payable was $6,808 (2016 - $10,012) and the Company made payments totaling
$50,000 (2016 - $60,000).
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, 2017, $1,875,000 (2016 – $1,855,000) had been
paid. The outstanding consideration of $20,000 is payable in September 2018. An
additional $3,165,000 is payable upon receipt of regulatory permits and licenses allowing
uranium production on the area of the Centennial Project pertaining to these uranium
interests. The Company has disclosed this amount as a commitment in Note 19. The
Company has also agreed to purchase up to 1,280 surface acres at the Centennial Project
upon receipt of regulatory permits and licenses allowing uranium production. The purchase
price for the surface acres will be calculated using the then prevailing market rates;
however, this amount cannot currently be reasonably quantified due to the uncertainty
associated with the timing of receipt of the regulatory permits and licenses, the number of
surface acres that will be purchased and the future prevailing market rates for the surface
acres. If the Company does not obtain the regulatory permits and licenses allowing uranium
production pertaining to the Centennial purchase agreement by September 27, 2019, the
uranium rights will transfer back to the seller, at seller’s option.
31
20172016Other loans payable - current46,873$ 50,000$ Other loans payable - non-current- 40,065 Other loans payable46,873$ 90,065$ Year ended December 31,
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
7.
LOANS PAYABLE (Continued)
7.2 Other loans payable (Continued)
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, 2017, $770,000 (2016 – $740,000) had been
paid. The outstanding consideration of $30,000 is payable in May 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. The
Company has disclosed this amount as a commitment in Note 19.
The Centennial and Dewey Burdock purchase agreements are classified as other financial
liabilities and are measured at amortized cost using the effective interest rate method.
8.
DECOMMISSIONING LIABILITY
The decommissioning liability includes the estimated reclamation costs on exploration
wells at the Centennial project. The Company has recorded the present value of the liability
based on the assumption that $168,806 will be paid out in September 2019.
32
20172016Balance, beginning of year129,933$ 118,097$ Accretion12,985 11,836 Balance, end of year142,918$ 129,933$ Year ended December 31,
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
9. WARRANT LIABILITIES
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 liability was revalued as at December 31, 2017 and 2016 using
the Black-Scholes pricing model with the following assumptions: a risk free interest rate of
1.66% (2016 – 0.63%); an expected volatility of 58-68% (2016 – 76%); an expected life of
1-3 years (2.73 years); a forfeiture rate of zero; and an expected dividend of zero.
10.
EQUITY
10.1 Authorized share capital
The Company has authorized the issuance of an unlimited number of common and
preferred shares with no par value. As at December 31, 2017, the Company had 83,619,850
(2016 - 74,766,046) common shares outstanding and no preferred shares outstanding.
10.2
Issued share capital
During the year ended December 31, 2017, the Company completed the following equity
transactions:
•
In July 2017, the Company closed a non-brokered private placement for gross
proceeds of C$1,141,904 ($916,995) through the issuance of 4,391,938 units at a
price of C$0.26 per unit. Each unit consists of one common share and one-half of
one share purchase warrant. Each whole warrant entitles the holder thereof to
purchase one common share at a price of C$0.36 per share for a period of three
years. The warrants were valued on a relative fair value basis at $165,249. The
Company paid cash finders’ fees and other fees of $37,432.
33
20172016Balance, beginning of year596,602$ 3,809$ Issuance of warrants209,923 346,969 (Gain) loss on revaluation (570,389) 260,619 Currency translation effect21,980 (14,795) Balance, end of year258,116$ 596,602$ Year ended December 31,
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
10. EQUITY (Continued)
10.2
Issued share capital (Continued)
•
•
•
The Company issued 138,000 finder’s warrants on the same terms as the warrants
in this private placement. The finder’s warrants were valued at $13,446. The
warrants and the finder’s warrants were valued using the Black-Scholes pricing
model with the following assumptions: a risk free interest rate of 0.79%; an
expected volatility of 72.6%; an expected life of 3 years; a forfeiture rate of zero; and
an expected dividend of zero.
The Company issued 1,695,968 share purchase warrants (excluding the finder’s
warrants) as part of the private placement and 500,000 share purchase warrants
are to be issued to an insider of the Company subject to disinterested shareholder
and TSX approval.
In October 2017, the Company issued 750,000 common shares to settle $123,466 of
outstanding employee remuneration. As a result, $123,466 was reclassified from
contributed surplus to share capital. The Company paid cash share issue fees of
$5,167.
In October 2017, the Company issued 87,500 common shares valued at $15,728 for
consulting services.
In December 2017, the Company closed the first tranche of a non-brokered private
placement for gross proceeds of C$558,750 ($436,942) through the issuance of
2,235,000 units at a price of C$0.25 per unit. Each unit consists of one common
share and one-half of one share purchase warrant. Each whole 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. The warrants were valued on a relative fair value basis at
$28,462. The Company paid cash finders’ fees and other fees of $12,407.
The Company issued 60,000 finder’s warrants on the same terms as the warrants in
this private placement. The finder’s warrants were valued at $2,766. The warrants
and the finder’s warrants were valued using the Black-Scholes pricing model with
the following assumptions: a risk free interest rate of 1.64%; an expected volatility
of 62.4%; an expected life of 3 years; a forfeiture rate of zero; and an expected
dividend of zero.
The Company issued 617,500 share purchase warrants (excluding the finder’s
warrants) as part of the private placement and 500,000 share purchase warrants
are to be issued to an insider of the Company subject to disinterested shareholder
and TSX approval.
34
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
10. EQUITY (Continued)
10.2
Issued share capital (Continued)
• During the year ended December 31, 2017, the Company issued 1,100,918 common
shares to settle $234,652 owing pursuant to the Company’s employee share
purchase plan (“ESPP”) and 288,448 common shares to settle $61,060 owing
pursuant to the Company’s director services agreements (“DSA”).
During the year ended December 31, 2016, the Company completed the following equity
transactions:
•
•
•
In August 2016, the Company issued 1,140,626 common shares to settle interest
payable of $532,800 pertaining to the Shareholders Loan Agreement (Note 7.1). The
fair value differential between the common shares issued and the carrying value of
the interest settled resulted in an increase of $282,126 to contributed surplus due to
the shareholders’ existing ownership interest in the Company.
In August 2016, the Company issued 812,500 common shares to settle $169,933 of
outstanding employee remuneration. As a result, $169,933 was reclassified from
contributed surplus to share capital.
In September 2016, the Company closed a non-brokered private placement for gross
proceeds of C$2,218,401 ($1,701,930) through the issuance of 9,243,336 units at a
price of C$0.24 per unit. Each unit consists of one common share and one-half of
one share purchase warrant. Each whole 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 closing. The warrants were valued on a relative fair value basis at
$346,969. The Company paid cash finder’s fees and other fees of $51,408.
The warrants were valued using the Black-Scholes pricing model with the following
assumptions: a risk free interest rate of 0.64%; an expected volatility of 80%; an
expected life of 3.0 years; a forfeiture rate of zero; and an expected dividend of zero.
• During the year ended December 31, 2016, the Company issued 1,130,664 common
shares valued at $280,401 to settle trade and other payables of $355,658. As a
result, the Company recorded a gain on settlement of trade and other payables of
$75,257.
• During 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 and 640,656
common shares to settle $158,464 owing pursuant to the Company’s DSA. As a
result, $502,182 was reclassified from contributed surplus to share capital.
35
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
10. EQUITY (Continued)
10.3 Share purchase warrants
The continuity of share purchase warrants for the year ended December 31, 2017 is as
follows:
The weighted average remaining contractual life is 2.06 years.
The continuity of share purchase warrants for the year ended December 31, 2016 is as
follows:
10.4 Equity instrument issued to Powerlite Ventures Limited
The Company is party to a credit facility with Powerlite Ventures Limited (“Powerlite”) for
$21,000,000 of which the Company drew down and, in 2014, repaid $18,000,000 through
the issuance of shares leaving an available balance of $3,000,000. The Company believes it
is unlikely that Powerlite will be able to fund the remaining amount of the facility.
36
Expiry dateExercise priceBalance, December 31, 2016IssuedExercisedExpiredBalance, December 31, 2017September 23, 20190.35$ 4,621,655 - - - 4,621,655 July 27, 20200.36$ - 1,833,968 - - 1,833,968 December 22, 20200.35$ - 677,500 - - 677,500 4,621,655 2,511,468 - - 7,133,123 Weighted average exercise price0.35$ 0.36$ -$ -$ 0.35$ Expiry dateExercise priceBalance, December 31, 2015IssuedExercisedExpiredBalance, December 31, 2016February 26, 20162.00$ 1,500,000 - - (1,500,000) - February 26, 20161.15$ 84,980 - - (84,980) - October 24, 20161.00$ 4,169,067 - - (4,169,067) - September 23, 20190.35$ - 4,621,655 - - 4,621,655 5,754,047 4,621,655 - (5,754,047) 4,621,655 Weighted average exercise price1.26$ 0.35$ -$ 1.26$ 0.35$
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
10. EQUITY (Continued)
10.5 Equity settled compensation arrangements
ESPP
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 five-day volume weighted average trading price of the common
shares 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.
During the year ended December 31, 2017, Employee Contributions totaled $143,366 (2016
- $126,476) and Matching Contributions totaled $95,574 (2016 - $84,313). As at December
31, 2017 and to date, a total of 2,566,868 and 2,917,805 common shares had been issued,
respectively, pursuant to the ESPP.
DSA
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 five-day volume weighted average trading price of the common shares
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.
During the year ended December 31, 2017, $61,766 (2016 - $66,060) was expensed under
the DSA. As at December 31, 2017 and to date, a total of 929,104 and 1,022,115 common
shares had been issued, respectively, pursuant to DSA.
37
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
11.
SHARE OPTION RESERVE
11.1 Stock option plan
On October 28, 2014, the Company adopted a new stock option plan, which permits the
Board of Directors of the Company to grant stock options to acquire common shares of the
Company to eligible persons. The Company is authorized to issue stock options for a
maximum of 7,271,816 common shares pursuant to the stock option plan. The stock option
plan permits the Board of Directors of the Company to set the terms for each stock option
grant; however, stock options granted under the plan cannot exceed a maximum exercise
period of 5 years. The options are non-transferable.
11.2 Stock option continuity
The continuity of stock options for the year ended December 31, 2017 is as follows:
As at December 31, 2017, 4,135,429 stock options were exercisable.
The weighted average remaining contractual life is 2.86 years.
38
Expiry dateExercise priceBalance, December 31, 2016IssuedExercisedExpired/ ForfeitedBalance, December 31, 2017May 14, 20172.00$ 225,000 - - (225,000) - April 30, 20181.20$ 165,163 - - - 165,163 August 6, 20180.35$ 1,000,000 - - - 1,000,000 November 3, 20181.20$ 15,513 - - - 15,513 November 3, 20181.50$ 54,750 - - - 54,750 October 27, 20191.20$ 393,336 - - - 393,336 May 19, 20200.335$ 1,040,000 - - (10,000) 1,030,000 May 19, 20210.36$ 1,185,000 - - - 1,185,000 May 16, 20220.32$ - 2,060,000 - - 2,060,000 4,078,762 2,060,000 - (235,000) 5,903,762 Weighted average exercise price0.58$ 0.32$ -$ 1.93$ 0.43$
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
11.
SHARE OPTION RESERVE (Continued)
11.2 Stock option continuity (Continued)
The continuity of stock options for the year ended December 31, 2016 is as follows:
11.3 Share-based compensation
During the year ended December 31, 2017, the Company recognized share-based
compensation expense of $230,698 (2016 - $175,766), of which $198,706 (2016 -
$147,909) has been allocated to administrative expenses and $31,992 (2016 - $27,857) has
been allocated to exploration and evaluation assets.
In May 2017, the Company granted 2,060,000 stock options to officers, employees, directors
and other eligible persons at an exercise price of C$0.32 with an expiry date of May 16,
2022. The weighted average fair value of the options granted was estimated at C$0.17 per
option at the grant date using the Black-Scholes Option Pricing model with the following
assumptions: a risk free interest rate of 1.12%; an expected volatility of 79%; an expected
life of 5 years; a forfeiture rate of zero; and an expected dividend of zero.
In May 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 was estimated at C$0.21 per
option at the grant date using the Black-Scholes Option Pricing model with the following
assumptions: a risk free interest rate of 0.69%; an expected volatility of 79%; an expected
life of 5 years; a forfeiture rate of zero; and an expected dividend of zero.
39
Expiry dateExercise priceBalance, December 31, 2015IssuedExercisedExpired/ ForfeitedBalance, December 31, 2016May 14, 20172.00$ 235,000 - - (10,000) 225,000 April 30, 20181.20$ 260,976 - - (95,813) 165,163 August 6, 20180.35$ 1,000,000 - - - 1,000,000 November 3, 20181.20$ 15,513 - - - 15,513 November 3, 20181.50$ 54,750 - - - 54,750 October 27, 20191.20$ 2,650,754 - - (2,257,418) 393,336 May 19, 20200.335$ 1,285,000 - - (245,000) 1,040,000 June 2, 20200.375$ 20,000 - - (20,000) - May 19, 20210.36$ - 1,235,000 - (50,000) 1,185,000 5,521,993 1,235,000 - (2,678,231) 4,078,762 Weighted average exercise price0.88$ 0.36$ -$ 1.10$ 0.58$
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
12.
ADMINISTRATIVE EXPENSES
13.
FINANCE COSTS
14.
UNREALIZED GAIN (LOSS)
40
20172016Salaries and benefits984,264$ 1,077,241$ Consulting and professional fees233,328 150,386 Corporate administration240,807 172,662 Depreciation2,123 6,015 Share-based compensation198,706 147,909 1,659,228$ 1,554,213$ Year ended December 31,Note20172016Interest expense on shareholder loan7.1209,670$ 178,489$ Interest expense on other loans payable7.26,808 10,012 Other interest expense- 2,579 216,478$ 191,080$ Year ended December 31,Note20172016Gain (loss) on revaluation of investment in URI5.125,412$ (645,230)$ Loss on revaluation of investment in Western Uranium5.2- (298,311) Gain (loss) on warrant liabilities9570,389 (260,619) 595,801$ (1,204,160)$ Year ended December 31,
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
15.
REALIZED GAIN (LOSS)
16.
RELATED PARTY TRANSACTIONS AND BALANCES
16.1 Related party transactions
During the years ended December 31, 2017 and 2016, the Company had related party
transactions with the Company’s directors, management and shareholders including:
•
Interest accruing to certain directors/shareholders of the Company on the
Shareholders Loan Agreement (Note 7.1);
• The extension of the term of the Shareholders Loan Agreement and other
amendments and agreements related to the Shareholders Loan Agreement as
disclosed (Note 7.1); and
• The issuance of common shares to key management personnel of the Company to
settle trade and other payables, employee remuneration (Note 10.2) and interest on
the Shareholders Loan Agreement (Note 7.1).
41
Note20172016Loss on sale of investment in URI5.1(22,570)$ (72,050)$ Loss on sale of investment in Western Uranium5.2- (148,141) Gain on sale of exploration and evaluation assets held for sale6.3- 154,092 Gain on settlement of trade and other payables10.2- 75,257 Other gains18,632 11,127 (3,938)$ 20,285$ Year ended December 31,
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
16.
RELATED PARTY TRANSACTIONS AND BALANCES (Continued)
16.2 Key management personnel compensation
The remuneration of the Company’s directors and other key management personnel, being
those who have the authority and responsibility for planning, directing and controlling the
activities of the Company, consist of the following amounts:
16.3 Related party liabilities
Included in trade and other payables as at December 31, 2017 is $512,500 (2016 -
$557,500) owing to a director of the Company of which $325,000 (2016 - $370,000) is
related to a severance agreement and $187,500 (2016 – $187,500) is related to a deferred
compensation agreement. During the year ended December 31, 2017, the Company paid
this director $45,000 (2016 - $60,000) towards the severance agreement. On February 14,
2018, the Company entered into an amended severance agreement with this director to
defer the remaining severance payments over 48 months, whereby the amount payable was
increased to $370,000. The Company and this director have agreed to settle the deferred
compensation of $187,500 by the issue of up to 578,822 common shares of the Company
before June 30, 2018.
42
20172016Salaries and benefits731,926$ 871,312$ Share-based compensation176,296 87,194 908,222$ 958,506$ Year ended December 31,20172016Loan payable to shareholders2,057,805$ 1,848,135$ Trade and other payables for key management personnel - current716,838 339,043 Trade and other payables for key management personnel - non-current- 310,000 2,774,643$ 2,497,178$ As at December 31,
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
17.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
17.1 Categories of financial instruments
Financial instruments are classified into one of the following categories: FVTPL; loans and
receivables; or other financial liabilities. The carrying values of the Company’s financial
instruments are classified into the following categories:
43
Financial assetsNote20172016Loans and receivablesCash432,192$ 941,370$ Restricted cash39,176 42,687 Fair value through profit or lossInvestment in URI5.1- 68,264 471,368$ 1,052,321$ As at December 31,Financial liabilitiesNote20172016Other financial liabilitiesTrade and other payables1,525,906$ 1,376,872$ Loan payable to shareholders72,057,805 1,848,135 Other loans payable746,873 90,065 Decommissioning liability8142,918 129,933 Fair value through profit or lossFair value through profit or lossWarrant liabilities9258,116 596,602 4,031,618$ 4,041,607$ As at December 31,
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
17.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)
17.2 Fair value
The fair value of financial assets and financial liabilities measured at amortized cost is
determined in accordance with generally accepted pricing models based on discounted cash
flow analysis or using prices from observable current market transactions. The Company
considers that the carrying amount of all its financial assets and financial liabilities
measured at amortized cost approximates their fair value.
The fair values of the Company’s financial instruments classified as FVTPL are determined
as follows:
• The fair value of financial instruments that are traded on an active liquid market are
determined with reference to the quoted market prices. The fair value of the
Company’s investments were 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. The fair value of the
warrant liability is determined using the Black-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 fair value of all other financial instruments of the Company approximates their carrying
value because of the demand nature or short-term maturity of these instruments. The
Company’s cash, restricted cash and other financial liabilities are carried at amortized cost.
The Company’s financial instruments recorded at fair value require disclosure about how
the fair value was determined based on significant levels of inputs described in the
following hierarchy:
• 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.
The fair value of the Company’s investment in URI was recorded at fair value using Level 1
of the fair value hierarchy. The fair value of the Company’s warrant liabilities is recorded at
fair value using Level 2 of the fair value hierarchy.
44
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
17.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)
17.3 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. During the
year ended December 31, 2017, 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. Management believes the currency risk
related to currency conversions is minimal and therefore, does not hedge its currency risk.
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.
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.
45
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
17.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)
17.3 Financial risk management objectives and policies (Continued)
Interest rate risk (Continued)
The Company’s Shareholders Loan Agreement (Note 7.1) accrues interest at a fixed rate;
therefore, the Company is not exposed to interest rate risk on this instrument. The
Company’s other loans payable (Note 7.2) are non-interest bearing and interest is
calculated using an effective interest rate.
Credit risk
Credit risk is the risk of potential loss to the Company if the counterparty to a financial
instrument fails to meet its contractual obligations.
The Company is exposed to credit risk associated with its cash. The Company’s maximum
exposure to credit risk is equal to the carrying amount of its cash.
The Company’s credit risk on cash arises from default of the counterparty. The Company
limits its exposure to counterparty credit risk on cash by only dealing with financial
institutions with high credit ratings.
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, access to financing
facilities or access to cash generating opportunities, such as the liquidation of non-core and
redundant assets to meet its liquidity requirements in the short and long term. In order to
ensure that the Company has sufficient cash, access to financing facilities or access to cash
generating opportunities, such as the liquidation of non-core 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.
46
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
17.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)
17.3 Financial risk management objectives and policies (Continued)
Liquidity risk (Continued)
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.
18. 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. During the year ended December 31, 2017, 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, 2017, the Company’s capital structure consists of loans payable (Note 7)
and the equity of the Company (Note 10).
47
As at December 31, 20171-3 months3 months - 1 year1-5 yearsTotalTrade and other payables1,525,906$ -$ -$ 1,525,906$ Loan payable to - 281,805 1,776,000 2,057,805 Other loans payable- 46,873 - 46,873 1,525,906$ 328,678$ 1,776,000$ 3,630,584$
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
19. COMMITMENTS
As at December 31, 2017, the Company’s commitments that have not been disclosed
elsewhere in the consolidated financial statements were as follows:
As at December 31, 2017, exploration and evaluation commitments include lease, mineral
claim, exploration license and property purchase agreement payments. Certain of the
Company’s exploration and evaluation commitments may provide the Company with the
ability to avoid funding those commitments; however, the Company discloses the
contractual maturities of the Company's exploration and evaluation commitments based on
management's intent.
20.
SUPPLEMENTAL CASH FLOW INFORMATION
During the year ended December 31, 2017, the Company completed the following non-cash
investing and financing activities:
•
•
•
Issued 1,100,918 common shares to settle $234,652 owing pursuant to the
Company’s ESPP;
Issued 288,448 common shares to settle $61,060 owing pursuant to the Company’s
DSA;
Issued 750,000 common shares to settle $123,466 of outstanding employee
remuneration;
Issued 87,500 common shares to settle $15,728 of consulting services;
•
• Allocated share-based compensation of $31,992 to exploration and evaluation
assets;
• Recorded $394,205 to contributed surplus for equity settled transactions pursuant
to the Company’s ESPP, DSA, and employee share-based remuneration not issued
pursuant to the ESPP and DSA; and
Issued 2,511,468 share purchase warrants valued at $209,923 as part of the July
and December 2017 financings.
•
48
Within 1 year2-4 yearsOver 4 yearsTotalOperating lease45,847$ 7,667$ -$ 53,514$ Exploration and evaluation507,738 4,120,283 3,441,651 8,069,672 553,585$ 4,127,950$ 3,441,651$ 8,123,186$
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
20.
SUPPLEMENTAL CASH FLOW INFORMATION (Continued)
During the year ended December 31, 2016, the Company completed the following non-cash
investing and financing activities:
•
•
•
•
•
Issued 1,130,664 common shares to settle trade and other payables of $355,658;
Issued 1,465,950 common shares to settle $343,718 owing pursuant to the
Company’s ESPP;
Issued 640,656 common shares to settle $158,464 owing pursuant to the Company’s
DSA;
Issued 1,140,626 common shares to settle $532,800 of outstanding interest
pertaining to the Shareholders Loan Agreement;
Issued 812,500 common shares to settle $169,933 of outstanding employee
remuneration;
• Allocated share-based compensation of $27,857 to exploration and evaluation
assets;
• Recorded $416,984 to contributed surplus for equity settled transactions pursuant
to the Company’s ESPP, DSA, and employee share-based remuneration not issued
pursuant to the ESPP and DSA; and
Issued 4,621,665 share purchase warrants as part of the September 2016 financing;
•
No cash interest or income taxes were paid during the years ended December 31, 2017 and
2016.
21.
NON-CONTROLLING INTEREST
The Company’s non-controlling interest relates to its 70% interest in UrAsia.
Changes in the Company’s non-controlling interest for the years ended December 31, 2017
and 2016 were as follows:
49
20172016Balance, beginning of year1,246,780$ 1,168,628$ Plus (less): non-controlling interest from net income (loss)(1,701,951) 5,271 Plus: non-controlling interest from other comprehensive income 5,175 72,881 Balance, end of year(449,996)$ 1,246,780$ Year ended December 31,
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
21.
NON-CONTROLLING INTEREST (Continued)
Set out below is the summarized financial information for 100% of UrAsia’s net assets, total
comprehensive income (loss) and cash. The information is presented before considering
inter-company consolidation and elimination adjustments.
50
20172016CurrentAssets103,431$ 208$ Liabilities(15,451) (12,934) Total current net assets (liabilities)87,980 (12,726) Non-currentAssets4,030,524 10,336,254 Liabilities(1,020,705) (2,354,202) Total non-current net assets3,009,819 7,982,052 Net assets3,097,799$ 7,969,326$ As at December 31,20172016Net loss before tax(6,416,438)$ (53,801)$ Deferred income tax recovery992,989 7,666 Net loss(5,423,449) (46,135) Other comprehensive income14,022 252,678 Total comprehensive income (loss)(5,409,427)$ 206,543$ As at December 31,20172016Net cash used in operating activities(20,440)$ (105,147)$ Net cash used in investing activities(1,051,759) (93,091) Net cash generated from financing activities1,103,534 199,514 Net increase in cash31,335 1,276 Cash, beginning of year585 1,181 Effect of foreign exchange rate changes on cash(1,364) (1,872) Cash, end of year30,556$ 585$ Year ended December 31,
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
22. DEFERRED INCOME TAX
22.1 Deferred income tax
Taxation on profits or losses has been calculated on the estimated assessable profits or
losses for the year at the rates of taxation prevailing in the jurisdictions in which the
Company operates.
22.2 Deferred income tax expenses
In December 2017, the US government enacted the Tax Cuts and Jobs Act of 2017 (“the Act”)
which reduced the statutory tax rate from 34% to 21%. The impact of this legislation
created a $1.3 million tax recovery due to the re-measurement of the Company’s deferred
tax liabilities at the new US federal tax rate of 21%.
22.3 Deferred tax balances
The Company’s deferred tax liabilities consist of the following amounts:
As at December 31, 2017 and 2016, the Company has not recognized any deferred tax
assets.
51
20172016Net loss before income tax7,516,632$ 2,846,945$ Statutory tax rate26%26%Deferred income tax recovery based on statutory rate1,954,000$ 740,000$ Effect of different tax rates applicable in foreign jurisdictions(982,000) (275,000) Effect of reduction in foreign statutory rate1,286,000 - Unrecognized deferred tax assets(283,000) (162,000) Effect of non-deductible expenses and non-taxable revenue and other261,000 (569,000) Deferred income tax recovery (expense)2,236,000$ (266,000)$ Year ended December 31,20172016Exploration and evaluation assets2,920,790$ 5,121,370$ Inter-company loans eliminated on consolidation1,132,000 1,167,420 Deferred tax liabilities4,052,790$ 6,288,790$ As at December 31,
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
22. DEFERRED INCOME TAX (Continued)
22.3 Deferred tax balances (Continued)
Changes in the Company’s deferred tax liabilities for the years ended December 31, 2017
and 2016 were as follows:
22.4 Unrecognized deductible temporary differences and unused tax losses
The Company’s deductible temporary differences and unused tax losses for which no
deferred tax asset is recognized consist of the following tax affected amounts:
As at December 31, 2017, the Company had unrecognized deferred tax assets attributable to
deductible temporary differences of $110,000 (2016 – $161,000) which are primarily
related to value added tax receivables and certain deferred payments not being recognized.
The deferred tax assets related to the temporary differences and non-capital losses were
not recognized as their recoverability was not considered to be probable.
22.5 Expiry dates
The expiry dates of the Company’s unused tax losses are as follows:
52
20172016Opening balance 6,288,790$ 6,022,790$ Deferred income tax (recovery) expense (2,236,000) 266,000 Deferred tax liabilities 4,052,790$ 6,288,790$ Year ended December 31,20172016Non-capital losses2,509,000$ 2,175,000$ Deductible temporary differences110,000 161,000 Total unrecognized amounts2,619,000$ 2,336,000$ As at December 31,Non-capital lossesKyrgyz Republic3,510,000$ 2018 - 2022Hong Kong631,000 IndefiniteCanada4,180,000 2032 - 2037United States4,412,000 2034 - 203712,733,000$ As at December 31, 2017
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017
(Expressed in U.S. Dollars, unless otherwise indicated)
23.
SUBSEQUENT EVENTS
Subsequent to December 31, 2017, the Company completed the following transactions:
•
•
•
•
•
•
In January 2018, the Company issued 350,937 common shares to settle $60,901
owing pursuant to the Company’s ESPP and 93,011 common shares to settle
$16,141 owing pursuant to the Company’s DSA.
In January 2018, the Company closed the second and final tranche of its non-
brokered private placement of C$195,000 through the issuance of 780,000 units at a
price of C$0.25 per unit. Each unit consists of one common share of the Company
and one-half of one share purchase warrant. Each whole 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.
In February 2018, the Company entered into an amended severance agreement to
defer the remaining severance payments over 48 months as discussed in note 16.3.
In March 2018, the Company received conditional TSX approval to issue up to
186,512 common shares in settlement of C$46,628 of trade and other payables.
In March 2018, the Company received conditional TSX approval to issue up to
162,900 common shares in settlement of $32,103 of trade and other payables.
In March 2018, the Company received conditional TSX approval to issue up to
125,000 common shares to buy back a royalty on the Dewey Burdock Project.
53
Azarga Uranium Corp.
MANAGEMENT DISCUSSION AND ANALYSIS
For the year ended December 31, 2017
(Expressed in U.S. Dollars)
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
The following management discussion and analysis (“MD&A”) of the results of
operations and financial condition of Azarga Uranium Corp. for the year ended
December 31, 2017 and up to the date of this MD&A, should be read in conjunction with
the accompanying audited consolidated financial statements for the year ended
December 31, 2017, together with the notes thereto (the “Financial Report”).
All financial information in this MD&A is derived from the Company’s financial
statements prepared in accordance with International Financial Reporting Standards
(“IFRS”) and all dollar amounts are expressed in US dollars unless otherwise indicated.
The effective date of this MD&A is March 22, 2018.
Additional information relating to the Company, including the Annual Information
Form, is available under the Company’s profile on SEDAR at www.sedar.com.
DESCRIPTION OF THE BUSINESS
Azarga Uranium Corp. (“Azarga Uranium”) was incorporated under the laws of the
Province of British Columbia, Canada. Azarga Uranium’s common shares are publicly
traded on the Toronto Stock Exchange (“TSX”) (Symbol: AZZ) and the Frankfurt Stock
Exchange (Symbol: P8AA). Azarga Uranium, together with its subsidiaries (collectively
referred to as the “Company”), is an integrated uranium exploration and development
company.
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.
OPERATIONAL HIGHLIGHTS
The Company’s significant events and highlights for the year ended December 31, 2017
and to the date of this MD&A are as follows:
• Dewey Burdock permitting advanced – in March 2017, the United States
Environmental Protection Agency (“EPA”) issued two key permits for the Dewey
Burdock Project representing the completion of a major regulatory milestone for
the Company. In October 2017, the Atomic Safety and Licensing Board (“ASLB”)
issued a memorandum and order resolving one of two remaining contentions on
the Nuclear Regulatory Commission (“NRC”) license. The Company is now
working to resolve the remaining contention on the NRC license and to receive
the final EPA permits.
2
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
• Dewey Burdock – growth potential identified – new uranium mineralization
identified at both the Dewey and the Burdock areas of the Dewey Burdock
Project through the review and analysis of historical data owned by the Company
and the evaluation of revised in-situ recovery (“ISR”) cutoff criteria, consistent
with other producing ISR projects in nearby Wyoming.
• Dewey Terrace – uranium mineralization adjacent to Dewey Burdock –
through reviewing and analyzing historical exploration data the Company
identified new uranium mineralization covering seven separate mineralized
zones at the Dewey Terrace Project over a trend of approximately 2.5 miles.
• Kyzyl Ompul Project – earn-in agreement – In July 2017, UrAsia in Kyrgyzstan
LLC (“UrAsia”) executed an earn-in agreement (the “Earn-in Agreement”) with
Mining Investment Company Alliance (“Alliance”) providing Alliance with an
earn-in option to acquire a 100% interest in the Kyzyl Ompul Project, in which
the Company holds a 70% interest, for $6 million and a retained 2% net smelter
return (“NSR”) royalty capped at $5 million.
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 pre-Fukushima total – The global reactor
pipeline consists of 1,014 1 nuclear reactors that are operable, under
construction, planned or proposed compared to 9832 before the Fukushima
incident in 2011. Of the 1,014 nuclear reactors, 447 reactors are operable1. A
total of 2161 nuclear reactors are under construction or planned, which
represents approximately 48% of the current operating fleet. China, Russia and
India lead the world in terms of the number of nuclear power plants under
construction, with twenty, seven and six, respectively1. China continues to
accelerate their nuclear growth plans and intends to have 58 GWe of installed
capacity by 2020-21 and 150 GWe by 20303 (currently 35 GWe4). According to
their latest Five Year Plan, China is forecasting the approval and construction of
6-8 units per year between 2016 and 2020, increasing to 10 units per year
thereafter3.
• Current prices will constrain supply – Low prices are forcing producers to
curtail mining, development and exploration. Annual U3O8 supply has decreased
1 World Nuclear Association – World Nuclear Power Reactors & Uranium Requirements (September 2017)
2 Haywood Securities Inc. – Target & Commodity Price Revisions (January 25, 2017)
3 World Nuclear Association – Nuclear Power in China (September 2017)
4 The Business Times – China had 20 nuclear reactors under construction at end-March: nuclear association
(April 27, 2017)
3
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
by 5% from 2013 to 20165. In 2016, Cameco Corp. (“Cameco”) 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. In November
2017, Cameco further announced that it would suspend operations at McArthur
River and Key Lake for 10 months by the end of January 2018. These operations
produced 11.1 million pounds of uranium in the first nine months of 20178.
Cantor Fitzgerald estimates that this announcement by Cameco removes 13.2
million pounds or 9% of uranium production from its 2018 forecast.9
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 significant milestones for the Dewey Burdock
Project. The Company is now working to resolve the remaining contention on the
NRC license and to receive the final EPA permits. In parallel with advancing the
Dewey Burdock Project on the permitting front, the Company will continue to
evaluate project-financing options, with a view to having a funding solution in
place prior to or concurrent with the finalization of permits.
• Expand uranium resources at the Dewey Burdock Project and identify
uranium resources at the Dewey Terrace Project – The Company will
continue the evaluation and analysis of historical data at the Dewey Burdock
Project with the goal of publishing a resource update and revised preliminary
economic assessment (“PEA”) and the Dewey Terrace Project with the goal of
identifying additional uranium mineralization.
• Future uranium production off-take – The Company will continue the process
of engaging with potential customers for future uranium production off-take.
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.
5 TD Securities Inc. – Equity Research: Metals & Minerals (August 1, 2017)
6 Saskatoon Star Phoenix – 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)
8 Cameo Corp. press release (November 8, 2017)
9 Cantor Fitzgerald – Cameco: A Necessary Move: McArthur River/Key Lake Suspended; Dividend cut
(November 2017)
4
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
• Minimize activities in the Kyrgyz Republic – The execution of the Earn-In
Agreement should alleviate the Company’s need to fund future exploration and
development expenditures at the Kyzyl Ompul Project and is expected to provide
the Company with significant cash payments over a three-year period, which can
be deployed towards core strategic initiatives, such as the advancement of the
Dewey Burdock Project. The Company also retains upside from the Kyzyl Ompul
Project through the NSR royalty.
The Company expects to successfully execute its strategy, as the Company believes that:
• uranium prices will move higher in the near to medium term;
•
the PEA demonstrates that Dewey Burdock Project is one of the world’s leading
undeveloped uranium deposits in terms of its low initial capital expenditure and
post start-up operating cash costs;
• on completion of permitting the Company will be able to attract financing and
move into the construction phase;
•
the Company’s asset suite includes mineral properties at various stages of
development, providing a pipeline for continued growth; and
• management and the Board of Directors have extensive experience in uranium,
the broader mining sector and financial markets.
OVERALL PERFORMANCE
Dewey Burdock permitting advanced
The Dewey Burdock Project (100% interest) – South Dakota, USA
The Company’s 100% owned Dewey Burdock Project is an 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 12,500 surface acres and 17,320 net mineral acres. The
Dewey Burdock Project is the Company’s initial development priority.
In April 2015, the Company filed an updated NI 43-101 compliant independent resource
estimate and 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 grade-thickness (“GT”) cut-off and inferred uranium resources of
3,528,000 pounds at 0.05% U3O8 at a 0.2 GT cut-off in the ISR mineral resource
estimate. The mineral resource estimate includes an additional 940,000 pounds of non-
ISR (located above the water table) inferred resources at 0.17% U3O8. The non-ISR
5
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
resources are not included in the resources presented in the economic analysis of the
Dewey Burdock PEA.
Details of the assumptions and parameters used with respect to the Dewey Burdock
PEA, including information on data verification, are set out in the Dewey Burdock
Technical Report dated April 21, 2015, a copy of which is available under the Company’s
profile at www.sedar.com. The Dewey Burdock PEA is preliminary in nature; it includes
inferred mineral resources that are considered too speculative geologically to have the
economic considerations applied to them that would enable them to be categorized as
mineral reserves. There is no certainty that the Dewey Burdock PEA will be realized.
Mineral resources that are not mineral reserves do not have demonstrated economic
viability.
The Dewey Burdock PEA resulted in a pre-federal income tax net present value of
$149.4 million at a discount rate of 8% and an internal rate of return of 67% compared
to a post-federal income tax net present value of $113.8 million at a discount rate of 8%
and an internal rate of return of 57%. The Dewey Burdock PEA post-federal income tax
calculations do not include a corporate level assessment of federal income tax liabilities;
taxes have only been calculated at the Dewey Burdock 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. Further, In December 2017, the US government enacted the Tax
Cuts and Jobs Act of 2017, which reduced the statutory tax rate from 34% to 21%.
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 (pre-federal income tax). Over its 16-
year mine life, the Dewey Burdock Project is forecast to produce 9.7 million lbs of U3O8
with a pay-back period in the third quarter of the second year of production. The
estimated federal income tax is equal to US$6.53/lb of estimated U3O8 production.
The Company’s immediate objective is to obtain the necessary permits and licenses to
advance the Dewey Burdock Project to the construction phase.
Permit, License or Approval Name
Agency
Status
UIC Class III Permit
EPA
• Draft permits issued March
UIC Class V Permit
2017
• Public comment period
closed June 2017
• Working with EPA to obtain
final permits
6
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
Final Source and Byproduct Materials
License
NRC
•
Issued April 2014 and in
good standing
• Final contention, which
pertains to identification
and protection of historic
and cultural resources, has
path to completion
Groundwater Discharge Plan
DENR
• Applications complete and
Water Rights Permit
Large Scale Mine Permit
Plan of Operations
BLM
recommended for
conditional approval by
DENR staff
• Hearings for final approval
commenced in late-2013,
continuance ordered until
completion of federal
regulatory approvals (NRC
and EPA)
• Approval anticipated on
successful resolution of final
NRC contention
DENR
EPA
NRC
BLM
South Dakota Department of Environment and Natural Resources
United States Environmental Protection Agency
United States Nuclear Regulatory Commission
Bureau of Land Management
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 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 SUA-1600 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 area pertaining to the NRC license.
In August 2014, the evidentiary hearing was held with the ASLB in regards to the
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
7
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
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 the 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. The ASLB also ruled
inadmissible two new contentions that were filed by the Intervenors after the
evidentiary hearing.
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 the 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.
In August 2017, the Company received notice that the NRC staff filed a motion for
summary disposition before the ASLB to resolve the remaining two contentions from
the ASLB partial initial decision. The Company filed a brief in support of the NRC staff
motion, while the Intervenors filed briefs opposing the motion. In October 2017, the
ASLB issued a memorandum and order pertaining to this motion. With respect to the
outstanding contention requiring additional consultation between the NRC staff and the
Oglala Sioux Tribe under the National Historic Preservation Act, the ASLB granted the
motion for summary disposition in favor of the NRC staff and the Company. With
respect to the outstanding contention pertaining to the identification and protection of
historic and cultural resources for the purposes of compliance with the National
Environmental Policy Act (“NEPA”), the ASLB did not grant the motion for summary
disposition; however, the ASLB did provide specific guidance and establish a schedule
to address the only remaining contention. As a result, the Company expected to have the
final contention resolved by the second quarter of 2018, however that deadline is not
certain. The Company plans to fully support the NRC staff in resolving the only
remaining contention.
In February 2017, the Oglala Sioux Tribe filed an appeal of the decision made by the
NRC Commission to the United States Court of Appeals for the District of Columbia
Circuit (the “DC Circuit”). Subsequently, the NRC staff filed a motion to dismiss the
Oglala Sioux Tribe’s appeal. The Company supported the motion to dismiss filed by the
8
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
NRC staff, while the Oglala Sioux Tribe opposed this motion. The DC Circuit ruled that
the motion to dismiss would be referred to the merits panel and the parties were
directed to address the motion to dismiss in their briefs. The Oglala Sioux Tribe has
filed their brief to the DC Circuit and their brief covers the majority of issues previously
heard by the ASLB and the NRC Commission. The NRC staff and the Company have filed
their briefs refuting the issues raised by the Oglala Sioux Tribe. On March 20, 2018, the
DC Circuit heard oral arguments from the parties.
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 DENR. These approvals
include the final Class III and Class V Underground Injection Control (“UIC”) permits
from the EPA and three state permits to be issued by the DENR. Additional
requirements that need to be addressed prior to commencing construction and
operations at the Dewey Burdock Project include the satisfaction of pre-operational
conditions under the NRC license and the development and implementation of
mitigation plans for protection of cultural resources under the PA, including resolution
of the one outstanding contention related to NEPA. In March 2017, the Company
received notice that the EPA issued draft Class III and Class V UIC permits completing a
major regulatory milestone.
The Company submitted applications to the DENR in 2012 for its Groundwater
Discharge Plan (“GDP”), Water Rights (“WR”) and Large Scale Mine Plan (“LSM”)
All permit applications have been deemed complete and have been
permits.
recommended for conditional approval by the DENR staff. The GDP and WR permits are
subject to hearing with public participation. The hearing commenced on October 28,
2013 and continued through November 25, 2013, at which point it was determined that
the hearing will resume once the NRC and EPA have ruled and set the federal surety.
The LSM permit has been finalized subject to continuation of a hearing before the Board
of Minerals and Environment, which commenced the week of September 23, 2013 and
continued through November 5, 2013, at which point it was determined that the
hearing will resume once the NRC and EPA have ruled and set the federal surety.
Subject to improved market conditions, the Company plans to re-commence the
regulatory process with the DENR once the final EPA Class III and Class V UIC permits
have been issued.
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 remaining contention 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.
9
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
Dewey Burdock – growth potential identified from reviewing and analyzing
historical data
On February 8 and 26, 2018, the Company announced newly identified uranium
mineralization at the Dewey Burdock Project. The Company has identified new uranium
mineralization at the Dewey Burdock Project through the analysis of historical data
owned by the Company (the “Data Set”) and the evaluation of revised ISR cutoff criteria,
consistent with other producing ISR projects in nearby Wyoming.
Highlights of the new uranium mineralization at the Dewey Burdock Project includes:
• Dewey resource area: 107 mineralized drill holes with 111 intercepts equal to or
exceeding a 0.20 GT cutoff using a .02% grade cutoff with an average eU3O8
grade of 0.105% and an average thickness of 5.5 feet
• Burdock resource area: 706 mineralized drill holes with 787 intercepts equal to
or exceeding a 0.20 GT cutoff using a 0.02% grade cutoff with an average eU3O8
grade of 0.139% and an average thickness of 5.1 feet
• Falls within the existing NRC license boundary for the Dewey Burdock Project
• Contiguous with ISR resources already identified at the Dewey Burdock Project
•
Indicates the potential to significantly expand the Dewey Burdock Project
resource estimate within the NRC license boundary
• Larger and more continuous resource areas within the Dewey Burdock Project
could achieve certain cost reductions compared to the existing preliminary
economic assessment
The Data Set includes historical drilling information that has been reviewed by the
Company’s geological team, as well as 91 exploratory drill holes completed by the
Company in a previous exploration campaign. The Company’s review of the records
and information within the Data Set reasonably substantiate the validity of this
information; however, the Company cannot directly verify the accuracy of the historical
data, including the procedures used for sample collection and analysis. Therefore, the
Company encourages investors not to place undue weight on these results.
The objective of the Company is to use this additional information to complete a
resource update and revised PEA for the Dewey Burdock Project.
Dewey Terrace – adjacent to Dewey Burdock, further growth potential identified
Dewey Terrace Project (100% interest) – Wyoming, USA
The Company’s 100% owned Dewey Terrace Project is located in the Weston and
Niobrara Counties of Wyoming. The Company acquired this project primarily through
the staking of federal mining claims, along with the acquisition of lease agreements.
10
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
Through mining leases and/or mining claims, the Dewey Terrace Project is comprised
of approximately 1,834 acres of surface rights and approximately 7,514 acres of mineral
rights. The Dewey Terrace Project is located adjacent to the Company’s NRC licensed
Dewey Burdock Project.
The Company has identified uranium mineralization at the Dewey Terrace Project
through the review and analysis of historical data in the Data Set. The Data Set
identified 259 mineralized drill holes indicating significant potential for a new resource
area at the Dewey Terrace Project. Further, deposition is consistent with sand channel
systems categorized within the Dewey Burdock Project and conditions that indicate
possible in-situ recovery amenability. Several drill holes encountered multiple
intercepts demonstrating a vertically stacked group of separate mineralized zones
similar to those at the Dewey Burdock Project. The uranium mineralization covers
seven separate mineralized zones over a trend of approximately 2.5 miles.
As announced on October 31, 2017, the Data Set analysis has identified 91 mineralized
drill holes with 129 intercepts equal to or exceeding a 0.2 GT cutoff using a 0.02% grade
cutoff with an average eU308 grade of 0.062% and an average thickness of 7.4 feet. The
Company also identified 93 drill holes with 112 intercepts that had GT values ranging
from 0.1 to 0.2 GT based on review of the Data Set. These intercepts had an average
thickness of 4.1 feet with an average grade of 0.041% eU3O8. The remaining 187 drill
holes reviewed range from barren to an average GT of 0.1.
The Data Set includes historical drilling information that has been reviewed by the
Company’s geological team, as well as 20 exploratory drill holes completed by the
Company in a previous exploration campaign. The exploratory drill holes completed by
the Company confirm the presence of uranium mineralization at the Dewey Terrace
Project. The Company’s review of the records and information within the Data Set
reasonably substantiate the validity of this information; however, the Company cannot
directly verify the accuracy of the historical data, including the procedures used for
sample collection and analysis. Therefore, the Company encourages investors not to
place undue weight on these results.
The objective of the Data Set analysis is to identify uranium mineralization in a cost-
effective manner in the vicinity of the Company’s Dewey Terrace and Dewey Burdock
Projects. The Company is continuing its review of the Data Set with the objective of
identifying additional uranium mineralization.
Kyzyl Ompul Project – earn-in agreement
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 Issyk-Kul region of the Issyk-Kul Oblast. The Kyzyl Ompul Project is
11
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
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.
In July 2017, UrAsia executed the Earn-In Agreement with Alliance, which provides
Alliance with an earn-in option to acquire a 100% interest in the Kyzyl Ompul Project in
exchange for an aggregate $6.0 million of cash payments over three years and a two
percent NSR royalty of up to $5.0 million as well as Alliance funding $1.6 million of
exploration and development expenditures over a three-year period.
In April 2014, Ravensgate Mining Industry Consultants (“Ravensgate”) prepared a
maiden NI 43-101 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 cut-off 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, up to the execution of the Earn-
In Agreement, the Company continued these desktop studies and conducted minimum
exploration activities as required under the exploration license.
Other mineral property interests
The Company continues to maintain its interests in the Centennial and Aladdin deposits
and continues to analyse development scenarios for the Centennial Project and the
Aladdin deposits to maximize the value that can be extracted from these projects.
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 1,360 acres of surface rights and
approximately 6,230 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
12
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
mine permit applications for the Centennial Project have not been prepared or
submitted to date.
In August 2010, a NI 43-101 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 pre-tax 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 cut-off and annual production of 700,000
lbs per annum, which resulted in a 14-year 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.
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 Aladdin Deposit (100% interest) – Wyoming, USA
The Aladdin Deposit is comprised of approximately 5,100 acres of surface rights and
4,600 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 Cretaceous-age Inyan Kara Group. The Aladdin property is 80 miles northwest
of the Dewey Burdock Project. Uranium resources at the Aladdin Deposit have
developed within the same host rocks that contain the Dewey Burdock uranium
resources.
In June 2012, the Company completed a NI 43-101 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 cut-off. Mineral
resources that are not mineral reserves do not have demonstrated economic viability.
13
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
In addition, using the same cut-off, the quantity of mineralization for the exploration
target was determined to be 5.0 to 11.0 million pounds of uranium, averaging 0.11% -
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 43-101 compliant
resource. It is uncertain whether further exploration of the exploration target will result
in the delineation of a NI 43-101 compliant resource.
Details of the assumptions and parameters used with respect to the Aladdin NI 43-101
Technical Report, including quality estimates and information on data verification, are
available under the Company’s profile on SEDAR at www.sedar.com.
Subsequent to the NI 43-101 compliant technical report being completed, certain lease
agreements/claims were not renewed; however, the impact to the Aladdin NI 43-101
Technical Report is immaterial.
QUALIFIED PERSON
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 43-101.
SELECTED ANNUAL INFORMATION
Fiscal Year
Ended
December
31, 2017
Fiscal Year
Ended
December
31, 2016
Fiscal Year
Ended
December
31, 2015
Statement of Loss:
Net revenues
Net loss
Net loss per share
Financial Position:
Total assets
Long term liabilities
Dividends
$Nil
$5,280,632
$0.07
$Nil
$3,112,945
$0.05
$Nil
$3,744,830
$.06
$33,695,520 $39,473,305 $40,354,891
$7,365,390
$6,229,824
$Nil
$Nil
$8,370,749
$Nil
The net loss in the year ended December 31, 2017 included a $6.3 million impairment of
exploration and evaluation assets related to Kyzyl Ompul Project.
14
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
RESULTS OF OPERATIONS – YEAR ENDED DECEMBER 31, 2017
The consolidated net loss for the year ended December 31, 2017 was $5,280,632 (2016
- $3,112,945).
The significant changes between the current year and the comparative year are
discussed below:
Administrative expenses totaled $1,659,228 (2016 - $1,554,213). The overall increase
in administrative expenses primarily relates to increased consulting and professional
fees and corporate administration expenses offset by decreased salaries and benefits.
During the year ended December 31, 2017, the Company recognized an impairment
charge of $6,346,899 for the Kyzyl Ompul Project on execution of the Earn-In
Agreement that established the fair value of the project. As the recoverable amount of
the project was determined to be less than its carrying value, the carrying value was
impaired.
Finance costs totaled $216,478 (2016 - $191,080). The increase in finance costs
primarily relates to the interest rate increase from 10% to 15% on the Shareholders
Loan Agreement (defined below) as a result of the Company exercising its option to
extend the term of the Shareholders Loan Agreement.
The Company recognized an unrealized gain of $595,801 for the year ended December
31, 2017 (2016 – unrealized loss of $1,204,160). The unrealized gain in the current
year relates primarily to the revaluation of the Company’s warrant liability whereas the
unrealized loss in the prior year relates primarily to losses on the revaluation of the
Company’s investments in Western Uranium Corp. and Uranium Resources, Inc. (“URI”)
as well as the loss on revaluation of the Company’s warrant liability.
SUMMARY OF QUARTERLY RESULTS
The following tables provide selected quarterly financial information for the most
recent eight quarters.
3 Months
Ended
December
31, 2017
3 Months
Ended
September
30, 2017
3 Months
Ended
June 30,
2017
3 Months
Ended
March 31,
2017
Total revenues
$Nil
$Nil
$Nil
$Nil
Net income (loss)
$1,782,760
$(6,438,864)
$(347,086)
$(277,442)
Net income (loss) per share,
basic and diluted
$0.02
$(0.08)
$(0.01)
$(0.00)
15
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
3 Months
Ended
December
31, 2016
3 Months
Ended
September
30, 2016
3 Months
Ended
June 30,
2016
3 Months
Ended
March 31,
2016
Total revenues
$Nil
$Nil
$Nil
$Nil
Net loss
$996,351
$382,491
$655,688
$1,078,415
Net loss per share, basic and
diluted
$0.01
$0.01
$0.01
$0.02
The Company impaired the value of its Kyzyl Ompul Project by $6,346,899 in the third
quarter of 2017.
Fourth Quarter 2017
The Company began the fourth quarter with $318,133 cash. During the fourth quarter,
the Company expended $109,339 on operating activities net of working capital changes,
$199,640 on investing activities and received $419,368 from financing activities to end
the quarter and the year with $432,192 cash.
LIQUIDITY AND CAPITAL RESOURCES
The Company began the fiscal year with $941,370 cash. During the year ended
December 31, 2017, the Company expended $818,169 on operating activities net of
working capital changes, $943,451 on investing activities and received $1,248,931 from
financing activities to end at December 31, 2017 with $432,192 cash.
In July 2017, the Company closed its non-brokered private placement of C$1.14 million
through the issuance of 4,391,938 units at a price of C$0.26 per unit. Each unit consists
of one common share and one-half of one share purchase warrant. Each whole warrant
entitles the holder thereof to purchase one common share at a price of C$0.36 per share
for a period of three years. An insider of the Company sold 1,000,000 freely tradable
shares to an arm’s length third party and subscribed for 1,000,000 units. The issuance
of the 500,000 share purchase warrants at C$0.36 to the insider is subject to
disinterested shareholder approval, in addition to the final approval of the Toronto
Stock Exchange.
In December 2017, the Company closed the first tranche of its non-brokered private
placement of $558,750 through the issuance of 2,235,000 units at a price of C$0.25 per
unit. Each unit consists of one common share and one-half of one share purchase
warrant. Each whole 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. An insider of the
16
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
Company sold 1,000,000 freely tradable shares to an arm’s length third party and
subscribed for 1,000,000 units. The issuance of 500,000 share purchase warrants at
C$0.35 to the insider is subject to disinterested shareholder approval, in addition to the
final approval of the Toronto Stock Exchange.
In January 2018, the Company closed the second and final tranche of its non-brokered
private placement of $195,000 through the issuance of 780,000 units at a price of
C$0.25 per unit. Each unit consists of one common share and one-half of one share
purchase warrant. Each whole 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.
The remaining cash payments from the Alliance Earn-In Agreement on the Kyzyl Ompul
Project are expected to be received as follows: $60,000 per month commencing
February 1, 2018, increasing to $229,000 per month commencing August 1, 2018, and a
final payment of $223,000 on July 1, 2020. During the year ended December 31, 2017,
UrAsia received $150,000 in cash payments from Alliance. The February 1 and March 1,
2018 cash payments have not yet been received and the Company is in discussions with
Alliance to resolve this default using the remedies available to it under the Earn-In
Agreement.
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. 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. 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.
17
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
Powerlite Ventures Limited
The Company is party to a credit facility with Powerlite Ventures Limited (“Powerlite”)
for $21,000,000 of which the Company drew down and, in 2014, repaid $18,000,000
through the issuance of shares leaving an available balance of $3,000,000. The
Company believes it is unlikely that Powerlite will be able to fund the remaining amount
of the facility.
Shareholders Loan Agreement
The Company has drawn down $1,776,000 under a shareholder’s loan agreement dated
July 31, 2012, as amended (“Shareholders Loan Agreement”). The loan is convertible
into shares of the Company at a conversion price of C$1.23, at the shareholders option,
matures on July 31, 2020, and bears interest at the rate of 15% per annum. The
Company has accrued a total of $281,805 interest for a total amount owed at December
31, 2017 of $2,057,805. The loan is unsecured and may be prepaid at any time.
Other Loans Payable
At December 31, 2017, the Company owed a total of $46,873 (2016 – $90,065) related
to purchase agreements for the Company’s Centennial and Dewey Burdock Projects.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
As at December 31, 2017 the Company’s commitments were as follows:
As at December 31, 2017, exploration and evaluation commitments include lease,
mineral claim, exploration license and property purchase agreement payments. Certain
of the Company’s exploration and evaluation commitments may provide the Company
with the ability to avoid funding those commitments; however, the Company discloses
the contractual maturities of the Company's exploration and evaluation commitments
based on management's intent.
18
Within 1 year2-4 yearsOver 4 yearsTotalOperating lease45,847$ 7,667$ -$ 53,514$ Exploration and evaluation507,738 4,120,283 3,441,651 8,069,672 553,585$ 4,127,950$ 3,441,651$ 8,123,186$
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Financial Instruments
Financial instruments are classified into one of the following categories: fair value
through profit or loss (“FVTPL”); loans and receivables; or other financial liabilities. The
carrying values of the Company’s financial instruments are classified into the following
categories:
Fair value
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.
19
Financial assets20172016Loans and receivablesCash432,192$ 941,370$ Restricted cash39,176 42,687 Fair value through profit or lossInvestment in URI- 68,264 471,368$ 1,052,321$ As at December 31,Financial liabilities20172016Other financial liabilitiesTrade and other payables1,525,906$ 1,376,872$ Loan payable to shareholders2,057,805 1,848,135 Other loans payable46,873 90,065 Decommissioning liability142,918 129,933 Fair value through profit or lossFair value through profit or lossWarrant liabilities258,116 596,602 4,031,618$ 4,041,607$ As at December 31,
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
The fair values of the Company’s financial instruments classified as FVTPL are
determined as follows:
• The fair value of financial instruments that are traded on an active liquid market
are determined with reference to the quoted market prices. The fair value of the
Company’s investments are determined using this methodology.
• The fair value of financial instruments that are not traded in an active market are
determined using generally accepted valuation models using inputs that are
directly (i.e. prices) or indirectly (i.e. derived prices) observable. The fair value
of the warrant liability is determined using the Black-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 fair value of all other financial instruments of the Company approximates their
carrying value because of the demand nature or short-term maturity of these
instruments. The Company’s cash, restricted cash and other financial liabilities are
carried at amortized cost.
The Company’s financial instruments recorded at fair value require disclosure about
how the fair value was determined based on significant levels of inputs described in the
following hierarchy:
• 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.
The fair value of the Company’s investment in URI was recorded at fair value using
Level 1 of the fair value hierarchy. The fair value of the Company’s warrant liability is
recorded at fair value using Level 2 of the fair value hierarchy.
20
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
Risk Management
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. During the year ended December 31, 2017, 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. Management believes
the currency risk related to currency conversions is minimal and therefore, does not
hedge its currency risk.
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.
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 Shareholders Loan Agreement accrues interest at a fixed rate; therefore,
the Company is not exposed to interest rate risk on this instrument. The Company’s
21
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
other loans payable are non-interest bearing and interest is calculated using an effective
interest rate.
Credit risk
Credit risk is the risk of potential loss to the Company if the counterparty to a financial
instrument fails to meet its contractual obligations.
The Company is exposed to credit risk associated with its cash. The Company’s
maximum exposure to credit risk is equal to the carrying amount of its cash.
The Company’s credit risk on cash arises from default of the counterparty. The
Company limits its exposure to counterparty credit risk on cash by only dealing with
financial institutions with high credit ratings.
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, access to
financing facilities or access to cash generating opportunities, such as the liquidation of
non-core and redundant assets to meet its liquidity requirements in the short and long
term. In order to ensure that the Company has sufficient cash, access to financing
facilities or access to cash generating opportunities, such as the liquidation of non-core
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.
22
As at December 31, 20171-3 months3 months - 1 year1-5 yearsTotalTrade and other payables1,525,906$ -$ -$ 1,525,906$ Loan payable to shareholders- 281,805 1,776,000 2,057,805 Other loans payable- 46,873 - 46,873 1,525,906$ 328,678$ 1,776,000$ 3,630,584$
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
RELATED PARTY TRANSACTIONS
Related party transactions
During the years ended December 31, 2017 and 2016, the Company had related party
transactions with the Company’s directors, management and shareholders including:
•
Interest accruing to certain directors/shareholders of the Company on the
Shareholders Loan Agreement;
• The extension of the term of the Shareholders Loan Agreement and other
amendments and agreements related to the Shareholders Loan Agreement as
disclosed; 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.
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:
Related party liabilities
Included in trade and other payables as at December 31, 2017 is $512,500 (2016 -
$557,500) owing to a director of the Company of which $325,000 (2016 - $370,000) is
related to a severance agreement and $187,500 (2016 – $187,500) is related to a
23
20172016Salaries and benefits731,926$ 871,312$ Share-based compensation176,296 87,194 908,222$ 958,506$ Year ended December 31,20172016Loan payable to shareholders2,057,805$ 1,848,135$ Trade and other payables for key management personnel - current716,838 339,043 Trade and other payables for key management personnel - non-current- 310,000 2,774,643$ 2,497,178$ Year ended December 31,
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
deferred compensation agreement. During the year ended December 31, 2017, the
Company paid this director $45,000 (2016 - $60,000) towards the severance
agreement. On February 14, 2018, the Company entered into an amended severance
agreement with this director to defer the remaining severance payments over 48
months, whereby the amount payable was increased to $370,000. The Company and
this director have agreed to settle the deferred compensation of $187,500 by the issue
of up to 578,822 common shares of the Company before June 30, 2018.
OUTSTANDING SHARE DATA AS AT THE DATE OF THIS MD&A
Authorized: an unlimited number of common and preferred shares with no par value.
Common
Shares Issued
and
Outstanding
Common Share
Purchase
Warrants
Common Share
Purchase
Options
Balance, December 31, 2017
Isuance of shares for ESPP
Issuance of shares for DSA
Issuance of shares for private
placement
Balance as at the date of this
MD&A
83,619,850
350,937
93,011
780,000
7,133,123
-
-
390,000
5,903,762
-
-
-
84,843,798
7,523,123
5,903,762
•
•
•
In March 2018, the Company received conditional TSX approval to issue up to
186,512 common shares in settlement of C$46,628 of trade and other payables.
In March 2018, the Company received conditional TSX approval to issue up to
162,900 common shares in settlement of $32,103 of trade and other payables.
In March 2018, the Company received conditional TSX approval to issue up to
125,000 common shares to buy back a royalty on the Dewey Burdock Project.
USE OF ACCOUNTING ESTIMATES, JUDGEMENTS AND ASSUMPTIONS
Information about judgments and estimates in applying accounting policies that have
the most significant effect on the amounts recognized in the 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
24
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
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.
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 non-financial 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 non-financial 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.
During the year ended December 31, 2017, the Company recorded an impairment loss
of $6,346,899 on its Kyzul Ompul project in Kyrgyzstan.
Capitalization of exploration and evaluation costs
Management has determined that exploration and evaluation costs incurred during the
year will 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.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company has adopted the new and revised standards and interpretations issued by
the International Accounting Standards Board or IFRS Interpretations Committee
effective January 1, 2017. The adoption of these standards did not have a material
impact on the Company’s Financial Report.
Refer to the discussion of “Standards issued but not yet effective” in Note 2.4 to the
consolidated financial statements. The Company has not applied any of the new and
revised IFRS detailed therein, all of which have been issued, but are not yet effective at
the date of this MD&A.
25
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
PROPOSED TRANSACTIONS
As is typical of the mineral exploration and development industry, the Company is
continually reviewing potential acquisition, investment and joint venture transactions
and opportunities that could enhance shareholder value. There is currently no proposed
asset or business acquisitions or dispositions, other than those discussed in this MD&A
and those in the ordinary course, before the board of directors for consideration. While
we remain focused on our plans to continue exploration and development on our
material property, should we enter into agreements in the future on new properties, we
may be required to make cash payments and complete work expenditure commitments
under those agreements.
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
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, 2017, 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.
It should be noted that while the Company’s Chief Executive Officer and Chief Financial
Officer believe that our disclosure controls and processes will provide a reasonable
level of assurance and that they are effective, they do not expect that the disclosure
controls and processes will prevent all errors and frauds. A control system, no matter
how well conceived or operated, can provide only reasonable, not absolute assurance
that the objectives of the control system are met.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
The Company’s management, with the participation of the Company’s Chief Executive
Officer and Chief Financial Officer, are responsible for establishing and maintaining
adequate internal control over financial reporting. The Company’s internal control over
financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with IFRS. Any system of internal control over financial
26
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
reporting, no matter how well designed, has inherent limitations. As a result, even those
systems determined to be effective can only provide reasonable assurance regarding
the preparation of financial statements. 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, 2017.
There were no changes in the Company’s internal controls over financial reporting that
occurred during the year ended December 31, 2017, that have materially affected, or
are likely to materially affect, the Company’s internal control over financial reporting.
DISCLAIMER FOR FORWARD-LOOKING STATEMENTS
This MD&A may include or incorporate by reference certain statements or disclosures
that constitute “forward-looking information” under applicable securities laws. All
information, other than statements of historical fact, included or incorporated by
reference in this MD&A that addresses activities, events or developments that Azarga
Uranium or its management expects or anticipates will or may occur in the future
constitute forward-looking information. Forward-looking information is provided
through statements that are not historical facts and are generally, but not always,
27
AZARGA URANIUM CORP.
Management Discussion and Analysis
For the year ended December 31, 2017
identified by the words “expects”, “plans”, “anticipates”, “believes”, “intends”,
“estimates”, “projects”, “potential” and similar expressions, or that events or conditions
“will”, “would”, “may”, “could” or “should” occur or continue. These forward-looking
statements are based on certain assumptions and analyses made by Azarga Uranium
and its management in light of its experience and its perception of historical trends,
current conditions and expected future developments, as well as other factors it
believes are appropriate in the circumstances.
information and the
Although Azarga Uranium believes such forward-looking
expectations expressed in them are based on reasonable assumptions, investors are
cautioned that any such information and statements are not guarantees of future
realities and actual realities or developments may differ materially from those projected
in forward-looking information and statements. Whether actual results will conform to
the expectations of Azarga Uranium is subject to a number of risks and uncertainties,
including those risk factors discussed under “Risk Factors” elsewhere in this MD&A,
those listed under “Risk Factors” in the Company’s Annual Information Form and the
documents incorporated herein by reference. In particular, if any of the risk factors
materialize, the expectations, and the predictions based on them, of Azarga Uranium
may need to be re-evaluated. Consequently, all of the forward-looking information in
this MD&A and the documents incorporated herein by reference is expressly qualified
by these cautionary statements and other cautionary statements or factors contained
herein or in documents incorporated by reference herein, and there can be no
assurance that the actual results or developments anticipated by Azarga Uranium will
be realized or, even if substantially realized, that they will have the expected
consequences for Azarga Uranium.
Forward-looking statements are based on the beliefs, estimates and opinions of Azarga
Uranium’s management on the date the statements are made. Unless otherwise
required by law, Azarga Uranium expressly disclaims any intention and assumes no
obligation to update or revise any forward-looking statements in the event that
management’s beliefs, estimates or opinions, or other factors, should change, whether
as a result of new information, future events or otherwise, and Azarga Uranium does
not have any policies or procedures in place concerning the updating of forward-
looking information other than those required under applicable securities laws.
Accordingly, readers should not place undue reliance on forward-looking statements or
forward-looking information.
28